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2018 (12) TMI 474 - AAR - GSTComposite supply or not - Bundled services - principle supply is exempt supply - Health care services - inpatient services - outpatient services - input tax credit - Held that - Since the healthcare services are exempt from tax under section 11, the same are exempt supplies. But the definition of taxable supplies includes those supplies of goods which are leviable to tax and chosen to be exempted under section 11 and hence the exempt supplies also fall under the category of taxable supplies and hence the supply of goods and services supplied by the applicant company in conjunction with the healthcare services fall under the definition of composite supply as the services of supply of food and medicines to the patients are as advised by the doctor or nutritionists. But in case where the supply of food is not as advised by the doctor or nutritionists and is supplied to the patients, then such supply of food cannot be treated as naturally bundled supplies and supplies made in conjunction with each other and hence are separate supplies and needs to be treated not as composite supplies Medicines supplied to the inpatients - Held that - They form part of the healthcare services supplied to the concerned patients and hence are part of the composite supplies of health care services where the principal service is healthcare services and is exempt from tax vide Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 - However supplies of medicines or food and drinks to persons other than patients, like attendants of the patients and when supplied to the patients not as advised by the doctor or nutritionists, then such supplies would not form part of the composite supplies and would attract applicable tax. Medicine supplied to outpatients - Held that - The doctors prescribe the medicines and the patients, if they are free to purchase the medicines from any pharmacist (need not be from the same hospital), then such purchase of medicines from the pharmacies of the applicant cannot be treated as a part of the composite supplies as they are independent of the healthcare services provided by the applicant. Similar treatment also needs to be provided in case of food and drinks supplied to patients - But in case where the supply of medicines and food and drinks form part of the supply of healthcare services and there is no choice for the patients to choose them separately, then they would form a composite supply with healthcare services being the principal supply. CENVAT Credit - Held that - Since the applicant is using the inputs and input services in the course or furtherance of his business, credit of such tax paid on such inward supplies can be claimed by him - The healthcare services being an exempted supply, either as an individual supply or as a composite supply, credit of input tax claimed which is attributable to such supplies of healthcare services needs to be reversed. The reversal of input tax credit claimed shall be made as per the provisions of section 17 of the CGST Act 2017 read with Rule 42 of the Central Goods and Service Tax Rules, 2017. Ruling - The two or more supplies of goods or services or both which are naturally bundled in which the principal supply is exempt and others are taxable can be treated as a composite supply of the principal supply if such principal supply is not a non-taxable supply as per sub-section (78) of section 2 of the Central Goods and Service Tax Act, 2017 and such composite supply with the principal supply being exempt supply would be treated as an exempt composite supply. The applicant is eligible -to claim credit of input tax credit only on for such taxes paid on the inputs, input services and capital goods which are attributable to the supplies of goods or services which are taxable under the provisions of the Central Goods and Services Tax Act, 2017 and not attributable to exempt supplies of goods or services under the Central Goods and Services Tax Act, 2017.
Issues Involved:
1. Whether naturally bundled supplies with an exempt principal supply can be treated as composite supply and if such composite supply is exempt. 2. Eligibility to claim input tax credit on procurement of capital goods, inputs, and input services related to both taxable and exempted supplies. Issue-wise Detailed Analysis: 1. Composite Supply and Exempt Status: The applicant, engaged in healthcare services, sought clarity on whether naturally bundled supplies with an exempt principal supply (healthcare services) can be treated as composite supply, and if so, whether such composite supply remains exempt. The Authority examined the definitions under the CGST Act, 2017: - Composite Supply (Section 2(30)): Consists of two or more supplies naturally bundled and supplied in conjunction, with one being the principal supply. - Taxable Supply (Section 2(108)): Supply of goods or services leviable to tax. - Exempt Supply (Section 2(47)): Supply attracting nil rate of tax or wholly exempt. The Authority concluded that healthcare services, being exempt, form the principal supply in a composite supply. Consequently, supplies of medicines and food to inpatients, as advised by doctors, are part of the composite supply and hence exempt. However, supplies to patients not advised by doctors or to attendants are not naturally bundled and are taxable. For outpatients, if medicines are not mandatorily purchased from the hospital, they are not part of a composite supply and are taxable. 2. Valuation of Supplies: The valuation of medicines and food when part of a composite supply depends on whether they are included in a single price for healthcare services. If included, no separate valuation is required. If not, and they form a mixed supply, the highest applicable tax rate applies. If supplied independently, they are taxed separately based on Section 15 of the CGST Act. 3. Input Tax Credit (ITC): The applicant questioned the eligibility to claim ITC on inputs, input services, and capital goods used for both taxable and exempt supplies. The Authority referred to: - Section 16(1) of CGST Act: Entitles registered persons to credit of input tax on supplies used in business. - Section 17(2) of CGST Act: Restricts ITC to the extent attributable to taxable supplies. The Authority ruled that ITC can be claimed only for inputs, input services, and capital goods attributable to taxable supplies. For exempt supplies, including healthcare services, ITC must be reversed as per Section 17 and Rule 42 of CGST Rules, 2017. Ruling: 1. Naturally bundled supplies with an exempt principal supply can be treated as a composite supply, and such composite supply is exempt if the principal supply is exempt. 2. ITC can be claimed only for taxes paid on inputs, input services, and capital goods attributable to taxable supplies, not exempt supplies.
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