2020 (10) TMI 810 - AAR - GST

Input Tax Credit - medicines supplied to patients admitted in hospital - medicines supplied to patients treated as out-patients - medicines supplied to other than inpatients and out-patients - supply of food and beverages to the patients admitted in hospital. Input tax credit - medicines supplied to patients admitted in hospital - restriction of credit on such supply - HELD THAT - The treatment services for diseases are health care services as defined under Notification No.12/2017- Central Tax (Rate) dated 28.06.2017 and supply of health care services provided by a clinical establishment is exempt from the levy of tax as per entry No. 74 of the said notification supra. Since the output supplies are exempt, the applicant is not eligible to claim the input tax paid on the inward supplies of medicines that are used for providing health care services to the inpatients. Input tax credit - Supply of medicines to the out-patients - restriction on credit - HELD THAT - The applicant, while providing treatment to the outpatients, uses certain consumables such as medicines, bandages, cotton, etc. Hence the medicines, cotton and bandages are consumed in the provision of health care services and the output is only health care services. Hence there is no separate / distinct supply of medicines, bandages, cotton etc., and since they are used in the supply of exempt health care services, the impugned supply can't be a composite supply. Therefore the applicant is not eligible to claim input tax credit on the taxes paid by the applicant on the inward supplies of such goods. Input tax credit - supply of medicine to the customers - restrictions on such credit - HELD THAT - The applicant, with regard to the supply of medicines other goods to the customers, is selling the medicines as a trader and hence they are liable to collect and pay the applicable tax on the goods sold and also is eligible to claim input tax credit like any supplier of taxable goods, subject to any restrictions in Section 17 of the GST Act. Input tax credit - Supply of food beverages to the inpatients - restriction on such credit - HELD THAT - It is pertinent to mention here that the Authorised Representative during the personal hearing has confirmed that the applicant do not allow the inpatients to consume outside food. Thus it is inevitable that the impugned supply becomes naturally bundled with the treatment service i.e. health care service and the supply becomes composite supply, which is an exempted supply, under entry No.74 of Notification No.12/2017- Central Tax (Rate) dated 28.06.2017. Thus the applicant can't claim the input tax credit - The input tax credit is to be restricted on supply of food beverages supplied to inpatients and is part of the health care services.

Summary

Issues Involved:
1. Restriction of input tax credit (ITC) on medicines supplied to inpatients.
2. Restriction of ITC on medicines supplied to outpatients.
3. Restriction of ITC on medicines supplied to other than inpatients and outpatients.
4. Restriction of ITC on supply of food and beverages to inpatients.

Issue-wise Detailed Analysis:

1. Restriction of ITC on Medicines Supplied to Inpatients:
The applicant, a hospital providing health care services, sought clarification on whether ITC should be restricted for medicines supplied to inpatients. The ruling clarified that the supply of medicines to inpatients is part of a "composite supply" of health care services. According to Section 2(30) of the CGST Act, 2017, a composite supply consists of two or more taxable supplies naturally bundled and supplied together. Here, the primary supply is health care services, and the medicines are ancillary. Since health care services are exempt under Notification No.12/2017-Central Tax (Rate), the applicant cannot claim ITC on medicines used for inpatients.

2. Restriction of ITC on Medicines Supplied to Outpatients:
For outpatients, the applicant supplies medicines in two ways: as part of health care services and as a separate sale from the pharmacy. When medicines are supplied as part of health care services, they are consumed in the provision of those services, which are exempt from tax. Therefore, ITC cannot be claimed on these medicines. However, if medicines are sold independently from the pharmacy, they are taxable, and the applicant can claim ITC on such supplies.

3. Restriction of ITC on Medicines Supplied to Other than Inpatients and Outpatients:
The applicant also supplies medicines to customers who are neither inpatients nor outpatients. These transactions are considered independent sales of taxable goods. The applicant is liable to pay tax on these sales and can claim ITC on the input taxes paid on such medicines, similar to any other supplier of taxable goods.

4. Restriction of ITC on Supply of Food and Beverages to Inpatients:
The supply of food and beverages to inpatients can be categorized in two ways: prescribed diet as part of treatment and food requested by the patient. If food is part of the prescribed diet integral to the treatment, it is considered part of the health care services and is exempt from tax, thus ITC cannot be claimed. If food is supplied based on the patient's request and not as part of the prescribed diet, it still becomes naturally bundled with the health care services, as the hospital does not allow outside food. Hence, it is treated as a composite supply of health care services, exempt from tax, and ITC cannot be claimed.

Ruling:
1. ITC is restricted on medicines used in the supply of health care services to inpatients.
2. ITC is restricted on medicines used in the supply of health care services to outpatients. However, if medicines are supplied independently, ITC can be claimed subject to tax payment on such supplies.
3. ITC is not restricted on medicines supplied to customers who are neither inpatients nor outpatients, provided tax is paid on such supplies.
4. ITC is restricted on the supply of food and beverages to inpatients as part of health care services.