AAR, Andhra Pradesh ruling on composite supply to M/s. CMC VELLORE ASSOCIATION

[Ganeshan Kalyani]

Section 2(30) of CGST Act, 2017 defines the term “composite supply” as “Composite supply means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply.

Illustration: Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply.”

The aforesaid provision has been a center of discussion in the advance ruling order passed by Authority for Advance Ruling, Andhra Pradesh as discussed below:

Authority for Advance Ruling, Andhra Pradesh in response to the application filed by IN RE: M/S. CMC VELLORE ASSOCIATION [2020 (7) TMI 380 - AUTHORITY FOR ADVANCE RULING, ANDHRA PRADESH], ruled that the supply of medicines to in-patients through pharmacy are not liable to tax as the medicines supplied is a composite supply of health care services. The supply of health care service is exempted from GST as per serial no. 74 of Notification no.12/2017-CTR dated 28.06.2017.

APPLICANT:

M/s. CMC VELLORE ASSOCIATION, a registered taxpayer under GST has applied for advance ruling on 16.08.2019.

BRIEF FACTS OF THE CASE:

The applicant has a multi-specialty tertiary care hospital providing health care services. The applicant have categorized the patients as out-patients and in-patients for the administrative convenience. The out-patients are those who visit the hospital for routine check-ups clinical visits whereas the in-patients are those who are admitted in to the hospital for the required treatment. The in-patients are provided with medicines, drugs, stents, implants, other surgeries/ procedures etc., as an incidental to the health care services rendered in the hospital. The in-patients are also provided with stay facilities, dietary food required for the treatment.

The Central Store of the hospital procures stocks of medicines, implants, consumables etc. from various suppliers and distribute to its outlets such as in-patients pharmacy, operation theatre pharmacy and out-patient pharmacy based on the indent issued. The in-patient pharmacy and operation theatre pharmacy supply medicines, implants and consumables only to in-patients. Whereas the out-patient pharmacy attached to the hospital entertain the medical prescription of out-patients.

The medicines, consumables and implants used in the course of providing health care services to in-patients for diagnosis or treatment in the hospital or clinical establishment is naturally bundles in the ordinary course of the business. The healthcare services cannot be provided without the drugs/ consumables/ stents etc. The principal supply, here, is health care service and providing of medicines, consumables etc. is ancillary.

QUESTIONS RAISED:

1. Tax liability on the medicines supplied to in-patients through pharmacy
2. Tax liability on the medicines, drugs, stents, implants etc. administrated to in-patients during the medical treatment or procedure.

APPLICANT’S INTERPRETATION OF LAW AND FACTS:

Applicant submits that the health care services provided by a clinical establishment, an authorized medical practitioner or para medics are exempted vide Sr.no. 74 of Notification No.12/2017-CTR dated 28.06.2017. It was clarified through 25th GST Council meeting held on 18.01.2018 (F. No.354/17/2018-TRU dated 12.02.2018,) that food supplied to the in-patients as advised by the doctors/ nutritionist is a part of composite supply of health care services and not separate taxable supply.

The applicant also relied on the ruling by Authority of Advance Ruling, Kerala IN RE: M/S. ERNAKULAM MEDICAL CENTRE PVT. LTD. [2018 (10) TMI 511 - AUTHORITY FOR ADVANCE RULINGS, KERALA], which reads as under:

• The supply of medicines and allied items provided by the hospital through the pharmacy to the in-patients is part of composite supply of health care treatment and hence not separately taxable.
• The supply of medicines and allied items provided by the hospital through the pharmacy to the out-patients is taxable.

PERSONAL HEARING:

Personal hearing was held on 23.10.2019.

DISCUSSION AND FINDINGS:

The authority examined the facts and submissions and stated that primarily the health care services provided by the applicant are exempt under Sr. No. 74 heading 9993 vide Notification no.12/2017-CTR dated 28.06.2017.

The authority referred the explanation in (zg) of para 2 of aforesaid notification, which defines services by way of diagnosis, or treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognized system of medicines in India. In common parlance, one cannot think of treatment or health care without administration of medicines, relevant consumables etc. Thus, the supply of medicines and the consumables are integral part of the treatment extended to the in-patients by the hospital. 

The authority is of the opinion that the services rendered by the applicant is a composite supply In which the principal supply is the health care services, being predominant and the supply of medicines, drugs, implants, stents and other consumables, come under the ancillary supplies. The authority also relies on the Circular no. 32/06/2018-GST dated 12.02.2018 which was released on the approval of the GST Council 25th meeting.  The circular clarified that the food supplied to in-patients is part of composite supply of health care services and not a separate supply, whereas other supplies of food by a hospital to out-patients or their attendants or visitors are taxable.

RULING:

• Question: Tax liability on the medicines supplied to In-patients through pharmacy.
• Answer: The supply of medicines supplied to In-patients through pharmacy are not liable to tax, being a part of the composite supply of health care services under SI.No. 74 Heading 9993 vide Notification No 12/2017 - Central Tax(Rate) Date: 28.06.2017 which are nil rated.
• Question: Tax liability on the medicines, drugs, stents, implants etc administered to in-patients during the medical treatment or procedure.
• Answer: Not liable to tax as explained above.