2018 (11) TMI 281 - AAR - GST

Classification of supply - medicines, consumables and implants used in the course of providing health care services to the patients admitted for diagnosis - composite supply - Whether the medicines, consumables and implants used in the course of providing health care services to in-patients for diagnosis or treatment would be considered as Composite Supply and eligible for exemption under the category health care services ? Held that - The in-patient services are classified as exempted service under the sub-group 9993 11. Patients are only admitted to a hospital when they are extremely ill or have severe physical trauma. As far as an inpatient is concerned, hospital is expected to provide lodging, care, medicine and food as part of treatment under supervision till discharge from the hospital. The nature of the various services in a bundle of services will help in determining whether the services are bundled in the ordinary course of business - the medicine and allied goods supplied to inpatient are indispensable items of the treatment and it is a composite supply to facilitate health care services. Pharmacy is an outlet to dispense medicines or allied items based on prescription. The in-patient pharmacy and operation theater pharmacy supplied medicines and consumables only to in-patients. Whereas an outpatient is concerned, hospital gives only prescription, which is an advisory in nature - pharmacy run by hospital dispensing medicine to outpatient or bye standers or others can be treated as individual supply of medicine and not covered under the ambit of health care services. Hence such supply of medicine and allied goods are taxable. Government of India vice Circular No.27/01/2018-GST Dt.04-01-2018 has clarified that room rent in hospital is exempted. As for as inpatients are concerned, room facility in a hospital is one limb of bundled service of health care. Ruling - The supply of medicines, consumables and implants used in the course of providing health care services to in-patients for diagnosis or treatment are naturally bundled and are provided in conjunction with each other, would be considered as Composite Supply and eligible for exemption under the category health care services .

Summary

Issues:
Whether medicines, consumables, and implants used in providing health care services to in-patients qualify as a "Composite Supply" eligible for exemption under "health care services"?

Analysis:
The applicant, a multi-specialty tertiary care hospital, categorizes patients as out-patients and in-patients for administrative convenience. In-patients are provided with stay facilities, medicines, consumables, implants, dietary food, and surgeries required for treatment. The Central Pharmacy supplies medicines, implants, and consumables to in-patient pharmacy and operation theater pharmacy, while the out-patient pharmacy caters to out-patients and outside customers with valid prescriptions. The issue revolves around whether the supplies used in treating in-patients constitute a composite supply eligible for exemption under health care services.

The authorized representative argues that medicines, consumables, and implants provided to in-patients are part of a composite supply of health care services, incidental to treatment, and hence exempt under health care services. The nature of services provided to in-patients, including lodging, care, medicine, and food, falls under exempted services for clinical establishments. The services are naturally bundled in the ordinary course of business, with the main service being health care, and ancillary services like room rent and dietary food. This interpretation aligns with previous rulings by the Authority for Advance Rulings in similar cases.

Regarding out-patients, the hospital's pharmacy dispenses medicines based on prescriptions, with patients having the freedom to procure medicines from the hospital or external outlets. The hospital lacks control over the patient's treatment continuity for out-patients, and hence, the supply of medicines to out-patients is considered an individual supply of medicine, not covered under health care services and hence taxable.

Government circulars clarify that room rent and food supplied to in-patients as advised by doctors or nutritionists are part of the composite supply of health care and exempt from taxation. However, supplies to patients not admitted are taxable. The same principle applies to the dispensing of medicines, where supplies to in-patients are part of health care services and exempt.

In conclusion, the ruling states that the supply of medicines, consumables, and implants to in-patients for diagnosis or treatment is a naturally bundled composite supply eligible for exemption under health care services, while supplies to out-patients are considered individual supplies and taxable.