2019 (3) TMI 757 - AAAR - GST

Classification of supply - composite supply or not - supply of medicines and allied items provided by the hospital through the pharmacy to the in-patients - medicines and allied items provided by the hospital through the pharmacy to the out-patients - taxability. Supply of medicines and allied items provided by the hospital through the pharmacy to the in-patients - Held that - On analyzing the case sheet and invoices raised in case of an inpatient, it can be seen that during the period of admission in the hospital, the patient is under continuous monitoring of the doctors and nursing staff and administration and dosage of medication is all under the control of the doctor and the nursing staff. The entire treatment protocol is documented and recorded. The invoice/bill raised for the treatment as an inpatient is a single bill Charging for all the facilities/ services utilized for the treatment in the hospital including room rent, nursing care charges, laboratory, consumables, medicines, equipment charges, doctor's fee, etc. Thus, it is clear that in case of an inpatients the hospital has provided a bundle of supplies which is classifiable under h care services. Supply of medicines and allied items provided by the hospital through the pharmacy to the out-patients - Held that - On analysis of the case sheet and the invoices raised in respect of an outpatient, it can be seen that even though the invoice is named as OP SERVICES-CASH , the invoice is raised only for supply of medicines and no consultation charges are seen raised in the invoice. Thus, in case of outpatient. the doctor's consultation and supply of medicines are not bundled together - In case of outpatients, it is the choice of the patient whether to follow the medical advice given by the doctor or not. Neither the hospital nor the consulting doctors can coerce the patient to follow the medical advice given by the doctor. Thus, in certainty, it can be established that the medical care other than the doctor's consultation is outside the control of the hospital. Neither the consulting doctor nor the hospital has any control on the patienes medical care. In case of outpatients, the health care service provided by the hospital is restricted to the consultation of the doctor. These are not naturally bundled together to be considered as composite supply. Even if the outpatients decide to buy the medicines from the pharmacy run by the hospital, the charges for supply of medicines is billed separately and cannot be considered as composite supply to extend the exemption and hence supply of medicines and allied items to outpatients is liable to GST being a taxable supply. The supply of medicines and allied items to the outpatients through the pharmacy attached to the hospital run by the appellant is taxable under GST.

Issues Involved:
1. Taxability of supply of medicines and allied items through the hospital pharmacy to inpatients.
2. Taxability of supply of medicines and allied items through the hospital pharmacy to outpatients.
3. Interpretation of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 regarding healthcare services exemption.
4. Relevance of the clarification issued based on the 25th GST Council Meeting held on 18.01.2018.

Issue-wise Detailed Analysis:

1. Taxability of Supply of Medicines and Allied Items to Inpatients:
The judgment acknowledges that health care services provided by a clinical establishment, including hospitals, are exempted under Sl.No.74 of Notification No. 12/2017-CT-(Rate) dated 28.06.2017. The ruling elaborates that for inpatients, the hospital provides a composite supply of lodging, care, medicine, and food as part of the treatment. The supply of medicines and allied items to inpatients is considered indispensable and part of the composite health care services, hence not separately taxable. This conclusion was based on the comprehensive nature of the services provided to inpatients, which include continuous monitoring and administration of medication under the supervision of doctors and nursing staff.

2. Taxability of Supply of Medicines and Allied Items to Outpatients:
The ruling differentiates the case of outpatients, stating that the hospital provides only a prescription, which is advisory in nature. Outpatients have the freedom to procure medicines either from the hospital pharmacy or from outside. The hospital does not control the continuous treatment of outpatients. Therefore, the supply of medicines and allied items to outpatients is treated as an individual supply of medicine, not covered under the exemption for health care services, making it taxable under GST. The judgment emphasizes that the consultation and supply of medicines to outpatients are not bundled together and are billed separately, thus not qualifying as a composite supply.

3. Interpretation of Notification No. 12/2017-Central Tax (Rate):
The appellant argued that the entire health care services provided by hospitals, including the supply of medicines to outpatients, should be exempt under the notification. They contended that the supply of medicines is inextricably linked to the health services rendered by the hospital and should not be equated with the supply of food to outpatients, which is explicitly excluded from the exemption. However, the ruling maintained that the exemption notification does not extend to the supply of medicines to outpatients, as these are not part of a composite supply of health care services.

4. Relevance of Clarification Issued Based on the 25th GST Council Meeting:
The appellant challenged the reliance on the clarification issued after the 25th GST Council Meeting, which stated that food supplied to inpatients is part of composite health care services and not taxable, whereas food supplied to outpatients is taxable. The appellant argued that this principle should not apply to the supply of medicines. However, the ruling upheld the clarification, stating that the supply of medicines to outpatients is a separate supply and taxable under GST, similar to the supply of food to outpatients.

Conclusion:
The Appellate Authority for Advance Ruling upheld the decision of the Authority for Advance Ruling, confirming that the supply of medicines and allied items to inpatients is part of composite health care services and exempt from GST. Conversely, the supply of medicines and allied items to outpatients is taxable. The appeal was disallowed, and the ruling emphasized the distinction between the comprehensive services provided to inpatients and the advisory nature of services provided to outpatients.

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