GST applicable for Supply of Medicines, Consumables used for Out-patients, exempted for In-patients: AAR
Chennai: Distinguishing between the GST rule regarding health care services provided for In-patient and Out-patients, the Tamil Nadu Authority of Advance ruling (AAR) has recently held that "Supply of Medicines and Consumables used in the course of providing health care services to Out-patients admitted to the hospital for diagnosis, or medical treatment, or procedures is not a composite supply and is hence taxable to GST."
However, the AAR has held that Supply of Medicines and Consumables used while providing health care services to In-patients is exempted from CGST and SGST.
"In the case of In-patients, the hospital is expected to provide lodging, care, medicine, and food as part of treatment under supervision till discharge from the hospital. But in the case of Out-patients, there is no such expectation on the hospital and the out-patient just walks in for consultation and advise. Hence it is clear that the service of supply of medicines and consumables and consultation of out-patients is not inextricably linked and not naturally bundled. Therefore, 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 medicines and allied goods are taxable," clarified the order.
Such observations were made while considering an appeal by Be Well Hospitals Private Limited, a chain of multispecialty hospitals providing healthcare services to patients through its establishments such as pharmacy units for diagnosis or treatment. Established in 2011, it has its headquarters in Chennai and it operates in 11 hospitals in South India- 5 locations in Chennai, Pudukkottai, Sivakasi, Tuticorin, Erode, Nagercoil and Pondicherry.
It has been stated by the applicant that their hospital is established with a primary focus on providing access to affordable and quality health care services, including the locations which have limited access to quality healthcare. They are providing "Health care services" in the categories such as Emergency care, Multispecialty care, and Preventive care. They also informed that In addition to healthcare, they offer other healthcare related services such as healthcare consultancy and corporate services.
They provide healthcare service to both domestic as well as international patients. International consultancy services are provided online without any travel assistance. Pharmacy units in each clinical establishment at different locations, supplies medicine to both in-patients and out-patients. Pharmacy charges GST on MRP basis against all the supplies provided to the patients including supplies to inpatients. Currently the pharmacy units at different locations form part of the clinical establishments in respective locations and have common GST registration for the various branches within Tamil Nadu.
Approaching the AAR, they sought an advance ruling on the issue- if the Supply of medicines and consumables used in the course of providing health care services to In-patients and Out patients by pharmacy unit of Be Well Hospitals for diagnosis or treatment would be considered as "Composite Supply" of health care services under GST and consequently avail exemption under Notification 12/2017 CT(rate) read with Section 8(a) of GST?
Stating that there is no distinction between the provision of Health care services to both in-patients and outpatients, the applicant contended that the intension of the government in granting exemptions to health care services, supplies to in-patients and out-patients incidental to the healthcare services are one and the same except in the latter case the patient is not admitted to the clinical establishment for a considerable amount of time which does not change the substance of supply rendered by the clinical establishment.
There is no segregation among doctors, physicians providing health services. Doctors need to work together providing service to both inpatients and out-patients regardless of their speciality though there is division of time between in-patient and out-patient services. Since medicines and other allied items supplied to in-patients form part of composite supply of health care services, accordingly similar supply of medicines and other allied items supplied to out-patients shall also constitute a composite imply, contended the applicant.
It was also submitted by the applicant that there is no clear distinction between in-patients and out-patients in GST law for the purpose of levy, since the nature of supplies service providers are same in case of both in-patients and out-patients there should not be any differences for the purpose of levy of GST based on duration of stay of the patients in clinical establishments.
At this outset, the Applicant also referred to the definition of health care service as well as clinical establishment under Notification No. 12/2017 CT(rate) dated 28.06.2017 issued under CGST Act, 2017, which does not impose any specific restrictions or conditions to grant GST exemption only for In-patients.
While considering the question regarding out-patients, the AAR noted that pharmacy is an outlet to dispense medicines and consumables based on prescriptions. Therefore, it observed,
"In the case of Out-patients it is only of advisory nature and as the applicant themselves had stated, the patients are not mandated to buy from the hospital pharmacy only. They have the freedom to either buy from the hospital or other pharmacies of their choice unlike In-patients, where the medicines and consumables should be issued by the hospital pharmacy to ensure proper treatment."
However, the AAR observed,
"In the case of In-patients, the hospital is expected to provide lodging, care, medicine, and food as part of treatment under supervision till discharge from the hospital. But in the case of Out-patients, there is no such expectation on the hospital and the out-patient just walks in for consultation and advise. Hence it is clear that the service of supply of medicines and consumables and consultation of out-patients is not inextricably linked and not naturally bundled. Therefore, 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 medicines and allied goods are taxable."
"To sum up, the Supply of medicines and consumables used in the course of providing health care services to In-patients by pharmacy unit of Be Well Hospitals for diagnosis or treatment during the patients admission in hospital till discharge is to be considered as "Composite Supply" of health care service under GST and consequently exemption under Notification No. 12/2017- CT(Rate) read with Section 8(a) of GST is available for such supplies based on the discussions above. However, the supply of medicines and consumables used in the course of providing health care services to Out-patients by pharmacy unit of Be Well Hospitals for diagnosis or treatment of during the patients admission in hospitals cannot be considered as "Composite Supply" of health care service as under GST and are taxable as individual supplies as established in the discussion above," read the order.
To read the order, click on the link below.
