2021 (12) TMI 35 - AAR - GST

Classification of supply - composite supply of services or not - health care services - Supply of medicines consumables etc. to patients admitted in hospitals exempt under notification No.12/2017 read with Section 8(a) of CGST or not - HELD THAT - If a composite amount is charged from the patient admitted in the hospital for treatment surgery or diagnosis including for medicines and other goods and services supplied in the course of treatment of the patient and if the amount of such medicines and other goods and services is not segregable from the composite amount charged from the patient then it is a Composite supply in terms of the Section 2(30) of CGST Act. 2017 in which healthcare service will be principal supply. and such Composite supply of healthcare services will be exempt from tax as per Sl. No. 74 of Notification No. 12/2017-CT (Rate) dt. 28.6.2017. But if composite amount is not charged from the patient. and if the cost of medicines and other goods and services supplied in the course of treatment of a patient admitted in the hospital for treatment surgery or diagnosis is segregable from the amount charged for healthcare services then it is not a Composite supply in terms of the Section 2(30) of CGST Act 2017 and in that case the supply of medicines and other goods and services will not be exempt from tax as per SI. No. 74 of Notification No. 12/2017-CT (Rate) dt. 28.6.2017 but will be taxable at the rate applicable to the respective goods and services.

Summary

Issues:
1. Classification of medicines, consumables, and surgical items used in providing healthcare services as a composite supply.
2. Exemption of supply of medicines, consumables, etc., to patients admitted in hospitals under Notification No. 12/2017 read with Section 8(a) of CGST Act, 2017.

Analysis:

Issue 1: Classification of medicines, consumables, and surgical items as a composite supply

The applicant categorized patients as out-patients and in-patients, with in-patients requiring admission for treatment. The hospital maintains separate billing systems for in-patient and out-patient pharmacies to ensure accurate accounting. The applicant argued that medicines and consumables supplied to in-patients are indispensable for treatment, constituting a composite supply to facilitate healthcare services and should be exempt from tax. The department's view emphasized that for a supply to be considered a composite supply, it must consist of two or more taxable supplies naturally bundled together. The ruling clarified that if the cost of medicines and other goods and services is not segregable from the composite amount charged from the patient, it qualifies as a composite supply under Section 2(30) of the CGST Act, 2017, making healthcare services the principal supply and exempt from tax under Notification No. 12/2017.

Issue 2: Exemption of supply of medicines, consumables, etc., to patients admitted in hospitals

Regarding the exemption of supply of medicines, consumables, etc., to patients admitted in hospitals, the ruling stated that such supplies are exempted only when they meet the conditions outlined in the ruling for the classification as a composite supply. The ruling emphasized that the exemption under Notification No. 12/2017-CT (Rate) is contingent on the fulfillment of conditions specified in the ruling for the classification of the supply as a composite supply. The ruling is deemed valid unless declared void under the provisions of the GST Act, subject to the conditions specified in Section 103(2).

This judgment provides clarity on the classification of supplies in the healthcare sector as composite supplies and the conditions for exemption under relevant notifications, ensuring consistency in the tax treatment of healthcare services and related supplies in hospitals.