Administering of COVID-19 vaccine by hospitals is a composite supply and liable for GST at 5%

[CA Bimal Jain]

The AAAR, Andhra Pradesh in the matter of IN RE: M/S. KRISHNA INSTITUTE OF MEDICAL SCIENCES LIMITED - 2023 (1) TMI 433 - APPELLATE AUTHORITY FOR ADVANCE RULING, ANDHRA PRADESH upheld the order of the AAR wherein it was held that the administration of COVID – 19 vaccine is not an exempted supply as it is not covered under the definition of ‘healthcare services’. Further held that, it is a composite supply wherein the principal supply is the ‘sale of vaccine’ and the ancillary supply is the service of ‘administering of vaccine’ and liable to Goods and Services Tax (“GST”) at 5%.

Facts:

M/s. Krishna Institute of Medical Sciences Limited (“the Appellant”) is a public limited company and a multi-specialty hospital providing healthcare services and claiming exemption on the said service under the Notification No. 12/2017 Central Tax (Rate) dated June 28, 2017 (“Services Exemption Notification”). The Appellant also makes pharmacy supplies to outpatients, which is taxable and it accordingly remits taxes on the same.

The Appellant was permitted to administer COVID-19 vaccines and hence, it had approached the AAR, Andhra Pradesh seeking clarification on exemption on administering vaccines under the Central Goods and Services Tax Act, 2017 (“the CGST Act”), wherein, the AAR vide IN RE: M/S. KRISHNA INSTITUTE OF MEDICAL SCIENCES LIMITED - 2022 (7) TMI 1099 - AUTHORITY FOR ADVANCE RULING, ANDHRA PRADESH (“the Impugned Order”) ruled that, administering the vaccine by clinical establishments does not qualify as "Healthcare services" and is not eligible for exemption as per the Services Exemption Notification. Further, administering COVID-19 vaccines is a composite supply, where the principal supply is the ‘sale of vaccine’ and the ancillary supply is the service of ‘administering of vaccine’ and the total transaction is taxable at 5% GST.

Being aggrieved, this appeal has been filed by the Appellant contending that, the AAR in the Impugned Order, had erred in interpreting the basic fact that the person receiving the vaccine is not buying it, but rather going to the hospital to get it served through vaccination and there is no actual transfer of goods and one vial of vaccine contains multiple doses and one such dose is injected and the recipient of such dose is called to be served and not the owner of the vaccine. Further, the healthcare services are exempted by way of Sl. No. 74 of the Services Exemption Notification and under HSN Code 9993 12 healthcare service includes prevention of physical and mental diseases and the sole objective of the vaccines are to prevent a dreadful disease.

Issues:

1. Whether administering of COVID- 19 vaccination by hospitals is supply of goods or service?
2. Whether administering of COVID-19 Vaccine by hospitals qualify as "Health care services" as per the Services Exemption Notification and are exempt from GST liability?

Held:

The AAAR, Andhra Pradesh in IN RE: M/S. KRISHNA INSTITUTE OF MEDICAL SCIENCES LIMITED - 2023 (1) TMI 433 - APPELLATE AUTHORITY FOR ADVANCE RULING, ANDHRA PRADESH held as under:

• Noted that, the main purpose of the transaction is the sale of the vaccine and not the healthcare service, as the primary intention of the recipient is getting the vaccine and not the administration of it.
• Observed that, that when the person is vaccinated, they receive a specific dosage of the vaccine, so there is a transfer of goods. Further, upon successful administration of the vaccine the recipient is issued a certificate which is a proof that goods (i.e. vaccine) was supplied to (i.e. injected into the body of) the recipient.
• Stated that, the contention of the Appellant that the recipient of the vaccine cannot buy it is incorrect as the government controls the distribution of vaccines, and anyone can get it through the procedure laid down by the government. Thus, even though the vaccine is distributed in a systematic way, it is still considered a supply of goods because recipients are paying a price for it.
• Further noted that, the government had declared the tax component on goods (i.e. vaccine) and the service charge on the service (i.e. administration of the vaccine) and hence it can be construed that they are two different supplies.
• Further stated that, vaccination is a protection against disease and is administered before the disease occurs and thus, the service of administering a vaccine does not fall under the definition of "Health Care Services" as outlined under Para. 2(zg) of the Services Exemption Notification.
• Upheld the Impugned Order.
• Opined that, Administration of COVID- 19 vaccines by clinical establishments (hospitals) does not amount to healthcare service for purpose of availing exemption, but is supply of goods as there is a transfer of medicine when customers/patients are vaccinated.
• Held that, the transaction will not be exempt under the Services Exemption Notification and that, the supply will be a ‘composite supply’ wherein the principal supply is the sale of vaccine and the ancillary supply is the service of administering the vaccine and hence the total transaction will be taxable at 5% GST.

Relevant Provisions:

Para 2(zg) of the Services Exemption Notification:

“2. Definitions. –

…

(zg) “health care services” means any service by way of diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognised system of medicines in India and includes services by way of transportation of the patient to and from a clinical establishment, but does not include hair transplant or cosmetic or plastic surgery, except when undertaken to restore or to reconstruct anatomy or functions of body affected due to congenital defects, developmental abnormalities, injury or trauma;”

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