TAXABILITY OF ‘RENT’ FOR ‘HEALTH CARE’ SERVICES

[Dr. Sanjiv Agarwal]

Health care services are exempt from levy of GST, but whether the renting of immovable property services used by such health care supplier would also be exempt or not ? This question arose and has been answered by Authority of Advance Ruling (AAR), Karnataka [in Re: Tathagat Health Care Centre LLP 2018 (5) TMI 1704 - AUTHORITY FOR ADVANCE RULING - KARNATAKA ; ]

Advance Ruling

In the instant case, the applicant, a cardiology specialist hospital was running on a   premise taken the lease providing cardiology related, life-saving, health care services to the patients and the said output services are exempt from GST. They had taken premises of one floor on rental basis from existing building of Mallige Hospital for heart care services only. 

The only question before the authority was regarding the applicability of tax on   the rent payable by the hospital, catering life-saving services under the GST  regime. Before the Authority, the appellant argued that under the old service tax regime, the rent on the room service provided to the heart care patients undergoing   treatment was exempted from tax. It was noted that the applicant taken the premises on lease and running exclusive heart care center and was providing  health care services on a commercial basis. 

The Authority for Advance Ruling ruled that the impugned service of rental  or   leasing services involving own or leased non-residential property is classifiable under the heading (SAC) 997212 and is taxable under GST. Further, no specific exemption is available under any notification for the time being in force for such  rental service. Also, there is no provision available in the Act which allows the exemption on an input service if the output service provided by the taxable person  is exempt. The Karnataka Advance Ruling Authority (AAR) held that the Goods and Services Tax (GST) is leviable on the rent paid/payable for premises, taken on   lease by a Hospital.

Appellate Ruling

Aggrieved by the ruling that GST is leviable on the rent paid or payable for premises taken on lease by the hospital, an appeal was preferred before Appellate Authority for Advance Ruling (AAAR), Karnataka on the following grounds:

1. The Advance Ruling Authority has erred in holding that GST is leviable on the rent paid / payable on premises, taken on lease by the Applicant, under the facts of the case and has not considered grounds of appeal / statement of Applicant’s interpretation of law or facts, as the case may be in right earnest thus violating the principals of natural justice.
2. The Appellant is not required to pay GST on room rent collected from the patients and also on supply of medical services to the ailing patients undergoing critical heart care treat mentor life-saving services.
3. The Appellant does not have taxable value of supply of medical services by virtue of exemption granted in GST Law. As a result payment of GST on rent of the premises remains non set-off against output tax i.e., ITC cannot be availed due to nil tax payable under GST law on supply of medical services to the patients.
4. That there is no provision to get refund of ITC to the extent of GST paid/payable on the rent of the premises. Hence, the very purpose of payment of GST on rent does not serve any purpose. Thus, it is put to great financial hardship on this aspect which has to be adjudicated by the Appellate Authority for Advance Ruling.

The AAAR observed that the healthcare services which the appellant provides as its outward supply, is exempted from GST by virtue of entry Sl. No 74 of Notification No 12/2017 CT (R) dated 28.06.2017 as amended.

Further, in terms of Notification No. 11/2017-CT (Rate) dated 28.06.2017, GST is leviable @ 18% (CGST @ 9% + SGST @ 9%) on the rent paid / payable for premises taken on lease by the Appellant for running the hospital vide Sl.No.16 (Real Estate Services) of the Notification.

The argument in favour of exemption claimed  by hospital was that the input tax credit of the GST paid on the rent cannot be availed as credit by them since their output supply is not taxable and hence they should be allowed to get a refund of the ITC to the extent of the GST paid/payable on the rent.

In terms of CGST Notification No 11/2017 - Central Tax (Rate) date 28-06-2017 and KGST Notification (11/2017) No FD 48 CSL 2017 Bengaluru dated 29-06-2017. GST is leviable @ 18% (CGST @ 9% + SGST @ 9%) on the rent paid / payable for premises taken on lease by the Applicant for running the hospital vide Sl.No.16 (Real Estate Services) of such Notifications.

Renting means allowing, permitting or granting access, entry, Occupation, use or any such facility, wholly or partly, in an immovable property, with or without the transfer of possession or control of the said immovable property and includes letting, leasing, licensing or other similar arrangements in respect of immovable property. By virtue of CGST Notification No 12/2017- Central Tax (Rate) dated 28-06-2017, services by way of renting of residential building for use of residence only is exempt from levy of GST vide Sl.No.12.

The AAAR declared to give its ruling on other issues which were considered to be outside the realm of AAAR as these were never raised before the AAR, i.e., seeking a ruling on the aspect of ITC used in providing exempted supplies and refund of Input Tax credit.

In conclusion, Ruling of AAR was confirmed, i.e., GST was upheld to be leviable @ 18% (9% CGST, 9% SGST) on rent paid or payable on premises taken on lease for running hospital. [In Re: Tathagat Health Care Centre LLP 2018 (9) TMI 1340 - APPELLATE AUTHORITY FOR ADVANCE RULING, KARNATAKA ].