Medicines supplied to in-patients via hospital’s pharmacy will not attract GST separately: AAR

Kerala’s Authority for Advance Rulings (AAR) has made it clear that supply of medicine through pharmacy to in-patients will not be levied Goods and Services Tax (GST) separately.

The matter is related to Ernakulam Medical Centre Pvt Ltd (based in Kochi) which approached the AAR seeking a ruling on whether the supply of medicines and allied items through the pharmacy of the hospital run by the applicant attracts liability under GST. The petitioner’s argument was that medicines supplied through the pharmacy to both in-patients and out-patients under the prescription of the doctors are incidental to the healthcare services rendered in the hospital and beyond the ambit of taxation.

It sought for an advance ruling on the liability of hospital under GST Act on the supply of medicines and allied items through the pharmacy.

The Bench observed that healthcare services provided by a clinical establishment, an authorised medical practitioner or para medics, are exempted from the tax. The word ‘clinical establishment’ means a hospital, nursing home, clinic, sanatorium or any other institution that offers services or facilities requiring diagnostics or treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognised system of medicines in India or a place established as an independent entity or a part of an establishment to carry out diagnostic or investigative services of diseases.

The Bench said that it was clarified that food supplied to in-patients as advised by the doctor/nutritionist is a part of composite supply of healthcare and not separately taxable. Other supplies of food by a hospital to patients not admitted are taxable. The same principle is applicable in the case of dispensing of medicines.

Part of treatment

It pointed out that as far as in-patients are concerned, the hospital is expected to provide lodging, care, medicine and food as part of treatment under supervision till their discharge. In-patients receive medical facility as per the scheduled procedure and have strict restriction to ensure quality/quantity of items for consumption. Hence, the medicines or allied goods supplied to inpatients are indispensable items and are a composite supply to facilitate healthcare services and are not taxable, it said. However, the supply of medicines and allied items provided by the hospital through the pharmacy to the out-patients is taxable.

The AAR helps the taxpayer by giving an advance decision in relation to the supply of goods and/or services proposed to be undertaken or being undertaken by the assessees. The decision is binding on the applicant and the jurisdictional tax authority. Though such a decision does not have precedent value like that of a High Court or Supreme Court judgment, it can be used as persuasive tool in future cases. Therefore, the decision mentioned here can be used for persuasion in matters related to supply of medicines in hospitals across the country.

Commenting on the ruling, Abhishek Jain, Tax Partner at EY, said it is quite a welcome ruling for the hospitals as well as for the common man. For the hospitals in terms of the age long ambiguity on the applicability of VAT supply of medicines to in-patients and the legacy continuing under the GST regime. “For the common man, the upholding of exemption on such medicine supplies to in-patients would reduce tax costs on the medicine related expenses,” he said.

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