Supply of medicines, drugs and consumables along with food in the course of providing health care services to in-patients being treated in a hospital will be treated as a composite supply under the GST regime. Accordingly, it will be exempted from GST, Karnataka’s Authority for Advance Ruling (KAAR) has ruled.

Bengaluru-based, Spandana Pharma moved to AAR to seek an advance ruling on whether the supply of medicines, drugs and consumables used during treatment of in-patient, admitted to the hospital to be treated as a ‘composite supply’ and qualify for exemption. Also, they wanted to know will food served to the same patient be part of the composite supply.

Central Board of Indirect Taxes and Customs (CBIC) define composite supply as a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination, which are naturally bundled and supplied in conjunction with each other in the ordinary. The tax rate of the principal supply will apply to the entire supply. 

After going through all the arguments and facts submitted, KAAR took note of the definition of healthcare. The tax notification defines ‘healthcare 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. However, it does not include hair transplant or cosmetic or plastic surgery barring exceptional situations.

Predominant element

KAAR said that a patient, post admittance, goes through the treatment, based on the diagnosis, she/he is treated and goes through surgery (if required). During this process, the patient is administered medicines and consumables are used. At the same time, the patient is given special food.

 All these are naturally bundled in the ordinary course of business and the principal supply is health care service, which is predominant element of the composite supply. Since health care is exempted, which means there will be no GST, KAAR concluded.

However, the GST notification says room rent exceeding ₹5,000 in a hospital will attract GST. Since, the room is part of the total expenditure on treatment, then how that will be treated?  KAAR assumed that room rent in the said case is below ₹5,000, hence, no GST.

Saurabh Agarwal, Partner with EY said “In case room rent is exceeding ₹5,000, then GST will be applicable on the rent part of total bill for providing health care services.” According to Darshan Bora, Partner with Economic Laws Practices, as per the GST Department, food provided to an admitted patient is considered as bundled with healthcare services and treated at par with such services. However, the GST rate notification uses different language and levies tax only where ‘room charges’ exceed ₹5,000 per day.

The rate notification does not clarify whether the ‘room charges’ will include charges for food provided to such patient. So, there is an incongruity in the position.

“Until a favourable clarification or amendment is issued, it is advisable to levy 5 per cent GST on the entire amount charged, where the price of food and room charges exceeds ₹5,000 per day. Food charges for visitors and attendants shall not be added while determining the GST exemption threshold of ₹5,000 per day,” he said.