No so healthy

Mohan Lavi | Updated on February 19, 2018 Published on February 19, 2018

The erstwhile Service Tax laws were known for their attempts at hair-splitting to decide on the levy of tax on catering services. The law attempted to differentiate between indoor catering and outdoor catering, exempted catering services provided in an educational institutions and even ruled that catering services provided by the Railways is exempted provided it is a wholesome meal.

The GST law has also done its bit of hair splitting on catering services and is adding to its repertoire through clarificatory circulars.

Hospital caterers

Circular No. 32/06/2018-GST answers some questions on supply of food provided in/by hospitals. The question raised was whether healthcare services provided by clinical establishments will include food supplied to the patients. It is possible that such food may be prepared by the canteens run by the hospitals or may be outsourced.

When outsourced, there is no ambiguity that the suppliers shall charge tax as applicable and hospital will get no tax credits. If hospitals have their own canteens and prepare their own food then no credit will be available on inputs including capital goods and in turn if they supply food to the doctors and their staff; such supplies, even when not charged, may be subjected to GST.

The circular states that food supplied to the in-patients as advised by the doctor/nutritionists is a part of composite supply of healthcare and not separately taxable. Other supplies of food by a hospital to patients (not admitted) or their attendants or visitors are taxable.

A plain reading of the circular leads one to the conclusion that food supplied to in-patients is exempt and food supplied to their visitors and attendants is taxable.

It also leads to many questions such as the taxability of food supplied to in-patients without the advise of a doctor/nutritionist as all in-patients may not need dietary advice or recommendations. What would be the taxability if the doctor recommends “no restrictions on food”? As per the circular, food supplied to out-patients would be taxable resulting in the hospital distinguishing between two categories of patients to levy a tax that is supposedly uniform all across the country.

Some hospitals that are unable to distinguish between the in-patient and the visitor/attendant should make added efforts to get this distinction clearly going forward as their decision to levy GST or not depends on this. An earlier circular clarified that GST at 5 per cent would be levied on the services provided by a college mess that supplies food to its tenants.

The GST Council’s tendency to get too involved in minute details just like the erstwhile Service tax law (this law once even attempted to define a beauty parlour) is a cause for concern. The Council needs to focus on taxing or exempting services as a whole instead of picking and choosing services to tackle when a wide array of services are being offered. What would be the impact if all healthcare services including supplies of food made by hospitals were exempted?

The revenue lost could easily be made up in other services. The true test of whether GST has been a success as a law would come after five years when GST provisions would be mapped to the previous ones in terms of compliance, litigation and taxpayer friendliness. As on date, the previous laws seem to have a slight edge over GST on all parameters.

The writer is a chartered accountant

Published on February 19, 2018
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