Medicines supply through pharmacy attached to hospital is taxable under GST : AAR
Kerala Authority of Advance Ruling in matter of M/s. Ernakulam Medical Centre Private Ltd
Ruling : The supply of medicines and allied items to the outpatients through the pharmacy attached to the hospital run by the appellant is taxable under GST.
Order is given below for reference :
M/s. Ernakulam Medical Centre Private Ltd (hereinafter called the appellant) runs a hospital, which is rendering medical services with professionals like doctors, nursing staff, lab technicians, etc. In the GST scenario, health care services by a clinical establishment, an authorized medical practitioner or para-medics classified under SAC 9993 has been exempted vide Notification No.12/2017-Central Tax (Rate) dated 28.06.2017.
ORDER No. AAR/03/2018
BRIEF FACTS OF THE CASE
2. The appellant had preferred an application for advance ruling on whether the supply of medicines and allied items through the pharmacy of the hospital run by them attracts liability under GST. During the advance ruling proceedings, the authorized representative of the applicant had stated that the medicines and surgical items supplied through the pharmacy to the patients under medical prescription of doctors is entitled to exemption, being health care services. No medicines are sold to customers, who do not consult doctors either as inpatient or as outpatient. The medicine supplied through the pharmacy is incidental to the health services rendered in the hospital. The pharmacy is meant exclusively for dispensing medicine and consumables to the inpatients or outpatients. No medicines or allied items are sold to outsiders, who come with the prescription from outside doctors. Medicine sale is restricted only to the patients, who take registration in the hospital. Under pre-GST period there were several decisions pertaining to the point that the supply of medicines, surgical items, x-ray etc., to the patients in the course of treatment by hospital cannot be said to be sale.
3. The Authority for Advance Ruling had deliberated on the issue raised and after hearing the authorized representative of the applicant elaborated as follows;
Health care services provided by a clinical establishment or an authorized medical practitioner or para medics are exempted vide Sl. No.74 of Notification No.12/2017-CT (Rate) dated 28.06.2017. The word “clinical establishment” means a hospital, nursing home, clinic, sanatorium or any other institution by, whatever name called, that offers services or facilities requiring diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognized 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.
Phannacy is an outlet to dispense medicines or allied it-ems based on prescription. Patients are only admitted to a hospital when they are extremely ill or have severe physical trauma. As far as an inpatient is concerned, hospital is expected to provide lodging, care, medicine and food as part of treatment under supervision till discharge from the hospital. Inpatients receive medical facility as per the scheduled procedure and have strict restriction to ensure quantity / quality of items for consumption. Hence medicine or allied goods supplied to inpatient are indispensable items and it is a composite supply to facilitate health care services and is not taxable.
Whereas in the case of an outpatient, the hospital only gives a prescription, which is advisory in nature. The patient has absolute freedom to follow the prescription or not to follow. Similarly, there is freedom to procure the medicines or allied items prescribed either from the pharmacy run by the hospital or from medicine dispensing outlets. Hospital reserves no control over the patients continuous treatment. As far as an outpatient is concerned there is no difference with regard to procurement of medicine either from the dispensing outlet within the hospital or from outside the hospital. In both the places medicines are dispensed based on prescription. Hence there is no privilege for the hospitals that are dispensing medicine to outpatients. Therefore pharmacy run by hospital dispensing medicine to outpatient or bye standers or others can be treated as individual supply of medicine and not covered under the ambit of health care services. Hence such supply of medicine and allied goods are taxable.
4. The Advance ruling authority also stated that the clarifications issued based on the approval of 25th GST Council Meeting held on 18.01.2018 F.No.354/17 /2018-TRU Dt. 12-02-2018 has clarified that food supplied to the inpatients as advised by the doctor/ nutritionist is a part of composite supply of health care and not separately taxable. Other supplies of food by hospital to patients not admitted are taxable. The same principle is also applicable in the case of dispensing of medicine.
S. Based on the above deliberations the Advance Ruling Authority ruled vide order read 1st above that;
i) The supply of medicines and allied items provided by the hospital through the pharmacy to the in-patients is part of composite supply of health care treatment and hence not separately taxable.
ii) The supply of medicines and allied items provided by the hospital through the pharmacy to the out-patients is taxable.
6. Aggrieved by the said Advance ruling the appellant preferred appeal vide paper read 2nd above before the Appellate Authority for Advance Ruling. The appellant has stated that the ruling by the Advance ruling Authority is opposed to law, facts circumstances and the legislative intent behind the exemption granted vide Notification No. 12/2017-CT(Rate) dated 28.06.2017 (SI. No. 74).
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