GST on collection of samples for diagnostic testing by a laboratory

Whether the services of collection of samples for diagnostic testing by a laboratory is exempt from GST? The collection centre does not have any laboratory. It collects the samples from the patients and delivers the same to the laboratory for testing.

Services by way of healthcare are exempt under entry no. 74 of N 12/2017-CTR-28.06.2017. Entry 74 reads as under:

“Services by way of-

(a) health care services by a clinical establishment, an authorised medical practitioner or para-medics;

(b) services provided by way of transportation of a patient in an ambulance, other than those specified in (a) above.”

Healthcare services is defined under paragraph 2(zg) of the Notification, as under:

“(zg) “health care 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, but does not include hair transplant or cosmetic or plastic surgery, except when undertaken to restore or to reconstruct anatomy or functions or body affected due to congenital defects, developmental abnormalities, injury or trauma.

Further, clinical establishment is defined in paragraph 2(s) of the Notification, as under:

“(s) “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 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.”

Health care services, as defined above, means diagnosis, treatment or care for illness, injury deformity, abnormality or pregnancy in any recognised system of medicines in India. To construe any service as healthcare service, nature of such activities should be of either ‘diagnosis’ or ‘treatment’ or ‘care’. The definition does not clearly specify as to whether mere collection of human sample for diagnostic testing is health care service. Since the final test report is issued to the patient by the Laboratory, it is the laboratory which is providing the health care service (diagnostic testing in this case) to the patient and the collection agent is providing business support services to the laboratory in conducting the diagnostics tests.

The Constitution Bench (Bench of Five Judges) of the Hon’ble Supreme Court of India in one of the landmark case of Commissioner of Customs (Import) Mumbai v. M/s Dilip Kumar and Company and Ors [2018-TIOL-302-SC-CUS-CBJ has held that exemption notification should be interpreted strictly. When there is ambiguity in exemption notification which is subject to strict interpretation, the benefit of such ambiquity cannot be claimed by the subiect/assessee and it must be interpreted in favour of the Revenue.

In view of the aforementioned judgment and the reasoning set out above, the activity of collection of samples by the collection agent for the laboratory so that the laboratory can conduct the diagnostic tests on the same cannot be construed as a health care service (diagnosis), but a business support service provided to the laboratory and thus, will be liable to GST. However, if the service contract is entered into between the patient and the collection centre and the test report is issued by the collection agent in its name, the service provided by it would amount to health care service (diagnosis) and thus, will be exempt from GST

It is interesting to note that in service tax regime, the High Court of Punjab and Haryana has held in the case of Ms Lal Path Lab (P) Ltd, Collection Centre, Ludhiana, Punjab and Haryana High Court (2007-TOL-533-HC-P&H-ST), that:

“Collection of blood samples on behalf of principal lab. not Business Auxiliary Service – it is technical testing and analysis and is excluded from Service Tax by definition which excludes testing or analysis in relation to human beings or animals – Section 65 (19) (i) of the Finance Act.

The activity of the assessee -respondent is confined to a collection centre with facilities and trained employees for drawal of blood samples and to carry out essential processing (serum separation) of blood and forwarding the samples to the principal lab at Delhi through courier. The case of the assessee -respondent appears to be covered by the exception postulated by sub Section 106 of Section 65, as ‘technical testing and analysis’ and excluded from service tax as per the explanation given under the definition.

The services rendered by the appellants drawing, processing and forwarding of samples is integral to the testing of those samples.

There could be no denying that in the absence of drawing of blood samples, there can be no testing. Further, even if the two services are seen as entirely separate and different services, drawing of sample and initial processing of the same are clearly connected or incidental or ancillary to testing and analysis.”

Though the above decision was rendered under the service tax regime, the ratio of this decision can be extended to GST law as well and a view can be taken that collection of samples is incidental or ancillary to the activity of diagnosis and is therefore a healthcare service. The collection centre would fall within the definition of clinical establishment as it is an institution offering services (by collection of samples) or facilities requiring diagnosis. An individual sample collection agent, known as phlebotomist, can also be construed as authorised medical practitioner if it holds the licence/certificate issued by the Competent Authority. Therefore, the activity of sample collection by a collection agent can be construed as a health care service provided by a clinical establishment or an authorised medical practitioner and can thus, be argued to be exempt from GST.