1. To speed up the vaccination drive against COVID – 19, Government has permitted private hospitals to procure and administer the vaccines. Revised Guidelines for implementation of National COVID Vaccination Program issued on 8th June 2021 provides as under:
“The price of vaccine doses for private hospitals would be declared by each vaccine manufacturer, and any subsequent changes would be notified in advance. The private hospitals may charge up to a maximum of Rupees 150 per dose as service charges. State Governments may monitor the price being so charged.”
2. Accordingly, the Ministry of Health & Family Welfare issued an office memorandum dated 8th June 2021 declaring the price caps (for the available vaccines then) as under:
3. Therefore the following observations are to be noted:
a. The price per dose of vaccine that has been capped shall have an added component of GST and hence the maximum price that can be charged includes GST @ 5% (i.e. for COVISHIELD it is Rs. 600/- + 180/- (GST @ 5%) aggregating to Rs. 780/-).
b. The service charge per dose has been capped at Rs. 150/- inclusive of all taxes. It however does not expressly provide for either inclusion/exclusion of GST therein.
4. Now the aforesaid situation leads to an issue about the correct tax implications under GST. One may have three views on the same as follows:
| Views | Treated as | Vaccine Cost | Service charge |
| 1st view | Composite supply of the vaccine | GST applicable | GST applicable |
| 2nd view | Composite supply of health care service | GST not applicable | GST not applicable |
| 3rd view | Two supplies viz. (vaccine + health care) | GST applicable | GST not applicable |
5. The issues under discussion did not arise (as in the present context) in the erstwhile laws as the said laws provided for levy of tax under different taxing statutes (viz. VAT laws and Service Tax law). Hence the present issues were always viewed by the test under the respective laws and not holistically under a single law.
6. Now under GST the better view from the standpoint of tax optimization shall be the one wherein the tax is payable on the vaccine cost. This is so because private hospitals can avail and utilize the input tax credits of the tax charged on the procurement of the vaccines from the manufacturers since the tax stands payable on the further supply of the vaccines. This is also because the Government has permitted private hospitals to recover GST in addition to the capped cost of the vaccine. Hence the said tax is passed through to the end customer. Therefore the tax on procurement shall not become a cost for the private hospitals. However one needs to consider the following:
a. Will it be better to pay the tax on the vaccine cost as well as the service charge (1st view) ? Please note that the Government directive has not allowed the private hospitals to recover GST above the capped fee of Rs. 150.
b. Will it be better to claim the exemption in respect of vaccine cost as well as a service charge (2nd view) ? Please note that the ITC of the tax charged on the vaccines procured shall not be available. Also as the exemption will be claimed, additional GST on the vaccine cost cannot be recovered even though permitted by the aforesaid Government directive. Hence the said view may be the least tax optimized.
c. Will it be better to pay the tax on the vaccine cost and not on the service charge (3rd view) ? Please note that the private hospitals can avail the ITC on vaccines and also not incur an additional cost by way of making the payment of GST on the service charge on an inclusive basis. Hence the said view is the most tax optimized view given the price caps prescribed by the Government.
7. Let us resolve the aforesaid issues.
Critique of the 1st view
8. Proponents of the said view say that the transaction of the vaccination in question is in the nature of the supply of goods (viz. vaccine). The administration of the said vaccine is only ancillary to the supply of the vaccine. Therefore the cost of administration although recovered separately shall be part of the value of the supply of vaccine and hence GST shall be payable on both the amounts charged.
9. Proponents of the said view justify the position by making a two-fold argument as under:
a. That the transaction in question is of sale of vaccine and the administration thereof is ancillary. The law treats the transaction of transfer of title in goods as the supply of goods. Further, the law also provides that the value of supply shall include the charges recovered till the delivery of the goods. Therefore the GST shall be applicable on the total cost.
b. That the transaction in question, if not considered as of sale of vaccine, is required to be considered to be of composite in nature (involving the supply of goods as well as provision of service). Therefore the tax implications are to be determined based on the principal supply. As vaccine cost is roughly more than 80% in value, the principal supply shall be that of vaccine and hence the GST shall be applicable on the total cost.
10. In our view both the aforesaid justifications are fallacious.
11. As per Sec. 4 of the Sale of Goods Act, 1930 a contract can be considered to be in the nature of sale if there is consensus ad idem as to the goods that are to be sold. Therefore if the objective of the contract is not to buy or sell the goods in question, it cannot be considered as the sale. It must be noted that the objective of the transaction is to seek the vaccination and not the vaccine. In fact, the purchase of vaccines for hoarding or future use by a private citizen is banned. Further, the Government constituted National Expert Group on Vaccine Administration for COVID-19 has mandated that the vaccination is required to be done by a qualified medical team consisting of medical professionals. Hence the usage of vaccines as part of the vaccination process cannot be considered to be in the nature of the sale of goods and the administration of the same as merely ancillary to it. One may rely on the number of rulings wherein it has been settled that the supply of medicines during the medical treatment cannot be considered to be the sale of the said goods.
12. Now as far as the second proposition is concerned, the principal supply in the given composite supply cannot be identified merely on the basis of the cost. The definition of “principal supply” u/s 2(90) of the CGST Act, 2017 provides that the same is the supply that “constitutes the predominant element of a composite supply and to which any other supply forming part of that composite supply is ancillary”. Hence the said definition does not consider cost as a basis to determine the principal supply. Further, the given definition pre-supposes that any other supply to the identified principal supply shall be ancillary to it. As explained earlier, the objective of the person is to seek the proper administration of the vaccine and hence the administration part cannot be said to be ancillary. Therefore in our view, even the second proposition to treat the transaction as a composite supply and identify the supply of vaccine as the principal supply will not be in accordance with the law.
13. Therefore in our view, the stand of paying the tax on the total value shall not be in accordance with the law.
2nd view
14. Now the 2nd view intends to consider the transaction as a composite supply and seeks to identify the principal supply as that of the administration of the vaccines so as to classify the entire transaction as the supply of services. Once the same is classified as the supply of services, it seeks to resort to the exemption provided at No. 74 of Notification No. 12/2017-C.T. (Rate), dated 28-6-2017 which exempts services provided by way of health care services by a clinical establishment, an authorized medical practitioner or paramedics. It further defines the term ‘clinical establishment’ under clause (s) under definitions in the said Notification as under:
“‘clinical establishment’ means a hospital, nursing home, clinic, sanatorium or any other institution by whatever name called, that offers services or facilities requiring diagnostics 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.”
15. The given 2nd view, therefore, suggests that the private hospital while administering the vaccine is performing the function of providing care for illness (COVID – 19), and hence the said activity shall have to be considered to be provided by a ‘clinical establishment’ and hence exempt from GST.
16. The aforesaid view is based on the premise that the transaction in question is in the nature of composite supply wherein the principal supply shall be of the administration and the usage of the vaccine shall only be ancillary to it. Hence as opposed to the first view wherein, we said that administration of the vaccine is not ancillary to the supply of vaccine, here it is suggested that supply of vaccine is ancillary to the administration of the same.
17. Certainly, the given view has its merits. Courts have held that the principal supply is the one which is an aim in itself and the ancillary is needed for the better enjoyment of the main supply. In the context of the healthcare sector, a view has been taken that the supply of medicines, surgical items, implants, consumables, food, room rent charged to in-patients is a composite supply of health care service and hence the same is not liable to tax (see TERNA PUBLIC CHARITABLE TRUST 2019 (27) G.S.T.L. 421 (A.A.R. – GST)).
18. Hence it can be contended that the person undertaking vaccination at the private hospital is akin to an in-patient (albeit not actually admitted) visiting the said hospital for seeking the health care service in terms of care against COVID – 19 and hence the successful administration of the vaccine is the main supply and the vaccine is ancillary. Therefore the entire consideration shall not be liable to tax.
19. The aforesaid view may be challenged on the ground that the person in question not only cares about the successful administration of the vaccine but also cares about the type of vaccine in question (Covishield, Covaxin, etc.) and hence in such a situation both are an aim in itself and there is no ancillary supply. This brings us to the 3rd
3rd view
20. The proponents of 3rd view suggest that since both (i.e. vaccines as well as administration of the same) are equally relevant and the aim of the transaction, considering it as composite supply (which requires one principal and others ancillary) will not be satisfied. Hence a better approach shall be to treat the same as two supplies bearing separate consideration. In such a situation, the supply of vaccine shall attract GST @ 5% whereas the administration of the same (is a service) shall be exempted as health care service by virtue of Sr. No. 74 of Notification No. 12/2017-C.T. (Rate), dated 28-6-2017.
21. The 3rd view relies on the decision of the Hon’ble Supreme Court in the case of Imagic Creative Private Limited [2008-TIOL-04-SC-VAT] wherein the Court has upheld the splitting of consideration between concept & design charges liable to service tax and printing material liable to VAT.
Our view
22. Given the Government notified price caps permitting recovery of GST on the vaccine cost, as well as the fact that every taxpayer aims to reduce litigation, we would prefer the 3rd It shall not only avoid litigation (as tax stands paid on the vaccine cost) but shall even optimize the cost.
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