GST on Health Care Services

Health care services become important in country like India where most of its population lies below the poverty line. With these things keeping in mind the tax authorities have done all the best possible that they can do to make this service outside the ambit of GST & thus affordable to weaker sections of the society.

The government has issued Notification No 12/2017 Central Tax (Rate) dated 28^th June 2017 whereby it exempts Health Care Services from the ambit of GST. The relevant part of the notification is reproduced below –

Sl. No.	Service Code	Description of Service	Rate	Condition
74	9993	Services by way of – (a) health care services by a clinical establishment, an authorized 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	Nil	Nil

Meaning of Health Care Services : – 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 where undertaken to restore or to reconstruct anatomy or functions of body affected due to congenital defects, developmental abnormalities, injury or trauma.

Analysis of Health Care Services:

♣ Service of diagnosis or treatment or care are to be included in health care services, all the three terms are itself wide in its meaning.

According to Oxford dictionary –

Diagnosis means – The act of discovering or identifying the exact cause of illness or a problem.

Treatment means – Something that is done to cure an illness or injury, or to make someone look and feel good.

Care means – The process of protecting someone or something and providing what that person or thing needs

♣ For illness, injury, deformity, abnormality, or pregnancy in any recognised system of medicines in India.

Hence any health care service provided that is not a recognised system of medicine in India shall be taxable with GST at appropriate rates.

♣ And includes services by way of transportation of the patient to and from a clinical establishment. Ambulance service provided by clinical establishment or an authorized medical practitioner or para medics shall be included in health care service and exempted from applicability of GST

♣ , but does not include hair transplant or cosmetic or plastic surgery, except where undertaken to restore or to reconstruct anatomy or functions of body affected due to congenital defects, developmental abnormalities, injury or trauma.

Any service in nature of hair transplant, cosmetic or plastic surgery treatment that is solely in nature of beautification shall be within the ambit of GST & such services shall be taxable with appropriate rates.

Meaning of Clinical Establishment:- 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, inquiry, 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.

Authorised medical practitioner:- A medical practitioner registered with any of the councils of the recognised system of medicines established or recognised by law in India and includes a medical professional having the requisite qualification to practice in any recognised system of medicines in India as per any law for the time being in force.

According to clause (b) of SL.No 74 – Ambulance services provided by any person(Other than clinical establishment, an authorized medical practitioner or para medics) for transportation of patients have also been exempted from GST under this clause.

The government has come up with Circular No – 51/25/2018 -GST dated 31^st July 2018 where it has clarified that service provided by Private Service Providers (PSP) to the state government by way of transportation of patients on behalf of the state government against the consideration in form of fee or otherwise charged from the state government shall be exempt under –

A. Sl No 3 of notification No – 12/2017 – Central Tax (Rate) dated 28.06.2017 if it is a pure service and not a composite supply involving supply of any goods, and

B. Sl No 3A of notification No – 12/2017 – Central Tax (Rate) dated 28.06.2017 if it is a composite supply of goods and services in which the value of supply of goods constitutes not more than 25 per cent of the value of the said composite supply.

The government has come up with another circular whereby it tried to address some of the issues being raised by the industry regarding applicability of GST. In this regard Circular No – 32/06/2018 -GST dated 12^th February 2018 was issued, Clarifications as made by the Government are as follows-

Issue – Hospitals hire senior doctors/ consultants/ technicians independently, without any contract of such persons with the patient; and pay them consultancy charges, without there being any employer employee relationship. Will such consultancy charges be exempt from GST? Will revenue take a stand that they are providing services to hospitals and not to patients and hence must pay GST?

Clarification – Health care services provided by a clinical establishment, an authorised medical practitioner or para-medics are exempt. [Sl. No. 74 of notification No. 12/2017-CT(Rate) dated 28.06.2017 as amended refers]

Services provided by senior doctors/ consultants/ technicians hired by the hospitals, whether employees or not, are healthcare services which are exempt.

Issue – Retention money: Hospitals charge the patients, say, Rs.10000/- and pay to the consultants/ technicians only Rs. 7500/- and keep the balance for providing ancillary services which include nursing care, infrastructure facilities, paramedic care, emergency services, checking of temperature, weight, blood pressure etc. Will GST be applicable on such money retained by the hospitals?

Clarification – Healthcare services have been defined to mean 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[para 2(zg) of notification No. 12/2017-CT(Rate)]. Therefore, hospitals also provide healthcare services. The entire amount charged by them from the patients including the retention money and the fee/payments made to the doctors etc., is towards the healthcare services provided by the hospitals to the patients and is exempt.

Issue – Food supplied to the patients: Health care services provided by the clinical establishments will include food supplied to the patients; but such food may be prepared by the canteens run by the hospitals or may be outsourced by the Hospitals from outdoor caterers. When outsourced, there should be no ambiguity that the suppliers shall charge tax as applicable and hospital will get no ITC. If hospitals have their own canteens and prepare their own food; then no ITC 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.

Clarification – 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.

Some FAQs / Illustrations have been listed below for better understanding –

Illustration 1 – Global diagnostics center have entered into an agreement with a Tanvee hospital whereby the diagnostic center would be providing diagnostic services in the premises of the hospital for the patients referred to by the hospitals. The patients are liable to pay charges on that account to the hospital and the diagnostic center has nothing to do with it. The diagnostic center scrutinizes whether the payment is done or not and once the payment is done to the hospital as per their schedule of charges, they carry out the diagnostic tests on the patients. At the end of the month the diagnostic center raises the invoice to the hospital as per the rates agreed between them at the time of entering the agreement. Now the question arises whether the service provided by the Global diagnostic center to the hospital would be chargeable to GST or not?

Answer : The diagnostic services provided by the Global diagnostics center to hospital are covered under entry no 74 of the Notification No – 12/2017- Central Tax (Rate) dated 28.06.2017 and hence exempted from GST. (GST AAR Karnataka ruling in Matrix Imaging Solutions India Private Limited)

Illustration 2 – Suppose in Illustration 1 above Global diagnostics center itself collects the charges directly from the patients & at the end of the month the diagnostic center shares the revenue with Tanvee hospital as per the agreement entered into by them. Now, Whether GST will be applicable on the services provided by the diagnostic center?

Answer : The services provided by the Global diagnostics center are in nature of health care services as covered under entry no 74 of the Notification No – 12/2017- Central Tax (Rate) dated 28.06.2017 and hence exempted from GST.

Illustration 3 – Suppose in Illustration 2 above, instead of sharing revenue with Tanvee hospital, Global diagnostics center pays a lump sum amount on monthly basis to the hospital irrespective of number of diagnostics test done by them. The said amount is paid on account of space provided by the hospital to the diagnostic center. Now,(1) whether GST is to be levied on the services provided by the diagnostic center?

(2) Will hospital collect any GST on account of lump sum payment being received from the diagnostic center?

Answer – 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, inquiry, 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.

(1) Hence by definition above Global diagnostic center is a clinical establishment and services provided by it to the patients are in nature of health care services hence, services provided by diagnostic center are exempted from GST.

(2) The hospital here is doing nothing other than of providing its space to the diagnostic center. All the services are provided by the diagnostic center & also the bills are raised in its name and collected by themself from patients. Hence, service provided by hospital is in nature of renting of commercial space service which is chargeable with GST at appropriate rate.

Illustration 4 – Tanvee hospital/ Global diagnostic center also runs a pharmacy shop in there premises. Whether sale of medicines is chargeable with GST or covered under exemption list?

Answer – Sale of medicines in pharmacy store are chargeable with GST at applicable rates.

Illustration 5 – Suppose in Illustration 4 above Tanvee hospital / Global diagnostic center has rent out their part of space to Mr A for running a pharmacy shop. Will supply of space by clinical establishment covered under the exemption or chargeable with GST?

Answer – Only health care services provided by clinical establishment are covered under the exemption. Here Tanvee hospital/ Global diagnostic center are supplying serving of renting of commercial space service. Hence taxable with GST.

Illustration 6 – Mrs Ashwariya took appointment with Dr X who is a plastic surgeon of Tanvee hospital for undergoing plastic surgery for some beautification purpose. Whether the same is included in health care service and exempted from GST?

Answer – Health care services does not include hair transplant or cosmetic or plastic surgery, except where undertaken to restore or to reconstruct anatomy or functions of body affected due to congenital defects, developmental abnormalities, injury or trauma.

Since the surgery undertaken by Mrs Ashwariya was neither to restore or to reconstruct anatomy or functions of body affected due to congenital defects, nor due to developmental abnormalities, injury or trauma. The sole reason was for beautification only. Hence the above is chargeable with GST at applicable rates.

Illustration 6 – Whether sale of Used machinery/ Capital goods / Scrap/Equipments on which no ITC has been availed by the clinical establishment chargeable with GST.

Answer – Sale of Used machinery / Capital goods / Scrap is covered within the scope of supply & hence chargeable with GST. Only health care services are exempted.

Illustration 7 – Mr M was admitted to hospital over stomach pain. Various diagnosis & other tests were performed before undergoing for surgery. The hospital has raised invoice of following goods/services supplied to him during his treatment.

SL. No	Service	Amount
1	Assessment Service	1550.00
2	Consultation	3760.00
3	Equipment	460.00
4	Investigation	14510.00
5	Medical Administration	670.00
6	Medical Services	6150.00
7	Nursing & Hospital utilities	1770.00
8	Nutritional and Functional Assessment charges	1000.00
9	OT Charges	14700.00
10	OT Consumables	4637.87
11	OT Pharmacy	5123.67
12	Professional Charges	48000.00
13	Profile	4700.00
14	Room Rent	6900.00
15	Ward consumables	1610.00
16	Ward Pharmacy	10883.69
Total Taxable Amount		126425.00
CGST		0.00
SGST		0.00
Total Invoice Amount		126425.00
Deposits		100000.00
Balance Payable		26425.00

Is the hospital correct in raising the above invoice by not charging GST?

Whether services like medical administration, equipment, OT Charges, OT Consumables, OT Pharmacy, room rent, Ward consumables, Ward Pharmacy covered under the exemption of health care services?

Answer – As per section 2(30) Composite supply means 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 thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply.

In view of above it must be noted that patient M was admitted to hospital for receiving health care services which have been explicitly exempted from GST by the Notification No 12/2017 Central Tax (Rate) dated 28.06.2017. Hence the primary/principal supply by the hospital was in nature of health care services only. All other services provided by the hospital are in nature of ancillary services required for providing the principal supply. The above supply are naturally bundled in the ordinary course of business & hence regarded as composite supply.

Since the Principal supply is exempted from GST hence no tax shall be levied.

Therefore the hospital is correct in raising its invoice.

Further services like medical administration, equipment, OT Charges, OT Consumables, OT Pharmacy, room rent, Ward consumables, Ward Pharmacy are to be regarded as ancillary services provided for better utilization of main service. The intension of the hospital is providing health care services for treatment & cure of patients & in order to supply the same the hospital needs to supply certain other services also for better supply of main service. Since the principal service are exempted from tax hence ancillary services will be covered by same by virtue of composite supply & hence also exempted.

Note 1: Medicines when supplied to out patients from the pharmacy store of hospitals are chargeable with tax at applicable rates.