Good health and good sense are two of life’s greatest blessings. However with the recent action of taxmen both of these seems to be in jeopardy. In a recent article in the leading national daily, it was brought to our notice that the hospitals are getting GST notices for implants and the details of medicines and implants supplied to IPD (hospital in patient care) were being sought from these hospitals. One wonders that when health care services are exempt, the intention of the taxmen to levy GST on medicines and implants used on patients would lead to a long drawn court battle.  This article focuses on the taxability or otherwise of GST on healthcare services.

Exemptions notification on Health Care services under GST:

Notification No. 12/2017- Central Tax (Rate) dated 28.06.2017 has exempted health care services vide Sr. No. 74 which is reproduced as under:

Services by way of:

(a) “Healthcare Services by a Clinical Establishment or 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

Definition:

Health care services has been defined as 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 of body affected due to congenital defects, developmental abnormalities, injury or trauma;

“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;

“authorised medical practitioner” means 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;

Other Exemptions related to healthcare:

Sr. No. 46: Services by a veterinary clinic in relation to health care of animals or birds.

Sr. No. 73:       Services provided by the cord blood banks by way of preservation of stem cells or any other service in relation to such preservation.

Sr. No. 74: Transportation of Patients in Ambulance

With these above exemption notification, it is clear that health care services are exempt from GST except hair transplant, cosmetic or plastic surgery, otherwise when undertaken to restore or to reconstruct anatomy or functions of body affected due to congenital defects, developmental abnormalities, injury or trauma, which remains taxable.

Though health care services are exempted from tax however various other supply like medicines, implants, room rent, food etc. creates complex situation for hospitals. However most of the issues have been clarified in the below mentioned circular:

Clarification by Circular No. 32/06/2018 TRU Dated 12/02/2018:

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

2) 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: 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.

3) 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.

Scope of Supply:

A very important concept of Supply comes to play here and that is of “composite supply”. It 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 case of healthcare industry, healthcare Services will be the predominant element of this composite supply whereas medicines, implants and food supply are ancillary to it and does not in itself become principal supply.

The tax liability on a composite supply shall be rate of tax applicable on supply of principal supply. In case of health services, the principal supply i.e health services is liable to tax at Nil rate and hence Nil rate will be considered the rate of tax applicable on the composite supply of health care services and supply of implants and medicines to IPD.

SAIFEE HOSPITAL TRUST (MSTT – SA NO. 190 OF 2016)

In the erstwhile VAT era as well, the issue of taxability of medicine drugs, stents, and implants during the course of medical treatment under MVAT was argued before the Hon’ble Maharashtra Sales Tax Tribunal. The tribunal after discussing all the facets of sales, deemed sales, works contract, intention behind sale of drugs etc. held the following:

1. Supply of medicine, drugs, stents & implants during the course of medical treatment doesn’t amount to sale (deemed sale) under MVAT Act

2. There is no machinery provision to levy VAT on supply of food as a composite charge is levied under the umbrella of health service.

3. Charges for special bed & mattresses are not exigible to tax.

ERNAKULAM MEDICAL CENTRE PVT. LTD.  (AAR Kerala)

Levy of GST – supply of medicines and allied items through the pharmacy – composite supply – health care services by a clinical establishment – exemption under N/N. 12/2017-CT (Rate) dated 28.06.2017

Held that:- Health care services provided by a clinical establishment, an authorized medical practitioner or para medics are exempted vide Sl.No.74 of Notification No. 12/2017-CT (Rate) dated 28.06.2017.

In case of inpatient as well as outpatient, medicines are dispensed based on prescriptions. Hence there is no privilege for the hospitals that are dispensing medicine to outpatients. Therefore pharmacy run by hospital dispensing medicine to outpatient or by 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 medicines and allied goods are taxable.

Ruling:– 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. The supply of medicines and allied items provided by the hospital through the pharmacy to the out-patients is taxable.

Other taxable income of hospitals:

Though it is clear from above discussion that the health services are exempted vide exemption notification, there are multiple heads of income for a hospital which are liable to tax under GST. These may include income from renting of premises from canteen or pharmacy, sale of scrap, sale or disposal of asset/machinery, parking fees or lodging-boarding of attendants with OPD patients etc.

Conclusion:

Health care being important and many times lifesaving, most of the health care services are exempt from GST. However the recent notices being issued to hospitals and the intent of the taxmen to levy tax on implants or medicines etc. may raise the cost of medication and surely would not be in line with the interpretation of GST law. Let good sense prevail over good health and health services.

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11 Comments

  1. Nikhil says:

    Service tax applicability for providing Teleradiology services
    I am a Teleradiology Company, we receive images X-Ray, CT,MRI etc from Imaging centers online and send these to Radiologists for Reporting. These reports then we mail it back to the Imaging Centers.

    We bill the imaging center for this service. Also the Radiologists bill us for their reporting service.

    Is both the Imaging center and the radiologist are exempted from paying GST. Do we have to pay the GST and on which amount. Please clarify. Regards.

  2. Raghavendra k says:

    The medicines/injection given to our inpatient are to be charged MRP or minising the GST from MRP?. We are running hospital and having dispensary for our inpatients only. This question arises because we have already paid GST charges to the supplier. Central Tax people says we are not suppose to charge MRP to the patient.

  3. Sushil Kumar says:

    Hi,
    We are running dialysis center under MJPJAY in the hospital and we have to give free treatment to patients. As we purchase the material for example Dialyser, Blood tubing, IV set, Syringe, NS etc. we are been charged by the distributor. Can we get exemption from the GST or we have to apply for GST refund.

  4. Manish Raju says:

    Hi,
    My query is related to Ayurveda Services,
    For some treatments the in patient may be subjected to panchakarma services which includes massages and steam bath etc. As it falls under healthcare services it is exempt.

    Sometimes even a mere consulting in Ayurveda may include some oil massages and the likes.So indirectly even that raises a treatment bill which is exempt.

    Please note that some patients are recommended ayurveda treatment from doctors of other streams when they find no cure in their field.

    But the problem is purchasing of the equipment’s which fall under assets category attracts GST eg. Panchakarma Thoni (wooden table/bed where the oil massage takes place), Dhara Vessels etc., input tax can’t be claimed as its used for healthcare services. But after prolonged usage when sold as scrap attracts GST.

    So is there any way we can claim input tax on assets for consulting and services (not more than one day) since the consulting in Ayurveda is different from other streams.

    With Regards
    Manish

  5. ANKUSH ARORA says:

    Hi
    I have a question related to PathLab services.

    We have a clinical establishment and Providing Path Lab Services in such a way that our Technician goes to the door of Patient and take Samples and Report is being Provided online through a link for Which we are charging Sample Collection Charges( i.e Visit to home for Sample collection), Whether such charges can become Composite Supply and exempt with Pathlab services as Healthcare Services by Clinical establishment under Notification 12/2017 .

    Thanks & regards
    Ankush Arora
    Indirect Taxation
    M : 8826844887
    e : ankusharora23@gmail.com

  6. Harsha says:

    We have a client who is engaged in rendering service of web based teleradiology wherein various CT and MRI reports of hospitals located oversees are sent in the cloud based server to the client and they diagnose and give the report.
    Major income is through exports in dollar
    Whether GST will be applicable??

  7. Consumer says:

    The cases seems related to collection of GST on medicines ,consumables and implants while making supply of above items to inpatients on MRP basis. Therefore, cases are related to recovery of GST on above items from in patients and not depositing with Govt exchequer . The cases have nothing to do with provisions explained in the article. Moreover, GST council has not yet notified medicines, consumables etc. (goods) as services in order to make them eligible for exemption under composite supply of Healthcare services. There is no provision under any Law allowing enrichment of Private Hospitals by way of recovery of Govt taxes (GST) from consumer/patients. Govt was very much collecting tax on these goods in pre GST regime at factory stage. Hope this will help in understanding the subject issue.

  8. Anant Kasarkod says:

    Hi,
    Very nice Article, We have a Clinical establishment wherein the laboratory is outsourced to an external agency and the laboratory fees are shared on percentage basis for the space utilisation.
    Is this service liable for GST or Is it exempt under under the exemptions available for healthcare unit?
    Thanking you in advance

    1. cariteshrmehta says:

      You can take shelter of entry no. 74 of Not. No. 12/2017 for claiming exemption. Though you have outsourced laboraty, if you are raising invoice of clinical testing etc., it is an exempt supply.

      In case the outsourced agency is directly raising an invoice and you are being paid on a monthly basis, it may be treated as rental income in your hands and may become taxable.

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