In re Malankara Orthodox Syrian Church Medical Mission Hospital (GST AAR Kerala)
Whether GST is leviable on the value of supply of medicine, implants and other supplies issued to our patients during the course of treatment:
1. Who are admitted as inpatients in the following situations?
1.1. In the case where a package is offered to patient which covers the treatment, required medicines, required supplies etc for a consolidated amount. This amount was prefixed by the hospital with respect to treatment of a particular disease or surgery and charged to patient irrespective of the type and quantity of medicine, supplies etc issued to patients.
It is a composite supply of which the principal supply is healthcare services and the other supplies are only incidental or ancillary to the supply of healthcare services. Therefore, the supply of medicines, implants, and other items to the inpatients admitted to the hospital for treatment as per the package offered by the applicant is a composite supply where the principal supply is healthcare services falling under SAC 999311 which is exempted as per entry at Sl No. 74 of Notification No. 12/2017 Central Tax (Rate) dated 28.06.2017.
1.2. In the case where a package is offered to patient which covers the treatment for a consolidated amount and this amount is prefixed by the Hospital with respect to treatment of a particular disease or surgery. But the supply of medicine and certain other supplies like implants are not included in this package and will be billed extra, according to the type, brand (when choice available to patient) and quantity of items issued to the patient.
The healthcare services supplied by the applicant as per the package is exempted as per entry at Sl No. 74 of Notification No. 12/2017 Central Tax (Rate) dated 28.06.2017 and the supply of medicines, implants and other items that are not included in the package and which are separately billed shall attract GST at the rate applicable to such items as per the GST Tariff Schedule.
1.3. In the case where package is . not applicable and the treatment, medicines, other supplies and other items are charged to patient separately at actual. In this case supply of medicine and other supplies are being charged separately according to the type, brand (when choice available to patient) and quantity of items issued to the patient.
The supply of each of the individual goods and / or services shall be individually liable to GST at the rates as applicable on the basis of the classification of such supplies.
1.4. In the case where the percentage of value of medicines and other supplies represents major portion of the total expenditure billed to a patient.
The question is vague in nature for the reasons as stated above and hence could not be answered for want of sufficient information.
2. Who are not admitted but undergoing treatment as outpatients in the following situations: –
2.1. In the case where the patients are not being admitted in hospital but the hospital is providing treatment to those patients at the hospital as an outpatient. Ex: – Dialysis, dressing, chemotherapy, minor surgeries, other treatments and procedures that require no admission and preadmission services like causality.
The services provided in the course of the treatment of the patients as described above clearly fall within the scope of healthcare services as defined in Para 2 (zg) of the Notification No. 12/2017 Central Tax (Rate) dated 28.06.2017 and is exempted from GST as per entry at 51 No. 74 of the said notification.
2.2. Issue of medicine and other supplies based on their Doctor’s prescription to patients for consumption at home and follow-up. In this case the hospital accepts any such medicines returned by the patient for cessation of the treatment or for replacement, as per the instructions of the treating doctor.
The supply of medicines and allied items by the pharmacy run by the hospital can only be treated as an individual supply of medicine and allied items and therefore is liable to GST at the rates applicable for each such item as per the GST Tariff Schedule. In the case of medicines and allied items returned or replaced by the customers the applicant can adjust the GST paid on such medicines and allied items by issue of credit note as per provisions of Section 34 of the CGST Act read with Rule 53 of the CGST Rules,
FULL TEXT OF ORDER OF AUTHORITY OF ADVANCE RULING, KERALA
M/s. Malankara Orthodox Syrian Church Medical Mission Hospital (hereinafter referred to as the applicant) is a society, holding income tax exemption certificate under Section 12A of the Income Tax Act, incorporated under the Travancore-Cochin Literary, Scientific and Charitable Societies Registration Act, 1955 running a multi-speciality hospital and institutes for medical education. They are rendering medical and educational services with professionals like doctors, nursing staffs, lab technicians, pharmacist and others.
2. At the outset, the provisions of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as CGST Act) and the Kerala State Goods and Services Tax Act, 2017 (hereinafter referred to as KSGST Act) are same except for certain provisions. Accordingly, a reference hereinafter to the provisions of the CGST Act, Rules and the notifications issued there under shall include a reference to the corresponding provisions of the KSGST Act, Rules and the notifications issued there under.
3. Brief facts of the case:
3.1. The applicant is supplying medicine, implants and other supplies to their patients during the course of treatment who are admitted as inpatient and who are not admitted but undergoing treatment in their hospital as outpatients. They are supplying medicines only to patients who are registered in their hospital as a patient against prescription from their treating Doctors. The patients have option to purchase medicine and other supplies from outside pharmacies, subject to quality assessment by the hospital. In certain cases where choices are available like brand or type (for example metal implant vs. titanium implants) the patient is at liberty to choose out of the available items and the bill will be prepared accordingly. This is not applicable in the case of ‘all-inclusive packages. The applicant is issuing tax invoice as per the GST law for the supply of medicines and other supplies through the pharmacy to both inpatients and outpatients. They are also disclosing the GST included in the MRP in tax invoice for supply of medicines and they are paying the tax to the Government as per the requirements of GST law.
4. The applicant requested for advance ruling on the following;
Whether GST is leviable on the value of supply of medicine, implants and other supplies issued to our patients during the course of treatment:
1. Who are admitted as inpatients in the following situations?
1.1. In the case where a package is offered to patient which covers the treatment, required medicines, required supplies etc for a consolidated amount. This amount was prefixed by the hospital with respect to treatment of a particular disease or surgery and charged to patient irrespective of the type and quantity of medicine, supplies etc issued to patients.
1.2. In the case where a package is offered to patient which covers the treatment for a consolidated amount and this amount is prefixed by the Hospital with respect to treatment of a particular disease or surgery. But the supply of medicine and certain other supplies like implants are not included in this package and will be billed extra, according to the type, brand (when choice available to patient) and quantity of items issued to the patient.
1.3. In the case where package is not applicable and the treatment, medicines, other supplies and other items are charged to patient separately at actual. In this case supply of medicine and other supplies are being charged separately according to the type, brand (when choice available to patient) and quantity of items issued to the patient.
1.4. In the case where the percentage of value of medicines and other supplies represents major portion of the total expenditure billed to a patient.
2. Who are not admitted but undergoing treatment as outpatients in the following situations: –
2.1. In the case where the patients are not being admitted in hospital but the hospital is providing treatment to those patients at the hospital as an outpatient. Ex: – Dialysis, dressing, chemotherapy, minor surgeries, other treatments and procedures that require no admission and preadmission services like causality.
2.2. Issue of medicine and other supplies based on their Doctor’s prescription to patients for consumption at home and follow-up. In this case the hospital accepts any such medicines returned by the patient for cessation of the treatment or for replacement, as per the instructions of the treating doctor.
5. Contentions of the Applicant:
5.1. GST is levied as per the Section 9 (1) of the GST Act, 2017 wherein it is laid down that subject to the provisions of sub — section (2), there shall be levied a tax called the central goods and services tax on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under Section 15 and at such rates, not exceeding twenty per cent, as may he notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person.
5.2. Health care services are exempted as per Entry at S1 No. 74 of Notification No.12/2017 – Central Tax (Rate) dated 28.06.2017. Pharmacy is an outlet to dispense medicines or allied items based on prescription. Patients are only admitted to a hospital when they are extremely ill or have severe physical trauma. As far as an inp.atient 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 healthcare services and is not taxable, as per Advance Ruling orders issued to various hospitals. As per the Order No. KER/ 16/2018 dated 19.09.2018 under Section 98 of the GCST Act, 2017 issued by the Authority for Advance Ruling, Kerala; “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.” Further the above ruling was upheld by the Appellate Authority tor Advance Ruling, Kerala by Order No. AAR/03/2018 dated 14.12.2018.
5.3. It is apparent that the exemption allowed to supplies to inpatient is principally based on the contention that these supplies are part of composite supply. But another significant fact to be considered is that whether it comes under the purview of composite supply. The term composite supply was introduced by GST as a brought forward of the term ‘naturally bundled supplies’ from the service tax Laws. As per the resource document available in the official website of Central Board of Indirect Taxes: “The taxable event under GST is “supply of goods or services or both”. GST will be payable on every supply of goods or services or both unless otherwise exempted. The rate at which GST is payable for individual goods or services or both is also separately notified. The classification of any supply (whether as goods or services and the category of goods or services) is essential to determine the applicable rate of GST on the particular supply. The application of rates will pose no problem if the supply is of individual goods or services which are clearly identifiable, and the goods or services are subject to a particular rate of tax. But not all supplies will be such simple and clearly identifiable supplies. Some of the supplies will be a combination of goods or combination of services or combination of goods and services both. Each individual component in a given supply may attract different rate of tax. The determination of rate of tax to be levied on such supplies may pose a problem in respect of classification of such supplies. It is for this reason that the GST Law identifies composite supplies and mixed supplies and provides certainty in respect of tax treatment under GST for such supplies. A study on the above would reveal that the term ‘composite supplies’ could be resorted to only if the components of supply are not clearly identifiable. The circular issued by CBIC No. 47/21/2018-GST dated 08.06.2018 which is also relevant which, inter alia, states that; “Where a supply involves supply of both goods and services and the value of such goods and services supplied are shown separately, the goods and services would be liable to tax at the rates as applicable to such goods and services separately. Here the CBIC itself clarifies that when value of supply is available separately it could not be treated as a composite supply.
5.4. It is pertinent to note that an old circular under Service Tax Laws, on the same issue states that; [Circular No.96/7/2007 – ST dated 23.08.2007] any goods used in the course of providing service are to be treated as inputs used for providing the service and accordingly, cost of such inputs form integral part of the value of the taxable service. Where spare parts are used by a service station for servicing of vehicles, service tax should be levied on the entire bill, including the value of the spare parts, raised by the service provider, namely, service stations. This clarification was issued under service tax laws where value added tax was administered by the respective State Governments. This was the circumstance under which the Kerala High Court held that medicine is an integral part of supply of healthcare and should not be taxed separately under VAT. However, the CBIC now over ruled this clarification with Circular No.47/21/2018-GST dated 08.06.2018.
5.5. The following Advance rulings substantiate this argument; (a) AAR No. KER/58/2019 dated 16.09.2019 in case of the supply of spare parts and repair service. (b) AAR No. KER/33/2019 dated 01.03.2019 in case of tour packages which are provided to guests by way of various separate services. 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 patient’s 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 rriedicine 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. As submitted earlier as per the Order No. KER/16/2018 dated 19.09.2018 under Section 98 of the GST Act, 2017 issued by the Authority for Advance Ruling, Kerala and as per the ORDER No. AAR/03/2018 dated 14.12.2018 under Section 101 of the GST Act, 2017 issued by the Appellate Authority for Advance Ruling, Kerala the supply of medicine and allied items provided by the hospital through the pharmacy to the outpatients is taxable. But in the case of outpatients also there is situations like treatment procedures need to be provided without admission of such patients. Example-casualty, minor OT, procedure room. dialysis bed etc. GST law including advance ruling nowhere touched these types of circumstances. GST council in its meeting held in December, even though discussed this matter in detail but could not take a decision in this regard. In short, the GST applicability in health care sector is complicated. Hence the authority may consider our submission and pronounce the ruling to the questions raised in the application.
6. Contentions of the jurisdictional officer:
The jurisdictional officer submitted that services by way of healthcare services by a clinical establishment, an authorized medical practitioner or para-medics are exempt from payment of GST. When one or more supplies are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply it is a case of composite supply. Composite supply is taxed at the rate applicable to the principal supply involved. When healthcare services form the principal supply and other services are part of composite supply, there is no GST liability for the separate items comprised in the composite supply. The fact and circumstances in the case of the applicant has to be considered. Generally, when healthcare services are supplied as a principal supply and other bundled supplies qualify to be treated as part of the composite supply, there is no separate GST liability for the separate supplies. Investigative and diagnostic services, supply of medicines to be administered to inpatients, room rent of patient’s accommodation, supply of food to patients undergoing treatment are all treated as exempt as these are bundled with the principal supply of healthcare services. However, when medicine is supplied to outpatients and outsiders, and other supplies not supplied in the natural course of providing the principal supply of health care services, these are to be charged to GST at the applicable rate. The case may be considered on merits.
7. Personal Hearing:
The applicant was granted opportunity for personal hearing on 05.01.2021. Shri. Johney.P.J, Chartered Accountant represented the applicant in the personal hearing. He reiterated the contentions made in the application and requested to issue the ruling on the basis of the submissions made by them.
8. Discussion and Conclusion:
8.1. The issue was examined in detail. The applicant is a multi-specialty hospital providing health care services with medical professionals. The applicant is supplying medicine, implants and other supplies to their patients during the course of treatment who are admitted as inpatient and who are not admitted but undergoing treatment in their hospital as outpatients. They are supplying medicines only to patients who are registered in their hospital as a patient against prescription from their treating Doctors. The patients have option to purchase medicine and other supplies from outside pharmacies, subject to quality assessment by the hospital. In certain cases where choices are available like brand or type (for example metal implant vs. titanium implants) the patient is at liberty to choose out of the available items and the bill will be prepared accordingly. This is not applicable in the case of ‘all-inclusive packages. The questions raised by them to be answered are as follows;
Whether GST is leviable on the value of supply of medicine, implants and other supplies issued to patients during the course of treatment;
1. In case of inpatients;
(1.1) where a package is offered to cover the treatment including all required medicines and other supplies for a consolidated amount;
(1.2) where a package is offered to patient which covers the treatment for a consolidated amount but does not include the supply of medicines, implants and other supplies and they are billed extra, according to the type, brand and quantity of items issued to the patient as per choice of the patient;
(1.3) where a package is not applicable and the treatment, medicines and other supplies are charged separately according to the type, brand and quantity of items as per choice of the patient and
(1.4) where the percentage of value of medicines and other supplies represents major portion of the total expenditure billed to a patient.
2. In case of patients undergoing treatment as outpatients;
(2.1) where the patients are not being admitted but treatment is provided at the hospital as an outpatient. Eg; Dialysis, dressing, chemotherapy, minor surgeries, other treatments and procedures that require no admission and preadmission services like casualty;
(2.2) Issue of medicine and other supplies based on prescription of their Doctors to patients for consumption at home and follow-up.
8.2. The entry at Sl.No.74 of Notification No.12/2017 Central Tax (Rate) dated 28.06.2017 reads as follows;
