Health care services under GST Act

Health is the primary thing and everything else follows thereafter, There is a saying that ‘Health is Wealth’, which means when a person maintains good health, everything else falls into place.  The Central government understanding the importance of health and services supplied by health service sector has exempted the health care service from the levy of GST, thus made the health care services more affordable to the public at large.

Health care sector involves several activities, such as person running a medical shop to a person running a super specialty hospital, RMP doctor to highly qualified medical professionals and consisting many systems to treat different ailments, blood banks to ambulance, ancient Ayurveda to Allopathic medicine the modern science in treating patients, undertaking sale of tablets to Complicated Surgeries.

The Government vide SL No. 74 of Notification No 12/2017 CT (Rate) dated 28.06.2017 exempted the supply of certain health care services from levy of GST, which reads as under;

S no	Chapter, Section, Heading, Group or Service Code (Tariff)	Description of Services	Rate (per cent.)	Condition
74	Heading 9993	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.	Nil	Nil

Further, the notification also defines the terms “Clinical establishment”, “Health care services” and “authorized medical practitioner” which are reproduced below:

“(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;

(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 of body affected due to congenital defects, developmental abnormalities, injury or trauma;

(k) — 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;”

We understand from the definition of “health care services” that it means the treatment provided in recognized system of medicine. Section 2(h) of Clinical establishments Act, 2010 defines recognized system of medicine as below:

“(h) recognized system of medicine means Allopathy, Yoga, Naturopathy, Ayurveda, Homeopathy, Sidda and Unani system of medicines or any other system of medicine as recognized by the central government.”

From the above available information, let’s try to understand the taxability of various intrinsic activities forming part of health care services.

Assume Mr. A is travelling in a car along with his dog, unfortunately, the car met with an accident in the outskirts of the city. The local people rang up for emergency services and an ambulance arrived to spot and carried the victims to nearby hospital. After undertaking necessary tests, checkups and investigations the doctors treated him administering him with necessary drugs and surgeries. Due the accident, Mr. A suffered heavy blood loss, spinal cord and back got severely impacted and face tissues are burnt. Blood has been sourced by the blood bank, Plastic surgery has been undertaken to restore facial tissues. After spending a week in the hospital Mr. A got discharged. Post discharge, Mr. A still has some issue in his back and joined a yoga center to cure the back related ailment. The dog which was travelling also suffered some injuries, got treated in a veterinary clinic and was able to survive. Now, let’s discuss the tax impact event by event:

• Services related to Ambulance by an external entity to the victim
• Admission given and tests, checkups, investigations undertaken
• Treatment and procedures performed
• Medicines and drugs applied in the process of treatment, inpatient services like accommodation, diet, nursing etc…
• Services related to Sourcing of Blood from blood bank
• Treatment given by yoga center
• Treatment provided to the Dog.

Keeping above events as base, will discuss the impact of GST on healthcare service provided at each event along with applicable Legal provisions.

Taxability of the events

Tax is levied through charging, like any other tax law, under Goods and Service Tax Act, 2017, tax is levied through Section 9 of the Act, which reads as below:

“9. Levy and collection.— (1) 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 be 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”

From the above we understand that tax is levied on supply of goods or services or both. Sales of goods or Providing of Services or any combination thereof, for a consideration in the course of business is a supply. Supply is defined under Section 7 of CGST Act, 2017. Supply is defined as below:

“7. Scope of supply. — (1) for the purposes of this Act, the expression ―supply includes––

(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;

(b) import of services for a consideration whether or not in the course or furtherance of business; and

(c) The activities specified in Schedule I, made or agreed to be made without a consideration;

[(1A) where certain activities or transactions constitute a supply in accordance with the provisions of sub-section (1), they shall be treated either as supply of goods or supply of services as referred to in Schedule II

(2) Notwithstanding anything contained in sub-section (1),––

(a) Activities or transactions specified in Schedule III; or

(b) such activities or transactions undertaken by the Central Government, a State Government or  any local authority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council, shall be treated neither as a supply of goods nor a supply of services.

(3) Subject to the provisions of [sub-sections (1), (1A) and (2), the Government may, on the recommendations of the Council, specify, by notification, the transactions that are to be treated as—

(a) A supply of goods and not as a supply of services; or

(b) A supply of services and not as a supply of goods.”

Further, the supplies which are listed in schedule III are neither treated as supply of goods nor supply of services. Supplies which are not listed in Schedule III can be exempted from tax, through notification.

When the services related to health care are provided by clinical establishment or authorized medical practitioner or a para-medic in the organized system of medicine, the same is exempt from tax.

However, the question is, what does the ambit of health care service include, whether the treatment to patient alone is considered as health care service, whether the diagnosis, tests and analysis  conducted for performing treatment are covered under health care services and are exempt from payment of tax. If not whether the above auxiliary and incidental services and activities are considered as taxable supplies liable to GST?

Observing closely into the definition of Clinical establishment, it may be seen that the services of diagnostics or investigative services are covered within its scope. Further, definition also confirms that independent organisations which are providing diagnostics services fall within the ambit of clinical establishments even when provided by independent organisations. Hence, the services related to diagnosis and investigations are exempted services not liable for payment of GST.

Treatments and care given for illness forms the core of health care services and there’s no doubt about its exemption from payment of GST. However, procedures like Plastic surgery, hair transplant and other cosmetics surgeries are not treated as health care services with an exception, if these procedures are undertaken to restore damaged tissue due to injury, abnormalities, congenital defects or trauma.

However, in this case, core health care services are bundled with ancillary services like medicines, accommodation, nursing, nutrition etc… In order to avoid any misinterpretations department has issued, circular no 27/01/2018-GST dated 04.01.2018 exempting the accommodation services provided by a hospital, the clarification is as follows:

Sl. No.	Questions/Clarifications sought	Clarifications
	1… 2. Whether rent on rooms provided to in-patients is exempted? If liable to tax, please mention the entry of CGST Notification 11/2017-C.T. (Rate). 3…	… 2. Room rent in hospitals is exempt. 3…

Further, the CBIC vide Circular No 32/06/2018-GST dated 12.02.2018 has clarified on the taxability of nursing, food supplies to the inpatients the clarifications are as below:

Sr. No.	Issue	Clarification
5	Is GST leviable in following cases: (1) ——— (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? (3) 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 out-sourced 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.	(1) ————. (2) 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) dated 28.06.2017. 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. (3) 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.

Hence, the accommodation, nursing, diet when provided to inpatients are exempt from tax. However, the taxability of medicines, implants and consumables used in the course of provision of treatment to patient is not clear. In the case M/s SHALBY LTD, Gujrat authority for Advance Ruling in its ruling no. GUJ/GAAR/R/11/2021 has ruled as below:

“The medicines, consumables and implants used in the course of providing health care services to in-patients for diagnosis or treatment for patient opting with or without packages along with allied services i.e. (room rent/food/doctor fees Etc.) provided by hospital is a “Composite Supply”. Supply of inpatient health care services by the applicant hospital as defined in Para 2 (zg) of the Notification No 12/2017 CT (Rate) dated 28.06.2017, as amended, is exempted from CGST as per Sl. No. 74 of the above notification.”

Infusion of blood is common in case of injuries and accidents, when the victim bleeds excessively, blood needs to be infused from external source, and usually blood is collected from the donors and infused into the victims to body. However, in cases where the donor is not available, the blood is sourced from blood banks which collect from donors and store and provide to the victims when they are need. Therefore, the blood supply forms the pivotal part in saving the victim and is exempt from tax. The related entry No. 73 in notification 12/2017 is as follows:

S no	Chapter, Section, Heading, Group or Service Code (Tariff)	Description of Services	Rate (per cent.)	Condition
73	Heading 9993	Services provided by the cord blood banks by way of preservation of stem cells or any other service in relation to such preservation.	Nil	Nil

The recognized system medicine, includes in its definition Yoga as a system of medicine. Hence, when an entity provides any services to any person, such services fall within the purview of Health care services and are exempt from tax.

Further the health care supplies when provided to animals, the same is also exempt from tax, entry no.46 the notification 12/2017 CT rate is as follows:

S no	Chapter, Section, Heading, Group or Service Code (Tariff)	Description of Services	Rate (per cent.)	Condition
46	Heading 9983	Services by a veterinary clinic in relation to health care of animals or birds	Nil	Nil

From the above provisions and discussion, it appears that the taxability of each event in the above illustration is as below:

Event	Taxability	Source
Services related to Ambulance by an external entity to the victim	Exempt	Entry no. 74 of Notification 12/2017 CT rate read with the definitions and Classification of services
Admission given and investigations undertaken	Exempt	Entry no. 74 of Notification 12/2017 CT rate read with the definitions and Classification of services
Treatment and procedures performed including Plastic surgery	Exempt	Entry no. 74 of Notification 12/2017 CT rate read with the definitions and Classification of services
Medicines and drugs applied in the process of treatment, inpatient services like accommodation, diet, nursing etc…	Exempt	Entry no. 74 of Notification 12/2017 CT rate read with the definitions and Classification of services and Circulars.
Services related to Sourcing of Blood from blood bank	Exempt	Entry no. 73 of Notification 12/2017 CT rate read with the definitions and Classification of services
Treatment given by yoga center	Exempt	Entry no. 74 of Notification 12/2017 CT rate read with the definitions and Classification of services
Treatment provided to the Dog.	Exempt	Entry no. 46 of Notification 12/2017 CT rate read with the definitions and Classification of services

The above illustration and discussion is an attempt to understand the taxability and exemption of various services under health care sector.

During the course of the above discussion, the following questions emerge which appears requires to be answered with certainty;

As discussed earlier the medicines if provided for in-patient is exempt, what is the distinction for taxability of the same for counter sales. Whether the consumer purchasing medicines over the counter does not consume the same for health care. Further, food supplied to inpatient is exempt, what about the food served to people attending those patients/ visitors at canteens at hospital premises?

Why sale of medicines are not exempt like services, few medicines are exempt and remaining are taxable. Notification 01/2017 CT-rate prescribes tax rates for goods and Notification 02/2017 CT-rate exempts certain goods from Tax. The relevant entries in those notifications related to health sector are reproduced below:

S no	Chapter, Section, Heading, Group or Service Code (Tariff)	Description of Goods	Rate (per cent.)
Taxable goods as per Notification 02/2017 CT-rate
173	30	Insulin	5%
174	3002,3006	Animal or Human Blood Vaccines	5%
175	30	Diagnostic kits for detection of all types of hepatitis	5%
176	30	Desferrioxamine injection or deferiprone	5%
177	30	Cyclosporin	5%
178	30	Medicaments (including veterinary medicaments) used in bio-chemic systems and not bearing a brand name	5%
179	30	Oral re-hydration salts	5%
180	30	Drugs or medicines including their salts and esters and diagnostic test kits, specified in List 1 appended to this Schedule	5%
181	30	Formulations manufactured from the bulk drugs specified in List 2 appended to this Schedule	5%
263	9804	Drugs or medicines including their salts and esters and diagnostic test kits specified at S.No.180 above and Formulations specified at S.No.181 above, intended for personal use	5%
241	9804	Other Drugs and medicines intended for personal use	12%
Exemptions as per Notification 02/2017 CT-rate
106	3002	Human blood and its components	Nil
107	3006	All types of Contraceptives	Nil

With regards to food supplied to people other than inpatients, the circular mentions that, food when supplies to people other than inpatients is taxable.

The conclusion:

Therefore, from the above, in a nutshell, the health care services are exempt to larger extent and sale of medicines are taxable to large extent.