Health Care has become one of the India’s Largest Sector, both in terms of Revenue and Employment. Health Care Industry comprises of Hospitals, Medical Devices, Clinical Trials, Outsourcing, Telemedicine, Medical Tourism, Health Insurance, Medical Equipment and several other facets. The Indian Health Care sector is growing at a brisk pace due to its strong and widespread coverage and increasing expenditure by public as well as private players.
However, of late it is noticed that the Hospitals are getting GST Notices for supply of Medicines and allied Items provided by the hospitals through Pharmacy, Income from Renting of Premises, and from Canteen, or Sale of Scrap, Room Rent charged to the In-patients and the like.
Hospitals are also getting GST Notices for Implants and Medicines supplied to In-patients availing nursing care.
In this article we focus on the taxability or otherwise of GST on Health Care Services.
Health Care Services provided by Doctors, Hospitals are exempt under GST as per Serial No.74 of the Table in Notification No.12/2017 CT (rate) dated 28/06/2017. The relevant entry describing the service wills NILRate of GST in the said Exemption Notification is reproduced below,
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.
For the purpose of the said Exemption Notification the definition of certain terms have been provided in para 2 of the Notification itself.
The definitions of the certain terms of para 2 of the said notification are reproduced below.
“Health Care Services” means any service by way of diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognized 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 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;
“Authorized Medical Practitioner” means a medical practitioner registered with any of the councils of the recognized system of medicines established or recognized by law in India and includes a medical professional having the requisite qualification to practice in any recognized system of medicines in India as per any law for the time being in force;
Though the Health Care Services are exempted from GST, various other supplies like Medicines, Implants, Room Rents, and Food etc. create a complex situation for Hospitals.
The C.B.E and C Vide Circular No.32/06/2018 TRU dated 12/02/2018 clarified the important issues.
The Issue vide clarification by the Board are extracted below for reference.
Hospitals hire Senior doctors, Consultants and Technicians independently without any contract of such Person with the patient and pay them Consultancy charges without there being any employer employee relationship.
Will Revenue take a stand that they are providing services to hospital and not to patient and hence must pay GST?
Clarification by the Board:
Services provided by Senior Doctors, Consultants, and Technicians, whether Employee or not are Healthcare services which are exempt.
Hospital charges a patient say Rs.20,000but pays to the Consultant & technician only Rs.12,500 and keeps the balance for providing ancillary services like checking of temperature, weight, blood pressure, nursing care, infrastructure securities, emergency services etc.
Clarification by the Board:
The entire amount charged by them from the patient including the retention money and the payment made to the doctors is towards the health care services provided by the hospital to the patient is exempt.
Health Care Services provided by the clinical establishments including food supplied to the patient by the canteen run by hospital from outdoor caterers. When outsourced there should be no antiquity that the supplier shall charge tax as applicable and hospital will get no ITC.
If Hospitals have their own canteen and prepare the food then also no ITC will be available on Inputs including Capital Goods and in turn when they supply the food to Doctors and Staff, such supply even when not charged may be subjected to GST.
Clarification by the Board:
Food supplied to the in-patient as advised by the Doctor is part of composite supply of Health Care Services and not separately taxable.
Other supply of food by a Hospital to a patient (out patient – not admitted) or their attendant or visitors are taxable.
It is a very important concept under the GST Law, which comes into play here. According to Section 2(30) Composite supply means a supply made by a taxable person to a recipient consisting of two or more taxable supply 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 a business one of which is a principal supply.
A supply will be regarded as a composite supply the following elements are present,
a) the supply should consist of two or more taxable supplies
b) the supply may be of Goods or Services or both
c) the supply should be naturally bundled
d) they should be supplied in conjunction with each other in the ordinary course of a business
e) one of the supply being a principal supply (Principal Supply means the predominant supply of Goods or Services in a composite supply and to which any other supply is ancillary)
In case of a Health Care Industry there can be no doubt that, Health Care Service is a bundle of supply of Services and Goods. Therefore, it is a Composite Supply to be classified as a Principal supply namely supply of Health Care Services, since predominant element of this Composite Supply is a Health Care Service, whereas supply of Medicine, Implants, room rent and Food etc. are ancillary to it and does not in itself become a Principal Supply and therefore a bundle of supply made by a Health Care Industry should be classified as supply of Health Care Services for the purpose of levy of GST.
Tax Liability on a composite supply shall be the liability of tax applicable on supply of a principal supply i.e. Health care services is liable to NIL Rate in terms of exemption notification mentioned above.
Therefore, NIL Rate will be the Rate of Tax applicable on the composite supply of Health Care Services, which will be inclusive of supply of implants, room rent and medicines and the like to the in-patients in the hospital.
Relevant Case Law:
Ernakulum Medical Centre Pvt Ltd 2018 (18) G.S.T.L 142 A.A.R-GST
Supply of Medicines and allied Items through the Pharmacy, is a Composite supply, Health Care Services by a clinical establishments exempt under Notification No.12/2017 CT (rate) dated 28/06/2017. Held that, “Health Care Services provided by a Clinical Establishments as an authorized medical practioner or paramedics are exempted vide S.No.74 of Notification No.12/2017 CT (rate) dated 28/06/2017.
In case of in-patients as well as the outpatients, medicines are dispensed based on prescription. Hence, there is no privilege for the Hospital that are dispensing the medicines to outpatients. Therefore, pharmacy run by hospital dispensing medicines are not covered under Health Care Services. Hence, such supply of medicine and allied items are taxable.
The Supply of Medicine and allied items provided by the hospital through their Pharmacies to the in-patients is a part of composite supply of Health Care Services and hence not taxable separately.
The supply of medicine and allied items provided by hospital through the pharmacy to the outpatients is taxable.
GST on Consultancy Services by Medical Professionals:
Consultancy Services provided by a Medical Professional for the purpose of treating a patient which according to the Doctor is essential to cure the patient, is exempt from the GST.
GST on Bio Medical Waste Treatment:
The Bio-medical waste is defined as a solid waste generated during diagnosis, testing, treatment, and research on production of biological products for humans and animals.
Biomedical waste includes vaccines, laboratory samples, body parts, needles and the like.
The services provided by the Operator of the Common Bio-medical Waste Treatment Facility is Exempt as per Notification No.12/2017 CT (rate) dated 28/06/2017 which states that,
Services provided by operators of the common bio-medical waste treatment facility to a clinical establishment by way of treatment or disposal of bio-medical waste or the processes incidental thereto.
Accordingly, the services are provided by Bio-medical Waste Treatment Facility Operator to the Clinical Establishment is exempt from GST.
Miscellaneous Income of the Hospitals:
The Hospitals may earn income under multiple heads which are liable to tax under GST. These may include income from renting of premises and from canteen, disposal of assets, disposal of scrap, parking fees, pharmacy sale to the outpatients and outsiders, food supplied to attendants, lodging and boarding of attendants.
Most of the Health Care Services are exempt from GST. However, Notices continue to be issued to several Hospitals and the intention of the Department to levy tax on medicines, implants, room rents etc. may lead to vexatious and avoidable litigations besides rise in the cost of the medications and other health care services.
Article by CAR.SubramanianB.Sc.,F.C.A.,LLB.,