The Authority for Advance Ruling(AAR), GST Department, Kerala has ruled that "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 ruling was given in an application filed by Ernakulam Medical Centre, which sought clarification on GST liability on medicines supplied through hospital pharmacy to patients, both in-patient and out-patient.
Health care services by a clinical establishment, an authorized medical practitioner or para-medicals have been exempted from GST vide classification 9993 vide Sl.No.74 of Notification No.12/2017-CT (Rate) dated 28.06.2017. The applicant submitted that medicines supplied through pharmacy to both inpatients and outpatients under the prescription of the doctors are incidental to the health care services rendered in the hospital and beyond the ambit of taxation.
The AAR comprising B.G. Krishnan IRS,Joint Commissioner of Central Tax and B.S. Thyagarajababu, Joint Commissioner of State Tax, accepted the submission of the applicant that medicines supplied to in-patients through hospital pharmacy are entitled to exemption. As regards medicines supplied to out-patients, the Authority held otherwise.
"As far as an inpatient 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 quality/quantity of items for consumption. Hence the medicines or allied goods supplied to inpatients are indispensable items and it is a composite supply to facilitate health care services and is not taxable", the AAR held as regards medicines supplied to in-patients", the AAR held.
However, similar exemption was held to be not applicable to medicines supplied to out-patients on the following reason :
"Whereas an outpatient is concerned, hospital gives only prescription,which is only advisory in nature. The patient has absolute freedom to follow the prescription or not. 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 his continuous treatment. As far as an outpatient is concerned there is no difference in procuring medicine either from the dispensing outlet within the hospital or from outside the hospital. In both places, 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 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 medicines and allied goods are taxable".