Medicines supplied to in-patients through a hospital pharmacy not taxable, but medicines supplied to out-patients taxable under the GST regime: Kerala AAR

Kerala Authority for Advance Ruling (Goods and Services Tax): The Authority for Advance Ruling (AAR), GST Department, Kerala comprising of B.G. Krishnan, Joint Commissioner of Central Tax and B.S. Thyagarajababu, Joint Commissioner of State Tax ruled that supply of medicines and allied items by a hospital through its pharmacy to the in-patients, being a part of composite supply of health care treatment, is not separately taxable.

The aforesaid ruling came on an application filed by Ernakulam Medical Centre (applicant), which sought clarification on GST liability on medicines supplied through hospital pharmacy to both in-patients and out-patients. The applicant is rendering medical services with professionals like doctors, nursing staff, lab technicians etc. Under the GST regime, health care services provided by a clinical establishment authorized medical practitioner or para-medics is exempted vide S.No.74 of Notification No.12/2017-CT (Rate) dated 28-06-2017. Since medicines supplied through the pharmacy to in-patients and out-patients under the prescription of the doctors is incidental to health care services rendered in a hospital, thus the applicant understood it to be beyond the ambit of taxation. However, for the sake of clarity, the applicant sought for an advance ruling on the liability of hospital for the supply of medicines and allied items through the pharmacy.

The Authority observed that until an in-patient is discharged, a hospital is expected to provide lodging, care, medicine, and food as part of treatment to him under its supervision. Such patients receive medical facility as per the scheduled procedure and have a strict restriction to ensure quality/quantity of items for consumption. Hence, the medicines or allied goods supplied to in-patients, being indispensable items and a composite supply for facilitation of health care services, is not taxable.

It was further noted that in case of an out-patient, a hospital only gives him a prescription which is only advisory in nature. The patient has absolute freedom to follow the prescription or not. Similarly, he has the freedom to procure the medicines or allied items prescribed, either from the pharmacy run by the hospital or from medicine dispensing outlets. The hospital reserves no control over his continuous treatment. Therefore, supply of medicines by a hospital run pharmacy to out-patients would be liable to be treated as an individual supply of medicine and hence it would not be covered under the ambit of health care services. Therefore, such supply of medicines and allied goods would be taxable.

On the aforesaid reasoning, the Authority held that supply of medicines and allied items by a hospital through pharmacy to in-patients would be exempted from tax, but supply of medicines to out-patients would be subject to taxation under the GST regime. [Advance Ruling No. Ker/16/2018, in the application filed by Ernakulam Medical Centre Private Limited, decided on 19-09-2018]

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