The Tamil Nadu Advance Ruling Authority (AAR) ruled that the supply of drugs and consumables used in the course of providing health care services to outpatients admitted to hospital for diagnosis, medical treatment or procedures is not a composite supply. Therefore, it is subject to GST.
The two-member bench of TGVenkatesh and K.Latha ruled that the supply of drugs and consumables used in the provision of healthcare services to inpatients admitted to hospital for diagnosis, medical treatment or procedures up to ‘at the output is a composite supply. It only constitutes a compound benefit when the consolidated invoice drawn up in the name of the patient indicates the supply of drugs and consumables during the provision of health care. It is therefore exempt from GST.
The plaintiff, Be Well Hospitals Private Limited, is a chain of multi-specialty hospitals providing healthcare services to outpatients through Be Well Hospitals Pharmacy Units for diagnosis or treatment. The applicant currently operates 11 hospitals in South India with five locations in Chennai, Pudukkottai, Sivakasi, Tuticorin, Erode, Nagercoil and Pondicherry. The applicant stated that his hospital is established for the primary purpose of providing access to affordable and quality health care services, including in locations that have limited access to quality health care. They provide “health care services” in categories such as emergency care, multi-specialty care, and preventive care. In addition to healthcare, they offer other healthcare related services such as healthcare consulting and business services.
The applicant provides healthcare services to domestic and international patients. International consulting services are provided online without any travel assistance. Pharmacy units in each clinical facility at different locations provide medications to inpatients and outpatients. The pharmacy charges GST based on MRP on all supplies provided to patients, including inpatient supplies. Currently, the pharmacy units at different locations are part of the clinical establishments in the respective locations and have a common GST registration for the different branches in Tamil Nadu.
The applicant requested an advance ruling on whether the supply of drugs and consumables used in the provision of healthcare services to inpatients upon admission of the patient to the hospital would be treated as a “composite delivery” of health care services.
The AAR observed that in the case of inpatients, the hospital is expected to provide accommodation, care, medication and food as part of supervised treatment until discharge from the hospital. However, in the case of outpatients, there is no such waiting in the hospital and the outpatient simply comes for consultation and advice.
The AAR considered that the service of supplying drugs and consumables and the consultation of outpatients are not inextricably linked and are not naturally linked. Therefore, pharmacies run by a hospital that dispense drugs to outpatients may be treated as an individual supply of drugs and not covered by health care services. Therefore, the supply of drugs and related products is taxable.
Name of Applicant: Be Well Hospitals
Reference: Ordinance No. 22/AAR/2022
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