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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, will be treated as a part of composite supply of health care treatment and, hence, are not separately taxable.
The ruling was given in an application filed by Ernakulam Medical Centre, filed with an aim to clarify the GST liability on medicines supplied through hospital pharmacy to patients, both in-patient and out-patient.
Health care services by a clinical establishment, para-medicals or an authorized medical practitioner have been exempted from the GST vide classification 9993 vide Sl.No.74 of Notification No.12/2017-CT (Rate) dated 28.06.2017. The applicant submitted that the medicines supplied through the pharmacy, to both inpatients and outpatients, under the prescription of the doctors are incidental to the health care services rendered in the hospital and fall beyond the ambit of taxation.
The AAR, comprising of B.S. Thyagarajababu, Joint Commissioner of State Tax and B.G. Krishnan IRS,Joint Commissioner of Central Tax, accepted the submission of the applicant that the medicines supplied to in-patients through hospital pharmacy are entitled to to exemption. As regards medicines supplied to out-patients, the Authority had held otherwise.
As far as an inpatient is concerned, hospital is expected to provide lodging, food, medicine and care as a part of the treatment under supervision until discharged from the hospital. Inpatients receive medical facility as per the scheduled process and have strict restriction to ensure quantity/quality of items for consumption. Hence, the AAR held that the medicines or allied goods supplied to inpatients are indispensable items and it is a composite supply to facilitate health care services and are not taxable.
However, similar exemption was not held to be applicable to the medicines supplied to out-patients on the reason that when an outpatient is concerned, hospital gives only prescription that are advisory in nature. The patient has absolute freedom to follow through the prescription or not. Similarly, they have the the freedom to procure the medicines or allied items prescribed, either from the pharmacy run by the hospital or from medicine dispensing outlets. Thus, hospitals reserve no control over his continuous treatment and there is no privilege for the hospitals that are dispensing medicine to outpatients. Therefore, a pharmacy run by the hospital dispensing medicine to the outpatient or bye standers or others can be treated as individual supply of medicine and allied goods are taxable.
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