Drugs supplied to inpatients through the hospital pharmacy will not attract GST separately: AAR

The Kerala Advance Rulings Authority (AAR) has made it clear that the provision of drugs through the pharmacy to inpatients will not be charged separately from the Goods and Services Tax (GST).

The case is linked to Ernakulam Medical Center Pvt Ltd (based in Kochi) which approached the AAR for a ruling on whether the supply of drugs and related items through the pharmacy of the The hospital operated by the claimant is liable to GST. The petitioner’s argument was that medicines supplied by the pharmacy to hospitalized and ambulatory patients on doctor’s prescription are ancillary to health services rendered in hospital and beyond the scope of taxation.

He requested an advance ruling on the hospital’s liability under the GST law on the supply of drugs and related items through the pharmacy.

The Chamber noted that health services provided by a clinical establishment, a licensed doctor or paramedics are exempt from tax. The word “clinical facility” means a hospital, nursing home, clinic, sanatorium or any other institution that offers services or facilities requiring diagnosis or treatment or care for illness, injury, deformity. , abnormality or pregnancy in any recognized drug system in India or a place established as an independent entity or part of an establishment to perform disease diagnosis or investigation services.

Le Banc said it had been clarified that food provided to hospital patients on the advice of the doctor / nutritionist is part of the composite healthcare offer and is not separately taxable. Other supplies of food by a hospital to unadmitted patients are taxable. The same principle applies in the event of drug delivery.

Part of the treatment

He stressed that when it comes to inpatients, the hospital is supposed to provide accommodation, care, medicine and food as part of the supervised treatment until their discharge. Inpatients receive medical facilities in accordance with the planned procedure and are subject to strict restrictions to ensure the quality / quantity of the items to be consumed. Therefore, drugs or related products supplied to hospital patients are indispensable items and constitute a composite supply to facilitate health services and are not taxable, he said. However, the supply of drugs and related items supplied by the hospital through the pharmacy to outpatients is taxable.

The AAR assists the taxpayer by issuing an advance ruling on the supply of goods and / or services proposed to be undertaken or undertaken by taxable persons. The decision binds the applicant and the competent tax authority. While such a decision does not have precedent value like that of a High Court or Supreme Court judgment, it can be used as a persuasive tool in future cases. Therefore, the decision mentioned here can be used for persuasive purposes in matters related to the supply of drugs to hospitals across the country.

Commenting on the decision, Abhishek Jain, tax partner at EY, said it was a very welcome move for hospitals as well as the common man. For hospitals in terms of long-standing ambiguity about the applicability of VAT on the supply of drugs to inpatients and continued inheritance under the GST regime. “To the common man, maintaining the exemption of these inpatient drug supplies would reduce the tax costs on drug-related expenses,” he said.

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