Since the implementation of GST, it has been clear that health care services provided by an authorised medical practitioner or para medics through a clinical establishment are exempt vide Notification No. 12/2017-Central tax (Rate) dated 28-06-2017. But there have been certain grey areas in health care services regarding the availability of Input Tax Credit (abbreviated as “ITC”) on certain supplies that needed a crystal-clear approach to be a compliant taxpayer. Thus, numerous questions existed in the mind of medical practitioners regarding the eligibility of ITC on inward supply of medicine to a different type of patient. Therefore, an advance ruling has been obtained by the various medical practitioners who made supply in diagnostic and treatment services.
In Recent Case
M/s Ambara (herein referred to as an applicant) of Karnataka is engaged in providing health care services in a hospital which are exempt from GST. Thus, clarity has been sought by him in an advance ruling on the eligibility of ITC on the inward supply of medicines provided by different kinds of patients. Broadly, all the patients have been categorised into the following:
Advance ruling aimed at determining whether ITC is required to be restricted on medicines supplied to three types of a person as mentioned above.
In view of the query raised by the applicant, the Authority for Advance Ruling (‘AAR’) passed the following ruling:
1) Supply of medicine to In-patients: The medicines provided to the patients admitted in the hospital are in the course of treatment of such patients. There is no particular contract for the supply of medicines that is independent of the supply of treatment services. Thus, any medicines which are administered to the admitted patient are a part of their treatment services and hence, there is no separate supply of medicines to the patients.
Nutshell: ITC is required to be restricted on medicines used in the supply of health care services provided to admitted patients.
2) Supply of medicine to Out-patients: This kind of supply involves 2 transactions:
- Sale of medicine from the pharmacy counter of the applicant: Medicine being taxable in nature is liable to tax. Thus, the applicant is eligible to claim ITC on such supply.
- Medicine forming a part of health care services: Since the use of consumables such as cotton, bandage, etc are consumed in the provision of health care services. Thus, the applicant is not eligible to claim ITC on taxes paid.
Nutshell: The ITC is required to be restricted on medicines that are consumed in the provision of health care service and the output is health care service only which is exempt from tax. Further, in case, medicines are supplied independent of health care services, then the applicant is eligible to claim ITC subject of payment of taxes on such independent supply of medicines.
3) Supply of medicine to customers: Supplying medicine and other goods to customers as a trader would attract GST which is to be collected and paid to the government. Further, the applicant is eligible to claim input tax credit subject to the restriction of section 17 of CGST Act,2017.
Nutshell: The ITC is not required to be restricted on medicines supplied to a customer as there is no health care services provided and is liable to pay tax on the outward supply of medicines.
Thus, it can be concluded that:
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Posted by: CA Tarun Kapoor
AKGVG & Associates