The Authority for Advance Ruling (AAR), Kerala has held that the supply of medicines and allied items like food as advised by doctor/nutritionist provided by hospital through pharmacy to in-patients shall be treated as composite supply of health care treatment under the GST regime and, therefore, cannot be taxed separately. The authority has clarified that the supply of medicines and allied items provided by hospital through pharmacy to out-patients is taxable.
The applicant, a Medical Centre, approached the authority for a clarification with regard to their tax liability under the GST regime.
Before the authority, the applicant contended that the pharmacy is meant exclusively for dispensing medicines and consumables to the in-patients and out-patients. It was contended that no medicines or allied items are sold to outsiders who come with the prescription from outside doctors.
The authority noted that the pharmacy is an outlet to dispense medicines or allied items based on prescriptions.
The authority said that “Patients are admitted to a hospital only when they are extremely ill or have severe physical trauma, As far as an inpatient is concerned, hospital is expected to provide lodging, care, medicine and food as part of treatment under supervision till discharge from the hospital. Inpatients receive medical facility as per the scheduled procedure and have strict restriction to ensure quality/quantity of items for consumption. Hence the medicines or allied goods supplied to inpatients are indispensable items and it is a composite supply to facilitate health care services and is not taxable.”
“Whereas an outpatient is concerned, hospital gives only prescription, which is only advisory in nature. The patient has absolute freedom to follow the prescription or not. Similarly, there is freedom to procure the medicines or allied items prescribed, either from the pharmacy run by the hospital or from medicine dispensing outlets. Hospital reserves no control over his continuous treatment. As far as an outpatient is concerned there is no difference in procuring medicine either from the dispensing outlet within the hospital or from outside the hospital. In both places, medicines are dispensed based on prescriptions. Hence there is no privilege for the hospitals that are dispensing medicine to outpatients. Therefore, pharmacy run by hospital dispensing medicine to outpatient or bye standers or others can be treated as individual supply of medicine and not covered under the ambit of health care services. Hence such supply of medicines and allied goods are taxable,” the authority said.
It was further noted that the GST Council in January, clarified that food supplied to the inpatients as advised by the doctor/nutritionist is a part of composite supply of health care and not separately taxable. Other supplies of food by hospital to patients not admitted are taxable. The same principle is applicable in the case of dispensing of medicines also.
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