Supply of Medicines to In-patients by Pharmacy amounts to Composite Supply, exempt from GST: AAR [Read Order]
The hospital pharmacy supplied medicines and consumables both to in-patients and out-patients.
Supply - Medicines - Taxscan
Supply - Medicines - Taxscan
The Tamil Nadu Authority for Advance Ruling (AAR) has held that the supply of medicines and consumables to in-patients during their admission in a hospital constitutes a composite supply of healthcare services and is exempt from the Goods and Services Tax (GST). The ruling provides clarity on a recurring compliance question for hospitals regarding the taxability of pharmacy supplies made to admitted patients.
The case was brought by Maha Critical Speciality Division, Ambattur, Chennai, which operates a clinical establishment providing emergency, trauma, and specialty care.
Want a deeper insight into the Income Tax Bill, 2025? Click here
The hospital pharmacy supplied medicines and consumables both to in-patients and out-patients. The applicant sought a ruling on whether medicines supplied to in-patients should be treated as part of healthcare services and therefore qualify for exemption under Notification No. 12/2017-CT(Rate).
During proceedings, the hospital explained that in-patients receive an integrated package of services including surgery, medical treatment, nursing, food, implants, consumables, and medicines, all billed together under a single GST registration. While GST was being charged on pharmacy sales, the hospital argued that supplies to admitted patients were inseparable from overall healthcare and should be exempt.
The AAR noted that under SAC 999311, “in-patient services” include surgical, gynaecological, psychiatric, pharmaceutical, nursing, laboratory, and rehabilitation services delivered under the direction of doctors. Relying on this classification and Circular No. 32/06/2018-GST, which clarified that food supplied to in-patients is part of healthcare services and not separately taxable, the authority concluded that the same principle extends to medicines and consumables.
How to Audit Public Charitable Trusts under the Income Tax Act Click Here
The bench, comprising Balakrishna S (Member, CGST) and B. Suseel Kumar (Member, SGST), ruled that supplies of medicines and consumables to in-patients are naturally bundled and supplied in conjunction with healthcare services, making them a composite supply. The principal supply in such cases remains healthcare, which is exempt under Entry 74 of Notification 12/2017-CT(Rate) and the corresponding Tamil Nadu notification.
However, the AAR drew a clear distinction in the case of out-patients. Unlike in-patients, out-patients are not bound to procure medicines from the hospital pharmacy and may choose external pharmacies.
Consequently, pharmacy sales to out-patients were held to be independent supplies of goods, taxable under GST at the applicable rate.
Support our journalism by subscribing to Taxscanpremium. Follow us on Telegram for quick updates
