GST Tax liability on medicines supplied to patients through pharmacy

• OUT PATIENT (OPD) : The out-patients are those who visit the hospital for routine check-ups or clinical visits. Services like Medical consultancy and treatment without admitting a patient in the Hospital are exempted from GST. However, GST is payable on supply of Medicines, implants, consumables to out-patients through hospital owned pharmacy to outpatients since once the prescription is generated and the patients are allowed to purchase medicines from a pharmacy of their choice, then in that case, the health services are rendered only till the point of prescription.

• IN-PATIENT (IPD): The in-house patients are those who are admitted into the hospital for the required treatment.The doctors who treat the in patients themselves prescribe the medicines and consumables and implants are used in their treatment and diagnostics. Thus, it is a Composite Supply. These services are exempted from GST. However, if food and Medicine are supplied separately on optional basis, it is not a composite supply. Hence, GST is payable.

The Karnataka Authority of Advance Ruling (AAR) in the case of M/s Ambara has also ruled that the input tax credit is required to be restricted on medicines used in the supply of health care services provided to outpatients. Further in case medicines are supplied independent of health care services, then the applicant is eligible to claim input tax credit subject to payment of taxes on such independent supply of medicines. However, the input tax credit is not required to be restricted on medicines supplied to others i.e. customers, who are neither inpatients nor outpatients, as there is no health care services provided and is liable to pay tax on such outward supply of medicines.

It may also be pertinent to note that the Government of India based on the approval of 25th GST Council Meeting held on 18.01.2018 (F.No.354/17/2018-TRU Dt. 12.02.2018), clarified that while food supplied to in-patients is a part of composite supply of health care and not separately taxable, other supplies of food by the hospital to persons other than in-patients, not admitted, are taxable. Thus, the same principle is also applicable in the case of dispensing of medicines.