GST on Sale of Medicines and Implants by Hospitals: What Guj HC Said
The Gujarat High Court has ruled that private hospitals must pay GST on the sale of medicines, implants, and stents supplied independently to patients, even during treatment. This has stirred significant debate within the healthcare and tax community.
Let’s break down what this means, especially for private hospitals and their billing practices.
Key Issue: Are Medicine Sales in Hospitals Taxable?
The crux of the issue was whether supply of medicines and implants by hospitals as part of treatment qualifies as a composite supply of healthcare services (which is exempt under GST), or if it should be treated as individual taxable supplies.
What the Gujarat High Court Held
In Sterling Addlife India Pvt. Ltd. vs. Union of India, the High Court clarified:
- Sale of medicines, stents, and implants to admitted patients on a standalone basis attracts GST at applicable rates, even if given during treatment.
- It is not always a composite supply bundled with healthcare services.
- Hospitals cannot claim full GST exemption on the entire bill just because part of it is for exempt healthcare.
Legal Reference:
- Entry 74 of Notification No. 12/2017-Central Tax (Rate) provides GST exemption for “healthcare services”.
- The Court said exemption only applies when medicines and consumables are integrally part of treatment — not in isolation.
What is a Composite vs. Mixed Supply?
| Particulars | Composite Supply | Mixed Supply |
|---|---|---|
| Definition | Two or more naturally bundled services | Two or more individual supplies combined |
| Tax Treatment | Taxed as per principal supply | Taxed at highest rate applicable |
| Hospital Implication | Healthcare + medicines = exempt | Separate billing for drugs = taxable |
How Hospitals Must Handle GST on Medicines
Hospitals need to evaluate their billing structure:
- If drugs are billed separately, GST applies.
- If bundled with healthcare services, exemption applies only if naturally bundled.
- Maintain clear audit trail and billing consistency.
Practical Tip:
Hospitals should revisit their tax invoices, especially for indoor patients. Splitting bills to claim exemption might now be questioned.
Impact on Private Healthcare Sector
- Financial Impact: Increased GST liability and administrative burden
- Pricing Pressure: Hospitals may pass GST to patients, increasing treatment costs
- Compliance Needs: Need for accurate GST classification and invoicing
CBIC Clarification Needed?
There is no updated CBIC Circular post this judgment, but earlier clarifications (e.g., Circular No. 32/06/2018-GST) supported exemption if supply is incidental to treatment.
However, courts are now scrutinizing the bundling logic more strictly.
Expert View:
“Hospitals must adopt a ‘substance over form’ approach in billing. Even if services appear bundled, the court may test if they are actually indivisible.”
— CA Meera Shah, Healthcare Tax Consultant
FAQ: GST on Hospital Medicines
Q1: Is GST applicable on medicine given to in-patients?
A: Only if billed as part of healthcare treatment. If billed separately, GST applies.
Q2: Are implants/stents used during surgery exempt?
A: If part of a surgical package, exemption may apply. Standalone billing attracts GST.
Q3: Should hospitals register under GST?
A: Yes, if they engage in taxable supplies like pharmacy sales, diagnostics, or canteen services.
Final Thoughts
The Gujarat HC ruling signals a tighter interpretation of GST exemptions in healthcare. Hospitals must now ensure billing practices align with GST law — or risk litigation and tax demand.
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Summary
Gujarat HC has ruled that GST applies on the sale of medicines, stents, and implants by hospitals when billed separately. This narrows healthcare GST exemption. Hospitals must revise billing practices to avoid tax demands. Know what qualifies as composite supply under GST.