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July 22, 2022

5% GST is payable when hospitals provide the COVID-19 vaccine

by CA Shivam Jaiswal in GST, Legal Court Judgement

5% GST is payable when hospitals provide the COVID-19 vaccine

Facts and Issue of the case

The  applicant, M/s Krishna Institute of Medical Sciences Limited is a public limited Company, and a mufti-speciality hospital, rendering healthcare services and claiming exemption on the said service vide notification no. 12/2017 Central Tax Rate. Apart from healthcare services, the Company also makes pharmacy supplies based on doctors prescriptions to outpatients, which is taxable and accordingly the Company remits taxes on the same. The Company has been permitted to administer COVID-19 vaccine.

Questions raised before the authority:

The applicant seeks advance ruling on the following:

1. Whether administering of COVID-19 vaccination by hospitals is Supply of Good or Supply of Service?

2. Whether administering of COVID-19 Vaccine by clinical establishments (Hospitals) qualify as “Health care services” as per Notification No. 12/2017 Central Tax Rate dated 28.06.2017?

3. Whether administering of COVID-19 vaccination by clinical establishment is exempt under GST Act?

Observation by the court

The court had examined the issues raised in the application and the submissions made by the authorized representative at the time of Hearing. The issue at hand is to decide whether administering of COVID-19 vaccination by hospitals is Supply of Goods or Supply of Service. Subsequently , the applicant seeks clarification whether administering of COVID-19 Vaccine by clinical establishments (Hospitals) qualify as “Health care services” as per Notification and eligible for exemption.

To begin with, the court  discuss the primary question, whether administering of Covid -19 vaccine by hospitals is ‘supply of goods or services or both goods and services’. Basically, two activities are involved in this transaction, ‘sale of vaccine’ under ‘supply of goods’ and ‘administering of vaccine’ under ‘supply of service’. When it comes to administering of the vaccine by hospitals, it involves a combination of two supplies, which are naturally bundled, i.e, ‘supply of vaccine’ and the ‘service component’ followed by way of administering the same.

In the present case, both the supplies are intrinsically connected with each other, and it is viewed as a single package by the recipient, where he purchases the vaccine and gets it administered subsequently. In order to determine, which of the above two, is the principal supply, it would rather depend upon the normal or frequent practices followed in the area of business or the perception of the consumer / recipient as well. Generally, the primary requirement of the recipient would be the receipt of the vaccine, basing on his choice i.e., Covishield or Covaxin. Thus, the supply of goods constitutes the major supply. The proper administration of the vaccine by the technically qualified personnel as prescribed by the guidelines of the government becomes the ancillary supply, which involves ‘service charge’. Hence the taxability of the total transaction in the instant case is based on the tax rate of the principal supply i.e., sale of vaccine © 5 %.

The court discuss the next part of the query, whether the administration of Covid-19 vaccine by clinical establishments (hospitals) would qualify as “Health Care Services” as per Notification. In this regard the dominant intention of the recipient is the receipt of the vaccine followed by its administration. In the instant case, there is no doubt that the applicant qualifies to be a clinical establishment but, the supply transaction is predominantly of sale of goods and not the service component of healthcare.

It has been settled by various Advance Ruling Authorities that inpatient services are covered under the healthcare services extended by the clinical establishments, which are exempt under GT. By no stretch of imagination, the receipt of vaccine can be considered as inpatient services rendered by the hospitals in this regard. Finally, the court  arrive at the conclusion that exemption is not allowed in the instant case as claimed by the applicant under ‘health care services’ provided by the ‘clinical establishment’. The taxability of the supply is under ‘composite supply’, wherein the principal supply is the ‘sale of vaccine’ and the auxiliary supply is the service of ‘administering the vaccine’ and the total transaction is taxable at the rate of principal supply i.e, 5°/o. The service charge of administering the vaccine as prescribed by the Central Government from time to time is applicable and inclusive of the total value of the composite supply.

Conclusion

Question: Whether administering of COVID-19 vaccination by hospitals is Supply of Good or Supply of Service?

Answer: It is a Composite supply, wherein the principal supply is the “sale of vaccine’and the auxiliary supply is the service of ‘administering the vaccine’ and the total transaction is taxable at the rate of principal supply i.e, 5%.

Question: Whether administering of COVID-19 Vaccine by clinical establishments (Hospitals) qualify as “Health care services” as per Notification No. 12/2017 Central Tax Rate dated 28.06.2017?

Answer : Negative

Question: Whether administering of COVID-19 vaccination by clinical establishment is exempt under GST Act?

Answer: Negative

In-re-Krishna-Institute-of-Medical-Sciences-Limited-GST-AAR-Andhra-Pradesh

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