Hospitals that administer the COVID-19 vaccine must pay 5% GST
Fact and Issue of the case
The appellant, M/s. Krishna Institute of Medical Sciences Limited is a public limited Company, and a multi-specialty 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.
The Appellant sought clarification with regard to the activity of administering of COVID-19 vaccination by hospitals and approached the Authority for Advance Ruling on the following questions:
Question 1: Whether administering of COVID-19 vaccination by hospitals is Supply of Good or Supply of Service?
Question 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) dt.28.06.2017?
Question 3: Whether administering of COVID-19 vaccination by clinical establishment is exempt under GST Act?
Answer: Administering of COVID-19 vaccination by hospitals 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%.
Answer: Administering of COVID-19 Vaccine by clinical establishments (Hospitals) is not qualify under “Health care services” as per Notification No. 12/2017 Central Tax Rate dated 28.06.2017 and not eligible for exemption.
Aggrieved by the impugned order, the appellant has filed the present appeal on the following grounds.
Observation of the Advance Authority
The Authority has gone through the submissions made by the appellant in light of the ruling pronounced by the Authority for Advance Ruling. On perusal of the elaborate submissions made by the appellant at the time of hearing and taking into consideration the facts of the case, we make the following observations.
The primary contention of the appellant is that whether the activity of receipt of vaccine by the consumer is covered under supply of goods or services or both. The lower Authority had taken the stance that it is a composite supply wherein the principal supply is receipt of vaccine i.e., supply of goods and the administration of vaccine is supply of service, which is auxiliary.
The appellant alleges that the lower Authority misunderstood the process of the vaccination as sale of vaccine. Moreover the appellant submits that,-
a) Hospital is not selling the vaccine to the recipient.
b) The true essence of the supply is service, wherein the recipient’s desire to get immune will be fulfilled.
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. The dominant intention of the recipient is the receipt of the vaccine followed by its administration and hence the principal supply is supply of vaccine and not the process of vaccination.
The appellant himself acknowledges that the vaccine vial consists of multiple doses and one such dose is injected to the body of the recipient, as a part of the vaccination process. On the other hand he claims that there is no transfer of goods as such, which is a contradiction. This understanding of the appellant regarding vaccination process is flawed and distorted. The individual goes to the covid vaccination Center for the receipt of vaccine, by following the government guidelines of registering himself/herself in the portal and gets an appointment on a scheduled date to receive the vaccine, etc. Once the individual is vaccinated, there is transfer of goods undoubtedly, as the recipient receives the stipulated amount of dosage of medicine.
The appellant argues that, the recipient cannot purchase the vaccine as it is not sold at pharmacy outlets, hence it cannot be considered as supply of good. However, the service of administering the vaccine has all the necessary elements to classify it as supply of goods and this has already been discussed supra. The outlet of supply or the supplier cannot decide whether a transaction can be classified as supply or not. There is transfer of medicine to the recipient when he approaches the Covid Vaccination Centre for vaccination, the recipient of vaccine makes a conscious choice of vaccine, and also pays a price for it as per the guidelines of the government.
Finally, the appellate confirm that exemption is not allowed in the instant case against the claim of the applicant. While validating the decision of the lower authority that taxability of the supply comes 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%.
The appeallate ruled against the taxpayer and uphold the ruling of the AAR which is as follows:
1. Administering of COVID-19 vaccination by hospitals 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%.
2. Administering of COVID-19 Vaccine by clinical establishments (Hospitals) is not qualify under “Health care services” as per Notification No. 12/2017 Central Tax Rate dated 28.06.2017 and not eligible for exemption.