GST on the purchase/distribution of medicines, pharmaceuticals, and other surgical equipment on behalf of the government
Facts and Issue of the Case
The Andhra Pradesh Health & Medical Housing & Infrastructure Development Corporation (APHMHIDC), which was renamed as Andhra Pradesh Medical Services & Infrastructure Development Corporation is registered under Public Society Act 1350 in the year 1987 and established under the administrative control of Health Medical and Family Welfare Department.
The Government has notified the APHMHIDC as a nodal agency for procurement of medicines and subsequently the Government has entrusted the job of procurement of equipment to the Corporation. Further, the Government have entrusted the sanitation services to APMSIDC with a request to select the implementing agencies for each District adopting an open and transparent tender process.
Thus, APMSIDC has been working with three wings:
- Civil Wing for constructions of Medical Institutions.
- Drugs wing for procurement and distribution of Drugs and Surgical consumables.
- Equipmentwing for procurement of biomedical equipment.
After bifurcation of the State, APMSIDC registered with Registrar of Societies at Vijayawada. The Corporation is completely administered and managed under the aegis of the State Government of Andhra Pradesh. The key managerial positions consist of the Chairman, who is nominated by the Government of Andhra Pradesh and the Vice-Chairman and Managing Director, who is appointed by the Government of Andhra Pradesh.
The applicant seeks advance ruling on the following:
- Whether the procurement and distribution of drugs, medicines and other surgical equipment by APMSIDC on behalf of government without any value addition, and without any profit or loss, without even the intent to do business in the same amounts to Supply under Section 7 of CGST/SGST Act.
- Whether the establishment charges received from the State Government as per eligible for exemption as per Entry 3 or 3A of Notification Central Tax (Rate)?
Observations by the Court
The Court had examined the issues raised in the application in light of the facts and arguments submitted by the applicant. As seen from the documentation submitted by the applicant, it is clear that APMSIDC procures the drugs, medicines and surgical equipment on behalf of the Health, Medical and Family Welfare Department, Government of Andhra Pradesh, and delivers the drugs, etc., to the respective Primary Health Centres, Government Hospitals and other establishments. The issue at hand is to determine whether the procurement and distribution activityof the APMSIDC would amount to ‘supply’ under Sec.7 of CGST/APGST Act.
As mentioned supra in the excerpt from the ‘Tender Notice’, payment is made and theinvoices are raised in the name of MD, APMSIDC,Mangalagiri, Andhra Pradesh, for the supply of goods, which is an established fact as submitted by the applicant himself. Therefore, the procurement and distribution of drugs,Medicines and other surgical equipment by APMSIDC, is essentially a ‘supply’, as per the provisions of the Act.
Now, the court has examine the second query, whether the establishment charges received from the State Government as eligible for exemption as per Entry 3 or 3A of Notification Central Tax (Rate). Before going into the nitty-gritty of the different aspects of the transaction such as, whether it is provided to governmental authority/entity/ or State Government itself, or whether the activity falls under any function entrusted to a Panchayat under article 243G of the Constitution or in relation to any function entrusted to a Municipality under article 243W of the Constitution, etc., the court has examine the nature of the activity, primarily, whether as per entry 3,the services shall essentially be ‘Pure Services’, or not to be claimed under exemption. The applicant claimsthatcorporation does not incur any profit or loss on any of the commodities and hence the remuneration earned by Corporationis for the pure services alone. But, as a matter of fact, the applicant undertakes the procurement of drugs, surgical equipment, etc, and raises an invoice in the name of MD, APMSIDC.
In addition to the above,the charges are received from the State Government as ‘establishmentcharges’ for handling and monitoring the activity. By all means, the principal activity is the procurement of goods and the ancillary activity is the service component ofhandling and monitoring of the supply, for which establishmentcharges are received as 2% as mentioned by the applicant. In view of the observations made above, we conclude that there is a clear cut involvement of both goods and services in the instant transaction and it is not in any way, a pure service, thus not eligible for exemption.
Question: Whether the procurement and distribution of drugs, Medicines and other surgical equipment by APMSIDC on behalf of government without any value addition, and without any profit or loss, without even the intent to do business in the same amounts to Supply under Section 7 of CGST/SGST Act.
Question: Whether the establishment charges received from the State Government as per eligible for exemption as per Entry 3 or 3A of Notification Central Tax (Rate)?