1.10
1.11
1.12
1.13
1.14
1.15
2.7
CHAPTER 2 Economics
Healthcare Industry
2.8
2.8-1
2.8-2
2.8-3
2.9
2.10
2.11
2.12
2.13
2.14
CHAPTER 3
CHAPTER 4
4.1
4.3
4.4
4.5
4.6
4.7
4.8 Charitable
4.9
4.10
4.10-1
4.10-3
care services by a clinical establishment by which one generally understands a hospital, clinic, nursing home, diagnostic centre etc.
provided by way of transportation of a patient in an ambulance, other than those provided by a clinical establishment
4.10-4 Services of cord blood banks by way of preservation of stem cells or any other service in relation to such preservation
4.10-5
4.10-7
provided by operators of the common bio-medical waste treatment facility to a clinical establishment by way of treatment or disposal of bio-medical waste or the process incidental thereto
provided to a government, a local authority or a governmental authority by way of public health
4.10-8
by an entity registered under section 12AA of the Income-tax Act, 1961 by way of charitable activities
to transportation of the deceased
4.10-10 Services provided to the Government, a local authority or a governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repairs, maintenance, renovation or alteration of a structure meant predominantly for a clinical establishment
4.10-11
CHAPTER 5
Chargeability under GST regime
5.1 Article 246A, Clause 12A of Article 366 of the Constitution of India and section 9 of the CGST Act and chargeability of goods and services related to healthcare
5.1-2 Clause 12A of Article 366 – Definition of ‘goods and services
5.2
5.3 Is healthcare service outside purview of chargeability under section 9
5.4 Whether ‘healthcare services’ is a supply
5.5 Zero rated and exempt supplies under GST and whether such zero rate of tax or exemption from tax is applicable in respect of goods and services related to healthcare
5.6
5.7 Section 11 – Power to Government to
5.8 Notification No. 12/2017 – Central Tax (Rate) dated 28-06-2017 – Exemption to few services
5.9
5.10
5.11
5.12
5.13
5.14
5.15
5.18
5.20 Is denatured extra neutral alcohol which is used in the manufacture of alcoholic liquor for human consumption and which is outside the purview of GST, is taxable under VAT
5.21 Notification No. 2/2017 – Central Tax (Rate) dated 28-06-2017 – Exemption to few goods related to healthcare
CHAPTER 6
Exemptions and Taxability
6.1 Main Exemption Notification No. 12/2017-Central Tax (Rate) dated 28-06-2017
6.2 Ambit of services notified as
6.3 Entry No. 46 (48 under IGST) - SAC 9983 – Services by veterinary clinic
6.4 Veterinary clinic
6.5
6.6 Should a veterinary clinic have veterinary doctor
6.7
6.8 Sale of medicines by a veterinary clinic or other outlets
6.9 Entry No. 73 (76 under IGST) - SAC 9993 - Cord blood banks
6.10
6.11
No. 74 (77 under IGST) - SAC 9993 -
6.19
6.20
6.21
6.22
6.23
6.29
6.30
6.31
6.32 Licensing of clinical establishment
6.33 Hospital
6.34
6.36 Maternity
6.37 Sanatorium
6.38 Blood Bank
6.39 Fertility clinics
6.40 Dialysis centres
6.41 Are old age homes clinical establishments
6.42 Are Pathology and Radiology Labs clinical establishments
6.43 Authorised medical practitioner
6.44 Recognised system of medicines in India
6.45 Allopathy system of medicine and its governance
6.46 Ayurveda system of medicine and its governance
6.47 Yoga and Naturopathy system of medicine and its governance
6.48 Siddha system of medicine and its governance
6.49 Unani system of medicine and its governance
6.50 Homeopathy system of medicine and its governance
6.51 Is Yoga a recognised system of medicine in India
6.52 Are Yoga professionals authorised medical practitioners
6.53 Licensing of dentists - are dentists authorised medical practitioners
6.54 Dental treatments for injury, illness, deformity vis-à-vis for cosmetic purposes
6.55 Are services of authorised medical practitioners exempt from GST in all cases
6.56 Para-medics
6.57 National Commission for Allied and Healthcare Professions (NCAHP)
6.58 Are nurses para-medics
6.59 Hire of nursing services/para-medic services from an organization which is not a clinical establishment
6.60 Are nutritionists para-medics
6.61 Definition of pharmacists – are they para-medics
6.62 Condition for healthcare services to be exempt
6.63 Is healthcare service to be given to a patient only? Who is a patient?
6.64 Are all services provided by a hospital qualify as healthcare
6.65 Are preventive healthcare services exempt
6.66 Transportation services of a patient in an ambulance
6.67 Air Ambulance service
6.68 Other services by ambulance
6.69 Services by an ambulance if it carries a dead body
6.70 Ambulance services provided independently or by an aggregator
6.71
6.72 Services by
6.73
6.74 Entry No. 74A (77A under IGST) - SAC 9993 - Rehabilitation professionals
6.75 Entry No. 75 (78 under IGST) - SAC 9994 – Bio-medical waste treatment
6.76 Treatment of bio-medical waste for
6.77 Exemption related to treatment and disposal of bio-medical waste withdrawn
6.78 Circular No. 32/06/2018 – GST dated 12th February 2018
6.79 Main constituents of
6.85
6.86
6.87
6.88
6.89 Palliative and End-of-Life Care (when applicable)
6.90 Administrative and support services
6.91 Out-patients
6.91-4
6.91-5
6.92 Composite
6.93
6.94 Naturally bundled
6.95 Manner of determining if the services are bundled in the ordinary course of business
6.96 What is the manner of dealing with composite transactions which in addition to a transfer of title in goods involve an element of provision of service?
6.97 Supplied in conjunction with each other
6.98 In the ordinary course of business
6.99 One of the supplies is the principal
6.100
6.101
6.102
6.103 Few more words on composite supply vis-à-vis GST on room rent exceeding ` 5,000 per
6.104
6.105 Notification No. 11/2017 – Central Tax (Rate) dated 28th June 2017
6.106
6.107
6.108
6.109
6.110
6.111 Comparison between Service Tax and GST in respect of exemption on healthcare services
6.112 Exemption to supply of goods related to healthcare
6.113 Components of human blood
6.114 All kinds of contraceptives
6.115 Condoms
6.116 Hearing aids
6.117 Sanitary napkins
6.118 Exemption to cancer treatment drugs
6.119 SAC (Service Accounting Codes) and rates of tax applicable for healthcare services 173
6.120 Healthcare services – whether exempt or not in a nutshell 174
6.121 Grey areas 176
CHAPTER 7
Supply of goods by Pharmacy
7.1 Pharmacy and its functions
7.2 Who is in charge of drug dispensing in a pharmacy 178
7.3 Pharmacists and their regulations 179
7.4 Supply of medicines by pharmacy and applicability of GST 180
7.5 Challenges before a Pharmacy in availment of ITC 181
7.6 Supply of medicines by a hospital and applicability of GST 182
7.6-1 Supplies to in-patients 182
7.6-2 Supplies to out-patients 182
7.7 Procedure of supply of medicines from Pharmacy to in-patients 184
7.8 Medicines supplied to the in-patient based on internal requisition made by the treating department 184
7.9 Medicines supplied to the in-patient through central stores maintained by the hospital 185
7.10 Medicines asked to be procured by the attendant of the patient 186
7.11 Advance Rulings 187
7.12 Supply of medicine to a person per se is not exempt from GST 189
7.13 Doctors supplying medicine as part of bundled supply of healthcare service
7.14 Supply of medicine by a pharmacy to an out-patient is taxable - why 190
7.15 Supply of medicines to in-patients are exempt. Is it actually so, if billed at MRP? 193
7.16 In case of exempt supply of medicines billed at MRP 193
7.17 In case healthcare services is taxed @ 5% and medicines billed at MRP 194
CHAPTER 8
Supply
of services by hospital canteen
8.1 Definition of a canteen
8.2 Canteen attached to the hospital
8.3 Canteens and food joints are restaurants and are treated as such in GST laws 197
8.4 GST on food supplied by canteen owned by the hospital and outsourced canteen 197
8.5 Supply by a canteen – Is it supply or goods or supply of services 198
8.6 Supply of pre-packaged products from hospital canteen which have MRP 198
8.7 Taxability of supply of services by the hospital canteen and the food joint 203
8.8 Supply of food from canteen to hospital staff
8.9 Accounting and other complications in respect of supplies by canteen owned by the hospital
8.10 Tax rate applicable for restaurants
8.11 Changes in rates for services provided by a restaurant 210
8.12 Composition scheme for restaurants
8.13 GST rate for restaurants under composition scheme 217
8.14 Circular No. 32/06/2018 – GST dated 12th February 2018
CHAPTER 9
Room Rent in Hospitals
9.1 Room and bed occupancy charges
9.2 Room rent is a constituent of composite supply of healthcare services
9.3 Agenda for 47th GST Council Meeting
9.4 Room rent in hospital brought under tax net
9.5 ICU (Intensive Care Unit)
9.6 CCU (Coronary Care Unit)
9.7 ICCU (Intermediary Care Cardiac Unit/Intensive Coronary Care Unit)
9.8
9.9
9.10
9.11
9.13
9.14
9.15 Challenging the legal integrity of this levy of
9.16 Insignificant amount of collection from room rent
9.17 Issues about availment of ITC since room rent is
9.18 Progressive and Regressive Taxation in India: Insights from the taxation of hospital room rent
9.19 Indian indirect taxation and imposed progressivity
9.20 Incorporating progressive elements into GST
9.21 Justification of adopting multiple tax rates to ease burden on poor
9.22 An imaginary situation of progressivity in a regressive taxation
CHAPTER 10 Input Tax Credit
10.2 Need for introduction of GST
10.3 Uninterrupted flow of credit – Foundation on which GST was conceptualised
10.4 ITC is arguably the basic foundation of GST
10.5 Why ITC is the foundation of GST
10.5-1 Elimination of cascading tax effect
10.5-2 Ensuring tax neutrality
10.5-3 Encouraging compliance and formalization
10.5-4 Promoting a seamless national market
10.5-5 Integral to GST structure (destination-based tax)
10.6 The dissatisfaction
10.7 Conjecture about change in lawmakers’ attitude
10.8 ITC is a benefit or a right – the perennial question
10.9 The Apex Court judgment in the case of ALD Automotives (P.) Ltd.
10.10 The menace of fake invoices, the tightening of noose on ITC and the resultant difficulties faced by small and medium businesses
10.10-1 GSTR-2A/2B based matching
– Provisional ITC
E-invoicing and QR Code system
10.10-5 Mandatory bank verification, Aadhaar authentication and physical verification
10.10-6 Dependency on supplier’s compliance
10.10-7 Working capital strain
10.10-8 Risk of ITC denial on technical grounds
10.10-9 Administrative overload
10.11 Fears of harassment and litigation
10.13 Eligibility for
10.14
10.15 ITC in healthcare
10.16 ITC on construction of hospital building
10.17 Common ITC, proportionate ITC and reversal of ITC
10.19 Calculation of ITC available
CHAPTER 11
Registration and Accounting in Healthcare
11.1 Registration
11.1-1 Compulsory for those segments in the healthcare sector which are primarily involved in manufacturing and trading
11.2 Registration of entities engaged in providing direct healthcare services or related services
11.3 Registration for clinical establishments providing healthcare services
11.4 Registration on the basis of Reverse Charge Mechanism
11.5 Documentations for
11.6
–
11.8 Charging different types of GST – Place of Supply
Books and records to be maintained as per GST laws
and records to be maintained by a hospital
11.10-11
Debit note
Refund voucher
11.10-17 Delivery challan, if applicable
11.10-18 Purchase register or details of inward supplies along with details of ITC
11.10-19 Some system or records which bifurcates the ITC which is claimable and the ITC which it not claimable and forms part of cost
11.10-20 Details of common ITC which needs apportionment
11.10-21 Ineligible ITC u/s 17(5)
11.10-22 Billing register along with details of output GST, wherever applicable
11.10-23 Separate billing details for taxable and exempt outward supplies
11.10-24 Credit note and debit note registers
11.10-25 Details of ITC claimed, ITC availed, ITC apportioned and ITC reversed
11.10-26 Reconciliation data of ITC accrued as per GSTR2A/GSTR-2B and ITC availed in GSTR-3B and ITC reversed
11.10-27 Detailed vendor registers
11.10-28 Details of patients – Both in-patients and outpatients (MRD Registers)
11.10-29 Separate accounts for hospital run pharmacy
11.10-30 Separate accounts for canteen if it is run by the hospital
11.10-31 Appropriate cost records if the hospital is subject to cost audit
11.10-32 Payroll register
11.10-33 Details of import of goods or services, if any
11.10-34 Details of export of services, if any
11.10-35 Details of goods stolen, lost, given as gifts or samples, destroyed and written off and ITC reversed on it
11.10-36 Details of sales of scrap, if any
11.10-37 Details of sales of equipment and other fixed assets and payment of output tax on the same, if required
11.10-38 Advances received, paid and adjusted
CHAPTER 12
Pharma Industry and other Sectors
12.1 Key segments of the industry
12.1-1 Active Pharmaceutical Ingredients (APIs) and intermediates
12.2 Underlying growth factors of Indian pharma sector
12.3 Challenges faced by the sector
12.4 The impact of indirect taxes in earlier tax regimes on pharma
12.5 GST’s role in simplifying the imperfections
12.6 The supply chain in pharma
12.7 The components of pharma industries and the broad supply chain
12.8 Research & Development (R&D)
12.9 Importance of R&D in the pharma sector
12.10
12.10-2
12.10-4
12.10-5 R&D in SEZs and export units
12.11 Manufacture
12.12 The changes and significance of manufacturing in GST regime
12.13 Third party manufacturing in pharma sector
12.14 ITC in pharma manufacturing
12.14-1 Excise regime and Cenvat credit
12.14-2
12.14-3
12.15 Governing provisions
12.15-1
u/s 17(5)
12.17 The core legal provisions related to job work according to GST laws
12.17-1 Any treatment or process
12.17-2 Undertaken by a person
12.17-3 On goods belonging to another registered person
12.17-4 The expression “Job worker” shall be construed accordingly
12.18 How job work is applicable in pharma sector
12.19 Job work vis-à-vis third-party manufacturing
12.20 GST treatment
12.21 Taxability of finished products of pharma industry
12.24 Confusion during initial periods of
12.25
12.26 Expired
12.29 Product detailing materials used by Medical Representatives
12.30 Manufacturing and trading in medical equipment, devices and implants as well as consumables
12.31 Harmonised System of Nomenclature (HSN) Code and rates of tax applicable for some of the goods related to healthcare services
12.32 HSN codes and GST rate of specific medical equipment, devices and apparatus
12.33
12.33-3 Despite the progress, challenges remain
12.34 Implications of GST on IT services in the healthcare industry, particularly healthcare services delivery
12.35 GST rate of 18% on IT
12.36 Are all IT-enabled
12.37
CHAPTER
13 Typical situations
13.1 Administering saline drips, injections, providing physiotherapy to a patient at his home
13.2 Cleft
13.6 Diagnostics services provided to clinical establishments on a contractual basis
13.7 Digital aggregators of third-party diagnostics
13.8 District Mineral Foundations Trusts (DMFTs) set up by State Governments
13.9 Donation to hospital and levy of GST on display of name of donor
13.10 Facilitation fees charged by online portal operators for doctors’ appointment
13.11 Fees collected from nurses and psychologists for imparting practical training
13.12 Food for out-patients, attendants of patients
13.13
13.14
13.15 Health care treatment service to Indian as well as international patients through Ayurveda, Naturopathy & Yoga
13.16 Home collection of blood sample by a pathological lab through its agents
13.17 Home healthcare services provided by qualified nurses arranged by clinical establishment
13.18
13.19
13.20
13.26 Parked ambulance at corporate site along with para-medics
13.27 Pathology and radiology tests, physiotherapy and similar services to the in-patients
13.28 Pathology and radiology tests, physiotherapy and similar services to the out-patients or others
13.29 Placement of specified medical instrument to unrelated customers
13.30 Plastic surgery of a player
13.31 Plastic surgery for nose or lip reconstruction
13.32 Prepared laboratory reagent
13.33 Renting of immovable property by a hospital
13.34 Renting of immovable property by a doctor or a para-medic
13.35 Renting of medical equipment by one clinical establishment to another clinical establishment
13.36 Services by fitness centres
13.37 Services provided to in-patients through outsourcing
13.38 Sharing of revenue between doctors and the hospital 380
13.39 Specific services related to precision diagnostics dealing with oncology and immunology therapy
13.40 Supply of medicines, surgical items and consumables to inpatients 380
13.41 Supply of medicines, surgical items and consumables to outpatients 381
13.42 Teaching by a doctor
13.43 Testing services performed by overseas laboratory on the samples sent from India
13.44 Treatment of poultry including immunization
13.45 Bird’s eye view of the above
CHAPTER 14
GST Exemption in Healthcare – Is it a Myth?
14.1 Given the increasingly mechanized and unhealthy nature of modern life, healthcare professionals and medical facilities have become indispensable
14.2 Healthcare services are generally considered exempt under prevailing regulatory frameworks
14.3 ITC forms part of cost since end service is exempt from GST 389
14.4 Other sectors related to healthcare all come with GST and also forms part of cost
14.5 Depreciation is claimable on the ITC part also which forms part of cost
14.6 Healthcare in India
14.7 Restrictive cost of healthcare
14.8 Although the end healthcare service may be exempt, specific inputs used in its delivery may attract GST, which remains non-creditable under current tax laws
14.8-1 Dialysis procedure
14.8-2 Angioplasty procedure and stents
14.8-3 Cataract removal and intra-ocular lens
14.8-4 Bradycardia, Heart Block, Arrhythmias and Pacemaker
14.9 Would making healthcare services taxable and availment of input tax credit make it cheaper
14.10 The moot questions
14.11 Is it possible that the output tax in healthcare is determined in such a manner that it almost equals the input taxes and thus no refund is required from the Government, would it be a win-win situation for all
14.12 Impact of import duty
CHARGEABILITY UNDER GST REGIME
Non-chargeability or non-leviability of GST on certain goods or services or both happens broadly in the following cases –
(a)Goods or services which are completely outside the purview of GST e.g. alcoholic liquor for human consumption and un-denatured extra neutral alcohol used in the manufacture of alcoholic liquor for human consumption;
(b)Goods and services which are subject to zero rated tax i.e. where the tax rate is Zero (0);
(
c)Goods and services which are exempt from leviability of GST by issue of a notification u/s 11; and
(d)Activities or transactions mentioned in Schedule III of the GST Act which are neither treated as supply of goods nor supply of services under GST laws and accordingly no tax is levied.
5.1 Article 246A, Clause 12A of Article 366 of the Constitution of India and section 9 of the CGST Act and chargeability of goods and services related to healthcare
5.1-1 Article 246A – Power to make laws on GST
Clause 1 of newly inserted Article 246A of the Constitution of India clearly states that-
“Notwithstanding anything contained in Articles 246 and 254, Parliament and, subject to clause (2), the Legislature of every State, have power to make laws with respect to goods and services tax imposed by the Union or by such State”.
Clause 2 of the same Article states that-
“Parliament has exclusive power to make laws with respect to goods and services tax where the supply of goods, or of services, or both takes place in the course of inter-State trade or commerce”.
As per newly inserted Article 246A, both the Parliament and the State Assemblies have the power to make laws with respect to goods and services tax but only the Parliament has exclusive powers to legislate in this respect where the supply of goods or services or both takes place in the course of inter-state trade or commerce.
5.1-2 Clause 12A of Article 366 – Definition of ‘goods and services tax’
Newly inserted clause 12A of Article 366 provides the definition of goods and services tax. It states that –
‘“goods and services tax” means any tax on supply of goods, or services or both except taxes on the supply of the alcoholic liquor for human consumption’.
5.2 Leviability of GST on goods and services except alcoholic liquor for human consumption
Thus, the Constitution of India is very clear that goods and services tax or in short GST, cannot be levied on ‘alcoholic liquor for human consumption’. Similarly, section 9 of CGST Act, which is the charging section, also states that “subject to the provisions of sub-section (2), there shall be levied a tax called the central goods and services tax on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption and un-denatured extra neutral alcohol or rectified spirit used for manufacture of alcoholic liquor for human consumption, on the value determined under section 15 and at such rates, not exceeding twenty per cent, as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person”.
Finance (No. 2) Act, 2024 has amended section 9 of the CGST Act and has removed ‘un-denatured Extra Neutral Alcohol (ENA) or rectified spirit’ used in the manufacture of alcoholic liquor for human consumption from the purview of taxability under GST.
It is therefore, ample clear from section 9 that GST will be levied on all supplies of goods and services except supply of alcoholic liquor for human consumption and un-denatured ENA used for manufacture of alcoholic liquor for human consumption. Moreover, sub-section (2) of section 9 also says that GST on the supply of petroleum crude, high speed diesel, petrol, natural gas and aviation turbine fuel shall be levied with effect from such date as may be notified by the Government on the recommendations of the GST Council which means that as of now these products are not under the ambit if taxability under GST.
5.3 Is healthcare service outside purview of chargeability under section 9
Since neither the Constitution of India nor section 9 of the CGST Act keeps the goods and services related to healthcare outside the purview of chargeability under GST, prima facie it can be presumed that goods and services related to healthcare, healthcare services and broadly healthcare industry are subject to leviability of GST.
Section 9 deals with the levy and collection of Central Goods and Services Tax (CGST) on the supply of goods or services or both made for a consideration by a taxable person. In simple terms, it mandates that GST applies to all taxable supplies unless specifically exempted. Section 9 applies to all taxable supplies of goods or services or both, if the service provider is a taxable person and the supply is for consideration.
5.4 Whether ‘healthcare services’ is a supply
The pertinent question arising from the above is, is the provision of healthcare services a ‘supply’?
Section 7(a) states that for the purposes of GST Act, the expression “supply’ includes all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business. Accordingly, GST law defines “supply” broadly to include all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made for a consideration by a person in the course of business.
This pops up another question. Is ‘healthcare services’ a business since it has a strong social welfare aspect to it?
Clause (a) of section 2(17) of the CGST Act states that “business” includes “any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit.”
This means that even if the activity is not for profit, it can still qualify as business under GST if it involves supply of goods or services or both. Hospitals, clinics and diagnostic centres provide services and charge a fee for that. Even charitable hospitals may charge for some services or receive consideration in kind through donations etc. Accordingly, from the legal as well as the taxation point of view, these activities are considered a “business.” Healthcare may have a social welfare purpose, but GST law separates the intent of the service from its nature. Just because an activity is socially beneficial does not exclude it from being called “business.”
Based on the above, it is evident that the provision of healthcare services involves the supply of services usually made for a consideration and is carried out in the course or furtherance of business as defined under the CGST Act. Therefore, it qualifies as a “supply” under section 7(1)(a) of the CGST Act.
The definition of “business” under section 2(17) of the CGST Act is wide enough to include activities that may not be driven by pecuniary gain. As such, even if there is no profit motive, the organized and regular provision of healthcare services can still be considered a business and hence, a supply under GST.
5.5 Zero rated and exempt supplies under GST and whether such zero rate of tax or exemption from tax is applicable in respect of goods and services related to healthcare
5.5-1 Zero rated supplies
For the uninitiated, there is a subtle difference between ‘zero rated tax’ and ‘exemption from tax’ whereas in both the cases effectively there is no GST chargeable on the goods or services or both.
Under the Goods and Services Tax (GST) system, zero-rated tax refers to a tax rate of 0% applied to certain goods or services or both. This means that while the items are subject to GST, the rate of tax levied on them is effectively zero. However, exemption from GST refers to goods or services or both that are not subject to GST at all.
As per section 2(47) of the CGST Act, “exempt supply” means supply of any goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under section 11, or under section 6 of the Integrated Goods and Services Tax Act and includes non-taxable supply.”
As per the above definition, exempt supply includes non-taxable supply. As per section 2(78) of the CGST Act, “non-taxable supply” means a supply of goods or services or both which is not leviable to tax under this Act or under the Integrated Goods and Services Tax Act.”
CGST Act has not defined zero-rated tax or zero-rated supply. However, section 2(23) of the IGST Act has defined zero-rated supply as “zero-rated supply shall have the meaning assigned to it in section 16.”
As per section 16 of IGST Act, zero-rated supply consists of either of two kinds of supplies. These two kinds of supplies which are termed as zero-rated supply on which tax rate is 0% are –
(a) export of goods or services or both; or
(b) supply of goods or services or both for authorised operations to a Special Economic Zone developer or a Special Economic Zone unit.
From the above definition, it is clear that supply of any goods or services or both related to healthcare industry would be zero rated provided the same is exported outside India or the same is supplied to a Special Economic Zone developer or a Special Economic Zone unit for authorised operations. Economic laws in this particular geographical area are different from the prevailing laws in other parts of India. An SEZ is deemed as a Foreign Territory for matters that relate to the trade tariffs, duties and operations and accordingly supplies to SEZ is treated as exports.
Authorised operations here mean operations which may be authorised under sub-section (2) of section 4 and sub-section (9) of section 15 of the SEZ Act.
Section 4(2) of SEZ Act states that “after the appointed day, the Board may, authorise the Developer to undertake in a Special Economic Zone, such operations which the Central Government may authorise.”
Section 15(9) of the SEZ Act states that “the Development Commissioner may, after approval of the proposal referred to in sub-section (3), grant a letter of approval to the person concerned to set up a Unit and undertake such operations which the Development Commissioner may authorise and every such operation so authorised shall be mentioned in the Letter of Approval.”
Authorized operations include setting up, operation, maintenance and expansion of unit. Goods for construction of a building for setting up a unit can be included in the letter of approval. Any question as to whether any goods are required for authorized operation or not shall be decided by Development Commissioner – MC&I (DC) Instruction No. 3; (F.No. 5/1/2006EPZ) dated 24-3-2006.
The Board of Approval was appraised that consequent to the implementation of GST Act, some State Governments are not extending the benefits of IGST exemption for Default Services. Since SEZs are Exempt from IGST and the matter was placed before 80th Board of Approval meeting held on 17th November, 2017. The Board after deliberations, approved the reiteration of the Default Authorized Operations which were earlier approved vide Ministries Letter No. D.12/25/2012-SEZ dated 16th September, 2013 and subsequent letter of even number dated 19th November, 2013, 19th June 2014 and July 2014 vide which a list of 66 Services was permitted as Default Authorized Services.
In the case of Britannia Industries Limited v. Union of India [2020] 122 taxmann.com 32 (Guj.), the Gujarat High Court examined the definition of zero-rated supply under section 16(1) of the IGST Act, 2017. The court clarified that the supply of goods or services to a Special Economic Zone (SEZ) developer or unit qualifies as a zero-rated supply. The ruling emphasized that such supplies are eligible for refund under section 16(3) of the IGST Act.
Para 5.6 CHARGEABILITY
In the case of Tonbo Imaging India Pvt. Ltd. v. Union of India [2023] 148 taxmann.com/4 Centax 443/97 GST 709/73 G.S.T.L. 200 (Kar.), the Karnataka High Court delved into the concept of zero-rated supplies, distinguishing them from exempt supplies. The court highlighted that zero-rated supplies allow for the refund of input tax credit, whereas exempt supplies do not. This distinction is crucial for exporters seeking refunds on taxes paid during the production of goods or services.
In the case of Dharmendra M. Jani v. The Union of India [2023] 151 taxmann.com 91/7 Centax 61/74 G.S.T.L. 401 (Bom.), the Bombay High Court examined the eligibility of intermediary services for zero-rating under Section 16 of the IGST Act. The court emphasized that the definition of zero-rated supply encompasses export of goods or services and intermediary services facilitating such exports qualify as zero-rated supplies.
5.6 Exempt supplies
As per section 2(47) of the CGST Act, “exempt supply” means supply of any goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under section 11, or under section 6 of the Integrated Goods and Services Tax Act and includes non-taxable supply.”
As per the above definition, exempt supply includes non-taxable supply. As per section 2(78) of the CGST Act, “non-taxable supply” means a supply of goods or services or both which is not leviable to tax under this Act or under the Integrated Goods and Services Tax Act”. The definition clearly points to the fact that non-taxable supplies does not cover goods or services or both which are taxable under the GST Act.
In the case of M. Srinivasan v. Union of India [2021] 127 taxmann.com 175/97 GST 156/50 GSTL 244 (Mad.), the Madras High Court examined the scope of supply under section 7 of the CGST Act and clarified that the supply of services, such as renting of immovable property, falls within the definition of “supply.” However, the court also noted that certain services may be exempt from tax under specific provisions of the Act. This judgment underscores the importance of analysing each transaction to determine its taxability.
In the case of Pace Setters Business Solutions Pvt. Ltd. v. Union of India [2024] 161 taxmann.com 589/17 Centax 321/85 GSTL 420 (Delhi), the Delhi High Court addressed the issue of Input Tax Credit (ITC) in relation to exempt supplies. The court held that the value of exempt supply includes supplies on which the recipient is liable to pay tax on a reverse charge basis. This ruling emphasizes that even supplies subject to reverse charge are considered exempt supplies for the purpose of ITC restrictions.
In the case of Jayesh Anil Kumar Dalal, In re [2022] 136 taxmann.com 338 (AAAR - Uttar Pradesh) The Uttar Pradesh Appellate Authority for
Advance Ruling (AAAR) ruled that pure services provided to the State Urban Development Agency under the Pradhan Mantri Awas Yojana (PMAY) are exempt from GST. The authority concluded that these services are related to functions entrusted to municipalities and panchayats under the Constitution, qualifying them for exemption under Schedule III of the CGST Act.
5.7 Section 11 – Power to Government to exempt goods and services from GST
Section 11 of the CGST Act deals with exempt supply. This section empowers the Government, subject to GST Council recommendations, to generally exempt goods or services or both of any specified description, either absolutely or subject to some conditions as may be prescribed from either the whole or any part of the tax leviable thereon with effect from such date as may be notified. The Government would perform this authority only when it is satisfied that it is necessary in the public interest and the same will be done through a notification. The Government may also issue an order to provide exemption to any goods or services or both from the chargeability of GST and may also issue explanations to such notification or order if it is necessary or expedient.
Courts have upheld the government’s authority to grant exemptions through delegated legislation. In the case of Graziano Trasmissioni v. Goods and Services Tax [2024] 163 taxmann.com 126 (All.) and many such similar cases, the Allahabad High Court affirmed that the power to issue exemption notifications exists and can be exercised within the legislative framework, provided it is not arbitrary or unconstitutional.
In the landmark judgment in the case of Union of India v. Mohit Minerals [2022] 138 taxmann.com 331/61 GSTL 257 (SC), the Supreme Court held that the recommendations of the GST Council are not binding on the Centre or the States. The Court emphasized that while the Council’s recommendations have persuasive value, they do not have the force of law. This ruling underscore the autonomy of the Centre and States in legislating on GST matters, including granting exemptions, without being compelled by the Council’s recommendations.
5.8 Notification No. 12/2017 – Central Tax (Rate) dated 28.06.2017 – Exemption to few services related to healthcare
In respect of exempt supply, some of the services related to healthcare industry are exempt by issue of notification No. 12/2017-Central Tax (Rate) dated 28.06.2017. The notification has been subsequently amended few times. The exemptions provided to some of the services related to the healthcare industry would be discussed threadbare subsequently.
It is thus clear that some goods or services or both related to healthcare industry can be zero rated or in other words, effectively tax free if they are exported or supplied to SEZ and some of the services are absolutely exempt from tax by the issue of a notification under section 11 of the CGST Act and corresponding section 6 of the IGST Act.
5.9 Export of healthcare services
Export of goods to a country outside India or supply of goods to a SEZ unit or a SEZ developer is a straightforward issue and does not invite any complication. Export of service to a SEZ unit or a SEZ developer is also a relatively simple issue and taxability or non-taxability does not seem to be complicated. However, what could be export of healthcare services outside India?
Export of healthcare services refers to the provision of medical services directly to patients or to other related persons or organisations of other countries. This can include telemedicine through remote consultations and healthcare services delivered via technology. During Covid, use of telemedicine was at its peak although most of that was within the country.
Healthcare export services can take the form of offering training programs for foreign healthcare professionals in areas like nursing, surgery and advanced medical technologies. It may also include consulting services in providing expertise to foreign healthcare institutions. Providing real time online guidance at the time of performing a surgery is nothing new these days and experts sitting in one country providing crucial guidance to a surgeon performing a surgery miles away is not a fairytale anymore.
However, in this ever increasing complicated world of trade, the meaning and concept of export is also having a makeover with each passing day. The export of healthcare related goods and services can take many forms ranging from medical tourism to telemedicine and even the global sales of pharmaceuticals or medical equipment.
In respect of medical tourism, patients from other countries travel to receive medical treatment in a particular country. For example, someone from Nepal might travel to India for a surgery because it’s cheaper or faster or qualitative there. Can it be said that the destination country is “exporting” its medical services although the procedure is being performed in the destination country itself?
As stated, doctors or specialists provide remote consultations, diagnoses or even treatment plans to patients in another country via digital platforms. This is increasingly common with technological advances. Similarly, medical schools or hospitals provide education and training to foreign students or professionals, either in-person or online. Doctors, nurses or health profes-
sionals are sent to work in other countries under contracts or international partnerships. This is sometimes referred to as “mode 4” trade under WTO’s General Agreement on Trade in Services (GATS).
Hospitals and healthcare companies offer management services, training or strategic guidance to foreign institutions. And lastly, though more on the product side than services, selling medical supplies, drugs or devices internationally is also part of the broader healthcare export industry. In India, the classification of healthcare services as “export of services” under the Goods and Services Tax (GST) regime could be a subject of legal scrutiny. The determination hinges on whether such services meet the criteria outlined in section 2(6) of the Integrated Goods and Services Tax (IGST) Act, 2017. This particular provision defines “export of services” and specifies conditions under which services provided from India to outside India are considered export.
According to section 2(6) of the IGST Act, for a service to qualify as an export, it must fulfil the following conditions:
The supplier of the service must be located in India.
The recipient of the service must be located outside India.
The place of supply of the service must be outside India.
The payment for the service must be received in convertible foreign exchange or in Indian rupees wherever permitted by the Reserve Bank of India.
The supplier and recipient must not be merely employees or employers of each other.
For healthcare service to be considered export under GST, it must meet the aforementioned criteria-
The healthcare provider, e.g. the hospital or the clinic must be located in India.
The patient must be located outside India.
The place of supply is typically determined by the location where the treatment is provided.
Payment for the services must be received in convertible foreign exchange.
If these conditions are satisfied, healthcare services provided to foreign patients can qualify as export of services, making them eligible for zero-rated tax treatment under GST.
5.10 Contradiction in respect of chargeability – Zero rated or exempt
It appears that prima facie there is a contradiction or an ambiguity as to whether healthcare services exported outside India or provided to a SEZ unit or SEZ developer would be zero rated or exempt. If the provision of services is zero rated, the ITC would be available and refund would be claimable under section 54. However, if the supply is exempt, no ITC would be claimable. Would the refund of ITC be claimable under the circumstances? In such situations, which would override what? Whether the exemption notification No. 12/2017-Cenral Tax (Rate) dated 28th June, 2017 would be sacrosanct or the concept of export supply and definition of zero-rated supply would override that?
Notification No. 12/2017 states that -
“In exercise of the powers conferred by sub-section (1) of section 11 of the Central Goods and Services Tax Act, 2017 (12 of 2017), the Central Government, on being satisfied that it is necessary in the public interest so to do, on the recommendations of the Council, hereby exempts the intra-State supply of services of description as specified in column (3) of the Table below from so much of the central tax leviable thereon under sub-section (1) of section 9 of the said Act, as is in excess of the said tax calculated at the rate as specified in the corresponding entry in column (4) of the said Table, unless specified otherwise, subject to the relevant conditions as specified in the corresponding entry in column (5) of the said Table, namely –”
The above basically states that whatever tax rate is leviable on a particular service under section 9(1), the same will be compared with the tax rate mentioned in Notification no. 12/2017 (which is basically Nil) and the excess tax will be exempt. In other words, if the tax rate of a particular service is, say 18% and the Notification No. 12/2017 says that the tax rate for that particular service is Nil, the excess 18% would be exempt and no tax will be leviable.
Notification No. 12/2017 exempts a service from taxability and mentions a nexus with the tax rate as per section 9(1). Here the moot question is, is the applicability of zero rate on supplies to SEZ unit or developer stems from section 9(1)? Apparently, No. The term ‘zero-rated tax’ has not been defined anywhere in the GST laws. Section 16(1) of the IGST Act, 2017 defines zero rated supply and supplies to SEZ unit or SEZ suppliers are zero rated supplies. However, notification No. 12/2017-Central Tax (Rate) neither has any mention of zero-rated supplies nor does it mention a relationship with section 16(1) of the IGST Act, 2017.
The apparent contradiction or ambiguity is that while healthcare services are exempt under Notification No. 12/2017-Central Tax (Rate) dated 28th June, 2017, but when such services are exported or provided to a SEZ unit, the IGST Act seems to elevate them to zero-rated status. Thus, the question is, can an exempt supply ever be treated as zero-rated?
