The Authority for Advance Ruling (AAR), Tamil Nadu, passed a significant ruling in the case of M/s. Maha Critical Speciality Division, 2025 Taxo.online 761 wherein, Applicant sought advance ruling that whether the supply of medicines and consumables to in-patients qualifies as a composite supply of healthcare services, making it eligible for exemption under Notification No. 12/2017-CT (Rate).

The applicant, a healthcare provider offering emergency care, preventive care, and consultancy services, operates a pharmacy unit under the same GST registration. It was contended that medicines and consumables supplied to in-patients are integral to healthcare services and should be treated as a composite supply, where healthcare is the principal service. Applicant relied upon the erstwhile rulings of Tamil Nadu AAR in the matter of Royal Care Speciality Hospital Ltd. and Be Well Hospitals Pvt. Ltd., wherein, similar issue was dealt holding that supply of Medicines and consumables used in the course of providing health care services to inpatients admitted to the hospital for diagnosis or medical treatment or procedures till discharge is a composite supply of inpatient health care service, provided the consolidated bill raised in the name of the patient indicates the supply of medicines and consumables during the course of provision of health care services.

During the proceedings, the jurisdictional authorities noted that past rulings supported the exemption for in-patient supplies, and no objections were raised by the Central GST authorities. In a personal hearing, the applicant clarified that their pharmacy is not a separate entity and operates under the same GSTIN as the hospital. They emphasized that medicines for in-patients are bundled into the final bill without separate GST charges, while out-patient medicines are taxed as they are optional (patients can purchase them externally).

The AAR analyzed the definition of composite supply under Section 2(30) of the CGST Act, which requires two or more supplies to be naturally bundled with a principal supply (here, healthcare). It referred to SAC 999311, which covers inpatient services, including medical, pharmaceutical, and nursing care under a doctor’s supervision until discharge. The AAR also relied on Notification No. 12/2017 – CT(R) dated 28.07.2017 (Sl. No. 74), which exempts healthcare services by clinical establishments, and relied upon Circular No. 32/06/2018-GST dated 12.02.2018 as well, which states that food for in-patients is part of composite healthcare (while out-patient supplies are taxable).

The AAR distinguished between in-patient and out-patient supplies. For in-patients, medicines are mandatory and integrated into treatment, forming a composite supply exempt from GST. However, for out-patients, medicines are optional/advisory, and patients can purchase them from any pharmacy, making them taxable under GST.

AAR ruled in favor of the applicant, holding that the supply of medicines and consumables to in-patients by Maha Critical Speciality Division constitutes a composite supply of healthcare services under SAC 999311 and is exempt from GST under Sl. No. 74 of Notification 12/2017, provided the supplies are billed in a consolidated invoice during the patient’s admission until discharge.

GST authorities have been raising demand notices to various hospitals demanding payment of GST on the supply of medicines, consumables, etc. to IPD patients. This ruling will help such taxpayers to draw a reference in support of their argument that said supply is exempt by virtue of Sl. No. 74 of Notification 12/2017.

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