The AAR Tamil Nadu has ruled on the taxability of medicines supplied by M/s. Rajarajeswari Hospitals Private Limited, which operates a multi-specialty hospital. The hospital provides comprehensive healthcare services, including an in-house pharmacy that supplies medicines to both inpatients and outpatients based on prescriptions. The key issue was whether the supply of medicines, consumables, and implants qualifies as exempt healthcare services for both categories of patients.
The authority determined that for inpatients, the supply of medicines is part of a naturally bundled composite supply of healthcare services. This includes room, nursing, diagnostics, and procedures, where the medicines and other items are essential to the principal healthcare service. As such, these supplies are deemed inseparable and lose their individual identity, thus qualifying as exempt under Notification No. 12/2017.
Conversely, for outpatients, the authority noted that the supply of medicines is not inherently tied to the healthcare services provided. Since outpatients are not admitted and have the option to purchase medicines from the hospital pharmacy independently, this supply is not considered a composite supply of healthcare services. Consequently, the sale of medicines to outpatients is treated as a separate supply of goods and is subject to GST, unlike the exempt status of inpatient supplies.
Order Date - 29 January 2026
Facts -
- M/s. Rajarajeswari Hospitals Private Limited runs a multi-specialty hospital providing integrated healthcare services including treatment, diagnostics, surgery, and pharmacy services to both inpatients and outpatients.
- The hospital operates an in-house pharmacy, which is not independent but fully integrated with hospital billing, supplying medicines strictly to patients based on prescriptions.
- For inpatients, medicines, implants, and consumables are provided as part of a comprehensive treatment package, including room, nursing, diagnostics, and procedures.
- For outpatients, medicines are dispensed through the same pharmacy but may be taken home after consultation, even though they are issued based on hospital prescriptions.
Issue -
- Whether medicines, consumables, and implants supplied by the hospital qualify as exempt healthcare services (composite supply) for both inpatients and outpatients?
Order -
- The authority observed that inpatient treatment is a naturally bundled composite supply, where medicines, consumables, and services are inseparable. The patient is admitted for holistic care, and all supplies—like drugs, implants, diagnostics—are incidental and essential to the principal supply of healthcare services.
- It further noted that the hospital does not provide medicines independently to inpatients, but only as part of treatment. Therefore, such supply loses its individual identity and becomes part of the exempt healthcare service under Notification No. 12/2017.
- However, in the case of outpatients, the situation differs significantly, as patients are not admitted and can choose whether or not to purchase medicines from the hospital pharmacy. This indicates that the supply of medicines is not naturally bundled with consultation services.
- Hence, the authority concluded that sale of medicines to outpatients is a separate supply of goods, even if based on prescription, and therefore liable to GST, unlike inpatient supplies.
