Major Relief- No Sales Tax on drugs, implants consumables used treatment says Kerala HC

Kochi: In a major relief to the healthcare services in the state, the Kerela High Court in a landmark judgement has held that drugs, implants and consumables used during surgical procedures/medical treatment at hospitals do not constitute sales and hence sales tax cannot be levied on the same. The order is likely to curb the steep increase in medical bills in hospitals in the state.

A full bench comprising Justice K Vinod Chandran, Justice A Muhammed Mustaque and Justice Ashok Menon passed the verdict while overruling a Division Bench verdict holding that the medicines and other surgical tools used during treatment at the hospital were subject to tax. The tax was to be levied under Kerala Value Added Tax Act, 2003.

Citing the apex court judgement, the bench observed that if any, in the course of treatment of patients in a hospital is with the sole intention of curing the patient and not extracting profits. Drugs, implants and consumables cannot be separated and it is an integral part of the service offered at a hospital. Any separate rights on such drugs, implants or consumables cannot be created.

It was held by the full bench that the state government cannot widen the scope of the definition in the 46th constitutional amendment, which was introduced in 1982 regarding tax on sales of goods.

The court said that the primary intention in hospital services is providing medical care and cure the patients effectively and not the sale of drugs, implants or other consumables.

The court further held, “They’re done on professional medical advice intended at curing the patient and not deriving profits. Though not a charitable activity, hospitals can’t be said to be business houses established primarily for the sale of drugs, consumables or implants.”

The judgment said,

“With respect to hospital services, we cannot but observe that the sale of drugs, implants and other consumables are part of the medical treatment rendered. There is no identity of the medicines or consumables or implants, as it does not lie in the mind or mouth of the patient to identify the drugs to be administered in the course of the treatment. Though a patient on his volition could refuse to take a particular drug, he cannot demand, as a matter of right, that a drug is administered to him in the course of the medical treatment. A demand of that nature will not be complied with by either a medical practitioner or a hospital, the latter of whom dispenses medicines only in accordance with the directions of the attending Physician or Surgeon. A person visits a hospital primarily for the purpose of curing an ailment or arresting or preventing it…. The cost of the implants, consumables or the drugs is irrelevant in so far as deciding what is the dominant nature of the transaction or service rendered to the patient in a hospital, which without any doubt is the therapeutic treatment rendered. The patient has no control or says, has limited control, on the procedures taken in the course of the treatment, the drugs administered and the consumables used.”

Medical Dialogues had earlier reported that GST council is pondering over a proposal regarding separate bills for hospital services which are currently exempted from GST and medicine bills carrying 5% GST on its MRP. The move is expected to make hospital bills more transparent.

Also Read: Separate Bills for Hospital Services, Medicines: Proposal with GST Council