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CA Final · Indirect Tax Laws · Exemptions from GST

Lifeline Hospital, a clinical establishment, admits Mr. Rao for a surgery. For one package price it provides the surgery, nursing, the room, and the medicines and consumables used during the treatment. The principal supply is healthcare services, which are exempt. How should the package be treated?

The whole package is exempt. The elements are naturally bundled, so it is a composite supply, and a composite supply takes the tax treatment of its principal supply. Since the principal supply of healthcare services by a clinical establishment is exempt, the incidental medicines and nursing are also exempt.

  1. AThe whole package is exempt, as it is a composite supply whose principal supply is exemptCorrect
  2. BOnly the surgery is exempt, and the medicines are taxable at their own rate
  3. CThe whole package is taxable at the highest rate among its components
  4. DThe package is taxable because the hospital charged a single price

Explanation

Medicines and consumables used during inpatient treatment are naturally bundled with healthcare and form a composite supply. A composite supply is taxed as its principal supply, and here the principal supply is exempt healthcare. The highest-rate rule applies to mixed supplies, not to this composite supply.

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