Adjudication ordered on GST applicability for medicines supplied to inpatients by hospitals during treatment

Issue

Whether the supply of medicines, medical devices, and consumables to inpatients by a hospital constitutes a part of exempt “health services” or is a taxable supply liable to GST, specifically when billed to patients (either as a package or itemized) without separately reflecting GST on the invoice.

Facts

Show Cause Notice (SCN): The Revenue Department issued an SCN to the hospital alleging that medicines and consumables dispensed to patients were billed at MRP, but the tax component (GST) collected was not deposited with the Government.
Hospital’s Defense: The hospital contended that:
- Health services are fully exempt from GST.
- Medicines, devices, or consumables administered to patients as part of these health services are composite supplies bundled with the exempt service, hence no GST is payable.
- Separately, sales made by the hospital’s pharmacy (likely to outpatients) are subjected to GST, which is collected and paid.
Billing Practice: The hospital claimed it does not separately reflect any GST on the invoices raised for inpatients.
Court’s Observation: Hospitals invariably administer medicines and consumables to inpatients, billing them either as a package or item-by-item. The core factual dispute is whether these supplies are distinct taxable sales or integral to the exempt treatment.

Decision

Direction to Reply: The hospital is directed to file a proper detailed reply to the impugned SCN.
Evidence Required: The hospital must place factual evidence before the adjudicating authority, including:
- Copies of invoices raised on patients.
- Details of procurement of medicines/devices and the tax paid at the procurement stage.
- The specific manner in which these items are billed to patients when services are administered.
Adjudication to Proceed: The adjudication proceedings are allowed to continue to determine the factual nature of the supply.
Interim Protection: The adjudicating authority may pass a final order, but it shall not be given effect (enforced) during the pendency of the instant petition before the Court.

Key Takeaways

Composite Supply Concept: The central debate rests on whether inpatient supplies are a “Composite Supply” where the principal supply is exempt healthcare (making the ancillary goods exempt too), or if they are separate taxable supplies.
Inpatient vs. Outpatient: Typically, medicines given to inpatients during treatment are considered part of healthcare services (Exempt), whereas over-the-counter pharmacy sales to outpatients are taxable.
Documentation is Critical: The outcome will depend heavily on how the hospital structures its billing (package vs. itemized) and whether it can prove that no GST was actually collected from inpatients on these specific items.
Protection Against Recovery: While the tax authorities can finalize the demand order, they cannot recover the money immediately due to the Court’s stay, providing temporary relief to the hospital.

HIGH COURT OF DELHI

Escorts Heart Institute and Research Centre Ltd.

Additional Commissioner, CGST Audit^*

PRATHIBA M. SINGH and SHAIL JAIN, JJ.

W.P.(C) No. 19355 of 2025
CM APPL. No. 80732 and 80733 of 2025

DECEMBER 19, 2025

V. Lakshmikumaran, Yogendra Aldak and Kunal Kapoor, Advs. for the Petitioner. Aditya Singla, SSC for the Respondent.

ORDER

1. This hearing has been done through hybrid mode.

2. The issue that has been raised in this case relates to health services provided by the Petitioner at Escorts Hospital. A notice dated 29th September, 2025 has been issued to the Petitioner under Section 76 of the Central Goods and Service Tax Act, 2017, which deals with amount collected as tax but not paid to Government, on the ground that insofar as medicines, consumables etc. are concerned which are billed at MRP by the Petitioner Hospital, GST is being collected by the Petitioner but not being paid to the Government.

3. Hence, the show cause notice dated 29th September, 2025, along with DRC-I (hereinafter, ‘the impugned SCN’) was issued, wherein a demand raised is to the tune of Rs. 6.66 crores.

4. The submission of Mr. Lakshmikumaran, ld. Counsel for the Petitioner, is that health services are fully exempt from GST and hence, if any medicines, medical devices or consumables are dispensed to the patient as part of the health services which are administered to the patients, no GST would be liable to be paid thereon, and in fact no GST is being collected by the Petitioner Hospital. He, however, clarifies that whenever sales are made by the pharmacy located in the hospital, GST is collected and is also paid by the Petitioner.

5. Mr. Singla, on the other hand, submits that medical devices and medicines which are dispensed even to the in-patients, the tax is being collected by the Petitioner but not being paid to the Government. Hence, the impugned notice has been issued to the Petitioner and the proceedings have been initiated on such ground.

6. The case raises an interesting issue in respect of health services and medicines/ devices or other consumables which are dispensed to in-patients as part of administration of health in hospitals. The hospitals, invariably, depending upon the circumstances, administer medicines and also give consumables and devices to in-patients. The same are obviously billed either as part of the overall package or on an item-by-item basis. However, in this case, the Petitioner claims that it does not separately reflect any GST on the invoice raised on the patients. Under such circumstances, the question would be whether GST would be liable to be paid on this component or not.

7. Issue Notice. Mr. Aditya Singla, ld. SSC accepts notice on behalf of the Respondent.

8. The Respondent shall fill its counter affidavit within a period of four weeks. Rejoinder thereto, be also filed within four weeks thereafter.

9. In the meantime, the Court would like to have the benefit of the stand of the Petitioner and the adjudication order, if any, passed by the adjudicating authority pursuant to the impugned SCN.

10. Accordingly, it is directed that a proper reply be filed by the Petitioner to the impugned SCN. Let the said reply be filed by the Petitioner by 31^st January, 2026. As part of the adjudication proceedings, since there would be factual issues that would be involved, the Petitioner shall also place before the adjudicating authority, along with its reply, copies of invoices, as also details of procurement of the medicines and other consumables/devices and the tax paid at the stage when the same are procured and thereafter, the manner in which they are billed to the patients at the time the health services are administered.

11. The proceedings in the SCN, before the adjudicating authority shall continue, a hearing shall be afforded and the final order may be passed, but the same shall not be given effect to during the pendency of this writ petition. Copy of the adjudication order, if any, shall also be placed on record.

12. Insofar as invoices as have been filed with the present petition, which show the name and other details of the patients, the same may be returned to the Petitioner’s counsel who may file redacted copies of the same.

13. List on 17^th March, 2026.