Operations of Urban Health Centres and Polyclinics under Ayushman Bharat constitute exempt healthcare services under GST.

“Healthcare services by a clinical establishment, an authorised medical practitioner or para-medics.”

“health care services” means any service by way of diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognised system of medicines in India and includes services by way of transportation of the patient to and from a clinical establishment, but does not include hair transplant or cosmetic or plastic surgery, except when undertaken to restore or to reconstruct anatomy or functions of body affected due to congenital defects, developmental abnormalities, injury or trauma;”

2 (c) “clinical establishment” means-

(i) a hospital, maternity home, nursing home, dispensary, clinic, sanatorium or an institution by whatever name called that offers services, facilities requiring diagnosis, treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognised system of medicine established and administered or maintained by any person or body of persons, whether incorporated or not; or

(ii) a place established as an independent entity or part of an establishment referred to in sub-clause (i), in connection with the diagnosis or treatment of diseases where pathological, bacteriological, genetic, radiological, chemical, biological investigations or other diagnostic or investigative services with the aid of laboratory or other medical equipment, are usually carried on, established and administered or maintained by any person or body of persons, whether incorporated or not, and shall include a clinical establishment owned, controlled or managed by-

but does not include the clinical establishments owned, controlled or managed by the Armed Forces.

Explanation.- For the purpose of this clause “Armed Forces” means the forces constituted, under the Army Act, 1950 (45 of 1950), the Air Force Act, 1950 (45 of 1950) and the Navy Act, 1957 (62 of 1957);

7.7 On a combined reading of the definitions of health care services and clinical establishment, it is evident that any institution providing services by way of diagnosis or treatment or care for illness etc. will qualify to be categorised under the definition of clinical establishment. From the details of the services provided, as described by the applicant, it is evident that the applicant is providing services of care for illness to patients at their residence and hence qualify to be classified as a clinical establishment under the category of any other institution providing services of care for illness as per the said definition.

7.8 Based on the discussion above, it is concluded that the applicant is a clinical establishment providing health care services that are exempted as per entry at Sl. No. 74 of Notification No. 12/2017 Central Tax (Rate), dated 28-6-2017.

“11 . The two definitions of “clinical establishment” and “healthcare service” clearly shows that they have been worded very broadly so as to include the various services, which are connected with the healthcare service and are inbuilt in it. The appellant who is running the hospital is squarely covered by the definition of “clinical establishment”, which at the outset says the clinical establishment means hospital and is rendering the healthcare services as defined therein. The definition of “healthcare service” when it uses the term diagnosis or treatment or care for illness, etc. by any recognised, system of medicines, denotes that the provision for medicines to the patients is directly connected to the health care services. In other words, the provision for medicines is inbuilt in health care service and the treatment”

“This being the case, it is obvious that the beneficial purpose of the exemption contained in Section 3(1)(b) must be given full effect to, the line of authority being applicable to the facts of these cases being the line of authority which deals with beneficial exemptions as opposed to exemptions generally in tax statutes. This being the case, a literal formalistic interpretation of the statute at hand is to be eschewed. We must first ask ourselves what is the object sought to be achieved by the provision, and construe the statute in accord with such object. And on the assumption that any ambiguity arises in such construction, such ambiguity must be in favour of that which is exempted. Consequently, for the reasons given by us, we agree with 31 the conclusions reached by the impugned judgments of the Division Bench and the Full Bench.”

“There cannot be any doubt that the ratio in Sun Export Case (supra) that, if two views are possible in interpreting the exemption notification, the one favourable to the assessee in the matter of taxation has to be preferred. This principle created confusion and resulted in unsatisfactory state of law. In spite of catena of judgments of this Court, which took the contra view, holding that an exemption notification must be strictly construed, and if a person claiming exemption does not fall strictly within the description of the notification otherwise then he cannot claim exemption”.

“”4. Entitlement of exemption depends on construction of the expression “any factory commencing production” used in the Table extracted above. Literally exemption is freedom from liability, tax or duty. Fiscally it may assume varying shapes, specially, in a growing economy. For instance tax holiday to new units, concessional rate of tax to goods or persons for limited period or with the specific objective etc. That is why its construction, unlike charging provision, has to be tested on different touchstone. In fact an exemption provision is like an exception and on normal principle of construction or interpretation of statutes it is construed strictly cither because of legislative intention or on economic justification of inequitable burden or progressive approach of fiscal provisions intended to augment State revenue. But once exception or exemption becomes applicable no rule or principle requires it to be construed strictly. Truly speaking liberal and strict construction of an exemption provision are to be invoked at different stages of interpreting it. When the question is whether a subject falls in the notification or in the exemption clause then it being in nature of exception is to be construed strictly and against the subject but once ambiguity or doubt about applicability is lifted and the subject falls in the notification then full play should be given to it and it calls for a wider and liberal construction. Therefore, the first exercise that has to be undertaken is if the production of packing and wrapping material in the factory as it existed prior to 1964 is covered in the notification.”

(31) “consideration” in relation to the supply of goods or services or both includes-

(a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government;

(b) the monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government:

Provided that a deposit given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply;

(93) “recipient” of supply of goods or services or both, means-

(a) where a consideration is payable for the supply of goods or services or both, the person who is liable to pay that consideration;

(b) where no consideration is payable for the supply of goods, the person to whom the goods are delivered or made available, or to whom possession or use of the goods is given or made available; and

(c) where no consideration is payable for the supply of a service, the person to whom the service is rendered, and any reference to a person to whom a supply is made shall be construed as a reference to the recipient of the supply and shall include an agent acting as such on behalf of the recipient in relation to the goods or services or both supplied;

According to the Black Law Dictionary – A grant of money made by government in aid of the promoters of any enterprise, work, or improvement in which the government desires to participate, or which is considered a proper subject for state aid, because likely to be of benefit to the public.

In ‘Words and Phrases, Permanent Edition, Vol. 40’ subsidy is described as follows:

“A subsidy is a grant of funds or property from a government as of the state or municipal corporation to a private person or company to assist to the establishment or support of an enterprise deemed advantageous to the public; a subvention”.

As per section 2(x) of the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016 the term ‘subsidy’ is defined as follows:

‘subsidy” means any form of aid, support, grant, subvention, or appropriation, in cash or kind, to an individual or a group of individuals and includes such other subsidies as may be notified by the Central Government’

“7. On the facts of the present case, we are of the view that the present case involves change of opinion. In this connection, it must be noted that Government grants different types of subsidies to the entrepreneurs. The subsidy in Sahney Steel and Press Works Limited (supra) was an incentive subsidy linked to production. In fact, in Sahney Steel and Press Works Limited (supra) [at page 257], this Court categorically stated that the Scheme in hand was an incentive Scheme and it was not a Scheme for setting up the industries. In the said case, the salient features of the Scheme were examined and it was noticed that the Scheme formulated by the Government of Andhra Pradesh was admissible only after the commencement of production. In Income Tax matters, one has to examine the nature of the item in question, which would depend on the facts of each case. In the present case, we are concerned with power subsidy whereas in the case of Commissioner of Income Tax v. Ponni Sugars and Chemicals Limited, reported in [2008] 306 I.T.R. 392, the subsidy given by the Government was for re-paying loans. Therefore, in each case, one as to examine the nature of subsidy.”

“7. Thus under Section 4 read with Rule 5 in cases like the present where price was not the sole consideration the amount in money value of any additional consideration is includable in the value. However, the additional consideration must be directly or indirectly from the buyer to the assessee. In this case it is to be seen that the subsidy was as per the policy of the Government. The subsidy of 20% was paid by the Government, 10% was paid by the buyer. In our view the subsidy of 20% from the Government cannot be said to be additional consideration as it is not received from the buyer either directly or indirectly. Therefore, that would not be includable in the price of the goods for the purposes of excise.”

19. Now, we would like to refer to the definition or the term “consideration” as provided under section 2(31) of the CGST Act, 2017, which reads as under:

“consideration” in relation to the supply of goods or services or both includes-

(a) any payment made or to be made, whether in money or otherwise, in respect of in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or State Government;

(b) xx xx xx

20. On perusal of the aforesaid definition of the term “consideration”, it is seen that the term “consideration” shall not include any “subsidy” given by the Central Government or State Government. Now, we would like to dissect as to whether the reimbursement amount received by the Appellant from the Women and Child Development Department of the Government of Maharashtra can be construed as subsidy or otherwise. In this regard, we would like to understand the meaning of the term “subsidy”. Here, it is seen that the term “subsidy” has not been defined under the CGST Act, 2017. In such case, we will have to resort to the dictionary meaning of the term “subsidy”.

Meaning of “Subsidy” as per the “Merriam-Webster” Dictionary:

a grant or gift of money : such as –

a :a sum of money formerly granted by the British Parliament to the crown and raised by special taxation;

b :money granted by one state to another;

c :a grant by a government to a private person or company to assist an enterprise deemed advantageous to the public.

Meaning of “Subsidy” as per “dictionary.com”:

a direct pecuniary aid furnished by a government to a private industrial undertaking, a charity organization, or the like;

a sum paid, often in accordance with a treaty, by one government to another to secure some service in return;

a grant or contribution of money;

money formerly granted by the English Parliament to the crown for special needs;

21. On perusal of the aforesaid dictionary meanings of the term “subsidy”, it is apparent that any money/amount granted by a government to any private person or company for undertaking any charitable activities, which are beneficial to the public, will be construed as subsidy. In the present case, the Appellant are being granted a fixed amount of money from the Government of Maharashtra under the “One Stop Crises Centre Scheme” for taking overall care of the destitute women who are litigating divorce, or homeless, or the victims of domestic violence. The said activities undertaken by the Appellant are clearly for the welfare of these destitute women, and thereby, serving the mankind in general. Hence, we are of the opinion that the said amount of money reimbursed by the government to the Appellant is nothing but subsidy as the entire money is being spent in the activities which are advantageous to the public.

22. Now, once it has been established that the subject amount reimbursed by the government to the Appellant is in the nature of subsidy, it is concluded that the said reimbursement amount cannot be construed as “consideration” in terms of its definition provided under Section 2(31) of the CGST Act, 2017, which has been reproduced hereinabove.

23. Further, in absence of any consideration, it is opined that the subject transactions/activities undertaken by the Appellant, wherein they are providing various assistances, such as food, shelter, legal assistances, medical assistances, etc., to the destitute women, would not be construed as supply in terms of Section 7(1)(a) of the CGST Act, 2017, which stipulates that for any transactions/activities to be considered as supply, there has to be an element of “consideration”. In absence of the same, such transactions/activities will not be considered as “supply”.

25. In view of the above discussions and findings, we pass the following order:

26. We, hereby, set aside the Ruling passed by the MAAR vide Order No. GST-ARA-97/2019-20/B-91, dated 10-11-2021, Jayshankar Gramin v. Adivasi Vikas Sanstha, In re  2022] 89 GST 99/57 GSTL 148 (AAR – MAHARASHTRA) – 2021 -VIL-417-AAR by holding that since the impugned activities undertaken by the Appellant are not construed as “supply” in terms of Section 7(1)(a) of the CGST Act, 2017, the reimbursement amount paid by the Maharashtra Government to the Appellant for undertaking the activities specified under “One Stop Crises Centre Scheme” floated by the Central Government, will not be subject to the levy of GST.

(30) “composite supply” means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply.

Illustration: Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply;

“243W. Powers, authority and responsibilities of Municipalities, etc.

Subject to the provisions of this Constitution, the Legislature of a State may, by law, endow-

a. the Municipalities with such powers and authority as may be necessary to enable them to function as institutions of self-government and such law may contain provisions for the devolution of powers and responsibilities upon Municipalities, subject to such conditions as may be specified therein, with respect to

i. the preparation of plans for economic development and social justice;

ii. the performance of functions and the implementation of schemes as may be entrusted to them including those in relation to the matters listed in the Twelfth Schedule;

b. the Committees with such powers and authority as may be necessary to enable them to carry out the responsibilities conferred upon them including those in relation to the matters listed in the Twelfth Schedule.”

“It is well established that in a taxing statute there is no room for any intendment but regard must be had to the clear meaning of the words. The entire matter is governed wholly by the language of the notification. If the tax payer is within the plain terms of the exemption it cannot be denied its benefit by calling in aid any supposed intention of the exempting authority”.

“It appears to us the true rule of construction of a provision as to exemption is the one sated by this Court in Union of India & OINR v. Wood Papers Ltd., & Ors (1991 JT (1) 151 at 155 – 1990-VIL-05-SC-CE)”….. Truly, speaking liberal and strict construction of an exemption provision are to be invoked at different stages of interpreting it. When the question is whether a subject falls in the notification or in the exemption clause then it being in the nature of exception is to be construed strictly and against the subject but once ambiguity or doubt about applicability is lifted and the subject falls in the notification then full play should be given to it and it calls for a wider and liberal construction.”

“The expression ‘in relation to’ are words of comprehensiveness, which might both have a direct significance as well as an indirect significance depending on the context in which it is used and they are not words of restrictive content and ought not be so construed.”

“70. We find that the term ‘in relation to’ used in above exemption is very much wide enough to cover every kind of services that results in performance of the functions as mentioned in Article 243W of the Constitution Of India either directly or indirectly. Even the services provided for enabling the organization to perform defined functions would also be covered as a reason of usage of words ‘in relation to’. To substantiate this, we refer to the judgement of Doypack Systems (P.) Ltd. (supra) wherein it was held that, the expression “in relation to” (so also “pertaining to”), is a very broad expression which presupposes another subject matter. These are words of comprehensiveness which might both have a direct significance as well as an indirect significance depending on the context. It also held that the expression “in relation to” has been interpreted to the words of wisest amplitude. The term “relating to” expands the scope of the entry. The terms have been interpreted by the Supreme Court in the case of CCE v. Rajasthan State Chemical Works (SC) – 1991-VIL-03-SC-CE-LB and Union of India v. Ahmedabad Electricity Co. Ltd.  SC) – 2003-VIL-10-SC-CE, wherein it has been held that such words widen and expand the scope, meaning and content of expressions.

71. Thus, from above, it can be stated that the term ‘in relation to’ is very wide and the intention of the legislature is to encompass all those services which are provided so as to enable the organization to perform function entrusted in Article 243W of Constitution of India.”

thus, the Appellant’s activities form an integral part of the State’s public healthcare delivery mechanism, executed through a Governmental framework, and therefore clearly fall within the plain language and scope of Entry 3, entitling the Appellant to exemption, which has been erroneously denied in the impugned ruling.

“6. The petitioner has failed to indicate any notification issued under Section 9 of the Act having application to the contract in question and therefore, the plea sought to be 6 raised based on the agreement between the parties cannot be countenanced. The indication made in the agreement between the parties can be enforced by the petitioner against, respondent no.3, however, insofar as respondent-State is concerned, the liability to pay the GST is that on the supplier i.e. the petitioner and therefore, the plea raised in this regard has no substance.”

“10. The dispute as to whether the writ petitioners would, be entitled to reimbursement of incremental tax paid or payable by them on account of the levy of GST is strictly a matter between the writ petitioners and the Employers with whom they had entered into a contract. The contract between the writ petitioners and the employer would not alter the statutory scheme for the levy of GST. Thus, the liability of the writ petitioners to pay Goods and Services Tax (whether under the Central Goods and Services Tax Act, 2017, State Goods and Services Tax Act, 2017 or the Integrated Goods and Services Tax Act, 2017) is required, to be determined strictly in accordance with the provisions of the relevant statute. The question of the levy of GST, assessment, recovery, and enforcement is a matter of statutory prescription is required to be determined strictly in accordance with the provisions of the relevant statute. The question of the levy of GST, assessment, recovery, and enforcement is a matter of statutory prescription.”

Copy of the Offer letter for Appointment of a Medical Officer (MBBS) at UHWC, sent to one of the appointed candidates of the Appellant with Bank payment records, has been marked and annexed as Annexure A.

Copy of the Offer letter for Appointment of a Staff Nurse (GNM) at UHWC, sent to one of the appointed candidates of the Appellant with Bank payment records, has been marked and annexed as Annexure B.

“General Terms-Conditions and definitions

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vi. ‘Services’ mean the deliverables that are set out on the scope of work defined in the order placed on Limited Tender and this agreement.

(a) “health care services by a clinical establishment, an authorised medical practitioner or para-medics”. Further the Notification in its definition at clauses 2 (s) and 2(zg) defines ‘clinical establishment’ and ‘health care service’ which are reproduced below:

“2(s) “clinical establishment” means a hospital, nursing home, clinic, sanatorium or any other institution by, whatever name called, that offers services or facilities requiring diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognised system of medicines in India, or a place established as an independent entity or a part of an establishment to carry out diagnostic or investigative services of diseases;”.

“2(zg) “health care services” means any service by way of diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognised system of medicines in India and includes services by way of transportation of the patient to and from a clinical establishment, but does not include hair transplant or cosmetic or plastic surgery, except when undertaken to restore or to reconstruct anatomy or functions of body affected due to congenital defects, developmental abnormalities, injury or trauma;”.

On going through the above definitions, we observe that for the exemption benefit under Entry No. 74 of the Notification No. 12/2017-CT (Rate) dated 28.06.2017, the essential ingredients that need to be satisfied are that the supplier must be a clinical establishment; and that the services supplied must qualify as healthcare services.

Section 2(30) – “Composite Supply”

“Composite supply” means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination, thereof which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply

Section 2(90) of the CGST Act – “Principal Supply”

Section 2(90) defines principal supply as:

“Principal supply” means the supply of goods or services which constitutes the predominant element of a composite supply and to which any other supply forming part of that composite supply is ancillary;

Section 8(a) – Tax Liability on Composite Supply

Section 8(a) provides that:

“a composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply;”.

“Section 66F(3)(a) of the Finance Act, 1994 stated that if various elements of such service are naturally bundled in the ordinary course of business, it shall be treated as provision of the single service which gives such bundle its essential character;”.