ITC credit on medicine in respect of dispensary in factories premises

Yes, eligible.

ITC under 17(5) of CGST: input tax credit shall not be available in respect of health services EXCEPT where an inward supply of goods or services or both of a particular category is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply.

Denial of credit on the medical dispensary services
 

According to me ITC is available, if you read Section 17(5) the term "Health Service" is included in the blocked credit section.

However it is also provided in the proviso to the section, that ITC would be admissible where it is obligatory for an employer to provide such supplies to its employees under any law for the time being in force.

Under factories and various State Shops and Establishment Act it is obligatory for employer to have Canteen, Clinic / dispensary hence ITC on medicine should be allowed.

the word health service is used. it is to be seen that whether medicine comes in the purview of health services.

Its better not to take the itc or consult you area commissioner.

I would also recommend you to take a look at the UK Meds online pharmacy. I found out about it last year. Since then I buy all the needed medications and health supplements there. I was pleasantly surprised by the prices there and the free delivery option. I think everyone should know about it.

Can be availed subject to Section 17(5) of CGST Act