GST liability on medicines/consumables supplied to in‑patients as part of exempt health services

The Hon'ble Delhi High Court in the case of M/s. Escorts Heart Institute and Research Centre Limited v. Additional Commissioner, CGST Audit-1 & Ors. [W.P.(C) 19355/2025, order dated December 19, 2025] held that where a notice under Section 76 of the CGST Act alleges that GST collected on medicines, consumables and devices billed at MRP to in-patients has not been paid to the Government, and raises important questions on taxability of such supplies when bundled with exempt health services, adjudication proceedings may continue with full opportunity of hearing and examination of invoices and procurement/tax details; however, any final order shall not be given effect to during the pendency of the writ petition.

Facts:

M/s. Escorts Heart Institute and Research Centre Limited ("the Petitioner") is a hospital providing health services at Escorts Hospital and dispensing medicines, medical devices and consumables to in-patients as part of such services, as well as running a pharmacy where over-the-counter sales are made.

The Additional Commissioner, CGST Audit-1 and others ("the Respondent") issued a notice dated September 29, 2025 under Section 76 of the Central Goods and Services Tax Act, 2017 ("CGST Act"), along with DRC-01 (the "impugned SCN"), alleging that GST is being collected but not paid to the Government on medicines and consumables billed at MRP to patients, and raised a demand of approximately Rs. 6.66 crores.

The Petitioner contended that health services are fully exempt from GST and, therefore, where medicines, medical devices or consumables are dispensed as part of health services administered to in-patients, no GST is liable to be paid and no GST is collected on such invoices. It was clarified that GST is collected and paid only on sales made by the standalone pharmacy located in the hospital.

The Respondent contended that even for in-patients, the Petitioner is collecting tax on medicines and medical devices but not paying such tax to the Government, and proceedings under Section 76 were initiated on this basis.

Aggrieved by the impugned notice dated September 29, 2025 and the DRC-01 raising a demand of Rs. 6.66 crores, the Petitioner approached the High Court, contending that the matter raises an important issue on the interface between exempt health services and GST on bundled medicines, consumables and devices supplied to in-patients.

Issue:

Whether, in cases where a hospital claims that health services provided to in-patients, including supply of medicines, medical devices and consumables as part of treatment, are wholly exempt from GST, any GST can be said to have been collected on patient invoices?

Held:

The Hon'ble Delhi High Court in W.P.(C) 19355/2025 held as under:

• The issue concerns health services provided by the Petitioner and a notice issued under Section 76 of the CGST Act alleging collection of GST on medicines and consumables billed at MRP without payment to the Government, with a demand of Rs. 6.66 crores.
• The Court noted the Petitioner's submission that health services are fully exempt from GST and that no GST is collected on medicines, devices or consumables supplied as part of in-patient treatment, while GST is duly collected and paid on pharmacy sales.
• The Court observed that hospitals administer medicines and consumables to in-patients, billed either as part of a package or item-wise, and the core question is whether GST is payable on such components when no GST is separately reflected on patient invoices.
• The Petitioner was directed to file a detailed reply to the impugned SCN by January 31, 2026, placing on record invoices, procurement details, tax paid at the procurement stage, and the billing methodology adopted for patients.

Our Comments:

The Delhi High Court's interim order recognises the complexity involved in determining GST liability on medicines, consumables and devices supplied to in-patients as part of composite health services otherwise exempt under GST. By permitting adjudication to proceed while keeping any final order in abeyance during the pendency of the writ, the Court ensures that the core issue—whether such in-patient supplies constitute taxable independent supplies or form part of exempt health services—is decided only after detailed judicial scrutiny.

Relevant Provisions:

Section 76 of the Central Goods and Services Tax Act, 2017

76. Tax collected but not paid to Government.—

(1) Every person who has collected any amount as representing tax under this Act and has not paid the same to the Government shall forthwith pay such amount, irrespective of whether the supplies in respect of which such amount was collected are taxable or not.

(2) The proper officer may issue a show cause notice requiring payment of the amount collected and proposing imposition of penalty equivalent to such amount.

(3) After considering the representation, the proper officer shall determine the amount due and the same shall be paid accordingly.

OFFICIAL JUDGMENT COPY HAS BEEN ATTACHED