Abbott Healthcare Private Limited Vs The Commissioner of State Tax Kerala

The petitioner, a company based in Mumbai, operates in the pharmaceutical and diagnostic products sector and is registered under the Goods and Services Tax Act in Kerala. They deploy their diagnostic instruments to unrelated hospitals and laboratories in Kerala for a specified duration without charge. Additionally, they have agreements with these entities for the supply of medical instruments without charge for a specified period and for the provision of reagents, calibrators, and disposables at agreed prices through their distributors, subject to applicable GST.

In these agreements, the petitioner supplies the instruments while its distributors handle the supply of reagents, calibrators, and disposables.

The petitioner, a company incorporated under the Companies Act, 1956 with its registered office in Mumbai, operates primarily in the sale of pharmaceutical products and diagnostic kits. Registered under the Goods and Services Tax Act in Kerala, the petitioner follows a business model where it places diagnostic instruments at unrelated hospitals and laboratories in the state for a specified period without any consideration. Additionally, it enters into Reagent Supply and Instrument Use Agreements with these establishments.

Under these agreements, the petitioner supplies medical instruments to hospitals and laboratories for their use without charging any consideration for a specified period. It also agrees to supply specified quantities of reagents, calibrators, and disposables at specified prices through its distributors, who pay applicable GST. While the petitioner supplies the instruments, its distributors supply the reagents, calibrators, and disposables to the hospitals and laboratories, discharging applicable GST on the products they supply.

Crucially, there is no direct sale or supply of these products by the petitioner to the hospitals and laboratories. Instead, the distributor acts as an intermediary, purchasing from the petitioner on a principal-to-principal basis and then supplying to the end-users. The value of the instruments placed at the hospitals and laboratories is relatively small compared to the total turnover of the products supplied by the distributor over the contract period, approximately around 20%.

Moreover, the agreements contain clauses stipulating that if the hospital fails to purchase the specified minimum quantity of reagents, calibrators, etc., the petitioner is entitled to recover from the hospital an amount equal to the deficit between the actual purchases and the minimum stipulated purchase.

Following the aforementioned operations and agreements, the petitioner found itself in a situation where its goods were seized by the Assistant State Tax Officer in Kozhikode. The reason cited was the absence of a tax invoice accompanying the goods; instead, they were being transported under a delivery challan. Although the detained goods were later released upon the petitioner furnishing a bank guarantee and a bond as stipulated under the CGST Act and Rules, the petitioner sought clarification on the matter by approaching the Authority for Advance Ruling (referred to as the “AAR”).

The specific question posed to the AAR was left unspecified in the summary provided.

The petitioner, a pharmaceutical and diagnostic products company registered under the Companies Act, 1956, with its headquarters in Mumbai and operating under the Goods and Services Tax Act in Kerala, employs a business model involving the placement of diagnostic instruments at various hospitals and laboratories in Kerala for specified durations without charging any fees. Additionally, the petitioner enters into agreements with these establishments, termed Reagent Supply and Instrument Use Agreements.

These agreements entail the provision of medical instruments to hospitals and laboratories without any immediate charge, alongside the commitment to supply specified quantities of reagents, calibrators, and disposables at agreed-upon prices through appointed distributors, who pay the relevant GST. Notably, the petitioner supplies the instruments, while its distributors handle the supply of reagents, calibrators, and disposables to end-users, discharging the applicable GST on these products.

Key to this arrangement is the absence of direct sales or supply of these products by the petitioner to the hospitals and laboratories. Instead, the distributor acts as an intermediary, purchasing from the petitioner on a principal-to-principal basis and then supplying to the end-users. The value of the instruments placed at these establishments is relatively minor compared to the total turnover of the products supplied by the distributor over the contract period, estimated to be around 20%.

Furthermore, the agreements incorporate clauses stipulating that if the hospital fails to meet the specified minimum purchase requirements for reagents, calibrators, etc., the petitioner can recover the deficit between the actual and stipulated purchases from the hospital.

The petitioner encountered an issue when goods were seized by the Assistant State Tax Officer, Kozhikode, for not being accompanied by a tax invoice but were transported under a delivery challan. Although the goods were subsequently released after the petitioner furnished a bank guarantee and bond as per the CGST Act and Rules, they sought an Advance Ruling from the Authority for Advance Ruling (AAR) to determine whether their business model, involving the provision of instruments to hospitals and laboratories without charge but with a minimum purchase obligation for related products, constituted a “composite supply.” The AAR concluded that the principal supply in this composite supply was the transfer of the right to use goods for any purpose, which was subject to GST.

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