GNRC Limited vs. The Union of India

Heard Dr. A Saraf, learned Senior Counsel assisted by Mr. P Baruah, learned counsel for the petitioners. Also heard Mr. SC Keyal, learned standing counsel for the GST. These three writ petitions are proposed to be disposed of by this common judgment and order, as the controversy is identical in nature and between the same parties. The challenge made in these proceedings are show cause notices issued to the petitioners. Such show cause notices were issued directing the petitioners to show cause as to why the claim of refund made by the petitioners on the ground of exemption of GST available relating to health care services shall not be rejected. The further challenges are the orders of rejection of the claim of refund on the ground that even without charging the GST on the medicines and the consumable bills by the petitioners, the rate of medicines supplied to the in-house patients was at the market price and therefore GST was included and the burden of tax has been shifted to the consumer. The impugned show cause notices and the impugned orders relatable to each of the writ petitions are recorded in a tabular form below. The petitioner company owns a hospital, which is engaged in the treatment of various illnesses and ailments. According to the petitioner, it offers health care services. It is the case of the petitioner that in the course of treatment, after admission to the hospital, the in-house patients are provided comprehensive treatment, which includes rooms, nursing care, medicines, consumables, implants, etc. The controversy arose when the GST department issued show cause notices questioning the petitioner’s claim for a refund on the basis that health care services are exempt from GST. The department’s contention is that even though the petitioners did not charge GST on the medicines and consumables, the prices of these items included GST, as they were sold at market rates, thereby shifting the tax burden to the consumers. The petitioners argue that they are entitled to a refund as their services are exempt from GST and that the inclusion of GST in the prices of medicines and consumables does not negate their right to claim a refund. The impugned orders rejecting the refund claims are based on the premise that the GST component was embedded in the prices charged to the in-house patients, thus invalidating the exemption claim. Given this backdrop, the petitions challenge both the show cause notices and the rejection orders, seeking a direction to quash the same and to grant the refund claims. The detailed examination of the facts and legal arguments presented by both parties will determine the outcome of these petitions, as the court will assess whether the inclusion of GST in the pricing of medicines and consumables, despite not being explicitly charged, affects the petitioners’ entitlement to claim a refund under the exemption provisions related to health care services.

The pharmacy department of the petitioners’ company treated these transfers as taxable supplies of goods to the in-house patients department and calculated output tax on the transaction value of the transfers of inputs, namely, medicines and consumables, and such other items to the in-house patients department without issuing any tax invoice for the said goods. According to the petitioners, the output tax so calculated was paid by declaring this transaction in the same manner as pharmacy sales. It is further claimed by the petitioners that these goods were not supplied directly to the patients but were rather used for providing treatment to the patients. The consideration received from patients is for health care services, which are exempt from GST in terms of entry SL No. 74(a) of the Notification No. 12/2017 Central Tax (Rate) dated 28.06.2017. The petitioners assert that they did not charge any GST to the in-house patients/recipients. The tax paid on such internal transfers to the in-house patients department was not liable to be paid and was paid in excess due to ignorance and lack of clarity in the provisions of the law. However, upon receiving proper legal advice, the petitioners realized that the services provided by the petitioners’ hospital to the in-house patients constituted a composite supply of health services, which is exempt from GST. Consequently, the petitioners took steps to file applications for a refund of the taxes paid under Section 54 of the CGST Act/SGST Act read with Rule 89 of the CGST Rules. According to the petitioners, although GST was not billed and charged to the recipients/in-house patients or recovered from them, GST was calculated on the open market value of goods during the internal transfer to the in-house patients department. Accordingly, refund applications were filed. However, after submitting the refund applications, the petitioners received a deficiency memo requesting further documents for certain periods. Subsequently, the petitioners submitted the required supporting documents via email for further verification of the claim relating to tax payment and requested an expedited processing of the refund application. The petitioners maintain that the refund is justified as the services provided fall under the exempted health care services category and the taxes paid were due to an erroneous understanding of the applicable tax provisions. The court will need to assess these claims and the provided documentation to determine the eligibility for the refund and ensure compliance with the relevant tax laws and regulations.

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GNRC Limited

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Gauhati High Court 

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GST Case Law