Placement of Medical Instruments in Hospitals Without Consideration Constitutes Supply of Service – AAR Kerala
by ReinHeads Team | Aug 18, 2021
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AAR Kerala* – Placement of Medical Instruments in Hospitals Without Consideration Constitutes Supply of Service
| Facts |
- Abbott Healthcare Private Limited (‘the Applicant’) is engaged in sale of pharmaceutical products, diagnostic instruments etc.
- The Applicant entered into Reagent Supply and Instrument Use Agreement (‘the Agreement’) with unrelated hospitals/ labs (i.e., customers) to place its products at their premises without any consideration, with a minimum purchase obligation on the customer
- In 2018, the Applicant approached the Authority for Advance Ruling, Kerala (‘the AAR’) to determine whether the provision of specified medical products without any consideration constitute ‘supply’ or ‘movement of goods otherwise than by way of supply’ under the GST law
- The AAR ruled that such placement of instruments without consideration, against an agreement with minimum purchase obligation constitutes ‘composite supply’ with ‘transfer of right to use goods being the principal supply’. The above ruling was later upheld by the Appellate Authority for Advance Ruling (‘the AAAR’)
- Thereafter, the Applicant filed a writ petition before the Hon’ble Kerala High Court wherein the Hon’ble Court did not agree with the rulings of the AAR and the AAAR and directed the AAR to decide the matter afresh on merits
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| Issues before the AAR |
- Whether the placement of medical instruments by the Applicant at customer premises such as hospitals, labs etc. for their use without any consideration for a specific period constitutes ‘supply’ under the Central Goods and Services Tax Act, 2017 (‘CGST Act’)?
- Whether such transaction by the Applicant would qualify as a supply of goods or services?
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| Discussion and Findings of the AAR |
- The AAR analysed the definitions of ‘supply’, ‘goods’, ‘business’ and ‘consideration’ in light of the facts and held that the transaction qualifies as supply of service under Section 7 of the CGST Act based on the following observations:
- Medical instruments installed at the premises of the hospital fall under the definition of ‘goods’ and the right granted by the Applicant for the use of the instruments for a specified period, constitutes ‘transfer’ under the CGST Act
- Definition of business is inclusive and wide in its scope and therefore, the Applicant’s transaction is in furtherance of business
- The Agreement of a customer to purchase the regents and disposables for the instrument, exclusively from the Applicant for a minimum value every month and pay the deficit in case of failure to purchase the minimum value, constitutes a valid consideration under the CGST Act
- The Applicant grants a non-transferable right to use goods without transferring the title of the goods. In other words, it means that the Applicant owns the rights, title and interest in the instruments and the customer only has the right to use the instrument as specified in the Agreement.
- As a result, analysing para 1(b) of Schedule II of the CGST Act, the AAR observed that the placement of medical instruments at customer premises by the Applicant constitutes supply of services under the CGST Act
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*Advance Ruling Order No. 97 dated 07 June 2021 (The Authority for Advance Ruling, Kerala) |
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