Private Hospitals Liable to Pay Tax on Medicines & Implants Supplied to Indoor Patients

In a landmark ruling, the Gujarat High Court has held that private hospitals are liable to pay VAT (and now GST) on the supply of medicines, implants, stents, prosthetics, and consumables provided to admitted patients.

The Court rejected the argument that such supplies form part of an "integrated healthcare service" and upheld the State’s stand that these constitute “deemed sales” under works contract, taxable under Article 366(29A) of the Constitution and Section 2(23) of the Gujarat VAT Act, 2003.

Key Highlights:

The ruling applies to supplies made to indoor (admitted) patients.

The sale component of medical goods is taxable even if provided during treatment.

Private hospitals may now face tax liabilities exceeding Rs.1,000 crore.

Petitioners included reputed institutions like Sterling, CIMS, Wockhardt, Shalby, and Bankers Cardiology.

The Division Bench (Justice Bhargav D. Karia & Justice D. N. Patel) concluded that medical service cannot be used as a shield to escape tax on goods transferred as part of treatment.

This decision is expected to have a significant impact on the healthcare sector under both the erstwhile VAT regime and the current GST framework, where similar interpretations may be drawn.

A crucial development for all professionals in Indirect Taxation and Healthcare Compliance.