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 alleging that GST collected on medicines, consumables and devices billed at MRP to in‑patients has not been paid to Government raises important questions on taxability of such supplies when bundled with exempt health services, the adjudication proceedings pursuant to the show cause notice may continue with full opportunity of hearing and examination of invoices and procurement/tax details, but 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.
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”) (amount collected as tax but not paid to Government), along with DRC‑01 (the “impugned SCN”), alleging that in respect of medicines, consumables etc. billed at MRP to patients by the Petitioner hospital, GST is being collected but not paid to the Government, and raising 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 patients, no GST is liable to be paid and, in fact, no GST is being collected on invoices raised on patients for in‑patient treatment; it was clarified that GST is collected and paid only on sales made by the pharmacy located in the hospital (i.e. standalone pharmacy sales), and not on medicines/consumables supplied as part of in‑patient health services.
The Respondent contended that, even for in‑patients, the Petitioner is collecting tax on medical devices and medicines dispensed, but is not paying such tax to the Government, and that the impugned SCN has been issued on this ground and proceedings initiated under Section 76.
Aggrieved by the impugned notice under Section 76 dated September 29, 2025 and DRC‑01 raising demand of Rs. 6.66 crores on the allegation of collection of GST on in‑patient medicines and consumables without payment to Government, the Petitioner approached the High Court seeking relief, pointing out that the case raises an important issue on the interface between exempt health services and GST on bundled medicines/consumables/devices supplied to in‑patients.
Issue:
Whether, in the facts where a hospital claims that health services provided to in‑patients (including supply of medicines, medical devices and consumables as part of the treatment) are wholly exempt and no GST is collected on patient invoices?
Held:
The Hon’ble Delhi High Court in W.P.(C) 19355/2025 held as under:
- Observed that, the issue raised in the case relates to health services provided by the Petitioner at Escorts Hospital and a notice dated September 29, 2025 under Section 76 of the CGST Act (amount collected as tax but not paid to Government) has been issued on the ground that, in respect of medicines, consumables etc. billed at MRP by the Petitioner hospital, GST is being collected but not being paid to the Government, and that the impugned SCN dated September 29, 2025 along with DRC‑01 raises a demand of Rs. 6.66 crores.
- Noted that the Petitioner’s submission that health services are fully exempt from GST and that if medicines, medical devices or consumables are dispensed as part of health services administered to patients, no GST is liable and no GST is being collected on such invoices and clarified that GST is collected and paid whenever sales are made by the pharmacy located in the hospital.
- Observed that, the case in respect of health services and medicines/devices/consumables dispensed to in‑patients as part of hospital treatment, noting that hospitals administer medicines and give consumables/devices to in‑patients, which are billed either as part of overall package or item‑wise, and that in this case the Petitioner claims not to separately reflect GST on patient invoices. Under these circumstances, the question would be whether GST is liable to be paid on this component or not.
- Directed that a proper reply be filed by the Petitioner to the impugned SCN, to be filed by January 31, 2026, and that as part of adjudication proceedings, since factual issues are involved, the Petitioner shall place before the adjudicating authority, along with reply, copies of invoices, details of procurement of medicines/consumables/devices, tax paid at procurement stage and thereafter the manner in which they are billed to patients at the time health services are administered.
Our Comments:
The Delhi High Court’s interim order recognizes the complexity of determining GST liability on medicines, consumables and devices supplied to in‑patients as part of composite health services that are otherwise fully exempt under GST, and preserves the Petitioner’s position by directing that while adjudication may proceed with full factual disclosure (invoices, procurement/tax details, billing pattern), any final order passed under Section 76 shall remain inoperative during pendency of the writ, thereby ensuring that the core question—whether such in‑patient supplies constitute taxable independent supplies or form part of exempt health services—is determined 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) Notwithstanding anything to the contrary contained in any order or direction of any Appellate Authority or Appellate Tribunal or court or in any other provisions of this Act or the rules made thereunder or any other law for the time being in force, every person who has collected from any other person any amount as representing the tax under this Act, and has not paid the said amount to the Government, shall forthwith pay the said amount to the Government, irrespective of whether the supplies in respect of which such amount was collected are taxable or not.
(2) Where any amount is required to be paid to the Government under sub-section (1), and which has not been so paid, the proper officer may serve on the person liable to pay such amount a notice requiring him to show cause as to why the said amount as specified in the notice, should not be paid by him to the Government and why a penalty equivalent to the amount specified in the notice should not be imposed on him under the provisions of this Act.
(3) The proper officer shall, after considering the representation, if any, made by the person on whom the notice is served under sub-section (2), determine the amount due from such person and thereupon such person shall pay the amount so determined…”
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