The Delhi High Court has intervened in a high-stakes tax dispute involving the healthcare sector, taking up the question of whether medicines and consumables provided to hospital inpatients can be subjected to Goods and Services Tax (GST).
A Division Bench comprising Justice Prathiba M. Singh and Justice Shail Jain noted that, as a matter of practice, hospitals usually raise consolidated bills for inpatient treatment without separately showing GST on medicines and consumables. The bench identified the core legal issue as whether GST can be imposed on medicines and consumables supplied as part of an otherwise exempt inpatient healthcare service.
The bench while listing the matter on 17/03/2025 issued notice on a writ petition filed by Escorts Heart Institute and Research Centre Limited, which has challenged a GST demand of Rs. 6.66 crore raised by the tax authorities.
While allowing the adjudication proceedings initiated by the GST department to continue, the High Court granted interim relief to the hospital by restraining the authorities from passing any final order until the writ petition is finally adjudicated. The case is expected to have far-reaching consequences for GST treatment of inpatient healthcare services across the country.
The dispute arose from a show cause notice issued by the CGST Delhi Audit Commissionerate. The tax department alleged that Escorts Heart Institute charged patients the maximum retail price (MRP) for medicines, implants, devices, and consumables during inpatient treatment, which purportedly included GST amounts that were collected from patients but not remitted to the government.
According to the department, the hospital’s practice of issuing itemised bills for drugs and consumables suggested that GST was embedded in the charges, thereby attracting liability under the GST law for tax collected but not paid.
The hospital strongly contested the tax demand, maintaining that inpatient treatment constitutes a composite or bundled healthcare service that is fully exempt from GST under the relevant 2017 GST notification. It argued that medicines, consumables, implants, and medical devices supplied during hospitalisation are inseparable from the treatment itself and cannot be taxed independently.
Escorts further clarified that GST is levied and duly paid only when medicines are sold separately through its pharmacy to outpatients or other customers. In contrast, medicines administered to inpatients form an integral part of medical care and are not supplied as standalone goods.
The GST department countered this argument by pointing to the hospital’s billing practices. They contended that the issuance of item-wise bills for medicines and consumables demonstrated a separate supply of taxable goods, thereby justifying the initiation of proceedings for recovery of GST allegedly collected but not deposited with the exchequer.
The court observed that the hospital’s claim of exemption prima facie flows from the GST notification issued in 2017, which exempts composite healthcare services. It directed the adjudicating authority to carefully examine the invoices, procurement details, and other records placed on record to assess whether GST was actually charged or merely included as part of overall treatment costs.
While allowing the adjudication proceedings to move forward, the High Court made it clear that no final order should be passed by the tax authorities until the writ petition is finally decided, thereby granting interim protection to the hospital against coercive recovery.
Case Details
Case Title: M/S. Escorts Heart Institute And Research Centre Limited
Vs. Additional Commissioner, Cgst Audit-1 & Ors
Case No.: W.P.(C) 19355/2025
Date: 19/12/2025
Counsel For Petitioner: :Yogendra Aldak
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