Abbott Healthcare GST Case 2020 – Kerala HC Ruling on Placement of Diagnostic Instruments

Abbott Healthcare GST Case 2020: The GST law defines “supply” broadly to include almost every form of transfer of goods or services for consideration. However, its application becomes complex in business models involving placement of goods without direct sale.

One such case was M/s Abbott Healthcare Pvt. Ltd. vs. Commissioner of State Tax before the Kerala High Court (2020), which examined whether placing diagnostic instruments at hospitals and labs without consideration amounts to a “supply” under GST or not.

Abbott Healthcare followed a unique business model:

• It placed its diagnostic instruments at hospitals, diagnostic labs, and other healthcare facilities free of cost.
• Ownership remained with Abbott, and the instruments were to be returned after the agreement period.
• Hospitals were obligated to purchase reagents, calibrators, and consumables (hereafter referred to as products) from Abbott’s distributors at agreed prices.
• The arrangement was formalized through a Reagent Supply and Instrument Use Agreement.

This raised the central question: Was the free placement of instruments a taxable supply or merely an arrangement incidental to reagent sales?

📂 Abbott Healthcare GST Case 2020 ~ Facts of the Case

• Assessee: Abbott Healthcare Pvt. Ltd.
• Business Model: Instruments placed at hospitals/labs for free use; hospitals required to purchase reagents only from Abbott’s distributors.
• Supply Channel:
  • Abbott sold reagents to distributors with applicable GST.
  • Distributors sold reagents to hospitals/labs, charging GST.
• Tax Dispute:
  • AAR Kerala held the transaction was a composite supply – principal supply being transfer of right to use instruments (taxable service under Entry 17(iii), Heading 9973 of Notification No. 11/2017-CT(R)).
  • AAAR Kerala upheld AAR’s order.
  • Abbott challenged the ruling before the Kerala High Court.

Abbott Healthcare GST Case 2020 ~ Point of Dispute

Whether the placement of instruments at hospitals/labs without consideration amounts to:

1. A supply under GST (transfer of right to use goods for consideration), or
2. A mere movement of goods otherwise than by supply, since no direct consideration was charged.

⚖️ Kerala High Court Judgment (2020)

The High Court partly allowed Abbott’s plea and quashed the rulings of AAR and AAAR:

1. Composite supply finding invalid:
   1. AAR exceeded its jurisdiction in holding the arrangement a composite supply.
   1. Supply of instruments (by Abbott) and supply of reagents (by distributors) involved two different entities – hence cannot form a composite supply.
2. No “as is where is” supply:
   1. For supplies to be composite, they must occur together in the ordinary course of business.
   1. In Abbott’s case, the continuous placement of instruments and periodic supply of reagents were distinct supplies.
3. Matter remanded to AAR:
   1. The Court directed AAR to re-examine whether placement of instruments without consideration could be treated as “supply” under GST.

📌 Subsequent Proceedings (Post-Remand)

After remand:

• AAR (Fresh Ruling):
  • Held that placement of instruments was a “supply of service” under Schedule II, Entry 1(b) (transfer of right in goods without transfer of title).
  • Consideration was found in the form of hospitals’ obligation to purchase a minimum value of reagents at fixed prices.
• AAAR (Final Ruling):
  • Affirmed AAR’s view.
  • Held that exclusive usage rights + minimum purchase obligation constituted valid consideration.
  • Concluded that instrument placement was not gratuitous but inducement linked to reagent sales, and hence taxable.

✅ Practical Impact on Businesses

• Healthcare & Diagnostics Sector: Business models involving free placement of instruments linked to reagent sales are taxable under GST.
• Composite supply defense rejected: Placement and reagent supply by different parties cannot be combined to escape tax.
• Consideration redefined: Even non-monetary obligations (exclusive purchase commitments) are treated as valid consideration under GST.
• Compliance Reminder: Companies must review “placement-linked sales models” to ensure GST compliance.

🔑 Key Takeaways

1. Free placement is not always tax-free – obligations tied to reagent purchases qualify as consideration.
2. Composite supply requires single supplier – cannot fuse supplies from different entities.
3. Minimum purchase clauses may attract GST liability as deemed supply of service.
4. Healthcare companies must structure agreements carefully to avoid unintended tax exposure.

Why This Case Matters

The Abbott Healthcare ruling is a landmark for businesses using “placement-linked sales models” in healthcare, pharma, and other industries.

It clarified that GST applies not only to monetary consideration but also to contractual obligations and exclusive usage rights. This case reinforces the wide scope of “supply” under GST and highlights the need for businesses to evaluate the hidden tax implications of commercial arrangements.

For hospitals and labs, the ruling confirms that free use of diagnostic instruments is not truly free – it carries tax implications tied to reagent purchase commitments.