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2019 (3) TMI 438 - HC - VAT and Sales TaxSale of goods or not? - deeming fiction - Whether the medicines supplied, implants carried out, the consumables used and surgical tools exclusively used in a particular procedure, as part of treatment of patients in a hospital, the price of which is recovered by way of bills from the patients are “sale of goods” as contemplated by the legislation levying such tax? - article 366(29A)(f) of the Constitution of India. Held that:- When the Constitution by a deeming fiction permitted only certain transactions to be treated as sale of goods, the State Legislature cannot enlarge the scope of the definition in excess of that available in the deeming fiction to those transactions not strictly answering the definition of sale of goods or extend the fiction to those other transactions. In the Explanation, the State Legislature cannot have any intention in excess of the fiction as brought in by the amendment to the Constitution. Even if such an intention was there, to the extend it is beyond and steps out of the ambit of, the fiction created by the 46th amendment, it would be vitiated for total absence of legislative power. The definition of sale as found in section 2(xxi) of the KGST Act took care of instances as provided under clauses (a) to (f) in article 366(29A) respectively by Explanations (1A), (2), (3), (3A), (3B) and (3C) - After the deeming fiction was introduced by article 366(29A), all the transactions coming under the aforesaid Explanations stood validated as sale of goods. Similarly in the KVAT Act, section 2(xliii) defines “sale” and the Explanations I to VI took care of the transactions covered by clauses (a) to (f) of article 366(29A). Under the KGST Act and KVAT Act, the State cannot legislate in excess of the specific transactions brought in under article 366(29A), to create further deeming fiction with respect to other composite transactions. With respect to hospital services, we cannot but observe that the sale of drugs, implants and other consumables are a part of the medical treatment rendered. There is no identity of the medicines or consumables or implants, as it does not lie in the mind or mouth of the patient to identify the drugs to be administered in the course of the treatment. Though a patient on his volition could refuse to take a particular drug, he cannot demand, as a matter of right, that a drug be administered to him in the course of the medical treatment. A demand of that nature will not be complied with by either a medical practitioner or a hospital, the latter of whom dispenses medicines only in accordance with the directions of the attending physician or surgeon - The cost of the implants, consumables or the drugs is irrelevant insofar as deciding what is the dominant nature of the transaction or service rendered to the patient in a hospital, which, without any doubt, is the therapeutic treatment rendered. The patient has no control or say, has limited control, on the procedures taken in the course of the treatment, the drugs administered and the consumables used. The declaration so made was with respect to the development contract which was held to be a works contract. As to the other transactions the dominant nature test applies and in hospital services the dominant intention is provision of medical care and treatment, to effectively cure the patient of his/her ailment and it is not the sale of drugs, implants or other consumables. The service offered is one of medical treatment and the dispensation or administration of drugs or implants carried out in the course of surgical procedures and the consumables used in the course of any medical procedure would be an inseparable, indivisible part of the treatment rendered. The business expediency has no control in the administration of drugs, use of consumables or the implants carried out and neither does the control lie with the hospital, as a corporate or other legal entity. The supply of drugs use of consumables and the implants made are on professional medical advice intended at curing the patient and not deriving profits. Though not a charitable activity, hospitals cannot be said to be a business house established primarily for sale of drugs, consumables or implants. The principle is that mere passing of property in an article or commodity during the course of the performance of a contract or service, which is essentially one and indivisible, does not render it a transaction of sale, except in the case of the specific instances as available in clauses (b), (c) and (f) of article 366(29A). The fiction extends to only the specific clauses as coming under article 366(29A) and stops there and does not extend beyond that or encompass any other composite transaction. The decisions in Malankara Orthodox Syrian Church [2002 (12) TMI 587 - KERALA HIGH COURT], Comtrust Eye Hospital v. Addl. Sales Tax Officer [2006 (10) TMI 413 - KERALA HIGH COURT] do not propound and declare the correct position in law. We direct the registry to place the matters before the Division Bench for consideration of the individual cases.
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