Tax Management India. Com
Law and Practice  :  Digital eBook
Research is most exciting & rewarding


  TMI - Tax Management India. Com
Follow us:
  Facebook   Twitter   Linkedin   Telegram
Article Section

Home Articles Value Added Tax - VAT and CST Bimal jain Experts This

Supply of medicines, drugs, stents, and other implants etc., during the course of treatment or a medical procedure is not a ‘Sale’ and thus not exigible to VAT

Submit New Article
Supply of medicines, drugs, stents, and other implants etc., during the course of treatment or a medical procedure is not a ‘Sale’ and thus not exigible to VAT
Bimal jain By: Bimal jain
April 14, 2015
All Articles by: Bimal jain       View Profile
  • Contents

Dear Professional Colleague,

Supply of medicines, drugs, stents, and other implants etc., during the course of treatment or a medical procedure is not a ‘Sale’ and thus not exigible to VAT

We are sharing with you an important judgment of Hon’ble High Court, Punjab and Haryana, in the case of Fortis Health Care Ltd And Another Vs. State Of Punjab And Others [2015 (2) TMI 1014 - PUNJAB & HARYANA HIGH COURT] on the following issue:

Issue:

Whether the Supply of medicines, drugs, stents, and other implants etc., during the course of treatment or a medical procedure would be exigible to VAT

Facts and background:

Fortis Health Care Ltd. And Another (“the Petitioners”) filed an application before the Excise and Taxation Commissioner, Punjab, Patiala Division, Patiala (“the Commissioner”), seeking advance determination of the question whether medicines, drugs, stents etc., administered to patients during a medical procedure (“impugned goods”) are a ‘Sale’, under the Punjab VAT Act, 2005(“Punjab VAT Act”).

The Commissioner vide Order dated August 10,2005 responded the aforesaid question in favour of Revenue and therefore the impugned goods are made exigible to VAT (“Order 1”). Thereafter, the Petitioner got registered as a dealer under the Punjab VAT Act and the Central Sales Tax Act, 1956 and started discharging their statutory obligations.

Later, the Hon’ble High Court of Jharkhand in Tata Main Hospital Vs. The State of Jharkhand and others [2007 (9) TMI 599 - JHARKHAND HIGH COURT)] (“Tata Main Hospital Case”) held that the impugned goods are not exigible to VAT as the same is not ‘Sale’. Being aggrieved, the State of Jharkhand, filed a Special Leave Petition before the Hon’ble Supreme Court, which was dismissed.

Based on the decision in Tata Main Hospital Case, the Petitioner stopped charging VAT and also filed refund of VAT (“Refund Claim”) for the Financial Year 2005-06. The Assistant Excise and Taxation Commissioner-cum-Designated Officer, rejected the Refund Claim and held that the judgment by the Jharkhand High Court is a judgment in personam and as the Petitioner has accepted Order 1, it is required to pay VAT.

Being aggrieved, the Petitioner preferred an appeal before the Deputy Excise and Taxation Officer where the appeal was dismissed with the finding that the Petitioner has paid VAT from its own resources without recovering the same from patients/ ECHS. Thereafter, the Petitioner preferred an appeal before the Hon’ble Tribunal which was again dismissed holding that jurisdiction to determine the controversy, lies with the Hon’ble High Court. Therefore, the Petitioner filed a Writ Petition before the Hon’ble High Court of Punjab and Haryana.

Held:

The Hon’ble High Court of Punjab and Haryana made elaborate discussion in this regard and held as under:

  • The State Governments draws their power to impose Sales Tax/ VAT on sale or purchase of goods, other than newspapers, from Entry No.54 of List II of Schedule VII of the Constitution of India (“the Constitution”) and the element of sale in composite contracts is exigible to Sales Tax/VAT by virtue of Article 366(29A) of the Constitution. The power of the Union to tax, can be traced to Entry No.97 of List I or Entry 92-C of List I of Schedule VII of the Constitution. A State may impose tax on ‘sale of goods’ but is not empowered to impose tax on services;
  • Perusal of Article 366(29A) of the Constitution, does not enable the Hon’ble High Court to opine that services provided by hospitals are Deemed Sale;
  • Perusal of the definition of ‘Sale’ under Section 2(zf) of the Punjab VAT Act and Section 2 (ze) of the Haryana VAT Act, 2003 reveals that ‘Sale’ is defined to include transfer of property in goods for cash etc. and composite contracts as set out in Article 366 (29A) of the Constitution. The States of Punjab and Haryana may, therefore, levy VAT on only such transactions as fall within the definition of ‘Sale’ whether as a sale of goods or as a composite contract;
  • Impugned goods are exigible to VAT only if it fulfills the ingredients of ‘Sale’, as defined under the Punjab and Haryana VAT Acts and Article 366(29A) of the Constitution;
  • The dominant purpose of medical treatment is medical services and integral to such a service is a medical procedure that involves administering medicines and drugs and may involve, implants, stents etc., as integral to a successfully medical treatment/ procedure. A perusal of the statutory definition of ‘Sale’ in both the Punjab and Haryana enactments, reveals that after setting out that a sale is a transfer of ownership in goods for consideration it proceeds to replicate Article 366 (29A) of the Constitution. A medical procedure is a pure service with no part having the attributes or the elements set out in Article 366 (29A) of the Constitution or the definition of ‘Sale’ under the Punjab and Haryana statutes and, therefore, cannot be held to involve a ‘Sale’;
  • A contract for medical treatment necessarily involves medicines, supply of surgical items, stents, implants, valves, without which a medical procedure or medical treatment cannot be completed;
  • The supply of these articles are integral to and essential for the treatment offered to patients and even if one may categorize these as incidental to the actual medical procedure, one cannot ignore that a medical procedure cannot be completed without supply of medicines, drugs, stents, implants, thereby leading to a singular conclusion that the State is not empowered under any provision of the Constitution much less the definition of goods, sale or dealer, to severe the contract and construe the supply of drugs, medicines, stents, implants etc. as a severable part of the contract and, therefore, exigible to VAT as a ‘Sale’;
  • The situation would be different if, these articles are supplied from the pharmacy of a hospital.

Our Comments:

Hope the information will assist you in your Professional endeavors. In case of any query/ information, please do not hesitate to write back to us.

Thanks and Best Regards,

Bimal Jain

FCA, FCS, LLB, B.Com (Hons)

Delhi:

Flat No. 34B, Ground Floor, Pocket - 1,

Mayur Vihar, Phase - I,

Delhi - 110091, India

Desktel: +91-11-22757595/ 42427056

Mobile: +91 9810604563

Chandigarh:

H. No. 908, Sector 12-A,

Panchkula, Haryana - 134115

Kolkata:

Ist Floor, 10 R G Kar Road

Shyambazar, Kolkata - 700 004

Email: bimaljain@hotmail.com

Web: www.a2ztaxcorp.com

Disclaimer: The contents of this document are solely for informational purpose. It does not constitute professional advice or recommendation of firm. Neither the authors nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this document nor for any actions taken in reliance thereon.

Readers are advised to consult the professional for understanding applicability of this newsletter in the respective scenarios. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. No part of this document should be distributed or copied (except for personal, non-commercial use) without our written permission.

 

By: Bimal jain - April 14, 2015

 

 

 

Quick Updates:Latest Updates