2002 (12) TMI 596 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether a hospital is a "dealer" within the definition of the K.G.S.T. Act.
2. Distinction between medical practitioners and hospitals/dispensaries regarding exemption.
3. Liability of hospitals to take registration and pay tax on the turnover of medicines.
4. Validity of increased registration fees under Section 14 of the K.G.S.T. Act.
5. Applicability of registration fees to dealers paying tax at compounded rates.
6. Enforcement of statutory provisions against hospitals.

Summary:

1. Definition of "Dealer":
The primary issue is whether hospitals qualify as "dealers" u/s the K.G.S.T. Act. The court examined whether the supply of medicines to patients during treatment constitutes a "sale," thereby making hospitals liable to register, file returns, and pay sales tax. The court concluded that hospitals are indeed "dealers" as they regularly engage in the sale of medicines, which is a significant part of their operations.

2. Exemption for Medical Practitioners:
The court clarified the distinction between medical practitioners and hospitals/dispensaries. Notification SRO 1090/99 exempts medical practitioners dispensing medicines from their own dispensaries. However, this exemption does not extend to hospitals or clinics, even if owned by doctors, as hospitals involve organized activities beyond mere consultation.

3. Registration and Tax Liability:
Hospitals are required to take registration and pay tax on the turnover of medicines. The court rejected the argument that the supply of medicines is merely incidental to medical services. It emphasized that the supply of medicines is a primary activity in hospitals, making them liable as "dealers" under the Act. The court referenced the Supreme Court's decision in The State of Gujarat v. Raipur Manufacturing Co. Ltd., which outlines the criteria for determining a "dealer."

4. Validity of Increased Registration Fees:
The petitioners challenged the increased registration fees as arbitrary and unreasonable. The court upheld the amended Section 14 of the K.G.S.T. Act, stating that the fees are justified and proportionate to the turnover. The court emphasized that the fees are related to the services rendered by the Sales Tax Department and are not exorbitant or arbitrary.

5. Compounded Rate Dealers:
The court addressed the petitioners' concern regarding the applicability of registration fees to dealers paying tax at compounded rates. It held that this issue does not invalidate the registration fee structure based on turnover. The petitioners, not enjoying any compounding facility, cannot challenge the fee structure applicable to compounded rate dealers.

6. Enforcement of Statutory Provisions:
The court directed that the enforcement of the statute against hospitals should commence from the financial year 2001-2002. Hospitals are given three months to apply for registration, file returns, and pay any due taxes. The court vacated all impugned proceedings to allow compliance with statutory provisions from 1.4.2001 onwards, without penalty or interest for delayed compliance due to the stay granted by the court.

Conclusion:
The court disposed of the petitions with directions for hospitals to comply with the statutory provisions of the K.G.S.T. Act, starting from the financial year 2001-2002, and upheld the validity of the increased registration fees.