9911796707
TMI Blog1976 (4) TMI 86X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices. . Turnover determined Penalty 1970 - 71 85,66,649-00 3,85,498-00 1971 - 72 98,36,594-00 5,01,052-00 1972 - 73 1,09,88,749-00 5,76,909-00 Break up of figures as later ascertained from the records: 1970 -71: Drugs Rs. 24,87,238 Oxygen Rs. 76,126 Miscellaneous Rs. 12,320 . Rs. 25,75,684 (not income. Eye camp Rs. 3,218 - 71) 1971 - 72: Drugs Rs. 27,87,866 Oxygen Rs. 90,230 Miscellaneous Rs. 9,140 . Rs. 28,87,236 (incl. Value of glases supplied) 1973-74 Total turnover determined: by Assessing Officer . Rs. 63,76213-17 Exemption : . . Blood & Plasma Rs. 4,62,192-00 . X-ray Rs. 10,82,317-00 . X-ray Rs. 2,377-00 . . . Rs. 15,46,886-00 . . Rs. 48,29327-17 Taxable at 3 ½ % Rs. 45,02.508-00 . Taxable 7% Rs. 3,25,923-00 . Taxable 15% Rs. 896-00 . . Rs. 48,29,327-00 . . Miscellaneous scrap included in the above : Rs. 18,392-00 . . Rs. 159-40 . Rs. 18,551-40 Case was remanded by the Appellate Asst. Commissioner for re-examining and fixing liability on diet charges, anesthesia receipts, ward receipts and first sales of medicines. Penalty levied by assessing officer was Rs. 2,70,806. Penalty has also been r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... having M.D. and M.Sc. courses in all the major branches of Medicine besides numerous Diploma Courses. The one bedded clinic started by the dedicated Ida Sophia Scudder at the mission compound in Vellore has now grown up as an institution with 1176 beds with various specialities. The institution is engaged in the research activities with the aid of funds from India and abroad with the support of bodies viz., World Health Organisation, ICMR and CSMR. The result of such research in Neuro-surgery, Neuro-chemistry, Artificial kidney, open heart surgery, radioisotope laboratory, nutrition research, kidney transplantation, etc., is said to be well recognised in Indian Medicinal World. The motto of the institution "Not to be ministered unto but to minister" as enshrined by its founder is claimed to be the leading spirit of the institution. Such is the history of the institution. 3. The present appellant is an institution run by Christian Medical College Vellore Association, a society registered under Central Act XXI of 1860. Its object as rendered by clause 2 of the Memorandum is as under:- "The object of the Association is the establishment, maintenance and development of a Christian Me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bers". The accounts show that the appellant receives grants and donations from India and abroad, besides fees from students and income from Government. It also receives contributions from the patients from various centres of activities like Main Hospital, Eye Hospital, Mental Health Centre, Rural Hospitals, Rehabilitation Institute, etc. But it is the appellant's case that the expenditure actually exceeds the gross income from the students or the patients inasmuch as there is a deficit even after the voluntary donations. Without such voluntary donations, there is definitely a large gap between the gross income and expenditure in appellant's activity in any branch, since it is not the appellant's intention to profiteer from any of its activities. 4. In the context of what has been said in the preceding paragraph it is necessary to consider the basis of charges collected from the patients. The appellant has placed before us the various circulars, forms and other working data for the institution. Every patient has a Bradma plate, stamps in every order, chart, etc., used. Prescriptions from concerned doctors are received by the Pharmacist, though the Pharmacist does make supplies for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtisans. The charge, it is claimed, merely includes the cost of materials, labour and overheads for making and fitting as well as the professional skills involved throughout out the process and there is no profit at any stage. On the other hand, the patient does not receive merely an artificial limb or the appliances as mere goods but receives attention and training of competent medical and engineering staff. There is no supply to an outsider. Hence, it is the appellant's case that there is no mere sale involved. The tariff for the same has been filed and it shows that it is based upon the number of work hours required for making them and the cost of materials. Similarly glasses are supplied in the Eye Hospital. Anesthetic drugs are administered to patients for operation and blood supplied. Oxygen is also similarly administered. Charges are made for the same but it would be highly fallacious to assume that the blood or anesthetic drug is sold to the patient. It is because these are not merely sold but the need for them assessed and competently administered whenever such need arises. It is therefore the appellant's case that there has been no sale of any of the items involved. 5. F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te of Bihar(1). The Supreme court had concluded that Safdarjung Hospital did not embark on any economic activity which can be said to be analogous to trade or business. It found that it was nothing more than a place "where persons can get treated." T.B. Hospital, besides being a charitable institution was primarily intended for research and training, and that the hospital with beds had to be maintained only for the purpose of such research and training. It was further held that, "treatment is thus a part of research and training". As for Kurji Holy Family Hospital, it was also primarily found to be for training, research and treatment and that its income was mostly from donations. The distribution of surplus was prohibited (as in appellant's own case). It was the contention of the appellant that almost all the features of the three institutions find place in appellant's case and that the appellant, if it were not carrying on trade, business, manufacture or undertaking within the meaning of Industrial Disputes Act could not be said to be carrying on a business within the meaning of s.2(d) of the Tamil Nadu General Sales Tax Act. He asserted that the appellant can hardly be considere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not sales. In this view, he contended that we are left with sales of discarded miscellaneous items which he claimed included apparently supplies of glasses for eye hospital and similar such supplies. If these are removed, he contended, the miscellaneous sales of really discarded materials would be less than the taxable minimum practically for all the years. At any rate such sales were claimed to be not " in the course of business" 7. The appellant had still another alternative contention for most substantial part of the dispute and this contention it was argued, clinches the case for appellant. The Government had exempted even actual sales of medicine, artificial limbs, etc, wide G.O. Press No. 976, Revenue, dated 8th March, 1959 onwards till G.O. Press No. 21 Revenue, dated 5th Jan, 1965. In fact, it was asserted that no attempt had ever been made to tax sale of these items in appellant's own case. That is why the appellant even when it approached the Government for exemption for some doubtful items like sales of Research Institution did not ask for major items like drugs which were, clearly exempt under Government Notifications. It was further pointed out that no similar attem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Hospital in India". He claimed that Clause 3(n) authorising the association "generally to do all such acts and things as may seem to the association to be convenience and conductive to the carrying out of the objects of the association" enables the association to do its business. He also pointed out that it is not necessary that the association's object should authorise doing business. If business is actually done, the association becomes a dealer whether it is authorised by its terms of incorporation or association. He claimed that the appellant received fees from patients to nearly 1 crore of rupees while the donations are hardly a lakh of rupees. He therefore argued that sale of medicine is the main part of the appellant's activity. He also claimed that if the accounts of the medical college or the hospital are separately seen a surplus will be clearly apparent notwithstanding the net deficit. The fact that the stocks are ascertained, reserve for bad debts created and elaborate accounts and checks maintained clearly show that there are commercial characteristics attached to the operation. He further pointed out that the appellant itself makes its own medicinal preparations wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. 9. The learned State Representative next dealt with the plea that there has been n sale involved and that there is mere prescription and supply as part of treatment of patients. He submitted that even granting that the supplies of medicines can be part of treatment, it was not so in appellant's case in appellant's case the sales were not in the course of prescription since service charges were separately levied. The consideration was purely for medicine. The appellant itself had on a number of occasions referred to its receipts as sales. The patient and the hospital are two parties. Medicines are the goods involved. Cash is the consideration. There is transfer of property. He claimed that these ingredients constituted unmistakable sales. The fact that these medicines were dispensed or administered by hospital staff, according to him made no difference. According to him, the further fact that the sale consideration was waived in full or in part in some case also made no difference since it was not unusual for a trader also to offer discount or otherwise to waive part of the dues. After all, there was no attempt to tax that apart which had been waived. Only cash receipts are subj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matically covered. This submission, he was careful enough to add, was alternative in nature and it is the Department's case that the entire assessment are justified. 11. Penalties were also levied and this was stoutly opposed by the learned counsel on more than one ground. He argued that the question of penalty does not arise when the appellant is not liable to tax and, what is more, even sales taxable under the law were notified to be exempt under Notification. He also cited a number of authorities to show where the tax-payer is under the bonafide impression that the sales are not liable to tax, there cannot be any question of penalty. He claimed that, when the authorities themselves did not take action against the appellant year after year, the appellant could not have anticipated the reversal of the attitude on the part of the authorities. It is not as though the appellant was not in the eye of the Department as specific exemption had been granted by the Department for items like research products where there was only proposed sale without actually being a sale. The learned State Representative on the other had claimed that the assessment is under s. 12 and that the penalty fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icted. Clause 3 (n) reads as under:- "Generally to do all such other acts and things as may seem to the association to be convenient and conducive to the carrying out of the object of the Association." It clearly shows that the Clause 3(n) hardly contemplated any activity outside the declared object as found in Clause 2. Besides, we do find that clause 3(n) (1) direct application of the surplus, if any, for the purpose of the Association only and prohibits any dividend to any of its members. Even as pointed out by the appellant, the Labour Court has also held that the appellant is not an "industry". The decision of the Supreme Court in the case of Safdar Jung Hospital and others(1) held that similar hospitals could not be "industries" within the meaning of Industrial Disputes Act. Th definition of "Industry" under the Industrial Disputes Act (reproduced earlier) may not be much wider than the definition of business under s.2 (d) of the Tamil Nadu General Sales Tax Act 1959 as contended by the appellant. But it appears to us that its not materially different. By the guidance available from this Supreme Court decision dealing with the definition of "industry" analogous in relation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain activities. We have therefore, to consider whether any of the activities undertaken by the association can be taken to the business in this sense not withstanding the fact that there is clearly no profit motive. Profit motive is not always necessary to constitute business. In fact s.2 (d) makes it statutorily clear that profit motive is unnecessary for a decision. If the activities have commercial characteristics they would be "business" notwithstanding their being profit or not we would, however, in this context, like to add that the learned State Representative feebly sought to suggest that the appellant did make the profit it hospital alone, or one or other of the undertakings are separately considered. The learned State Representative's attempt does not take into consideration the general administrative overheads or depreciation which is charged for the entire institution. We do find that there has been deficit year after year. We are therefore, not impressed with the argument that there is either profit or that there has been profit motive. Both these features (profit motive or actual profit) are conspicuously absent. All the same, this fact by itself will not decide the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itten submission submitted by both the parties. A householder's purchasing grocery or selling old newspapers regularly does not become business merely by such activities. It is because Act of buying grocery or the Act of selling the old newspaper is not a business Act but primarly an Act incidental to the management of his household. In Indian Iron & Steel Company Ltd. vs. Member, Board of Revenue(6) it was held that a person cannot be a dealer unless he carries on the business of selling goods in a commercial sense. Even a hotel, which runs business as hoteliers, may not be liable to pay tax on its sales in a cafetaria where such sales were confined to employees without profit motive, since, as held by the Delhi High Court in East India Hotels Ltd. vs. Addl. Commissioner(7) the hotel cannot be regarded as a dealer qua cafeteria activity. It was observed by the Madras High Court, with reference to the very definitions we are now concerned in the case of Sree Meenakahi Mills Ltd. vs. State of Madras(8): "Mere frequency, volume or repetition or even the presence of profit-motive may not tilt the matter. Ultimately, therefore, the question has to be decided on the subjective element ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Madras High Court had also been approved by the Supreme court, though the decision itself was on another ground relating to prospective nature of amendment relating to incidental sales. It has been so observed in the judgement of the Delhi Court in East India Hotels Ltd. vs. Addl. Commr. S.T. as under:- "Some of the activities of a person may be included in the definition of 'dealer' wild others may not. Where incidence of tax is ought to be attracted in respect of an activity for which a person cannot be called a 'dealer' the starting of proceedings under the Act, would be wholly without jurisdiction and can be struck down. The Supreme Court in State of Tamil Nadu vas Thriumagal Mills Ltd., (1972) 29 STC 290; (1972 Tax LR 1944 SC.) approved of the above principle." In the case of Andhra Pradesh State Road Transport Corporation vs. Commercial Tax Officer(10) the Andhra Pradesh High Court considered that the sale of scrap was not liable to tax because the primary object of the corporation was to provide road transport service and not to do business in transport. This judgment was approved by the Supreme Court in Burmah Shell Oil & Storage Company(11). Though transport is a serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aj Pandit Durga Datt Sharma's(13) case. The Orissa High Court held the same view when X-ray photographs were supplied by a radiologist in the case of Mr. Golak Behari Mohanty(14). In fact the Supreme Court of India in the case of Commissioner of Sales Tax vs. Suridev considered that the preparation and issue from a medical practitioner's dispensary of medicines would not amount to manufacture, though in that case the simple issue was whether such an activity would amount to manufacture. As pointed out in Benjamin's work on Sales, a document supplied by a solicitor or a an architect did not amount to a sale and constitute the fees received by such solicitor or architect as a sale consideration. Receipts is for actual skill and not as consideration for the chattal in the form of documents. No doubt there may be a medical practitioner or an institution selling medicine. One does come across advertisements from practitioners of indigenous medicine offering cures for various diseases. Though consultation sometimes is also available it is clear in most such cases that the medical practitioner primarily sells the medicines involved and is therefore, a dealer because neither diagnosis nor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he learned State Representative cited a recent decision of the Supreme Court in the case of District Controller of Stores, Northern Railway vs. Assistant Commercial Taxation Officer(15) which considered that the activity in the selling of unserviceable material and scrap iron by itself may constitute business. But this case is easily distinguishable for more than one reason. It was found by the Supreme Court in that case in the following words : " We also think that there is no fallacy in thinking that the Railway since it is concerned in the activity of transportation is engaged in commerce within the meaning of clause (i) of the definition..........." Definition in this case is the definition of "business" under the Rajasthan Taxation Laws (Amendment) Act. It was found that the appellant therein was primarily engaged in transportation as a commercial proposition and not as service as in the earlier case of Andhra Pradesh Road Transport Corporation(10). After all the later decision does not intend to over rule the earlier one. Besides the issue whether the appellant was a dealer was not there at all, since the Railways were apparently one. Again the Railways have substantial sto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions also. 14. The next alternative question is whether there has been any sale involved. No doubt a sale did take place in the case of miscellaneous goods such as discarded materials,. But we find that no sale is involved where drugs, oxygen, blood, anesthesia and artificial limbs were supplied. We had referred to the relevant facts even in the proceeding paragraphs. We had found that the drugs are administered or supplied only to patients against prescriptions of the Doctors. Prescription does not contain any reference to patent drugs. They are not supplied to anybody other than the patients. The supplies are not straight out of ready-purchases stock but are usually mixtures made out of general ingredients prescribed in the prescription sheets. A tentative amount is noted in the accounting records in respect of in-patients on the basis of costs. For out-patients and general ward patients, an amount on the cost basis is usually received. But in all these cases supplies of medicines are part of the treatment. Even where the amounts are noted as payable the amounts may ultimately be remitted either in full or in part by the doctors authorised to do so. In respect of the section rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of injection. In the case of the appellant some costing is done but the ultimate charge is less than the amount for which it is coasted and not more. At any rate we have no doubt that in the light of the facts of the appellant's case, not only drugs but even the supplies of oxygen, anesthesia, blood or artificial limbs are all part of treatment. Th learned State Representative no doubt refers to the ingredients of sale allegedly present especially in respect of drugs. But the first condition of two parties contemplates the relationship between a doctor and a patient. There are no goods, the property in which could be transferred since administration of drugs is only part of treatment and it cannot be compared to sale of drugs by Chemists and Druggists. We are not therefore, satisfied that primary conditions of sale exist. In fact, the English view of law in respect of supply of "deeds" by solicitors, plans by architects or drugs by doctors have been rendered after considering all elements of sale which are common both under English and Indian Laws. 15. As for diet charges not all the facts are clear. Th diet charges are exempt under the Notification if the catering done by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all miscellaneous receipts, even if the appellant were a dealer it would have been necessary to show that these receipts are incidental, ancillary or in connection with the appellant's business. 17. The next alternative contention is found to clinch the appellant's claim. There is hardly any scope for controversy. G.O. No. 976 Revenue, dt. 28th March, 1959 lists the miscellaneous exemptions under the old Act alongwith the new exemption under the new Act in 1959. Item No. 2 of such list contains exemption on "sales of medicines by every private medical practitioner owning dispensaries and dispensing medicine to his patients only provided that no consultation fee is charged by him separately". The same Notification exempted receipts from X-rays films. Artificial dentures were similarly exempted under Item No. 31 of the said Notification. The condition for exemption in this Notification was that the consultation fee should not have been separately charged for taxing the supplies of medicine. This exemption then corresponds with the view taken in the assessments. However, this condition was removed in G.O. Press No. 8431, Revenue, dt. 11th August, 1961. It would therefore, clearly app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale of drugs and other goods by the terms of Notification, whether we look to the preamble or not. But it is not necessary for us to ignore the preamble which is styled as order. We do not consider it fair on the part of the learned State Representative to ask us to close our eyes to the preamble and argue both against the spirit and letter of the exemption of all such institutions. It may be seen from the details given in an earlier paragraph that if all supplies of drugs (G.O. No. 21 dt. 5th January, 1965) dieting charges (G.O. 976 dt. 28th March, 1959), artificial limbs (G.O. 21 dt. 5th January, 1965) blood (G.O. 976 dt. 28th May 1959) X-ray (G.O. No. 21 dt. 5th January, 1965) etc. Clearly exempt under the Notifications, are excluded, the liability will be, only on small fraction of the demand raised even if all the other grounds taken by the appellant fail. 18. Lastly, we have to deal with the enormous amount of penalty levied for each for the year under appeal. Penalties are levied under s. 12 (3) of the Tamil Nadu General Sales Tax Act which authorises levy of penalty not exceeding one and half times the amount of tax due on the turnover that was not wilfully disclosed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate defiance of law or the tax payer should have been guilty of contumacious or dishonest conduct or he should have acted in conscious disregard of its obligation. The breach should not be technical or venial and should not have flown form a "bona fide belief", though such belief may be wrong though genuinely entertained. The learned State Representative would say that the appellant had not filed returns and that makes the appellant's commission anything but wilful. But the position in Hindustan Steel Ltd's(16). case is not dissimilar as in that case even registration was not sought nor obtained. It has been held in a number of cases that where a taxpayer rightly or wrongly believes that he is not liable to tax on any part of his turnover is not liable for penalty. In the appellant's case, there have been increased activities year after year. The authorities have made no attempt to tax the appellant. In fact, the appellant might have sought exemption on drugs also if it thought that it was liable to tax when it sought for exemption in respect of research products and sales of articles manufactured by Navajeevan Nilyam and Audio visual Unit. The sales of these institutions are said ..... X X X X Extracts X X X X X X X X Extracts X X X X
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