TMI Blog2002 (12) TMI 587X X X X Extracts X X X X X X X X Extracts X X X X ..... e rendered in a hospital and distinguishing factors among the hospitals may be in regard to quality and volume of it, but essentially the activities in all the hospitals are one and the same. There is no case by any of the petitioner-hospitals that they are not supplying or selling medicines to the patients in the course of medical treatment which is the very basis on which sales tax authorities have issued notices calling them to take registration, to produce books of accounts, file returns and pay tax, if any due. Therefore, the essence of issue is whether the supply of medicine to patients in the course of treatment constitute "sale" bringing the petitioners within the scope of "dealer" under the Act making them liable to take out registration, file returns and to pay sales tax if payable. 2.. I heard counsel for the petitioners and also the Special Government Pleader for Taxes. 3.. Before proceeding to the main issue, an aspect to be clarified is the distinction between medical practitioners on the one side and the hospitals and dispensaries on the other side. Notification SRO No. 1090 of 1999 as amended by SRO No. 802 of 2001 provides exemption to medical practitioners w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treatment is also provided. In other words, dispensaries are essentially consulting places where medicines also are supplied. In the case of hospitals, inpatients are taken and medical services are rendered involving supply of medicines. Exemption appears to be of a limited nature and is applicable only to dispensaries managed by doctors dispensing medicine to their own patients. In other words, essentially consultant doctors are granted exemption on the supplies of medicine in the course of consultation. This category of persons are enjoying exemption on the turnover of sale of medicines. The nature of exemption is evident and clear when the description of the dealer and the turnover exempted are read together. It is specifically mentioned in entry 13 that what is exempted is turnover relating to medicines dispensed to their patients in the course of treatment. This clearly establishes that the exemption is only to a doctor for the sale of medicine to his patients. However, an organised activity involving engagement of doctors and staff for treatment and supply of medicine is not covered by exemption because there is no correlation between the medical practitioner, his patient an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ancillary to such trade, commerce, manufacture, adventure or concern; (viii) 'dealer' means any person who carries on the business of buying, selling, supplying or distributing goods, (executing works contract, transferring the right to use any goods or supplying by way of or as part of any service, any goods), directly or otherwise, whether for cash or for deferred payment, or for commission, remuneration or other valuable consideration and includes- (a) ........... (b) a casual trader; (c) a commission agent, a broker, a del credere agent or an auctioneer or any other mercantile agent, by whatever name called, who carries on the business of buying, selling, supplying or distributing goods (executing works contract, transferring right to use any goods or supplying by way of or as part of any service, any goods) on behalf of any principal; (d) a non-resident dealer or an agent of a non-resident dealer, or a local branch of a firm or company or (association or body of persons whether incorporated or not) situated outside the State; (e) a person who, whether in the course of business or not, sells- (i) goods produced by him by manufacture, agriculture, horticulture or oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... used in the (construction, fitting out, improvement or repair of immovable property or used in the) fitting out, improvement or repair of movable property and every kind of property (whether as goods or in some other form) involved in the execution of a works contract and all growing crops, grass or things attached to, or forming part of the land which are agreed to be severed before sale or under the contract of sale; (xxi) 'sale' with all its grammatical variations and cognate expressions means every transfer (whether in pursuance of a contract or not) of the property in goods by one person to another in the course of trade or business for cash or for deferred payment or other valuable consideration, but does not include a mortgage, hypothecation, charge or pledge; Explanation (3C).-Any supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service is for cash, deferred payment or other valuable consideration, shall be deemed to be a sale. (xxvii) 'turnover' means the aggregate amount for which goods are either bought or so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge it is clear that medicine is as important, if not more in terms of value and purpose as anything else in the medical treatment. Therefore, in the first place, the petitioners' contention that supply of medicine is only incidental cannot be accepted at all. It is as important as medical consultation or other services in the hospital. Therefore, supply of medicine in the course of medical treatment either to inpatients or to outpatients has to be taken as one of the main activities in a hospital or in a clinic. The Supreme Court had occasion to consider as to when a person becomes a "dealer" in the decision in State of Gujarat v. Raipur Manufacturing Co. Ltd. [1967] 19 STC 1, wherein it was held as follows: "Whether a person carries on business in a particular commodity must depend upon the volume, frequency, continuity and regularity of transactions of purchase and sale in a class of goods and the transactions must ordinarily be entered into with a profit-motive. By the use of the expression 'profit-motive' it is not intended that profit must in fact be earned. Nor does the expression cover a mere desire to make some monetary gain out of a transaction or even a series of tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced in the Act is in the context of article 366(29A)(f) of the Constitution of India which was introduced to get over the decision of the Supreme Court in the context of various decisions, particularly, in Northern India Caterers' case [1978] 42 STC 386 referred to above. The Constitution only provides for supply of food or any other article for human consumption to bring it within the extended definition of "sale". The petitioners contended that the definition introduced under the explanation (3C) to the term "sale" contained in section 2(xxi) of the Act contemplates only food and articles of human consumption and the same does not take in "medicine". Even though the amendment was brought to cover hotels, the legislative intent is to enlarge the scope of the operation of the Act to cover sales effected in the course of rendering services also. Moreover, in the definition clause of "dealer" the supply of goods in the course of rendering service is not limited to food and articles of human consumption alone. Further, it is also not possible to compare the case of supply of food as part of service in a hotel and supply of medicine in the course of medical treatment. There is substant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treated just like other dealers. 7.. The petitioners have a case that medicine is an item coming under entry 87 of the First Schedule to the Act which attracts tax at the point of first sale in the State and most of the petitioners are buying medicines within the State. Therefore, the Government gets no benefit by requiring the petitioners to take registration and comply with the formality by filing returns, as no tax is payable. It is one thing to say that the petitioners have no liability to pay tax and another to say that they are liable to conform to the discipline under the Act and Rules. If the medicines sold by the petitioners in the hospitals are only second sales and the petitioners have bills to prove purchase in Kerala showing payment of tax, necessarily they will get exemption in the course of assessment and they will have no liability to pay tax. However, the requirement of registration under the Act and the filing of returns and production of books of accounts in support of the same is to enable the department to ensure that the claim is correct or otherwise to levy tax if the petitioners are found to be engaged in first sale of goods. It is to be noted that there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore is whether the increase in registration fee periodically made is justified or not and whether the present rate particularly, the maximum rate at Rs. 20,000 is excessive or arbitrary. The principle of quid pro quo stands established and the settled position is that the dealers are getting services from the Department and there is nothing to indicate that the Government has to establish the correlation between fees and service exactly in court to sustain it. Various services are rendered by the sales tax department to dealers. The petitioners contend that the form supplied such as delivery note declarations, etc., are separately charged, though the charges are not very high. I find the registration fee fixed is directly related to turnover; that is in proportion to turnover and the maximum payable for an year is Rs. 20,000. It is because as the turnover goes on, of course the volume of department work also goes up. In the first place, the parties are entitled to departmentally issued declarations in form No. 26 for transport of goods, returns and other forms are also printed and supplied by the department including treasury challans for payment of tax, all of which are not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... So long as the petitioners are not enjoying any compounding facility, they cannot have a grievance in respect of registration fee charged on dealers paying tax at compounded rate. It is for them to challenge such demand, if there is a grievance. 11.. In view of the pendency of the cases so far and consequently so far the provisions of the Act and Rules have not been enforced against the petitioners, and in view of the explanatory note introduced in the notification above referred, though the clarification is only prospective, I feel enforcement of the statute against the hospitals has to be made only with effect from the financial year 2001-2002. The petitioners are free to make application for registration, remit the registration fee, file returns and comply with statutory provisions. All the impugned proceedings stand vacated to enable the petitioners to comply with the statutory provisions of making application for registration, remitting registration fee, filing returns, etc. from April 1, 2001 onwards. The petitioners are granted three months from now to apply for registration, to file returns up-to-date, pay tax, if any, falling which the department is free to take coercive ..... 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