TMI Blog2014 (9) TMI 300X X X X Extracts X X X X X X X X Extracts X X X X ..... td. judgment [2006 (3) TMI 1 - Supreme court] was not rendered in the context of the provisions of the KVAT Act and the issue raised and decided in that case is also not in the context of a comparable controversy. In so far as the finding regarding hospital services or example that is given by the apex court are concerned, the court has only laid down a principle and said that if in the process of treatment a pill is given to a patient, such a transaction cannot be treated as a sale. That example given by the apex court cannot be taken to mean that it was laying down a principle that in all circumstances, every transaction that takes place in a hospital, is a service and is outside the taxation law. This is all the more so in today's context where hospitals are being established by public limited companies which are incorporated with profit-motive. Therefore, if in a hospital, medicines and other consumables are sold to a patient and bills are raised, such transaction cannot be outside the KVAT Act and taking refuge under the example given by the apex court to explain the meaning and content of article 366(29A) of the Constitution, such hospitals cannot avoid statutory liabiliti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vice rendered to the patients treated. According to them, the Act does not contemplate levy of tax on such supply of medicines and other items and hence the hospitals have no obligation to get themselves registered under the Act or to pay tax thereunder. 5. In my view, this question does not need much deliberation for the reason that this very issue has already been considered by this court and has been decided against the petitioners. In the context of the provisions contained in the Kerala General Sales Tax Act, in P.R.S. Hospital v. State of Kerala [2003] 1 KLT 633 Reported as Malankara Orthodox Syrian Church v. Sales Tax Officer in [2004] 135 STC 224 (Ker)., this court considered the question whether hospital is a dealer within the definition of the term as contained in the KGST Act. In that context, the question regarding the liability of the hospitals to take registration and to pay tax on the turnover of sale and supply of other items in the hospitals was considered. Thereafter, referring to the definition of the expressions business , dealer , goods , sale and turnover in the KGST Act, this court answered the question thus (pages 234-237 in 135 STC): The mai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a hospital will be such that it will answer the definition of 'dealer' under the Act beyond any doubt. In this context it is worthwhile to take note of the amendment to the term 'dealer' contained in section 2(viii) of the Act abovestated wherein supplying goods by way of or as part of any service is also treated as business to make a person involved in it a 'dealer' under the Act. Of course the definition of 'supply of goods as part of service' introduced 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 (SC) 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 (SC) 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 substantial difference between these two transactions. While food served to a guest in a hotel is only incidental and part of service, the supply of medicine in the course of treatment is not just incidental, but it is the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. Medical Practitioners' Assn. v. Sales Tax Officer) and 1487 of 2003 (Sales Tax Officer v. Qualified Medical Practitioners Assn). 7. The judgment in W.A. No. 1134 of 2005 (Christu Raj Hospital v. State of Kerala) shows that the contention of the appellant was that while rendering the judgment in P.R.S. Hospital's case [2003] 1 KLT 633 Reported as Malankara Orthodox Syrian Church v. Sales Tax Officer in [2004] 135 STC 224 (Ker). and the writ appeals confirming the same, the apex court judgments in State of Tamil Nadu v. Board of Trustees of the Port of Madras [1999] 114 STC 520 (SC); [1999] 4 SCC 630 and Commissioner of Sales Tax v. Sai Publication Fund [2002] 126 STC 288 (SC); [2002] 258 ITR 70 (SC); [2002] 4 SCC 57 were not correctly appreciated and applied. It was argued that the fact that medicines were sold through pharmacy in a hospital though may involve buying and selling, is no reason to hold that the hospital is a dealer since the hospital is not engaged in any business within the meaning of section 2(vi) of the KGST Act. It was argued that the predominant object of a hospital is not to do business and the various services rendered in the hospital are non-busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the said observations clearly show that port trusts are not established for carrying on business. The apex court referred to the following observations made in Base Repair Organisation v. State of Andhra Pradesh [1983] 53 STC 223 (SC): 'According to the definition, if the main activity is in the nature of trade, commerce or manufacture any ancillary or incidental transac tion be it per se in the nature of trade, commerce or manufacture or not, is also treated as 'business'. But the converse is not true. In other words, if the main activity is not business, but if an ancillary or incidental activity is per se business, the incidental or ancillary activity does not cease to be business, merely because it is ancillary or incidental to the main activity, which itself is not business. The definition is not capable of being read in such a manner.' The apex court agreed with the above observations subject to the following clarification or modification in paragraph 36 of the judgment as follows: 'If the main activities are business then the sales in connection with incidental or ancillary thereto need not have been intended as a business or commercial a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and activity of buying and selling which forms part of an integral part of the nonbusiness activity then also the party will not be a dealer. 8. According to the learned counsel for the petitioner hospital is not engaged in carrying on any business of buying and selling that there is no business activity and hence buying and selling of medicine through its pharmacy being an integral part of the non-business activity, hospital will not come within the meaning of the term dealer under the KGST Act. We are unable to agree with this contention because business as defined under section 2(vi) is in pari materia with the same as is in the case of Tamil Nadu General Sales Tax Act which was considered by the apex court in Commissioner of Sales Tax v. Sai Publication Fund [2002] 126 STC 288 (SC); [2002] 4 SCC 57. It was held that to bring it within the expression 'business' there need not be any motive to gain or profit. Though it is true that doctors of various specialities doing service in hospital by their intellectual skill in the matter of treating the patients by itself may not be a business activity and that is only a profession but various other facilities provided in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, (a) a casual trader; (b) a commission agent, a broker or a del credere agent or an auctioneer or any other mercantile agent, by whatever name called, of such dealer; (c) 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 person whether incorporated or not situated outside the State; (d) a person who, whether in the course of business or not, sells, (i) goods produced by him by manufacture or otherwise; or (ii) trees which grow spontaneously and which are agreed to be severed before sale or under contract of sale; (e) a person who whether in the course of business or not, (i) transfers any goods, including controlled goods, whether in pursuance of a contract or not, for cash or for deferred payment or for other valuable consideration; (ii) supplies, by way of or as part of any service or in any other manner whatsoever, goods, being food or any other articles for human consumption or any drink (whether or not intoxicating), where such supply or service is for cash, deferred payment or other valuable consideration. Explanation I. A society (including a co-operative society, cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion or body of persons, whether incorporated or not, to its members, for cash or for deferred payment or other valuable consideration, whether or not in the course of business, shall be deemed to be a sale for the purposes of this Act. Explanation III. A transfer of goods on hire-purchase or other instalment system of payment shall, notwithstanding the fact that the seller retains the title in the goods as security for payment of the price, be deemed to be a sale on the date of delivery, of the goods in pursuance of the agreement of such hire purchase or other system of payment in instalments. Explanation IV. A transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract shall be deemed to be a sale. Explanation V. A transfer of right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration shall be deemed to be a sale. Explanation VI. Any supply, by way of or as part of any service or in any other manner whatsoever of goods being food or any other articles for human consumption or any drink (whether or not intoxicating), where such supply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed them on to his principal at another rate; or (iii) not to have accounted to his principal for the entire collections or deductions made by him in the sales or purchases effected by him on behalf of his principal; or (iv) to have acted for a fictitious or non-existent principal: Provided that the deduction or addition, as the case may be, of the commission agreed upon and specified in the accounts and incidental charges incurred by the agent which are specified in the accounts and which the assessing authority considers legitimate shall not be deemed to be a difference in the rates referred to in subclauses (i) and (ii). 2(lii) 'turnover' means the aggregate amount for which goods are either bought or sold, supplied or distributed by a dealer, either directly or through another, on his own account or on account of others, whether for cash or for deferred payment or for other valuable consideration, provided that the proceeds of the sale by a person not being a company or firm registered under the Companies Act, 1956 (Central Act 1 of 1956) and Indian Partnership Act, 1932 (Central Act 9 of 1932) (or society including a co-operative society or association of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntly receives any amount from any person towards reimbursement of the balance of the price, the amount so received shall be deemed to be turnover in respect of such goods. 11. A comparative analysis of the provisions contained in the KGST Act which were considered by this court in P.R.S. Hospital's case [2003] 1 KLT 633 Reported as Malankara Orthodox Syrian Church v. Sales Tax Officer in [2004] 135 STC 224 (Ker). and the aforesaid corresponding provisions of the KVAT Act show that the statutory provisions remain the same although the KGST Act has been replaced by the KVAT Act. Therefore, the principles laid down by this court in the P.R.S. Hospital's case [2003] 1 KLT 633 Reported as Malankara Orthodox Syrian Church v. Sales Tax Officer in [2004] 135 STC 224 (Ker). judgment fully answers the contentions raised by the petitioners in these cases regarding their liability to be registered under the Act and to pay tax thereunder. 12. The second contention raised by the petitioners is to declare section 6 of the KVAT Act to be unconstitutional. Section 6 of the Act provides for levy of tax on sale or purchase of goods. The petitioners contend that if the section authorise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l element is lacking. This normally takes place in an involuntary sale. Clause (b) covers cases relating to works contracts. This was the particular factsituation which the court was faced with in Gannon Dunkerley Co. (Madras) Ltd. [1958] 9 STC 353 (SC) and which the court had held was not a sale. The effect in law of a transfer of property in goods involved in the execution of the works contract was by this amendment deemed to be a sale. To that extent the decision in Gannon Dunkerley [1958] 9 STC 353 (SC) was directly overcome. Clause (c) deals with hire-purchase where the title to the goods is not transferred. Yet by fiction of law, it is treated as a sale. Similarly the title to the goods under clause (d) remains with the transferor who only transfers the right to use the goods to the purchaser. In other words, contrary to A. V. Meiyappan's decision [1967] 20 STC 115 (Mad) a lease of a negative print of a picture would be a sale. Clause (e) covers cases which in law may not have amounted to sale because the member of an incorporated association would have in a sense begun both the supplier and the recipient of the supply of goods. Now such transactions are deemed sales. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of sales tax. 44. Of all the different kinds of composite transactions the drafters of the 46th Amendment chose three specific situations, a works contract, a hire-purchase contract and a catering contract to bring within the fiction of a deemed sale. Of these three, the first and the third involve a kind of service and sale at the same time. Apart from these two cases where splitting of the service and supply has been constitutionally permitted in clauses (b) and (f) of clause (29A) of article 366, there is no other service which has been permitted to be so split. For example the clauses of article 366(29A) do not cover hospital services. Therefore, if during the treatment of a patient in a hospital, he or she is given a pill, can the sales tax authorities tax the transaction as a sale? Doctors, lawyers and other professionals render service in the course of which can it be said that there is a sale of goods when a doctor writes out and hands over a prescription or a lawyer drafts a document and delivers it to his/her client? Strictly speaking with the payment of fees, consideration does pass from the patient or client to the doctor or lawyer for the documents in both cases. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be treated as a sale. That example given by the apex court cannot be taken to mean that it was laying down a principle that in all circumstances, every transaction that takes place in a hospital, is a service and is outside the taxation law. This is all the more so in today's context where hospitals are being established by public limited companies which are incorporated with profit-motive. Therefore, if in a hospital, medicines and other consumables are sold to a patient and bills are raised, such transaction cannot be outside the KVAT Act and taking refuge under the example given by the apex court to explain the meaning and content of article 366(29A) of the Constitution, such hospitals cannot avoid statutory liabilities. On the other hand, if in an individual case, a particular transaction is not a sale, it is for the concerned hospital to contest the matter in accordance with law and that does not mean that the whole hospital industry in the State can remain outside the discipline of the KVAT Act. 15. Thus, the principles laid down by the apex court in the judgment in the Bharat Sanchar Nigam Ltd. case [2006] 3 VST 95 (SC); [2006] 145 STC 91 (SC); [2006] 282 ITR 273 (S ..... X X X X Extracts X X X X X X X X Extracts X X X X
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