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TMI Blog2015 (2) TMI 1014X X X X Extracts X X X X X X X X Extracts X X X X ..... l procedure/treatment to value added tax. The petitioners have taken different routes for arriving before this Court and though they essentially canvass the same point and pray for the same relief, it would be necessary to briefly narrate the facts of each case. Civil Writ Petition No.1922 of 2012 has been filed by M/s Fortis Health Care Limited and another, challenging order dated 10.08.2005 (Annexure P-5) holding that drugs, stents, implants etc. are exigible to tax, orders dated 09.02.2010 (Annexure P-12), 01.08.2011 (Annexure P-14), passed by the Excise and Taxation Commissioner, Punjab, the Deputy Excise & Taxation Commissioner (A), Patiala Division, Patiala and the Punjab Value Added Tax Tribunal, Punjab, respectively, rejecting their application, in Form-29 for refund of Rs. 72,70,406/-, deposited as VAT for accounting year 2005-06. M/s Fortis Health Care Limited and another have also filed CWP Nos.1923 and 1924, challenging orders of even date rejecting their claims for refund of VAT pertaining to accounting years 2006-07, 2007-08 and 2010-11. CWP No.241 of 2014 and 18604 of 2014 has been filed by M/s Fortis Health Care Limited challenging assessment orders, dated 08.10. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment does not involve a sale that would invite levy and payment of VAT. The State of Jharkhand, filed Special Leave Petition (Civil) No.3652 of 2008, which was dismissed by the Supreme Court on 10.03.2008. The petitioner addressed a letter dated 27.05.2008, to the Excise and Taxation Commissioner, Patiala Division, Patiala, intimating that in view of the judgment in Tata Main Hospital (supra) it has stopped charging VAT for the medicines, consumables etc. administered during the course of treatment to, in house patients. The petitioner, thereafter, filed an application, under Section 39 of the Punjab VAT Act, 2005, on 28.10.2009, for refund of VAT. The Assistant Excise & Taxation Commissioner-cum-Designated Officer, SAS Nagar, Mohali, vide order dated 10.05.2010 rejected the application by holding that as the Bihar Finance Act is different from the Punjab VAT Act, the judgment by the Jharkhand High Court is a judgment in personam and as the petitioner has accepted clarificatory order dated 10.08.2005, it is required to pay VAT. The petitioner filed an appeal before the Deputy Excise and Taxation Officer. Vide order dated 09.12.2010, the appeal was dismissed but by recording a fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unsel for the petitioner further submits that the power of the State to impose tax on "sale of goods" emanates from Entry 54 of List II of Schedule VII of the Constitution of India. The petitioner offers a contract of service to both packaged and non-packaged patients and as an integral, inseverable part of this service administers drugs, medicines, stents and implants. The supply of drugs, medicines, stents and implants cannot be deemed to be sale of goods, taxable under the State enactments. The concept of deemed sale introduced by Article 366(29-A) of the Constitution of India, came up for consideration before the Supreme Court in Bharat Sanchar Nigam Limited v Union of India, 2006 (2) STR 161 . The Supreme Court after noticing the principle enunciated in State of Madras v. Gannom Dunkerley and Company(Madres) Ltd. (1958) 9 STC 353 , held that the test for transactions other than those mentioned in Article 366(29-A) of the Constitution of India, continues to be whether parties intended to sell goods. The determinative factor for ascertaining the nature of a contract, therefore, remains the same. The supply of drugs, medicines, stents, implants, etc., cannot by a factual or a leg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, drugs, stents and other implants, are tabulated and charged separately, thereby proving that the stand taken by the States of Punjab and Haryana is factually and legally correct. Counsel for the States of Punjab and Haryana submit that the supply of drugs, medicines, stents and other implants etc., are squarely covered by the definition of "sale" under the Haryana as well as the Punjab Act and the petitioner is covered by the term "person" as defined under Section 2(t) of the Punjab VAT Act and of the Haryana VAT Act. The supply of medicines, drugs, stents, and other implants etc., fall within the definition of "sale" and, therefore, there is no error in the impugned orders. Counsel for the respondents relies upon a judgment of the Kerala High Court in Malan Bara Orthodox Syrian Charch v. State Tax Officer (2004) 135 STC 224. We have heard counsel for the parties, perused the impugned orders as well as the relevant statutory provisions. The petitioners are business entities that run hospitals in the private sector and provide medical care, but at a price. One may disagree with the commercialisation of medical services or the exorbitant prices charged but these facts are irrele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice and sale with service being the medical advise and medical procedure and the sale being the supply of medicines, surgical items, implants, to patients whether as part of a package or to an individual patient? The State governments draws their power to impose tax 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 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 of India. A State may impose tax on "sale of goods" but is not empowered to impose tax on services. There may and often are contracts for service called composite contracts that may inher an element of sale without fulfilling all the elements of a sale. As far back as in Gannon D unkerley & c o. (supra), the Supreme Court held that composite contracts are not a "sale" as one or the other element of "sale" is missing. Article 366 (29-A) of the Constitution of India, was introduced to overcome this hurdle and allow taxation of the element of sale in composite contracts and provide a frame work for the Union as well as the States to bring forth to taxation transactions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its grammatical or cognate expressions means any transfer of property in goods for cash, deferred payment or other valuable consideration and includes-- (i) transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration; (ii) transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; (iii) delivery of goods on hire-purchase or any system of payment by instalments; (iv) transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; (v) supply of goods by any unincorporated association or body or persons to a member thereof for cash, deferred payment or other valuable consideration; (vi) 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; and (vii) every disposal of goods referred to in Explanation (4) to clause (t) of this section; a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up for consideration before the Supreme Court in Bharat Sanchar Nigam Limited and another v. Union of India and others, 2006(3) SCC 1. After setting out the legislative dimensions of the various clauses of Article 366(29-A) of the Constitution of India, the Supreme Court held as follows:- 43. Gannon Dunkerley survived the 46th Constitutional Amendment in two respects. First with regard to the definition of 'sale' for the purposes of the Constitution in general and for the purposes of Entry 54 of List II in particular except to the extent that the clauses in Art.366(29A) operate. By introducing separate categories of 'deemed sales', the meaning of the word 'goods' was not altered. Thus the definitions of the composite elements of a sale such as intention of the parties, goods, delivery etc. would continue to be defined according to known legal connotations. This does not mean that the content of the concepts remain static. Courts must move with the times. But the 46th Amendment does not give a licence for example to assume that a transaction is a sale and then to look around for what could be the goods. The word "goods" has not been altered by the 46th Amend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s arising out of the sale of goods. If there was no such intention there is no sale even if the contract could be disintegrated. The test for deciding whether a contract falls into one category or the other is to as what is 'the substance of the contract. We will, for the want of a better phrase, call this the dominant nature test." A perusal of the above extract reveals that the 46th amendment does not introduce a new category of "deemed sales", nor does it alter the meaning of the word "goods" or "sale of goods" but merely allows certain transactions to be brought forth for taxation. This apart Article 366(29-A) of the Constitution of India does not raise a presumption that every transaction is a sale and, thereafter allows the State to search for what could be the element of sale, in a transaction. The dominant nature test continues to apply to all transactions that are not covered by Article 366(29-A) of the Constitution of India as the ingredients of a sale remain unchanged. The Supreme Court specifically observed though as an an illustration, that the sub-clauses of Article 366(29-A) of the Constitution of India do not cover hospital services and also held that unless th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sideration before the Jharkhand High Court in Tata Main Hospital v. The State of Jharkhand and others, 2008(2) JCR 174(Jhr). After considering the judgment in Bharat Sanchar Nigam Limited and another (supra) the Jharkhand High Court held that supply of stents, medicines etc. is not a sale. A relevant extract from the judgment reads as follows:- "45. 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 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 (g) of Clause 29A of Art. 366, there is no other service which has been permitted to be so split. For example the clauses of Art. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, surgical items, x-ray films and plates etc. to the indoor patients in course of treatment in TMH does not come within the purview of the definition of 'sale' as envisages under Section 2(t) of the Bihar Finance Act for the following reasons: (i) Supply of those articles are part and parcel of the treatment and they are essentially required for the treatment of the patients. (ii) Supply of those articles are incidental to the medical service being rendered by the TMH to the patients. (iii) Those articles are not being sold to the patients but the cost price of the same being adjusted against the head 'pharmacy' and are not being spearately charged item wise. (iv) Charge under the head 'pharmacy' is part of the composite charge realized by the TMH towards the treatment of those indoor patients. 27. On the facts noticed in the foregoing paragraphs, we find that the TMH is not doing business of sale of the aforesaid articles, i.e. Medicines, vaccines, surgical items, x-ray films & plates etc. and, therefore, cannot be said that the Hospital is a 'dealer' within the meaning of "Dealer" under the Bihar Finance Act. 28. The transaction aforesaid, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure." The Allahabad High Court in view of the judgment of the Hon'ble Supreme Court in Larsen and Toubro Limited & Anr. v. State of Karnatana 2004(1) SCC 708, went on to hold that the dominant nature test does not survive with respect to transactions covered by Clause 29-A of Article 366 of the Constitution of India, but as hospital services and medical procedures do not fall within any of the sub-clauses of Article 366 (29-A) of the Constitution of India, the deeming definition of sale under Article 366 (29-A) of the Constitution of India shall not apply as a deeming fiction and render provisions of medical services or any part thereof as a sale as defined in the statute. The Allahabad High Court distinguished the judgments of the Kerla High Court in P.R.S. Hospital v. State of Kerala 2003(1) KLT 633 and Aswini Hospital Pvt. Ltd. and others v. C.T.O. Thrissur and others 2013 NTN (vol.51) 29, (relied by the respondents) by holding as follows:- "In the present case, the limited issue is as to whether an element of sale is involved when a stent or valve is implanted in the course of a surgical procedure which is performed in a patient as an indoor patient in a hospital. We clar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent and empowers the State to tax the element of sale. A perusal of Article 366(29-A) of the Constitution of India does not enable us to record an opinion that it covers services provided by hospitals. Before such a transaction is put to tax, whether under the Haryana or Punjab VAT Act, it would have to satisfy the dominant nature test by reference to the substance of the contract. 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 as held by the Allahabad and the Jharkhand High Courts 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 but 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 severa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l to a medical services/procedures and cannot be severed to infer a sale as defined under the Punjab or the Haryana Act and therefore, are not exigible to value added tax. Consequently, we allow the writ petitions and grant relief in the following terms:- Civil Writ Petition No.1922 of 2012 Civil Writ Petition No.1923 of 2012 Civil Writ Petition No.1924 of 2012 Civil Writ Petition No.18604 of 2014 In view of findings recorded hereinabove, orders dated 10.08.2005 (Annexure P-5) and 01.08.2011 (Annexure P-14), are set aside and the matter is remitted to the VAT Tribunal, for adjudication afresh and in accordance with law. Civil Writ Petition No.241 of 2014 The writ petition is allowed, order dated 08.10.2013, passed by the Excise and Taxation Officer, Punjab, is set aside and the matter is remitted to the said officer for adjudication afresh and in accordance with law. VAT Appeal No.74 of 2011 The appeal is allowed, order dated 24.08.2011 is set aside and the matter is remitted to the Haryana VAT Tribunal, for adjudication afresh and in accordance with law. Civil Writ Petition No.23290 of 2012 The writ petition is allowed, revisional order dated 20.09.2012, passed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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