TMI Blog2002 (12) TMI 596X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 in 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 1090/99 as amended by SRO 802/2001 provides exemption to medical practitioners which is as follows: Sl. No. Name of Dealer Turnover which is exempted Conditions and restrictions 13. Medical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 and the supply of medicine. In other words, exemption is only to doctors who supply medicine as part of their consultancy and service. The decisions relied on by the petitioners are to establish that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rks 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) (xxxx) (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 otherwise; or ii) trees which grow spontaneously and which are agreed to be severed before sale or under contract of sale;) ((f) a person who whether in the course of business or not:- (1) tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 The 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 transactions. It predicates a motive which pervades the whole series of transactions effected by the person in the course of his activity. In actual practice, the profit-motive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rious decisions, particularly, in Northern India Caterers' case (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 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 treatm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 hospital 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 is nothing barring the hospitals from sourcing medicine from outside the State or even from out of India. Therefore, unless the petitioners establish that the entire medicines sold by them or supplied in the course of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere should be quid pro quo to justify the demand of registration fee. However, nobody has doubted that there is no service rendered by the Department and there has been always registration fee at all time in the statute. The question therefore is whether the increase in registration fee periodically made is justified or not and whether the present rate particularly, the maximum rate at ₹ 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 ₹ 20,000/-. It is because as the turnover goes on, of course the volume of department work also goes up. In the first place, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f those dealers paying tax at compounded rate, registration fee cannot be related to turnover and therefore, there is lacunae in the statute. This is not going to invalidate registration fee provided on slab rate. 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 ret ..... X X X X Extracts X X X X X X X X Extracts X X X X
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