TMI Blog2019 (3) TMI 438X X X X Extracts X X X X X X X X Extracts X X X X ..... ention was there, to the extend it is beyond and steps out of the ambit of, the fiction created by the 46th amendment, it would be vitiated for total absence of legislative power. The definition of sale as found in section 2(xxi) of the KGST Act took care of instances as provided under clauses (a) to (f) in article 366(29A) respectively by Explanations (1A), (2), (3), (3A), (3B) and (3C) - After the deeming fiction was introduced by article 366(29A), all the transactions coming under the aforesaid Explanations stood validated as sale of goods. Similarly in the KVAT Act, section 2(xliii) defines “sale” and the Explanations I to VI took care of the transactions covered by clauses (a) to (f) of article 366(29A). Under the KGST Act and KVAT Act, the State cannot legislate in excess of the specific transactions brought in under article 366(29A), to create further deeming fiction with respect to other composite transactions. With respect to hospital services, we cannot but observe that the sale of drugs, implants and other consumables are a part of the medical treatment rendered. There is no identity of the medicines or consumables or implants, as it does not lie in the mind or mouth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 366(29A). The fiction extends to only the specific clauses as coming under article 366(29A) and stops there and does not extend beyond that or encompass any other composite transaction. The decisions in Malankara Orthodox Syrian Church [2002 (12) TMI 587 - KERALA HIGH COURT], Comtrust Eye Hospital v. Addl. Sales Tax Officer [2006 (10) TMI 413 - KERALA HIGH COURT] do not propound and declare the correct position in law. We direct the registry to place the matters before the Division Bench for consideration of the individual cases. - W.A Nos 1896/2012, 1958/2012, 19712012, 1972/2012, 1993/2012, 1998/2012, 2029/2012, 823/2015 O. T. Rev, Nos 11/2017, 12/2017, 13/2017, 191/2016, 5/2017, 06/2017, 8/2017, 9/2017, 10/2017 S. T. REv. 40/2012; W. P. (c) Nos. 6914/2011, 11170/2017 - - - Dated:- 18-1-2019 - MR K. VINOD CHANDRAN, MUHAMED MUSTAQUE AND MR ASHOK MENON S. T. Rev No. 11173/2017. 13406/2013, 13872/2017, 14754/2017, 24584/2013, 28069/2012, 28100/2009, 3483/2011, 3762/2011, 3838/2011, 4027/11, 4028/2011, 6352/2013 And 14047/2018 For The Appellants : Bechu Kurian Thomas, Senior Counsel, A. Kumar, P. N. Damodaran Namboodiri, K. P. Abdul Azees and Smt. G. Mini Fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is in favour of the assessee or against on the other aspect. 3. We need not refer to the individual facts to answer the reference and what we broadly stated as to the legal issue arising, would encompass the essential bare facts. We need only notice the various decisions of this court, the honourable Supreme Court and the various other High Courts to answer the question, which is purely on law; whether the drugs, implants and other consumables used in the treatment of in-patients in a hospital could be deemed to be sale of goods under article 366(29A)(f) of the Constitution of India. 4. We have heard learned senior counsel Sri. Bechu Kurian Thomas, learned counsel Sri A. Kumar, Sri P. N. Damodaran Namboodiri, Sri K. P. Abdul Azees for the petitioners and appellants and Senior Government Pleader Sri. C. K. Govindan for the State. 5. The first decision on the point, which has been referred to and extensively relied on in all the later decisions, is Malankara Orthodox Syrian Church v. Sales Tax Officer [2004] 135 STC 224 (Ker). A learned single judge of this court considered the question as to whether a hospital is a dealer within the definition of the term contained in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to enlarge the scope of the operation of the Act to cover sales effected in the course of rendering services also; i.e., all types of services. The definition clause of dealer , it was found, includes the supply of goods in the course of rendering service and is not limited to food and articles of human consumption alone. The introduction of supply of goods as part of service in the context of article 366(29A)(f) though intended to get over the decision in Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi [1978] 42 STC 386 (SC) the State legislation brought within its ambit even goods supplied in the course of services other than supply of food and articles of human consumption, was the finding. Going further, it was held that while food served to a guest in a hotel is only incidental and part of the obligatory service to be extended in a hotel; the supply of medicine in the course of treatment is not an incidental activity, but is the main and integral part of treatment. The supply of medicines by way of sales was found to be the major part of the business in a hospital, which is an activity deriving profits. 7. The decision of the Supreme Court in State of Tamil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal v. State of Kerala (W. A. No. 1134 of 2005 decided on October 31, 2005-Kerala High Court)). The issue was once more agitated before this court under the KGST Act insofar as a hospital claiming exemption for the sale of artificial lens used for replacement of the natural lens in the course of cataract operation. A learned single judge of this court followed Malankara Orthodox Syrian Church [2004] 135 STC 224 (Ker) and a Division Bench in Comtrust Eye Hospital v. Additional Sales Tax Officer [2009] 20 VST 532 (Ker) affirmed the said view. 9. Yet again the question arose under the KVAT Act, especially in the context of the decision of the honourable Supreme Court in Bharat Sanchar Nigam Ltd. [2006] 3 VST 95 (SC); [2006] 145 STC 91 (SC); [2006] 282 ITR 273 (SC); [2006] 6 RC 276; [2006] 3 SCC 1; the judgment in which batch of writ petitions are impugned in the writ appeals placed before us. The learned single judge relied on Malankara Orthodox Syrian Church [2004] 135 STC 224 (Ker) and the decision in appeal from that judgment. The judgment in (Christu Raj Hospital v. State of Kerala (W. A. No. 1134 of 2005 decided on October 31, 2005-Kerala High Court) was also referred to and r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dical treatment under the sale of goods as provided in the sales tax enactment is based on clause (f) of article 366(29A). We, hence, notice briefly the legal history of article 366(29A) as noticed in Bharat Sanchar Nigam Ltd. [2006] 3 VST 95 (SC); [2006] 145 STC 91 (SC); [2006] 282 ITR 273 (SC); [2006] 6 RC 276; [2006] 3 SCC 1 with reference to the specific question here, as to whether there can be a separation of the service and sale element in the subject transactions carried out in the course of medical treatment. Prior to the 46th amendment as noticed in Bharat Sanchar Nigam Ltd. [2006] 3 VST 95 (SC); [2006] 145 STC 91 (SC); [2006] 282 ITR 273 (SC); [2006] 6 RC 276; [2006] 3 SCC 1, composite contracts such as works contracts, hire purchase contracts and catering contracts, were not assessable as contracts for sale of goods. State of Madras v. Gannon Dunkerley Co. (Madras) Ltd. [1958] 9 STC 353 (SC) found the classical concept of sale to apply to the entry in the legislative List, which postulated three essential components to constitute a transaction of sale, viz., (i) an agreement to transfer title, (ii) supported by consideration, and (iii) an actual transfer of title in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egal 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 Amendment. That ingredient of a sale continues to have the same definition. The second respect in which Gannon Dunkerley Co. (Madras) Ltd. [1958] 9 STC 353 (SC) has survived is with reference to the dominant nature test to be applied to a composite transaction not covered by article 366(29A). Transactions which are mutant sales are limited to the clauses of article 366(29A). All other transactions would have to qualify as sales within the meaning of Sale of Goods Act, 1930 for the purpose of levy of sales tax. 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 whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est applying. Therefore when in 2005, Jidheesh (C.K.) v. Union of India [2006] 3 VST 1 (SC); [2006] 144 STC 322 (SC); [2005] 279 ITR 118 (SC); [2005] 5 RC 670; [2005] 8 Scale 784, held that the aforesaid observations in Associated Cement Companies Ltd. v. Commissioner of Customs [2001] 124 STC 59 (SC); [2001] 4 SCC 593 were merely obiter and that Rainbow Colour Lab v. State of Madhya Pradesh [2000] 118 STC 9 (SC); [2000] 2 SCC 385 was still good law, it was not correct. It is necessary to note that Associated Cement [2001] 124 STC 59 (SC); [2001] 4 SCC 593 did not say that in all cases of composite transactions the 46th Amendment would apply . (Underlining by us for emphasis) 12. Hence, the sale element in those composite, inseparable contracts which are covered by the six sub-clauses of article 366(29A) can be separated and subject to sales tax. With respect to all other composite transactions, the State would not have such power to distinctly tax the transfer of goods forming part of a composite contract or a rendering of service. As has been held in Bharat Sanchar Nigam Ltd. [2006] 3 VST 95 (SC); [2006] 145 STC 91 (SC); [2006] 282 ITR 273 (SC); [2006] 6 RC 276; [2006] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... horities were directed to keep in mind the following principles in determining the issue (para 87, page 128 in 145 STC) : .... If the SIM card is not sold by the assessee to the subscribers but is merely part of the services rendered by the service providers, then a SIM card cannot be charged separately to sales tax. It would depend ultimately upon the intention of the parties. If the parties intended that the SIM card would be a separate object of sale, it would be open to the sales tax authorities to levy sales tax thereon..... Again, the honourable Supreme Court emphasized on the aspect of sale being a part of the service rendered; there telecommunication services by the service provider; being outside the scope of levy of tax on sale of goods for reason of the same being an integral part of the service rendered. 14. We also notice the concurring judgment, which emphasizes that the amendment introduced fiction by which six instances of transactions were treated as deemed sale of goods and that the said definition as to deemed sales will have to be read in every provision of the Constitution wherever the phrase tax on sale or purchase of goods occurs (sic). Appos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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..... 16. When the Constitution by a deeming fiction permitted only certain transactions to be treated as sale of goods, the State Legislature cannot enlarge the scope of the definition in excess of that available in the deeming fiction to those transactions not strictly answering the definition of sale of goods or extend the fiction to those other transactions. In the Explanation, the State Legislature cannot have any intention in excess of the fiction as brought in by the amendment to the Constitution. Even if such an intention was there, to the extend it is beyond and steps out of the ambit of, the fiction created by the 46th amendment, it would be vitiated for total absence of legislative power. The definition of sale as found in section 2(xxi) of the KGST Act took care of instances as provided under clauses (a) to (f) in article 366(29A) respectively by Explanations (1A), (2), (3), (3A), (3B) and (3C). Some of these were existing prior to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as decipherable from section 14 of that Act. It can lead to a levy of sales tax only if there is a sale of goods as defined under the taxing enactment. We find it apposite to draw strength from Haleema Zubair, Tropical Traders v. State of Kerala [2009] 19 VST 142 (SC); [2008] 16 SCC 504; where this aspect was stressed. We extract paragraph 15 from the said decision (para 22, pages 149 and 150 in 19 VST) : 15. The High Court furthermore committed a serious error insofar as it failed to draw a distinction between the assessment under Income-tax and assessment under sales tax. Whereas Income-tax is levied on income under the Income-tax Act irrespective of the sources from which such an income had been derived, sales tax is levied only on the quantum of sales and, therefore, element of transaction of sale is a prerequisite for levy of sales tax. This aspect of the matter has been considered by this court in Girdhari Lal Nannelal v. Sales Tax Commissioner [1977] 39 STC 30 (SC); [1977] 109 ITR 726 (SC) wherein it was held observe (SCC page 704, para 7) : 7. The approach which may be permissible for imposing liability for payment of Income-tax in respect of the unexplained acq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hospital he places himself at the disposal of the physician or the surgeon who decides on the course of treatment to be taken which may or may not involve the administration of drugs, implants being carried out and other consumables being used in the course of the treatment. The cost of the implants, consumables or the drugs is irrelevant insofar as deciding what is the dominant nature of the transaction or service rendered to the patient in a hospital, which, without any doubt, is the therapeutic treatment rendered. The patient has no control or say, has limited control, on the procedures taken in the course of the treatment, the drugs administered and the consumables used. 20. Larsen and Toubro Limited v. State of Karnataka [2013] 65 VST 1 (SC) was concerned with the question as to whether a development contract aimed at developing a land by making construction thereon amounts to a works contract or not. The agreement was one which was intended at developing and marketing flats to the customers. The developer entered into the agreement with the owner by virtue of which, after construction of the multi-storeyed building, 25 per cent. of the built up area was agreed to be surren ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no merit and the same is rejected. 21. The declaration so made was with respect to the development contract which was held to be a works contract. As to the other transactions the dominant nature test applies and in hospital services the dominant intention is provision of medical care and treatment, to effectively cure the patient of his/her ailment and it is not the sale of drugs, implants or other consumables. The service offered is one of medical treatment and the dispensation or administration of drugs or implants carried out in the course of surgical procedures and the consumables used in the course of any medical procedure would be an inseparable, indivisible part of the treatment rendered. The business expediency has no control in the administration of drugs, use of consumables or the implants carried out and neither does the control lie with the hospital, as a corporate or other legal entity. The supply of drugs use of consumables and the implants made are on professional medical advice intended at curing the patient and not deriving profits. Though not a charitable activity, hospitals cannot be said to be a business house established primarily for sale of drugs, consu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and drinks. Since it is not possible to divide the service element , which is the dominant element, from the sale element , it is clear that such composite contracts cannot be the subject-matter of sales tax legislation, as was held in those judgments. 12. Bearing these judgments in mind, Parliament amended the Constitution and introduced the Constitution (Forty-sixth Amendment) Act, by which it introduced article 366(29A). Sub-clause (f), with which we are directly concerned, reads as follows : 366(29A)(f) a tax on the 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 such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made. A reading of the constitutional amendment would show that supply by way of or as part of any service of food or other article for h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of that expression tax on- xxxx xxxxx. xxxx (vi) the supply, by way of or as part of any service, of food or any drink for cash, deferred payment or other valuable consideration. This would specifically indicate that the intention of the amendment, while introducing clause (f), was to get over the decisions in Associated Hotels of India Ltd. [1972] 29 STC 474 (SC); AIR 1972 SC1131 and Northern India Caterers (India) Ltd. [1978] 42 STC 386 (SC); AIR 1978 SC 1591 what was brought under the deeming fiction is the specific supply of food or drink in a hotel or in a restaurant, which is part of the service rendered by a hotelier or restaurateur. No reliance can be placed on the said deeming fiction, to bring in hospital services and differentiate the sale and service element so as to tax the sale of drugs, implants and other consumables, in the course of medical services rendered, as sale of goods. The dominant nature test squarely applies insofar as hospital services are concerned, which are essentially the service of providing medical treatment to an ailing individual. The words any other art ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the New India Sugar Mills Ltd. [1963] 14 STC 316 (SC); AIR 1963 SC 1207, the Supreme Court took the view that in the transfer of controlled commodities in pursuance of a direction under a Control Order, the element of volition by the seller, or mutual assent, is absent and, therefore, there is no sale as defined in the Sale of Goods Act, 1930. However, in Oil and Natural Gas Commission v. State of Bihar [1976] 38 STC 435 (SC); AIR 1976 SC 2478, the Supreme Court had occasion to consider its earlier decisions with regard to the liability of transfers of controlled commodities to be charged to sales tax. The Supreme Court held that where there are any statutory compulsions, the statute itself should be treated as supplying the consensus and furnishing the modality of the consensus. In Vishnu Agencies (Pvt) Ltd. v. Commercial Tax Officer [1978] 42 STC 31 (SC); AIR 1978 SC 449, six of the seven Judges concurred in overruling the decision, in New India Sugar Mills case [1963] 14 STC 316 (SC); AIR 1963 SC 1207 while the seventh Judge held the case to be distinguishable. It is, therefore, considered desirable to put the matter beyond any doubt. 9. It is, therefore, proposed to su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (SC); AIR 1978 SC 449 noticed the decision of the three Judge Bench and found that the majority, in New India Sugar Mills [1963] 14 STC 316 (SC); AIR 1963 SC 1207 on the instance of a sale of sugar, made by a dealer to a State Government, by reason of a specific allotment order issued by the sugar controller, found it to be a transaction under compulsion. There being no specific offer and acceptance, by a written or agreed contract for sale and there being absence of volition in the matter of supply of sugar, the majority found it to be not exigible to sales tax. However, the dissenting opinion too was noticed, as finding such consent may be express or implied and it cannot be said that unless the offer and acceptance are there in an elementary form, there can be no taxable sale . The seven Judge Bench in Vishnu Agencies (Pvt) Ltd. [1978] 42 STC 31 (SC); AIR 1978 SC 449 opined that the true position in law is as set out in the dissenting judgment in New India Sugar Mills [1963] 14 STC 316 (SC); AIR 1963 SC 1207 and the majority view was held to be not good law. We deem it appropriate to extract paragraphs 23 and 24 (page 48 in 42 STC) : 23. These limitations on the normal ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttee on the terms by which he has voluntarily bound himself to trade in the commodity. His conduct too reflects his consent. Thus, though both parties are bound to comply with the legal requirements governing the transaction, they agree as between themselves to enter into the transaction on statutory terms, one agreeing to supply the commodity to the other on those terms and the other agreeing to accept it from him on the very terms. It is, therefore, not correct to say that the transactions between the appellant and the allottees are not consensual. They, with their free consent, agreed to enter into the transactions. 28. The fundamental fallacy, in the argument so raised, is the fact that the State fails to realise the distinction with respect to an essential commodity and a controlled commodity. In the present case, there is absolutely no restriction or control insofar as the drugs are concerned, which, though an essential commodity, the dispensation of which is neither restricted nor controlled by the State in the manner in which a commodity is subjected to a control as understood in the decisions above referred. Further, it has to be emphasised that it is not the absence ..... X X X X Extracts X X X X X X X X Extracts X X X X
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