TMI Blog2019 (3) TMI 1019X X X X Extracts X X X X X X X X Extracts X X X X ..... care ceases with the consultation and the further sale made to an outpatient of any goods from the pharmacy has the connotation of sale of goods. The supply of medicines from the pharmacy to an out-patient is mere sale of goods and not a supply in the course of medical service. It is at best a sale in pursuance of a service, ie: the consultation - the hospitals with Pharmacies have to be necessarily registered under the KVAT Act and they also have to satisfy the liability to tax under the respective enactments in the various periods, on the medicines, consumables or implants supplied to an out-patient, as distinguished from an administration of drug or use of consumables or implants carried out within the hospital premises itself, subject however to the purchase having been made from a compounded dealer, who has already paid tax on the MRP. The hospitals are to be registered under the sales tax enactment, whether they have a Pharmacy catering to out-patients or not. The hospitals who transfer or supply goods in the course of treatment are exempted from the levy of sales tax for such goods; the transfer being not in the course of sale of goods exigible to tax. The sale of any dru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n certain cases which we will have to deal separately with. As of now, the first issue has been answered by a Full Bench in 2019 (1) KLT 336 [Sanjose Parish Hospital v. Commercial Tax Officer] . The Full Bench held that drugs, implants and consumables used in the course of treatment in a hospital would not come within the definition of sale of goods, since it is part of a composite medical service provided in a hospital for therapeutic care and treatment of a patient. 3. On the question of registration, we heard the various Counsel appearing for the respondents herein. Sri.A.Kumar and Sri.Paul Jacob led the arguments on behalf of the hospitals. Sri.Paul Jacob would assert that even going by the Full Bench decision there can be no mandate for a registration under the KVAT Act, 2003. An outpatient treatment and supply of drugs from the pharmacy to that patient is also a part of the service offered in the hospital. The learned Counsel would specifically refer to the definition of dealer as available under Section 2(xv) to contend that though supply of goods by way of or as part of any service is included, it is confined to supplies by way of or part of any service; of goods bein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed or consumables and implants used in the course of such treatment. Neither the various High Courts nor the Full Bench of this Court has considered the specific aspect of a sale from Pharmacy, which according to the learned Counsel is on the same footing as an in-patient treatment. The learned Counsel would also argue that there could be administration of drugs or other materials in the course of treating an out-patient also, in the Casualty, which in any event cannot be treated as a sale simpliciter of goods. The other learned Counsel followed these contentions urged by Sri.Kumar and Sri.Paul Jacob. 5. Learned Senior Government Pleader Sri.V.K.Shamsudheen would specifically point out that Section 2(xv) defines a dealer as a person who, inter alia , supplies by way of or as part of any service, any goods directly or otherwise, whether for cash or for deferred payment. Sub-clause (e) specifically speaks of a person involved in transfer of goods, including controlled goods, whether in pursuance of a business or not. Business as defined under sub-clause (ix) of Section 2 specifically includes a trade, commerce, manufacture or any adventure carried on with a motive to make gai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e other to be issued by stockists/ wholesaler of medicines or drugs to retailer when tax is not collected. The retail bill, also included in Form 8H, is to be issued to customers who are not dealers. It is pointed out that when there is a clear exemption applicable, then there is no question of a registration in the case of hospitals, since there is no sale of goods involved insofar as a drug administered and consumables or implants used. Specific reference is also made to the proviso, exempting hospitals which have not taken any registration under the Act. The hospitals have been exempted from the liability to pay tax on the sale of such medicines; insofar as a purchase made from an importer or manufacturer who has opted under the compounding scheme or a purchase made from another registered dealer where tax on MRP was paid, for the period between 01.04.2005 to 31.03.2012. Sri.Shamsudheen, however, would counter the said argument on the ground that the proviso has application only for the period mentioned therein. Further, the drugs being taxable, the exemption is not on the goods and is on the dealer. Hence, hospitals have to necessarily take out a registration and if transfer of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supply has been made in the course of treatment and not as a mere sale of goods. In this context, we would consider it worthwhile to examine the nature of the sale which is carried out in a Pharmacy as distinguished from a supply of goods in the course of medical treatment offered to an inpatient in a hospital. 11. As has already been held by the Full Bench, when drugs are administered, consumables used and implants carried out in the course of medical treatment, there can be no sale of goods ferreted out separately from the composite medical service offered to an inpatient. In the case of a Pharmacy selling drugs, consumables or implants to out-patients, according to us, stands on a different footing. Admitting that the patient does not come to a hospital for purchase of drugs or consumables or implants, even when he is an out-patient; the purchase of what is prescribed by the Attending Physician/Surgeon is at the option of that out-patient. An out-patient who is prescribed with medicine may purchase it from the Pharmacy or some medical shop out side or even decide not to purchase it at all. Hence, when a purchase is made from a Pharmacy, there has to be found a consensus ad i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt, a drug or a consumable may not be available in one hospital and a patient of that hospital may, on the advise of the hospital, purchase it from a Pharmacy of another hospital, or a medical store, when the transfer of goods is for all purposes a sale of goods, exigible to tax. 14. We have to accept the contention of the State that the goods being drugs, implants and consumables, are taxable under the respective enactments. The liability to tax is extinguished only when the transfer of goods is made in the course of a treatment, which is the service offered in a hospital. That, on sale of the very same drugs, consumables and implants by a Pharmacy or a medical store would attract tax, makes it imperative for the hospitals to establish that the drugs administered, consumables used and implants carried out were in the course of medical treatment. This in turn brings within its wake the necessity for a registration as a dealer, in which circumstance alone the hospital would be able to establish before the Assessing Officer that the transfer of goods or its supply in the course of the medical treatment offered to a patient is exempted from the levy of sales tax. We, hence, find th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 8(e) of the Act, i.e., the purchases made from importers and manufacturers who opted to compound under Section 8(e) and those dealers or manufacturers who do not make such option. 18. In the case of importers, manufacturers or other distributors who have not resorted to compounding, there is no difficulty especially since the wholesaler would not sell the drug at its MRP to the hospital, who in turn sells it in retail. Hence, when a drug priced at ₹ 100/- MRP is sold at ₹ 60/-, then the liability of the wholesaler or manufacturer is only to pay tax for the price at which the sale is made. The hospital who sells such drug in the course of treatment, as held by us, is not liable to sales tax on the value addition; but, however, if not registered, would not be entitled to collect the tax element at the first sale, if the tax collection is made by the supplier. Hence, when the sale invoice shows tax collection by the supplier, the sale subsequently made by an unregistered hospital could be only at a price; reducing the tax element from MRP. Hence, if tax is 10% and ₹ 6/- was the tax paid by the wholesale dealer, the purchase made by the hospital is at ₹ 66/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tients are taken within the hospital and they cannot be treated as sale of goods, since it cannot be divided into a sale and service; the dominant intention being of provision of treatment, or diagnosis of ailment of the patients. WP(C) No.14047/2018 hence stands allowed to the extent of declaring that the drugs administered and implants consumables used in the course of treatment within a hospital cannot be taxed as a sale of goods, since it is in the course of the composite medical service of treatment offered in a hospital. We also held that the hospitals require registration which the petitioner herein has. There is no question raised on the sale carried out from the pharmacies to the outpatients which however would be regulated by our findings herein above. W.A.No.823 of 2015 W.P(C) No.11173 of 2015 21. W.A.823of 2015 arises from the judgment of a learned Single Judge, modifying the interim order passed in first appeal. Hence, the Writ Appeal is disposed of, directing the first appellate authority to consider the appeal in accordance with the judgment herein above. There shall be a stay of recovery till the appeal is disposed of. 22. W.P(C) No.11173 of 2015 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its P2, P2A and P2B as also Exhibits P4, P5 and P6 assessment orders. With respect to the assessment year 2005-06, the notice is dated 17.01.2012 is beyond the period of limitation. Hence, Exhibit P2 notice and Exhibit P4 assessment order are set aside. With respect to the other assessment years, the AO shall pass orders modifying the assessments to the extent the levy is found to be impermissible by the declarations herein above. W.P(C) Nos.24584 of 2013, 6352 of 2013, 20721 of 2014 17526 of 2018 26. The above writ petitions challenge the assessment orders of 2008-09, 2009-10, 2011-12 and 2012-13. The AO shall pass orders modifying the assessments to the extent the levy is found to be impermissible by the declarations herein above. The writ petitions are allowed. W.P(C) Nos.11170 of 2017 16269 of 2018 27. The above writ petitions challenge the assessment orders of 2011-12 and 2012-13. The AO shall pass orders modifying the assessments to the extent the levy is found to be impermissible by the declarations herein above. The writ petitions are allowed. W.P.(C) No.3838 of 2011 28. The proceeding challenged in the above writ petition is one under Section 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he issue in terms of the Full Bench decision and the declaration made herein above. This writ petition is disposed of. W.P(C)No.14754 of 2017 33. The above writ petition challenge the assessment orders of 2010-11 and 2011-12, produced at Exhibits P6 and P7. The AO shall pass orders modifying the assessments to the extent the levy is found to be impermissible in the aforesaid judgment. The writ petition is allowed as above. W.A.Nos.1993 and 1958 of 2012 W.P(C) Nos.28100 of 2009, 3483, 3762, 4027, 4028 6914 of 2011 34. The above Writ Appeals and Writ Petitions are by hospitals which are not registered under the KVAT Act. We have already held that the hospital involved in supply of drugs, consumables and implants in the course of medical treatment cannot be levied with tax for the supply of such goods; but, however, they are liable to be registered under the sales tax enactment, herein KVAT Act. It was pointed out that the issue, decided earlier, had been taken to the Supreme Court in a Special Leave Petition and the Hon'ble Supreme Court has taken the same to files, as evidenced from Exhibit P4, produced in W.P.(C) No.28100 of 2009. 35. The le ..... X X X X Extracts X X X X X X X X Extracts X X X X
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