TMI Blog2020 (6) TMI 119X X X X Extracts X X X X X X X X Extracts X X X X ..... Central Excise versus Larsen and Toubro Ltd and another [2015 (8) TMI 749 - SUPREME COURT] while dealing with the above provision in the Finance Act, 1994 held that works contract is a separate species of contract distinct from contract for services simpliciter recognised by the world of commerce and law as such, and has to be taxed separately as such. This decision though was rendered in the context of levy of service tax on works contract , make it clear on supply portion sales tax was payable. Thus, the Hon ble Supreme Court has time and again recognized that works contract is a separate specie of contract distinct from contract for service. A possible conflict which would have arisen as to whether a health service having trappings of works contract as we understandnow in the said notification could also have been classified as a works contract also. Scope for such any confusion was averted by clever drafting by the draftsman in the Act. The definitions were defined separately. Section 65(F)(2) which dealt with Principles of interpretation of specified descriptions of services or bundled services left no scope for ambiguity - As per Section 65F(2), where a service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 366 (29-A) of the Constitution of India read with the provisions of the Tamil Nadu Value Added Tax Act, 2006. At the same time, dispensing of medicine to such patients while they undergo treatment as an inpatient in the hospital cannot come within the purview of the definition of works contract . Consequently, no tax can be demanded on the value of such medicine - there is not only transfer of possession of prosthetics into the physiology of the patient but also the ownership of such prosthetics to the patient for consideration in the course of the provision of medical/health service. Similarly, in the course of taking x-ray, scan, MRI/CT Scan for such in-patient, cost of which get included into the package are taxable as such activity can be termed as the processing of moveable property. The respondent shall exclude the value of medicine and other consultation charges while determining the taxable value. The demand shall be confirmed to the value of prosthetics and charges incurred towards X-ray, C.T.Scan, PET Scan etc. - The respondent assessing officer shall hear out the petitioners separately and pass appropriate order on mertis all the other issues raised in the respectiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f such services, they have implanted implants such as Ortho Implants, Plates, Stents, Valves, Pace Makers, intraaortic balloon pump etc, (collectively referred to as Prosthetics) in the body of the patients for treatment by surgery and provided such other ancillary services such as MRI Scan Films, X-Ray Films and others. This has been proposed to be taxed as works contract by the respondent within a meaning of Section 2(43) of the TNVAT Act, 2006 to propose tax from the petitioner. 6. The petitioner in W.P.(MD) Nos.2982 to 2987 of 2012 viz., MIOT Hospitals Ltd., represented by its Managing Director P.V.A.Mohandas has challenged the following pre assessment notices:- Sl.No. W.P.No. Assessment year Notice dated Proposed Tax Rs. 1. 2982/2012 2006-07 20.01.2012 22,95,051 2. 2983/2012 2007-08 20.01.2012 75,63,874 3. 2984/2012 2008-09 20.01.2012 1,04,85,661 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. 32137/2012 2009-10 12.06.2012 75,492 2. 32138/2012 2010-11 12.06.2012 1,63,914 3. 32139/2012 2011-12 12.06.2012 1,12,307 (The amount mentioned in the last columns pertains to proposal to tax on the alleged sale of medicine, prosthetics and X-ray, MRI and similar items.) 10. Though these cases were listed and argued as a batch, there is no representation on behalf of the petitioner in W.P.Nos.3132 to 3240 of 2012 (Saveetha Medical College and Hospital). 11. There are other issues relating to sales of certain assets. These issues were not argued before this Court. The amounts tabulated above primarily pertain to medicine, prosthetics and on deemed sale of MRI/CT Scan/X-ray films. 12. Though these writ petitions are of the year 2012, the respondents have filed their counter only in W.P.Nos.2982 to 2987 of 2012 (Miot Hospital Ltd.). 13. Learned Counsel for the respondents submits that the counter filed in the above mentioned writ pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19. Perhaps the petitioners feared adverse orders despite favourable decisions of four High Courts and therefore faced with the prospect of a mandatory pre-deposit before the Appellate Commissioner, they have approached this Court. 20. Since considerable time has lapsed, I am not inclined to relegate the parties to the alternative remedy straight away. I am therefore taking up the cases for disposal on merits on the contentious issue alone. 21. The above four decisions of these four different High Courts are inspired from the observation of the Hon ble Supreme Court in BSNL Vs UOI (2006)3SCC1; 2 006(2)STR161. 22. It is the contention of the commercial tax department that there is a sale within the extended meaning of the definition of sale under Section 2(33) read with 2(43) of the TNVAT Act, 2006 and Article 366, 29(A) clause (b) of the Constitution of India. 23. The petitioners had wrongly claimed benefit of G.O.Ms.No.976/Revenue dated 28.03.1959 read with G.O.Ms.No.343/Revenue dated 11.08.1961 which was wrongly allowed. For the sake of clarity, text of the respective G.O.Ms.No.976 Revenue dated 28.03.1959 is reproduced below:- G.O.Ms.No.976 Revenue d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other valuable consideration, building construction, manufacture, processing, fabrication, erection, installation, fitting out, improvement, modification, repair or commission, of any moveable or immovable property and that it is clear from the above definition that there was no works contract . Specific reference was made to Paragraphs 43 to 45 from the decision of the Hon'ble Supreme Court in Bharat Sanchar Nigam Ltd ., Vs Union of India, (2006) 3 SCC 1 ( BSNL Vs UOI for short ). 26. In the said case, by way of illustration, an example of treatment of a patient in a hospital in Paragraph 44 was made. It is submitted that the Hon ble Supreme Court explained the position with reference to a service of a Doctors and a lawyers and other professionals. In the illustration, it was observed that during the course of provision of medical services, when they write out and hand over prescriptions or a drafts of a document to his/her patient or client as the case may be, there is no sale though strictly speaking, with the payment of fees consideration it does pass to the patient or client from the doctor or lawyer in both cases. They submitted that the Hon ble Supreme Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specially a live human body when indeed, even fitting out and improvement are not phrases used to describe procedures carried out on a human body. He submits that contextual exclusion of surgical procedures from the definition of works contract is even more compelling when one considers that the legislature which went to considerable lengths to include 11 such words in S.2(43), but did not choose to mention implant or transplant on human body, which are the words which are used to describe surgical procedures of the nature that is sought to be taxed. 30. He further submits that the intention of the legislature was not to include surgical procedures into the sales tax net which is amply clear from the choice of the words used in the definition. He further submits that a living human body even if infected or is challenged is not a property and therefore it would be absurd to even hazard a thought that there could be a works contract on the body of a living human being. 31. He further submits that substantive civil law is divided into:- i. the law of property, ii. law of obligations; and iii. the law of status. 32. He therefore submits that there is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a living human body, or for that matter even a particular organ, is property and such a contention is intrinsically abhorrent and would be an absurdity wrapped in an anomaly inside the aforesaid contradiction. If at all body parts are to be property , it could only be such parts which are detachable and regenerative. 38. It is also submitted that the present enquiry is a positive enquiry rather than a normative enquiry and for the reasons stated above it is submitted that a live human body/part thereof, is not a property under the law of the land and in any event for Tamil Nadu Value Added Tax Act, 2006. Therefore, property in S.2(43) of the TNVAT Act cannot be said to cover human being or their live/un-detached parts and organs. Thus, no tax may be levied in the score that surgical procedures are works contract. 39. Mr.K.Vaitheeswaran, the learned counsel for the petitioners in W.P.(MD) Nos.3476 to 3479 of 2012 ( Appollo Hospitals ) and 12137 to 12140 of 2012 ( Fortis Malar Hospitals Ltd. ) submitted that the impugned notices propose to impose VAT on an erroneous assumption that after the 46th amendment to the Constitution, the Commercial Tax Department is empowered to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 235 of 2013 dated 29.08.2019 before the Madurai Bench of this Court. He submits that the Respondent had conceded the case on an identical issue. 44. He submits that human beings are Homo Sapiens and thus the form of species. They do not represent movable or immovable property. Section 2(43) of the TNVAT Act defines works contract and the activities referred to therein pertain to movable or immovable property. Human beings are not property and can never be considered as property. In a healthcare service, when a surgery is undertaken or a treatment is provided, which may incidentally involve administration of medicines and drugs or which may involve medical treatment through implants, limbs, stents, hip etc. there is no contract or undertaking for bringing into existence some works . 45. He submits that is not open for the respondent to argue to the contrary in these cases. He submits that as per the decision of the Hon ble Supreme Court in CCE Vs. Sanju Silk Mills P. Ltd . (2011) 268 ELT 435 SC, the Revenue having conceded a case before Tribunal based on the earlier decision of Tribunal cannot agitate the same issue before the Hon ble Supreme Court as decision which was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to the Counter affidavit filed in W.P.No.2982 to 2987 of 2012. He submits that the petitioners are registered dealers. They had filed annual return from 01.01.2007 to 31.03.2011 and had claimed exemption on the entire turnover reported by them. During inspection by the Enforcement Wing Officers, it was noticed that the petitioners had wrongly claimed exemption under G.O.No.976 dated 28.03.1959. 50. The Government had issued orders that the notifications granting exemption already issued under the Tamilnadu General Sales Tax Act, 1959 shall continue, if they are not inconsistent with the provisions of the Act. The said notification granted exemption on the sale of medicines by hospitals, nursing homes and dispensaries run by the Government or by the Medical practitioners themselves which dispense medicines to their patients only. He submits that the said notification was modified and subsequently it was clarified vide Government Letter No.976/F2/2004 dated 09.11.2005 that the petitioners were not eligible to claim exemption on the sale of medicines while collecting charges for services rendered with transfer of property in goods involved. 51. He submits that the term sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Part-B of the I schedule taxable at the rate of 5% under Tamilnadu Value Added Tax Act, 2006, the petitioner may be liable to tax. 58. He further submits that by virtue of Sub Clause (b) of clause 29(A) of Article 366 of the Constitution of India, a deemed transfer of property can be presumed when the implants used in the patient are billed for whether in package or separately. 59. He submits that the term sale as defined on Section 2(33) of the Act includes goods in any form . 60. It is submitted that the petitioners have the facility of X-rays, C.T., MRI films for testing purpose . It is submitted that consumables are utilized for such services and therefore the there is a transfer of property when these services are provided to the patient. He submits that these transaction are liable to be taxed under entry 51 of Part C of First Schedule of Tamilnadu Value Added Tax Act, 2006. 61. It is submitted that the sale of these Medical implants/ prosthetics such as Ortho Plates, Surgical Plates, Screws, Knee replacement, Hip Replacements, Cardiac Implants, Stents, Valves, Pace Maker, Intra Aortic Balloon Pump, Pulmonary Ortho Catheter, Prosthetic Valves, Tissue Valves an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an escapement of assessment and the notice is within the scope of the provisions of the Act. The petitioner has not rendered purely services only and they had acted as a dealer by selling the medicines to the patients under the scheme of package and the decision relied on by them was not relevant to the case since in that case, the dealers are rendering only services without any transfer of property in goods. Therefore, he prayed for dismissal of these writ petitions. 66. Learned counsel appearing for the respondents has placed the following decisions: i. State of Madras Vs. Gannon Dunkerley Co.(Madras) Ltd. (1958) 9 STC 353 (SC) ii. The Assistant Sales Tax Officer and others V. B.C.Kame, Proprietor Kame Photo Studios - (1977) 1 SCC 634 (SC) iii. Rainbow Colour Lab and another V. State of M.P. and Others - (2000) 2 SCC 385 (SC). iv. ) Associated Cement Companies Ltd. V. Commissioner of Customs - (2001) 4 SCC 593; v. Municipal Corporation of Delhi V. Gurnam Kaur - (1989) 1 SCC 101. vi. Catholic Syrian Bank Ltd. V. Commissioner of Income Tax, Thrissur (2012) 3 SCC 784; vii. M/s.GannonDunkerley and Co. and Others V. State of Rajasthan and Oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd includes ,- i) a transfer, otherwise than in pursuance of a contract of property in any goods for cash, deferred payment or other valuable consideration; ii) a transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; iii) a delivery of goods on hire-purchase or any system of payment by instalments; iv) a 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) a supply of goods by any un-incorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; vi) a 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l apply as if there were separate contracts in respect of the goods at each of such places. Explanation VI .- Notwithstanding anything to the contrary contained in this Act, two independent sales or purchases shall, for the purposes of this Act, be deemed to have taken place (a) when the goods are transferred from a principal to his selling agent and from the selling agent to the purchaser, or (b) when the goods are transferred from the seller to a buying agent and from the buying agent to his principal, if the agent is found in either of the cases aforesaid- (i) to have sold the goods at one rate and to have passed on the sale proceeds to his principal at another rate, or (ii) to have purchased the goods at one rate and to have passed 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. Section 2 (43): works contract includes any agreement for carrying out for cash, deferred payment or other valuable consideration, building construction, manufacture, processing, fabrication, erection, installati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness under this Act or the rules made thereunder except the records in original of the works contract, extent of their execution and payments received or receivable in relation to such works contract, executed or under execution. (5) The dealer, who pays tax under this section, shall not 1[collect any amount by way of tax or purporting to be by way of tax and shall not ] be entitled to input tax credit on the goods purchased by him. Explanation .- For the purpose of this section civil works contract includes civil works of construction of new building, bridge, road, runway, dam or canal including any lining, tiling, painting or decorating which is an inherent part of the new construction and any repair, maintenance, improvement or up gradation of such civil works by means of fixing and laying of all kinds of floor tiles, mosaic tiles, slabs, stones, marbles, glazed tiles, painting, polishing, partition, wall panelling, interior decoration, false ceiling, carpeting and extra fittings, or any manner of improvement on an existing structure. 71. In Cape Brandy Syndicate v Inland Revenue Comrs [1921] 1 KB 403, Rowlett J of the KING'S BENCH DIVISION held that T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dras General Sales Tax Act, 1939. 77. Definition of goods was thus amended in section 2(c) of the 1939 Act to include all materials, commodities and articles used in the construction, fitting out, improvement or repair of immovable property or in the fitting out, improvement or repair of immovable property . 78. A reading of the case laws prior to the decision of the Hon ble Supreme Court in State of Madras v. Gannon Dunkerley Co. (Madras) Ltd., ( 1958) 9 STC 353 indicates that works contract to begin with was intended to tax only building and allied contracts where a contractor provided a composte contract for both supply of service and goods or used goods of considerable value in the course of provision of such services with or without breakup of the cost of such goods in the execution of the contract. 79. The amendment to the Madras General Sales Tax Act, 1939 vide Madras General Sales Tax Amendment Act No. 25 of 1947 fell for consideration in State of Madras v. Gannon Dunkerley Co. (Madras) Ltd., (1958) 9 STC 353 [1st Gannon Dunkerley s case] before the Hon ble Supreme Court. 80. The definition of Works Contract under the Madras General Sales Tax A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Madras Sales Tax Amendment Act, 1947 was considered by a Division Bench of this Court in Gannon Dunkerley s case . The Sales Tax Appellate Tribunal had earlier rejected the contentions of the assessee and held that the amounts in question were liable to be included in the taxable turnover of assessee Gannon Dunkerley. 85. The Division Bench of this Court held that the expression sale of goods had the same meaning in Entry 48 which it has in the Indian Sale of Goods Act, (3 of 1930), that the construction contracts of the respondents were agreements to execute works to be paid for according to measurements at the rates specified in the schedule thereto, and did not contract for the sale of the materials used therein, and that further, they were entire and indivisible and could not be broken up into a contract for the sale of materials and a contract for payment for work done. 86. In the result, the Division Bench of this Court held that the provisions introduced by the Amendment Act No. 25 of 1947, were ultra vires the powers of the Provincial Legislature and that the claim based on those provisions to include ₹ 29,51,528-7-4 into the taxable turnover of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prints to his client, he cannot be said to enter into a contract for the sale of goods. The contract, on the contrary, is for use of skill and labour by the photographer to bring about the desired result. The occupation of a photographer, except insofar as he sells the goods purchased by him, in our opinion, is essentially one of skill and labour . 90. In both the above cited cases, the Hon ble Supreme Court followed its decision in State of Madras v. Gannon Dunkerley Co. (Madras) Ltd., (1958)9 STC 353, I shall refer to it later in course of this Order. 91. In Dy. Commr. of Sales Tax Versus Dr Paran's Dental Laboratories ( 1987) 2 KLT 241 : (1987) 67 STC 249, the Appellate Tribunal had concurred with the decision of the Appellate Assistant Commissioner and held that the amount realised towards teeth setting charges is not a transaction of sale of goods exigible to sales tax. 92.The Kerala High Court upheld the decision and held that that on the analogy of a photographer, dealt with in the decision in The Assistant Sales Tax Officer v. B.C. Kame (30 STC. 237), it was essentially a contract to do skilled labour. Moreover, if the teeth prepared by the dentist for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate hospitals thus emerged and mushroomed in the forefront to provide quality professional medical and health services to patients to fill in the vacuum left by the Government public health services. They operated like any other commercial body with a profit motive and commercialised health services. 97. This was partly because of Government s reluctance to expand quality services to the needy and partly because the Government ceded a part of the demand for quality medical and health services to such private entrepreneurs and corporate bodies like petitioners. That apart, the private bodies took the risk to invest in such services with leading to corporatisation and commercialisation of health services. 98. Meanwhile, the Law Commission of India was given the task for suggesting an amendment to the definition of sale and purchase for levy of sales tax as there was a huge leakage of revenue. After conducting an in-depth study, the Law Commission, in 1974 in its 61st Report gave the following three options to the Parliament:- ( a ) amending the State List, Entry 54, or ( b ) adding a fresh entry in the State List, or ( c ) inserting in Article 366 a wide def ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pply 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; 102. Mirroring the 46th Amendment to the Constitution, corresponding amendments were made to various local sales tax laws by various State Legislature. In Tamil Nadu, the Tamil Nadu General Sales Tax Act, 1959 was also amended. It amended the definition of sale in Section 2(n) and incorporated a new definition for the expression works contract in Section 2(u). The definitions which were incorporated in the Tamil Nadu General Sales Tax Act, 1959 were retained in Section 2(33) 2(43) of the Tamil Nadu Value Added Tax Act,, 2006 . Similar amendments were made by various State Legislatures. 103. These amendments including the amendments to various local sales tax laws were challenged in various High Courts. The Hon ble Supreme Court in Builders Association of India Others Vs Union of India (1989)2 SCC645 ultimately upheld the validity of the amendments. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transfer of right to use, catering service etc. 108. Upholding the contention of the assessee, the Hon ble Supreme Court held that here the main object of the work undertaken by the person to whom the price is paid is not the transfer of a chattel as a chattel, the contract is one of work and labour. The main object of the work undertaken by the operator of the photocopier or xerox machine was held not the transfer of the paper upon which the copy is produced; it is to duplicate or make a xerox copy of the document which the payer of the price wants duplicated. The paper upon which the duplication takes place is only incidental to this transaction. The object of the payment of the price is to get the document duplicated, not to receive the paper. The payer of the price has no interest in the bare paper upon which his document is duplicated. He is interested in it only if it bears such duplication. It was the contention of the assessee that the it was engaged in works contract. This ratio is no longer valid after the 46th amendment to the Constitution. 109. Invariably, universal defence of the dealers/assessee s was that such transactions amounted to work contrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded Tax Act, 2006. 114. The States have been conferred with the power to tax indivisible contracts of works. This has been done by enlarging the scope of tax on sale or purchase of goods. Insofar as works contract is concerned, dominant intention to transfer the property in goods is not at all relevant [see Para 50 of BSNL versus Union of India (2006) 3 SCC 1 and the whole of Builders Association of India versus Union of India [1989] 73 STC 370]. Recent case laws under VAT Laws on Works Contract. 115. In the context of VAT laws, a Full Bench of the Honourable Supreme Court consisting of 3 judges of the Honourable Supreme Court in Larsen and Toubro Ltd and another versus State of Karnataka and another [ 2013] 65 VST 1 (SC) had an occasion to deal with the scope of the expression works contract under the Karnataka Sales Tax Act, 1957 and Maharashtra Value Added Tax Act, 2002. 116. The Honourable Supreme Court summarised the position as follows:- i. For sustaining the levy of tax on the goods deemed to have been sold in execution of a works contract, three conditions must be fulfilled: ( i ) there must be a works contract, ( ii ) the goods should have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iction introduced by Article 366(29-A)( b ), there is a deemed sale of goods which are involved in the execution of the works contract. Such a deemed sale has all the incidents of the sale of goods involved in the execution of a works contract where the contract is divisible into one for the sale of goods and the other for supply of labour and services. In other words, the single and indivisible contract, now by the Forty-sixth Amendment has been brought on a par with a contract containing two separate agreements and the States now have power to levy sales tax on the value of the material in the execution of works contract. ix. The expression tax on the sale or purchase of goods in Schedule VII List II Entry 54 when read with the definition clause (29-A) of Article 366 includes a tax on the transfer of property in goods whether as goods or in the form other than goods involved in the execution of works contract. x. Article 366(29-A)( b ) serves to bring transactions where essential ingredients of sale defined in the Sale of Goods Act, 1930 are absent within the ambit of sale or purchase for the purposes of levy of sales tax. In other words, transfer of movable property in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rgument and a point of view which is too far fetched. Like building contracts, a transaction in medical service can also amount to works contract as the definition of works contract is not confined to a particular genere of contracts. 118. The above observation of the Hon ble Supreme Court in Larsen and Toubro Ltd and another versus State of Karnataka and another [2013] 65 VST 1 (SC) dilutes the observation / illustration in paragraph 44 of the decision of the Hon ble Supreme Court in BSNL Vs UOI [2006]3 SCC 1. Further, the illustration in paragraph 44 even if construed as a ratio cannot be stretched to kind of hospital service provided by the petitioners. A simple treatment with medicine cannot be equated with complicated medical procedures under taken by the petitioners involving skill and use of expensive prosthetics and use of laboratory testing equipments. Even if the dominant intention of the contract was not to transfer the property in goods and rather rendering of service or the ultimate transaction was a transfer of movable property, it is open to the States to levy sales tax on the materials used in such contract if such contract otherwise has elements of w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es a permanent fixture of the building. Involvement of the skill was elaborately dealt with by the High Court of Bombay in Otis Elevator [ Otis Elevator Co. (India) Ltd. v. State of Maharashtra , (1969) 24 STC 525 (Bom)] and the factual position was undisputable and irrespective of whether the installation was regulated by statutory law or not, the result would be the same. It was held to a composite contract which requires the contractor to install a lift in a building. It was observed that if there are two contracts, namely, purchase of the components of the lift from a dealer, it would be a contract for sale and similarly if a separate contract was entered into for installation, that would be a contract for labour and service. But, a pregnant one, once there is a composite contract for supply and installation, it has to be treated as a works contract, for it is not a sale of goods/chattel simpliciter. It is not chattel sold as chattel or, for that matter, a chattel being attached to another chattel. The Court observed that therefore, it would not be appropriate to term it as a contract for sale on the bedrock that the components are brought to the site i.e. building, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rks contract was defined in the Explanation to Section 65(105)(zzza) as follows:- Explanation.-For the purpose of this sub-clause, works contract means a contract wherein- i. transfer of property in goods involved in the execution of such contract is liable to tax as sale of goods, and ii. such contract is for the purpose of carrying out- (1) erection, commissioning or installation of plant, machinery, equipment or structures, whether prefabricated or otherwise, installation of electrical and electronic devices, plumbing, drain laying or other installations for transport of fluids, heating, ventilation or air conditioning including related pipework, duct work and sheet metal work, thermal insulation, sound insulation, fireproofing or waterproofing, lift an escalator, fire escape staircase or elevator; or (2) construction of a new building or a civil structure or a part thereof, or of a pipeline or conduit, primarily for the purpose of commerce or industry; or (3) construction of a new residential complex or part thereof; or (4) completion and finishing services, repair, alteration, renovation or restoration of, or similar services, in relation to (b) and (c) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inance Act, 1994 where works contracts was applicable to moveable properties. HEALTH SERVICE UNDER THE FINANCE ACT, 1994. 128. A slightly different treatment was accorded to Health Services under the Finance Act, 1994.With effect from 1.7.2010, service tax on Health Service was introduced for the first time under Section 65(105) (zzzzo) of the Finance Act 1994 by an amendment through Finance Act, 2010. The taxable service in relation to health service read as under:- Section:65.(105) : taxable service means any service provided or to be provided (zzzzo).by any hospital, nursing home or multi-speciality clinic, - (i) to an employee of any business entity, in relation to health check up or preventive care, where the payment for such check-up or preventive care is made by such business entity directly to such hospital, nursing home or multi-speciality clinic; or (ii) to a person covered by the health insurance scheme, for any health check-up or treatment, where the payment for such health checkup or treatment is made by the insurance company directly to such hospitals, nursing home or multispeciality clinic. 129. Initially, a restricted exposure to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mega Exemption Notification No.25/2012- ST dated 20.06.2012 with effect from 01.07.2012. It was not placed in the negative list in Section 65 D. 133. Initially exemption was broad based. The expression Health care service was defined as follows in the said notification:- (t) health care services means any service by way of diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognized system of medicines in India an includes services by way of transportation of the patient to and from a clinical establishment, but does not include hair transplant or cosmetic or plastic surgery , except when undertaken no restore or to reconstruct anatomy or functions of body affected due to congenital defects, developmental abnormalities, injury or trauma . 134. It also defined the expression clinical establishments as follows:- clinical establishment means a hospital, nursing home, clinic, sanatorium or any other institution by, whatever name called, that offers services or facilities requiring diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognised system of medicines in India, or a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nadu Value Added Tax Act, 2006or earlier under the Tamil Nadu General Sales Tax, 1958 or were exempted by notifications under the respective enactments in absence of a specific notification. 142. Learned counsel for the petitioner for Apollo Hospital/Fortis Maller Hospital referred to a decision rendered by the Upper Tribunal Tax and Chancery Chamber in the case between General Healthcare Group Ltd Versus the Commissioner for Her Majesty s Revenue and Customs [2016] UKUT 315 (TCC). The court there held that every supply must be regarded as distinct and independent, although supply which comprises a single transaction from an economic point of view should not be artificially split. 143. There the transaction between the hospital and patient was to be regarded from an economic point of view because the evidence showed that whether the payment was by the patient or an insurer, the hospital charged for all the supply in relation to the supply of the prosthetics and associated hospital care together in one invoice or series of invoice. The consultants which included self-employed anaesthetists made separate charges and had issued separate bills. The supply of prosthetics was hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned. 149. These decisions are of little significance to resolve the issue under consideration. These decisions may be relevant if an and when the supply of such services along with prosthetics comes up for consideration as to whether they qualify as zero-rated services under the GST regime. 150. In these cases, the statutes had exempted health care services from payment of tax under the relevant tax laws. The attempt of the Hospitals was to treat the supply of prosthetics independent of hospitals services so as to bring it within the purview of zero ratings which not only exempted such supplies from tax but also entitled a refund of the input tax as a zero-rated transaction. 151. In Tata Main Hospital's (TMH) case referred to supra which is the lead case on the subject, the Jharkhand High Court invoked dominant test to conclude that it cannot be said that the medicines, surgical items, x-ray films and plates etc, were sold by the said hospital. It observed that dominant nature test of contract was to provide medical services to the in-patients and while providing such medical services, medicines were administered, surgical items, x-ray plates and films were use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court in P.R.S.Hospitals Vs. State of Kerala was later overruled by the Full Bench of the Kerala High Court in Aswini Hospital Pvt. Ltd. Others Vs. Intelligence Officer which was also cited on behalf of the Petitioners. The Kerala High Court s full bench decision is the last of the four decision cited. It follows the three decisions of the Jharkhand, Allahabad and Punjab and Haryana High Courts and few other decisions of the Hon ble Supreme Court. 157. The Division Bench of the Allahabad High Court in M/s.International Hospital Pvt. Ltd, while allowing the writ petition filed by the said hospital observed as follows: 22.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 clarify that this is not a case where the petitioner is contending that the sale of medicines at the pharmacy in the hospital is not assessable to tax. The only issue is as to whether the definition of the expression 'sale' in Section 2 (ac) of the Uttar Pradesh Value Added Act is attracted where a stent or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ospital services and also held that unless the transaction in truth represents two distinct and separate contracts, the State would not have the power to separate the agreement of sale from the agreement to render services, and impose tax on the so called element of sale, thereby affirming the dominant nature test with respect to contracts, which do not fall within the sub-clauses of Article 366(29-A) of the Constitution. Thus, a medical procedure that as an integral part requires administering of drugs, stents, implants, etc. may only be brought forth for payment of VAT if it fulfills the ingredients of sale, as defined under the Punjab and Haryana VAT Acts and Article 366(29-A) of the Constitution of India. As a result the test whether a medical procedure involves a sale of goods continues to be the same i.e., the intention of parties, the nature of goods, their delivery etc. being determinative factors. 160. .In para25 the Punjab and Haryana Court held as follows: 25............. A perusal of the statutory definition of sale in both the Punjab and Haryana enactments, reveals that after setting out that a sale is a transfer of ownership in goods for consideration it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, stents, implants etc., it cannot by a deeming fiction be held to be a sale . A patient may have a choice as to the quality of implant/stent but even that choice is confined to the suitability of a stent etc. The fact that a hospital may charge money for individual stents etc., whether as part of a package or separately is entirely irrelevant. A contract of medical service cannot be said to be a contract for sale of a stent, or valve or of medicines to be used in a medical/surgical procedure. The essential element of such a contract is the procedure of knee replacement, hip replacement, angioplasty, which as an intrinsic and integral part involves placing an implant whether in the knee, hip or a heart etc. The only choice available to the patient is the nature of the implant, namely, its quality but such a procedure is admittedly, a medical procedure and a service that cannot be completed without an implant/drugs and medicines as an integral part of the procedure. A private hospital does not provide medical services for free. The fact that it charges money, for drugs, medicines etc. cannot raise an inference of intent to sell goods in the shape of medicines, stents, implants et ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 severable part of the contract and, therefore, exigible to VAT, as a sale. The situation would obviously be different if these articles are supplied from the pharmacy of a hospital. 32.A deeming fiction, must be rational and not farcical. The dominant purpose of a hospital is to provide medical treatment and if during a medical procedure it is required to provide medicines, stents, implants etc., it cannot by a deeming fiction be held to be a sale . A patient may have a choice as to the quality of implant/stent but even that choice is confined to the suitability of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1958 SC 560 : 1959 SCR 379] (sic modified). The amendment especially allows specific composite contracts viz. works contracts [sub-clause (b)]; hire-purchase contracts [sub-clause (c)], catering contracts [subclause (e)] by legal fiction to be divisible contracts where the sale element could be isolated and be subjected to sales tax. 164. The Hon ble Supreme Court in BSNL Vs UOI (2006)3 SCC 1; 2 006(2)STR161 was concerned with taxability of transaction between the subscribers/users of pre-paid mobile phone connection and mobile telephone operators and ordinary land line connection provided by BSNL to its subscriber wherein along with the telephone connection, BSNL also transferred telephone instruments free of cost for use by its customers while retaining its ownership over it. 165. Commercial Tax Departments of various State Governments had taken a categorical stand that there was a sale of sim card therefore the Mobile Service Providers were liable to sales tax. Similarly, it was contended that there was a transfer of right to use of telephone instruments and therefore BSNL was liable to pay tax. The Hon ble Supreme Court gave its decision in the facts peculiar to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion, even in a works contract, a composite one of supply of goods and labour, the value would be more with respect to goods used in the construction that the labour. 168. As the reason for bringing the 46th amendment to the Constitution was to bring such indivisible contracts within the purview of sales tax, the view of the Hon'ble court Gannon Dunkerley s case post the above amendment has no precedential value. 169. In Rainbow Colour Lab and another versus State of MP (2000) 2 SCC 385, the Honourable Supreme Court held that prior to amendment to Article 366 , the States could not levy sales tax on sale of goods involved in a works contract because the contract was indivisible. 170. It observed that all that has happened in law after 46th Amendment and the Supreme Court s decision in Builders Association of India case (1989) 2 SCC 645 is that it is now open to the court to divide the works contract into 2 separate contracts by a legal fiction; (1) contract for sale of goods involved in the said works contract; and for supply of labour and service. This division of contract under the amended law could be made only if the works contract involves a dominant intenti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich Gannon Dunkereley has survived is with reference to the dominant nature test to be applied to a composite transaction not covered by Article 366(29-A). Transactions which are mutant sales are limited to the clauses of Article 366(29-A). All other transactions would have to qualify as sales within the meaning of the Sales og Goods Act, 1930 for the purpose of levy of sales tax. 44. Of all the different kinds of composite transactions the drafters of the Forty-sixth Amendment chose three specific situations, a works contract, a hire-purchase contract and a catering contract to bring them 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 sub-clauses (b) and (f) of clause (29-A) of Article 366, there is no other service which has been permitted to be so split. For example, the sub-clauses of Article 366(29-A) 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 sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw, 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 t ransactions the 4t h Amendment would apply (Underlying by us for emphasis) (From BSNL) 174. Though in paragraph 44, the Hon ble Supreme Court has held that sub-clauses of Article 366(29-A) do not cover hospital services, there is no legal basis follow the said conclusion any longer in the light of subsequent decisions of the Hon ble Supreme Court. 175. If should also be remembered that the Hon ble Supreme Court in BSNL Vs Union of India (2006) 3 SCC 1 was concerned with telephone instruments and sim-cards given to subscribers. The issue was whether there was sale (i.e transfer of right to use) or service or both. For answering the issue, the Hon be Supreme Court framed the following questions of law to be answered by it in the facts of the cases before it:- A ) What are goods in telecommunication for the purposes of Article 366(29-A)( d )? ( B ) Is there any transfer of any right to use any goods by providing access or telephone connection by the telephone service provider to a subscriber? ( C ) Is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . But the fact that there is overlapping does not detract from the distinctiveness of the aspects. 88. No one denies the legislative competence of the States to levy sales tax on sales provided that the necessary concomitants of a sale are present in the transaction and the sale is distinctly discernible in the transaction. This does not however allow the State to entrench upon the Union List and tax services by including the cost of such service in the value of the goods. Even in those composite contracts which are by legal fiction deemed to be divisible under Article 366(29-A), the value of the goods involved in the execution of the whole transaction cannot be assessed to sales tax . As was said in Larsen Toubro v. Union of India [(1993) 1 SCC 364] : (SCC p. 395, para 47) The cost of establishment of the contractor which is relatable to supply of labour and services cannot be included in the value of the goods involved in the execution of a contract and the cost of establishment which is relatable to supply of material involved in the execution of the works contract only can be included in the value of the goods. 92. For the reasons aforesaid, we answer the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the purpose of Clause (d) of Art 366(29A) of the Constitution of India and the corresponding definition in the respective State Tax Laws. 180. The example/illustration in para 44 and 45 of the above decision which appears to be the basis of the relief in the four mentioned cases cannot be applied to kind of hospital/medical service provided by the petitioners. 181. The observation of the Hon lble Supreme Court that The Test therefore for composite contracts other than those mentioned in Article 366 (29-A) continues to be, did the parties have in mind or intend separate rights arising out of sale of goods and that if there was no such intention there is no sale even if the contract could be disintegrated is to be applied with caution. The dominant nature test propounded in BSNL Vs. UOI [2006] 3 SCC 1 will require reconsideration in the light of the following:- i.observation in para 50 of the same decision; ii.in the light of observation in para 41 of decision of the Hon ble Supreme Court in Buildiers Association case [1989] 2 SCC 645; and iii.in the light of the observation of the Hon ble Supreme Court in Larsen and Toubro Ltd. Vs State of Karnataka and an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cie of service and/or sale different from the definition of works contract for the purpose of the Tamil Nadu Value Added Tax Act, 2006. 187. Works contract includes any agreement for fitting out of any movable property. It is not confined to any genre of contract. Therefore, fitting out or implanting of prosthetics into the physiology or the body of the patient for alleviation of pain or for improvement of the life of the patient in the course of medical/surgical procedure can be construed as works contract . It is for the petitioners to demonstrate how the definition of works contract is not attracted to this case. 188. Thus, there is merits in the contention of the respondent that the medical/Health services rendered by the petitioners could fall within the ambit of the Article 366 (29-A) of the Constitution of India read with the provisions of the Tamil Nadu Value Added Tax Act, 2006. At the same time, dispensing of medicine to such patients while they undergo treatment as an inpatient in the hospital cannot come within the purview of the definition of works contract . Consequently, no tax can be demanded on the value of such medicine. 189. Under section 2(43 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 5 SCC 536] held that In the matter of taxation laws, the court permits a great latitude to the discretion of the legislature. The State is allowed to pick and choose districts, objects, persons, methods and even rates for taxation, if it does so reasonably. The courts view the laws relating to economic activities with greater latitude than other matters. 193.In T.N. Kalyana Mandapam Assn. v. Union of India, (2004) 5 SCC 632 the Hon ble Supreme Court held that a levy of service tax on a particular kind of service could not be struck down on the ground that it does not conform to a common understanding of the word service so long as it does not transgress any specific restriction contained in the Constitution. Some logic will apply to works contract . 194.In my view, the expression works contract cannot be given a restricted meaning merely because works contract as a concept was originally confined to contracts relating to immoveable properties alone as was noted in the definition of works contract in Madras General Sales Tax Act, 1939 which fell for consideration in the Ist Gannon Dunkerley s case. However, after the 46th amendment to the Constitution, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... :- i.In BSNL versus Union of India (2006) 3 SCC 1, the Hon ble Supreme Court was not concerned with works contract .; ii.The Court was concerned with transfer of right to use of goods which is different with works contract ; iii.The obiter dicta or the observation in para 44 of and the illustration in BSNL versus Union of India (2006) 3 SCC 1 cannot be construed as a binding ratio for the reason given in this order; iv.The four decisions of the different High Court which were cited on behalf of the petitioners though have a persuasive value are not binding on this Court particularly in the light of the fact that the Courts did not examine the issue from the perespective of the defitnion of works contract in the respective tax enactments . They merely discussed the issue from the perspective definition of sale simplicitor ; v.Therefore, the ratio in the four decisions do not have a binding ratio for this Court to follow them. vi.Since the dispute pertains to the asssement years 2006 onwards considrerable time has lapsed, the petitioners are directed to file their respective replies within two months from the date of receipt of this Order; vii.Petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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