Hospitals supplying medicines were treated as dealers; registration liability and the amended sales tax fee were upheld.

Hospitals supplying medicines to patients in the course of treatment were treated as dealers because the supply was found to be a regular, continuous and integral part of hospital activity, bringing it within the statutory concepts of business, sale and turnover under the Kerala General Sales Tax Act. The exemption for medical practitioners dispensing medicines from their own dispensaries was held inapplicable to organised hospitals. The amended registration fee under section 14 was upheld because it bore a reasonable relation to administrative services and was not arbitrary, excessive or a disguised tax. Enforcement against hospitals was directed prospectively from the financial year 2001-2002, with coercive steps postponed for compliance.

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Issues: (i) Whether hospitals supplying medicines to patients in the course of treatment are "dealers" liable to registration and tax under the Kerala General Sales Tax Act; (ii) whether the amended registration fee under section 14 of the Kerala General Sales Tax Act is arbitrary or unconstitutional.

Issue (i): Whether hospitals supplying medicines to patients in the course of treatment are "dealers" liable to registration and tax under the Kerala General Sales Tax Act.

Analysis: The statutory definition of "business", "dealer", "sale" and "turnover" was construed broadly. Supply of medicines in a hospital was held to be a regular, continuous and integral part of the hospital activity and not a mere incidental transaction. The exemption under the notification for medical practitioners dispensing medicines from their own dispensaries was confined to doctors acting in that limited capacity and did not extend to organised hospitals or clinics. The Court distinguished cases dealing with isolated or incidental sales and applied the test of volume, frequency, continuity and regularity to hold that sale of medicines by hospitals satisfies the statutory concept of business and sale.

Conclusion: Hospitals supplying medicines in the course of treatment are dealers and are liable to registration and to comply with the tax provisions, subject to assessment of any exempt or non-taxable turnover.

Issue (ii): Whether the amended registration fee under section 14 of the Kerala General Sales Tax Act is arbitrary or unconstitutional.

Analysis: The levy was tested on the basis of quid pro quo and the services rendered by the sales tax department. The fee was linked to turnover and was held to bear a reasonable relation to the administrative burden and statutory services involved. The Court found that the maximum fee prescribed was not excessive, arbitrary, or a masked tax, and that the challenge under Article 14 failed.

Conclusion: The amended registration fee under section 14 of the Kerala General Sales Tax Act was upheld and the constitutional challenge was rejected.

Final Conclusion: The petitions succeeded only in part, in that enforcement against hospitals was directed prospectively from the financial year 2001-2002 and coercive steps were postponed for compliance, while the substantive challenge to dealer liability failed and the fee provision was upheld.

Ratio Decidendi: Where supply of goods in a hospital is systematic, continuous, and separately charged as part of treatment, it constitutes taxable business activity under the sales tax law and is not excluded as a merely incidental service.

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