2007 (9) TMI 599 - HC - VAT and Sales Tax

Hospital not liable for sales tax on medical supplies to non-employees under Bihar Finance Act

Tata Main Hospital Versus The State of Jharkhand & Ors.

The court held that the supply of medicines, surgical items, vaccines, and x-ray items to non-employee indoor patients by TMH does not constitute a sale ... Whether the supply of medicines, surgical items, vaccines, X-ray items etc. which were are supplied by the petitioner to its indoor patients during the course of their treatment is not a transaction which comes within the meaning of sale as defined under Section 2(t) of the Bihar Finance Act. 1981 and, therefore is not taxable under the said act? Whether the petitioner does not come within the definition of Dealer as defined under the provisions of Bihar Finance Act, 1981 and, therefore, is not required to the registered as Dealer under the said act? Held that:- In the present case, the Medicines, which are supplied to the indoor patients are administered in course of treatment to those patients in the TMH. On the facts noticed in the forgoing paragraphs, we find that the TMH is not doing business of sale of the aforesaid articles, i.e. Medicines, vaccines, surgical items, x-ray films & plates etc. and therefore, cannot be said that the Hospital is a dealer within the meaning of Dealer Under the Bihar Finance Act. The transaction aforesaid, cannot be said to be sale under the law as there is no element of sale at all in the said transaction. Accordingly, this writ application is allowed and the order dated 18.3.2006 as contained in Annexure-13 and the demand notices dated 20th March, 2006, contained in Annexure-14 series are hereby quashed. Issues Involved:1. Whether the supply of medicines, surgical items, vaccines, and x-ray items to non-employee indoor patients by TMH constitutes a sale under Section 2(t) of the Bihar Finance Act, 1981.2. Whether TMH qualifies as a dealer under the Bihar Finance Act, 1981.3. Validity of the assessment order and demand notices issued by the Assistant Commissioner, Commercial Taxes, Urban Circle, Jamshedpur.Issue-wise Detailed Analysis:1. Supply of Medicines and Items as Sale:The petitioner argued that the supply of medicines, surgical items, vaccines, and x-ray items to non-employee indoor patients is part of a composite service contract and should not be considered a sale. The petitioner contended that these supplies are incidental to the medical services rendered and are not sold separately, thus not falling under the definition of sale as per Section 2(t) of the Bihar Finance Act, 1981. The court examined the dominant nature of the contract, concluding that the supply of these items is part of the medical treatment and not a separate sale transaction. The court held that the supply of these items does not constitute a sale under Section 2(t) of the Bihar Finance Act, 1981, as they are essential for treatment and are not itemized separately.2. Definition of Dealer:The petitioner contended that TMH does not qualify as a dealer under Section 2(e) of the Bihar Finance Act, 1981, as it does not engage in the business of buying, selling, supplying, or distributing goods for consideration. The court agreed, noting that TMH provides medical services and the supply of medicines and other items is incidental to these services. The court held that TMH is not a dealer within the meaning of the Bihar Finance Act, 1981, as it does not engage in the business of selling goods.3. Validity of Assessment Order and Demand Notices:The court reviewed the assessment order dated 18.03.2006 and the demand notices issued by the Assistant Commissioner, Commercial Taxes, Urban Circle, Jamshedpur. The court found that the assessment was based on the incorrect premise that TMH is a dealer and that the supply of medicines and other items constitutes a sale. The court quashed the assessment order and the demand notices, holding that the supply of these items is part of the medical services rendered by TMH and not subject to sales tax.Conclusion:The court concluded that the supply of medicines, surgical items, vaccines, and x-ray items to non-employee indoor patients by TMH does not constitute a sale under Section 2(t) of the Bihar Finance Act, 1981. TMH is not a dealer under the Act, and the assessment order and demand notices issued by the Assistant Commissioner, Commercial Taxes, Urban Circle, Jamshedpur, were quashed. The writ application was allowed, and the court held that TMH is not liable to pay sales tax on the supply of these items.