Hospital supply of medicines can be taxable sale under VAT law; registration and tax liability upheld.

Hospitals that independently supply medicines and consumables to patients as a substantial part of their activity are treated as dealers under the Kerala Value Added Tax Act, 2003, and must register and pay tax when the statutory threshold is met. The Act's definition of business and its express inclusion of goods supplied as part of a service support taxation of such supplies, and the shift from the earlier sales tax regime does not alter that position. Section 6 was also upheld because Article 366(29A) and the hospital-service observations in Bharat Sanchar Nigam Ltd. do not exempt hospital sales of medicines from VAT levy.

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Issues: (i) Whether hospitals supplying medicines and consumables to patients are liable to register as dealers and pay tax under the Kerala Value Added Tax Act, 2003. (ii) Whether section 6 of the Kerala Value Added Tax Act, 2003 is unconstitutional to the extent it authorises levy of tax on such supplies by hospitals.

Issue (i): Whether hospitals supplying medicines and consumables to patients are liable to register as dealers and pay tax under the Kerala Value Added Tax Act, 2003.

Analysis: The statutory definitions of business, dealer, goods, sale and turnover under the KVAT Act were examined along with the earlier binding decisions which had considered the same activity under the predecessor sales tax regime. The supply of medicines in hospitals was treated as an integral and substantial part of the hospital activity, not a merely incidental transaction. The reasoning also noted that the KVAT definitions expressly include supply of goods by way of or as part of any service, and that the replacement of the KGST Act by the KVAT Act did not alter the material legal position.

Conclusion: Hospitals selling medicines and consumables to patients are liable to register as dealers and pay tax under the KVAT Act when the statutory threshold is crossed.

Issue (ii): Whether section 6 of the Kerala Value Added Tax Act, 2003 is unconstitutional to the extent it authorises levy of tax on such supplies by hospitals.

Analysis: Article 366(29A) of the Constitution of India and the decision in Bharat Sanchar Nigam Ltd. were considered, but it was held that the observations regarding hospital service did not exempt all hospital transactions from sales tax or value added tax. The constitutional provision did not render hospital sales of medicines immune from taxation, and the statutory levy under section 6 remained valid in relation to taxable sales effected by hospitals.

Conclusion: Section 6 of the KVAT Act is not unconstitutional on the ground urged by the petitioners.

Final Conclusion: The challenge to the tax liability of hospitals and to the validity of the levy provision failed, and the writ petitions were dismissed.

Ratio Decidendi: Where a hospital independently supplies medicines or consumables as a substantial and taxable part of its activity, such supply constitutes a taxable sale under the value added tax law, and the constitutional concept of hospital service does not exclude all such transactions from levy.

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