2015 (2) TMI 1014 - HC - VAT and Sales Tax

Medical supplies during procedures not subject to VAT under Punjab & Haryana VAT Acts

The court held that the supply of medicines, drugs, stents, implants, and other consumables during medical procedures does not constitute a sale and is ... Dominant nature test - composite contract - deemed sale under Article 366(29 A) - sale of goods - severability of service and saleDominant nature test - composite contract - deemed sale under Article 366(29 A) - sale of goods - severability of service and sale - Whether supply of medicines, drugs, stents, implants and other consumables supplied to patients during the course of medical treatment/procedure amounts to a 'sale' exigible to VAT under the Punjab and Haryana VAT Acts and Article 366(29 A) of the Constitution. - HELD THAT: - The court applied the dominant nature test established in Gannon Dunkerley and affirmed in Bharat Sanchar Nigam Ltd., observing that Article 366(29 A) creates limited categories of 'deemed sales' but does not alter the meaning of 'goods' or displace the test of substance of the contract for transactions not covered by its sub clauses. Hospital medical procedures are services whose essential character is the provision of medical treatment; medicines, implants, stents and similar items administered as part of treatment are integral and incidental to that service. Absent an intention by the parties to enter two distinct contracts (one for sale and one for service) or falling within one of the specific sub clauses of Article 366(29 A), the State cannot by fiction sever and treat the supply of such items as a taxable sale. The court relied on and followed the reasoning of the Jharkhand and Allahabad High Courts that the supply of such items in the course of inpatient medical treatment does not satisfy the ingredients of a 'sale' under the relevant statutes and therefore is not exigible to VAT; distinctions sought to be drawn on textual differences in other state Acts were rejected as the definitions are essentially pari materia.Medical procedures/services provided by the petitioners are services; the supply of medicines, drugs, stents, implants and other consumables supplied during such procedures are integral to the service and are not severable as a 'sale' under the Punjab or Haryana VAT Acts or Article 366(29 A), and thus are not exigible to VAT.Severability of service and sale - remand for fresh adjudication - Disposition of prior clarificatory orders, assessment and revisional orders and the appropriate remedial course once the legal conclusion is declared. - HELD THAT: - Having declared that supplies of medicines and similar items during medical procedures are not sales exigible to VAT, the court set aside the impugned clarificatory, assessment and revisional orders which treated such supplies as taxable sales. The court directed that the matters be restored/remitted to the respective VAT Tribunals or Assessing Authorities for fresh adjudication in accordance with the legal declaration made in this judgment. The remittal is for reconsideration and decision consistent with the court's ruling that such supplies are not exigible to VAT; quantification or other attendant factual inquiries are to be determined afresh by the competent authorities.Impugned clarificatory, assessment and revisional orders are set aside and the matters remitted to the VAT Tribunal(s) or Assessing/Revisioning Authorities for fresh adjudication in accordance with the declaration of law that such supplies are not exigible to VAT.Final Conclusion: The High Court held that supplies of medicines, drugs, stents, implants and similar consumables administered to patients during medical procedures form an integral part of the medical service and do not constitute a 'sale' under the Punjab and Haryana VAT Acts or Article 366(29 A); consequentially, relevant clarificatory, assessment and revisional orders treating them as taxable sales were set aside and the matters remitted for fresh adjudication in conformity with this legal decision. Issues Involved:1. Exigibility of medicines, drugs, stents, valves, implants, and other consumables provided to patients during medical procedures to Value Added Tax (VAT).Detailed Analysis:Issue 1: Exigibility of Medicines, Drugs, Stents, Valves, Implants, and Other Consumables to VATFacts and Background:The petitioners, which include private hospitals, challenged various orders and notices demanding VAT on medicines, drugs, stents, implants, and other consumables provided during medical procedures. The core question was whether these items, administered during medical procedures, constitute a 'sale' under the Punjab VAT Act, 2005, and the Haryana VAT Act, 2003.Arguments by Petitioners:The petitioners argued that the supply of these items is integral to medical services and does not constitute a 'sale' as defined under the VAT Acts or Article 366(29-A) of the Constitution of India. They contended that the dominant purpose of medical procedures is to provide medical services, not to sell goods. They cited judgments from the Jharkhand High Court and the Allahabad High Court, which held that such supplies do not involve a sale liable to VAT.Arguments by Respondents:The respondents argued that the definition of 'sale' under the Punjab and Haryana statutes includes the supply of goods for consideration, and since the hospitals charge for these items, it constitutes a sale. They relied on the fact that the hospitals itemize and charge separately for these goods in their invoices.Court's Analysis:The court examined the statutory definitions of 'sale' under the Punjab and Haryana VAT Acts, which include composite contracts as set out in Article 366(29-A) of the Constitution. The court referred to the Supreme Court's judgment in Bharat Sanchar Nigam Limited v. Union of India, which upheld the dominant nature test for transactions not covered by Article 366(29-A). The court also considered judgments from the Jharkhand High Court and the Allahabad High Court, which held that the supply of such items during medical procedures does not constitute a sale.Judgment:The court held that medical procedures/services offered by the petitioners are a service. The supply of drugs, medicines, implants, stents, valves, and other consumables are integral to medical services/procedures and cannot be severed to infer a sale as defined under the Punjab or Haryana VAT Acts. Consequently, these items are not exigible to VAT.Relief Granted:- The court set aside various orders and notices demanding VAT and remitted the matters to the respective VAT Tribunals and Assessing Authorities for fresh adjudication in accordance with the law.- Specific orders and demand notices in each writ petition and VAT appeal were set aside, and the matters were restored to the Assessing Authorities/Officers for fresh decisions based on the court's declaration of law.Conclusion:The court concluded that the supply of medicines, drugs, stents, implants, and other consumables during medical procedures does not constitute a sale and is not subject to VAT under the Punjab and Haryana VAT Acts. The dominant purpose of these transactions is to provide medical services, and the supply of these items is incidental and integral to the medical procedures.