Composite hospital treatment is an indivisible service; incidental medicines and consumables used for inpatients are not taxable sales.

Composite inpatient hospital treatment is an indivisible medical service, so medicines, implants, consumables and surgical tools used exclusively during treatment do not become separate sales merely because their cost is billed to patients. The Kerala HC noted that the constitutional deeming fiction in Article 366(29A)(f) applies only to the specific case of food or drink supplied in the course of service and cannot be extended to hospital care. As the dominant nature of the transaction remains medical treatment and no independent transfer of goods is intended, the incidental use of materials does not create a taxable sale under the Kerala Value Added Tax Act, 2003.

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Issues: Whether medicines, implants, consumables and surgical tools used exclusively in the treatment of in-patients in a hospital, the cost of which is recovered from patients by billing, constitute a sale of goods liable to tax under the Kerala Value Added Tax Act, 2003.

Analysis: The constitutional deeming fiction in Article 366(29A)(f) applies only to the specific category of supply of food or drink in the course of service and cannot be extended to hospital treatment. Hospital treatment is a composite and indivisible service, and the drugs, implants and consumables used in the course of such treatment are not separately intended to create independent rights in goods. The dominant nature of the transaction is medical care and treatment, and the passing of property in materials used during treatment does not by itself convert the transaction into a taxable sale. The reasoning in earlier decisions treating such hospital supplies as sales was held to be incorrect.

Conclusion: The supply and use of medicines, implants and consumables in the course of inpatient medical treatment are not sales of goods exigible to tax as separate transactions.

Ratio Decidendi: A composite hospital treatment transaction, being an indivisible service, cannot be split to tax the incidental supply of drugs or consumables as a sale unless it falls within a specific constitutional deeming fiction.

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