Works contract treatment of hospital implants under VAT, while medicines and consultation charges were excluded from the taxable base.

Private hospital inpatient treatment involving prosthetics, stents, valves and similar implanted items was treated as capable of falling within the statutory definition of works contract and deemed sale under the Tamil Nadu Value Added Tax Act, 2006, because the transaction involved fitting out, installation and transfer of property in goods in a composite medical arrangement. The Court, however, directed that medicines and consultation charges be excluded from the taxable base, and confined assessment to the value of prosthetics and specified diagnostic charges such as X-ray, CT scan and PET scan, with the petitioners to be heard before final determination. Other issues in the notices were left open for assessment in accordance with law.

---

---

Issues: (i) Whether the supply and implantation of prosthetics, stents, valves, implants and similar items in the course of inpatient medical treatment by private hospitals constituted a works contract and deemed sale exigible to VAT under the Tamil Nadu Value Added Tax Act, 2006; (ii) whether medicines, consultation charges and other ancillary treatment charges could be included in the taxable turnover on the facts of these writ petitions.

Issue (i): Whether the supply and implantation of prosthetics, stents, valves, implants and similar items in the course of inpatient medical treatment by private hospitals constituted a works contract and deemed sale exigible to VAT under the Tamil Nadu Value Added Tax Act, 2006.

Analysis: The definition of works contract in the Tamil Nadu Value Added Tax Act, 2006 was treated as wide enough to cover agreements involving fitting out, installation and transfer of property in goods, including movable property. The Court distinguished the hospital transactions from mere pure medical service and held that implantation of prosthetics and related use of equipment in treatment involved transfer of property in goods in the course of a composite transaction. The prior authorities relied on by the petitioners were held not to be binding on the specific question whether such transactions fell within the statutory definition of works contract under the Act.

Conclusion: The issue was answered against the assessee in respect of prosthetics and similar treatment-linked goods, which were held liable to be examined as taxable under the Act.

Issue (ii): Whether medicines, consultation charges and other ancillary treatment charges could be included in the taxable turnover on the facts of these writ petitions.

Analysis: The Court confined the dispute to medicines, MRI/X-ray and implants/prosthetics used for inpatients and noted that other issues in the impugned notices were left open. It directed the assessing officer to exclude the value of medicine and consultation charges while determining taxable value, and to restrict confirmation to the value of prosthetics and charges incurred towards diagnostic procedures such as X-ray, CT scan and PET scan, after granting an opportunity to the petitioners.

Conclusion: The issue was decided partly in favour of the assessee, insofar as medicines and consultation charges were excluded from taxation.

Final Conclusion: The writ petitions were disposed of with a limited relief by excluding medicines and consultation charges from the taxable base, while permitting assessment to proceed on prosthetics and specified diagnostic components and on the remaining open issues in accordance with law.

Ratio Decidendi: Under the Tamil Nadu Value Added Tax Act, 2006, a hospital transaction may be treated as a works contract and deemed sale where the treatment involves fitting out or installation of prosthetics and other goods with transfer of property in those goods, but medicines and consultation charges are not to be mechanically included in the taxable value.

---