2025 (3) TMI 737 - HC - VAT / Sales Tax

Charitable hospital exempt from tax on medicine supply and canteen operations under MP Commercial Tax Act 1994

Choithram Charitable Trust Versus Commercial Tax Officer And Others And Bombay Hospital Indore Versus Assistant Commercial Tax Officer Indore And Others

The MP HC held that a charitable hospital was exempt from tax levy under the MP Commercial Tax Act, 1994 on medicine supply and canteen operations. The ... Levy of tax under the provisions of Madhya Pradesh Commercial Tax Act, 1994, for declaration that petitioner is immune from levy of tax under the Act on supply of medicine in the course of activity of running its charitable hospital - supply of such medicine only in specified circumstances as a part of their main non business activity of running the charitable hospital can be said to be connected, incidental or ancillary to their main non business activity or not - HELD THAT:- Heavy reliance has been placed by the learned counsel for the respondents on the decision of the Apex Court in Cochin Port Trust [2015 (4) TMI 936 - SUPREME COURT] to contend that the definition of a dealer is an inclusive definition, whereby wide range of persons have been placed under the ambit of dealer. It includes persons involved in carrying on any business or trading activity and transactions are effected by them whether in the course of business or not. The definition of dealer is in consonance with legislative intent to place the persons engaged in activities of sale and trade which would not otherwise fall in the restricted definition of business. The said contention, in our opinion, is not acceptable for the reason that the definition of a dealer as given under the Kerala General Sales Tax Act 1963 is not pari materia with the definition of a dealer as given under the Act, 1994. The definition under the Kerala General Sales Tax Act, 1963 has specific clauses whereby those persons have also been included within the definition of a dealer who sell or transfer goods as specified therein 'whether in the course of business or not' The words 'whether in the course of business or not' as under the Kerela Act are wholly absent in the definition of a dealer as given under the M.P. Act. The definition under the M.P. Act defines a dealer to mean any person who carries on the business of buying, selling, supplying or distributing goods, etc. The only condition for attracting the definition of a dealer to a person is that he must be carrying on the business whereas under the Kerala General Sales Tax Act, 1963 that is not a precondition for bringing him within the definition of a dealer - The said judgment relied upon by the learned counsel for the respondents is distinguishable and is not applicable to the facts of the present case. In Bhailal Amin General Hospital [2016 (8) TMI 670 - GUJARAT HIGH COURT] the Gujarat High Court has also held that the petitioner therein being a charitable trust running and maintaining a public hospital while purchasing, selling and supplying medicines to patients in order to achieve objects was not engaged in business activity and therefore was not a dealer. Though it has been contended by the learned counsel for the respondents that the petitioner is earning profit from sale of medicines meaning thereby that it is carrying on completely independent business and its motive is to gain profit hence it has to be treated as a dealer under the Act, but in Aswini Hospital Private Limited and others [2019 (3) TMI 438 - KERALA HIGH COURT] it has been held that actually deriving profit from the sale of goods is by itself wholly insufficient for bringing a person within the definition of a dealer. The contention in this regard is hence liable to be rejected. Conclusion - The petitioners are exempted from levy of tax under the Act, 1994 on supply of medicine in the course of activity of running its charitable hospital. For the very same reasons as discussed above and applying the same principles, it is further held that the petitioner is exempted from levy of tax under the Act, 1994 in respect of the canteen run by it for the attendants of the patients in the course of activity of running its charitable hospital. Petition allowed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are:Whether the supply of medicine by the hospital to patients constitutes a business activity under the Madhya Pradesh Commercial Tax Act, 1994, thereby rendering the petitioner liable to pay tax.Whether the operation of a canteen by the hospital for attendants of patients constitutes a business activity under the Act.Whether the activities of the petitioner, being a charitable trust, exempt it from being classified as a dealer under the Act.2. ISSUE-WISE DETAILED ANALYSISRelevant legal framework and precedents:The legal framework revolves around the definitions provided in the Madhya Pradesh Commercial Tax Act, 1994. Section 2(c) defines 'business' to include any trade, commerce, or manufacture, irrespective of profit motive or regularity. Section 2(h) defines 'dealer' as any person engaged in the business of buying, selling, or distributing goods. The Court also considered precedents from the Supreme Court and High Courts, notably the Kerala High Court's decision in Aswini Hospital Private Limited and others, and the Gujarat High Court's ruling in Bhailal Amin General Hospital.Court's interpretation and reasoning:The Court interpreted the definitions under the Act, emphasizing that the term 'business' includes activities conducted without a profit motive. However, the Court distinguished the definitions under the Madhya Pradesh Act from those under the Kerala General Sales Tax Act, noting the absence of the phrase 'whether in the course of business or not' in the former. This distinction was pivotal in determining that the mere supply of medicine in the course of running a hospital does not constitute a business activity.Key evidence and findings:The Court examined the nature of the hospital's operations, including the supply of emergency medicines and the running of a canteen. It was established that the hospital's primary objective was providing medical care, and any supply of medicine was incidental to this main activity. The hospital operated on a no-profit, no-loss basis, further supporting the argument that it was not engaged in a business activity.Application of law to facts:The Court applied the definitions of 'business' and 'dealer' under the Act to the facts, concluding that the hospital's activities did not meet the criteria for being classified as a business. The supply of medicine was deemed an integral part of the medical services provided, rather than a separate business transaction.Treatment of competing arguments:The respondents argued that the hospital's activities constituted a business due to the regularity and volume of medicine supplied. However, the Court rejected this argument, citing the lack of profit motive and the incidental nature of the medicine supply to the hospital's primary charitable activities. The Court also distinguished the case from the Cochin Port Trust decision, noting differences in statutory definitions.Conclusions:The Court concluded that the petitioners, being charitable institutions, were not engaged in business activities as defined under the Act. Consequently, they were not liable to pay tax on the supply of medicine or the operation of the canteen.3. SIGNIFICANT HOLDINGSCore principles established:The Court affirmed that the supply of medicine as part of medical treatment in a charitable hospital does not constitute a business activity subject to taxation under the Act. It emphasized the importance of the primary purpose of the activity, which in this case was providing medical care, not engaging in commerce.Final determinations on each issue:The petitions were allowed, and the impugned orders imposing tax on the hospital's activities were quashed. The Court held that the petitioners were exempt from tax under the Act for both the supply of medicine and the operation of the canteen as part of their charitable activities.