Composite hospital supplies can attract VAT as deemed sale where the goods component is separately identifiable and taxable.

Separately billed medicines, implants, stents and consumables supplied during indoor patient treatment may be treated as a discernible goods component in a composite hospital transaction for VAT purposes. The HC held that such supply was not merely incidental to healthcare services, and that the composite arrangement could fall within the constitutional concept of deemed sale and the ambit of works contract under Article 366(29A)(b) and the Gujarat VAT Act. It further upheld the challenged definition as operating within legislative competence on the facts found. The petitions were dismissed and the levy on the goods component sustained.

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Issues: (i) whether supply of medicines, implants, stents and consumables used in the treatment of indoor patients in hospitals could be treated as a sale or deemed sale exigible to VAT under the Gujarat Value Added Tax Act, 2003; (ii) whether such hospital treatment with supply of goods fell within the ambit of works contract under Article 366(29A)(b) of the Constitution of India and section 2(23) of the Gujarat Value Added Tax Act, 2003; and (iii) whether section 2(23)(g) of the Gujarat Value Added Tax Act, 2003 was unconstitutional for travelling beyond the constitutional concept of deemed sale.

Issue (i): whether supply of medicines, implants, stents and consumables used in the treatment of indoor patients in hospitals could be treated as a sale or deemed sale exigible to VAT under the Gujarat Value Added Tax Act, 2003.

Analysis: The constitutional scheme after the Forty-sixth Amendment permits taxation of specified categories of deemed sale under Article 366(29A), but the Court examined whether the hospital-patient transaction, viewed as a composite arrangement, involved a discernible transfer of goods for consideration. The Court relied on the material showing separate billing, collection at MRP, and treatment packages that included goods as well as services. It held that the supply of medicines and other articles was not a mere incidental supply incapable of segregation, but formed part of a composite economic transaction in which the goods component was identifiable.

Conclusion: The issue was answered against the petitioners and in favour of the Revenue.

Issue (ii): whether such hospital treatment with supply of goods fell within the ambit of works contract under Article 366(29A)(b) of the Constitution of India and section 2(23) of the Gujarat Value Added Tax Act, 2003.

Analysis: The Court held that the expression works contract is of wide amplitude and is not confined to classical building contracts. It followed the post-46th Amendment line of authority that the distinction between sale and service has materially diminished where a composite contract contains both service and transfer of property in goods. On the facts, the treatment provided by hospitals, together with the supply and implantation of medicines, stents, prosthetics and consumables, was treated as a composite contract with a transferable goods element. The Court rejected the contention that a hospital transaction cannot be a works contract merely because it involves a human body and not an immovable property.

Conclusion: The issue was decided against the petitioners and in favour of the Revenue.

Issue (iii): whether section 2(23)(g) of the Gujarat Value Added Tax Act, 2003 was unconstitutional for travelling beyond the constitutional concept of deemed sale.

Analysis: The Court held that the challenged provision could not be struck down on the ground urged by the petitioners because the State Legislature was competent to enact a definition of sale which, on the facts found, operated within the constitutional field of deemed sales. The Court also reasoned that the hospitals' composite health-care transactions were not outside the taxing field merely because healthcare services were separately exempt under later fiscal regimes. The provision was therefore not found to be ultra vires on the pleaded ground.

Conclusion: The constitutional challenge failed and the issue was answered against the petitioners.

Final Conclusion: The petitions were dismissed, and the impugned levy on the goods component involved in hospital treatment was sustained.

Ratio Decidendi: A composite hospital transaction that separately and discernibly involves transfer of goods used in treatment may be segmented for VAT purposes, and such goods component can fall within the constitutional concept of deemed sale and works contract.

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