TaxTMI 
TaxTMI 
2014 (9) TMI 300
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....d pay tax under the Act for the supply of medicines and other items meant for treatment. The second prayer, which was urged as an alternative one, is to declare that section 6 of the Act and the corresponding rules are ultra vires and unconstitutional to the extent it seek to impose tax on hospitals and compel them to take registration under the Act. As a consequence, the petitioners are also seeking to quash the notices, and other proceedings issued by the officers of the Commercial Taxes Department. 4. In so far as the liability to take registration under the Act and to pay tax thereunder is concerned, the contention of the counsel for the petitioners was that hospitals are rendering what is called "hospital service" and that supply of medicines and other items is incidental to the service rendered to the patients treated. According to them, the Act does not contemplate levy of tax on such supply of medicines and other items and hence the hospitals have no obligation to get themselves registered under the Act or to pay tax thereunder. 5. In my view, this question does not need much deliberation for the reason that this very issue has already been considered by this court and ha....
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....y an incidental transaction or otherwise it is as important as any other service such as rendering medical service or other services. In the course of treatment except probably in surgical treatment, nobody can have a doubt that medicines account for the main cost along with consultancy charges for the doctor, expenditure in diagnosis, etc. Therefore, from common knowledge it is clear that medicine is as important, if not more in terms of value and purpose as anything else in the medical treatment. Therefore, in the first place, the petitioners' contention that supply of medicine is only incidental cannot be accepted at all. It is as important as medical consultation or other services in the hospital. Therefore, supply of medicine in the course of purchase and sale of medicine by a hospital will be such that it will answer the definition of 'dealer' under the Act beyond any doubt. In this context it is worthwhile to take note of the amendment to the term 'dealer' contained in section 2(viii) of the Act abovestated wherein supplying goods by way of or as part of any service is also treated as business to make a person involved in it a 'dealer' under the A....
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....ly or are at purchase and sale of medicine by a hospital will be such that it will answer the definition of 'dealer' under the Act beyond any doubt. In this context it is worthwhile to take note of the amendment to the term 'dealer' contained in section 2(viii) of the Act abovestated wherein supplying goods by way of or as part of any service is also treated as business to make a person involved in it a 'dealer' under the Act. Of course the definition of 'supply of goods as part of service' introduced in the Act is in the context of article 366(29A)(f) of the Constitution of India which was introduced to get over the decision of the Supreme Court in the context of various decisions, particularly, in Northern India Caterers' case [1978] 42 STC 386 (SC) referred to above. The Constitution only provides for supply of food or any other article for human consumption to bring it within the extended definition of 'sale'. The petitioners contended that the definition introduced under the Explanation (3C) to the term 'sale' contained in section 2(xxi) of the Act contemplates only food and articles of human consumption and the same does not....
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.... in Northern India Caterers' case [1978] 42 STC 386 (SC) referred to above is also not comparable and is no longer relevant after the Forty-sixth Amendment to the Constitution of India and the consequent amendment to the Sales Tax Act. 6. The petitioners are also liable to take drug licence under the Drugs Control Order for storing and selling drugs. Exemption is of course granted only to registered medical practitioners and Government hospitals and local bodies and hospitals and dispensaries run by Government or local bodies. Therefore, under the Drugs Control Order also hospitals and dispensaries are treated just like other dealers." 6. This judgment of the learned single judge was confirmed by the Division Bench of this court in W.A. Nos. 555 of 2003 (Qualified Pvt. Medical Practitioners' Assn. v. Sales Tax Officer) and 1487 of 2003 (Sales Tax Officer v. Qualified Medical Practitioners Assn). 7. The judgment in W.A. No. 1134 of 2005 (Christu Raj Hospital v. State of Kerala) shows that the contention of the appellant was that while rendering the judgment in P.R.S. Hospital's case [2003] 1 KLT 633 Reported as Malankara Orthodox Syrian Church v. Sales Tax Officer in ....
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....e main activity of the port trust was not 'business', then the connected, incidental or ancillary activities of sales would not normally amount to 'business' unless an independent intention to conduct 'business' in these connected, incidental or ancillary activities is established by the Revenue. It was held that if the sales were connected or incidental or ancillary to the 'nonbusiness' activity then as stated earlier, there would be a presumption that they were not intended to the 'business'. After referring to the decision reported in Trustees of the Port of Madras v. Aminchand Pyarelal [1976] 3 SCC 167) and the observation of his Lordship Justice Chandrachud, J. as extracted in paragraph 39 of the said judgment, it was held that the said observations clearly show that port trusts are not established for carrying on business. The apex court referred to the following observations made in Base Repair Organisation v. State of Andhra Pradesh [1983] 53 STC 223 (SC): 'According to the definition, if the main activity is in the nature of trade, commerce or manufacture any ancillary or incidental transac tion be it per se in the nature of tra....
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....her literature containing the message of Saibaba and the turnover can be assessed to tax under the Bombay Sales Tax Act, 1959. 7. From the above decisions it is clear that if the main activities of the assessee concerned were not business. In which case any business activity incidental or ancillary thereto which is infinitesimal or small part of the main activities cannot bring it within the scope of the term 'dealer'. In other words, the presumption will be that these connected incidental or ancillary activities of sales are not business and the onus of proof of an independent intention to do business in these connected incidental and ancillary sales will rest on the Department. It was also held that if the main activity is 'non-business' and activity of buying and selling which forms part of an integral part of the nonbusiness activity then also the party will not be a dealer. 8. According to the learned counsel for the petitioner hospital is not engaged in carrying on any business of buying and selling that there is no business activity and hence buying and selling of medicine through its pharmacy being an integral part of the non-business activity, hospital wi....
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....e to make gain or profit and whether or not any profit accrues from such trade, commerce, manufacture, adventure or concern; and (b) any transaction in connection with, or incidental or ancillary to such trade, commerce, manufacture, adventure or concern; 2(xv) 'dealer' means any person who carries on the business of buying, selling, supplying or distributing goods, executing works contract, delivering any goods on hire-purchase or on any system of payment by instalments, transferring the right to use any goods or supplying by way of or as part of any service, any goods directly or otherwise, whether for cash or for deferred payment, or for commission, remuneration or other valuable consideration not being an agriculturist and includes,- (a) a casual trader; (b) a commission agent, a broker or a del credere agent or an auctioneer or any other mercantile agent, by whatever name called, of such dealer; (c) a non-resident dealer or an agent of a non-resident dealer, or a local branch of a firm or company or association or body of person whether incorporated or not situated outside the State; (d) a person who, whether in the course of business or not, sells,- (i) goods p....
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....pressions means any transfer whether in pursuance of a contract or not of the property in goods by one person to another in the course of trade or business for cash or for deferred payment or for other valuable consideration, but does not include a mortgage, hypothecation, charge or pledge; Explanation I.-A transfer of property in goods by the Central Government or a State Government for cash or for deferred payment or other valuable consideration whether or not in the course of business shall be deemed to be a sale for the purposes of this Act. Explanation II.-The transfer of property involved in the supply or distribution of goods by a society (including a co-operative society), club, firm or any association or body of persons, whether incorporated or not, to its members, for cash or for deferred payment or other valuable consideration, whether or not in the course of business, shall be deemed to be a sale for the purposes of this Act. Explanation III.-A transfer of goods on hire-purchase or other instalment system of payment shall, notwithstanding the fact that the seller retains the title in the goods as security for payment of the price, be deemed to be a sale on the date o....
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.....-Notwithstanding anything to the contrary contained in this Act or any other law for the time being in force, two independent sales or purchases shall, for the purposes of this Act, be deemed to have taken place,- (a) when the goods are transferred from a principal to his selling agent and from the selling agent to the purchaser; or (b) when the goods are transferred from the seller to a buying agent and from the buying agent to his principal, if the agent is found in either of the cases aforesaid, (i) to have sold the goods at one rate and to have passed on the sale proceeds to his principal, at another rate; or (ii) to have purchased the goods at one rate and to have passed them on to his principal at another rate; or (iii) not to have accounted to his principal for the entire collections or deductions made by him in the sales or purchases effected by him on behalf of his principal; or (iv) to have acted for a fictitious or non-existent principal: Provided that the deduction or addition, as the case may be, of the commission agreed upon and specified in the accounts and incidental charges incurred by the agent which are specified in the accounts and which the assessing au....
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....e-husking. Explanation V.-Where a dealer receives in any return period any amount due to price variations in respect of any sale effected during any earlier return period, such amount shall be deemed to be the turnover relating to the return period in which such amount is received. Explanation VI.-The turnover in respect of rubber shall be deemed to include any cess leviable under the Rubber Act, 1947 irrespective of whether the payment of cess is deferred till the rubber is consumed by the manufacturer of rubber goods; Explanation VII.-Where a dealer sells any goods purchased by him at a price lower than that at which it was purchased and subsequently receives any amount from any person towards reimbursement of the balance of the price, the amount so received shall be deemed to be turnover in respect of such goods." 11. A comparative analysis of the provisions contained in the KGST Act which were considered by this court in P.R.S. Hospital's case [2003] 1 KLT 633 Reported as Malankara Orthodox Syrian Church v. Sales Tax Officer in [2004] 135 STC 224 (Ker). and the aforesaid corresponding provisions of the KVAT Act show that the statutory provisions remain the same although....
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.... other valuable consideration; (f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made.' 41. Clause (a) covers a situation where the consensual element is lacking. This normally takes place in an involuntary sale. Clause (b) covers cases relating to works contracts. This was the particular factsituation which the court was faced with in Gannon Dunkerley & Co. (Madras) Ltd. [1958] 9 STC 353 (SC) and which the court had held was not a sale. The effect in law of a transfer of property in goods involved in the execution of the works contract was by this amendment deemed to be a sale. To that extent the decision in Gannon Dunkerley [1958] 9 STC 353 (SC) was directly overcome. Clause (c) deals with hire-pu....
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....at a transaction is a sale and then to look around for what could be the goods. The word 'goods' has not been altered by the 46th Amendment. That ingredient of a sale continues to have the same definition. The second respect in which Gannon Dunkerley [1958] 9 STC 353 (SC) has survived is with reference to the dominant nature test to be applied to a composite transaction not covered by article 366(29A). Transactions which are mutant sales are limited to the clauses of article 366(29A). All other transactions would have to qualify as "sales" within the meaning of the Sale of Goods Act, 1930, for the purpose of levy of sales tax. 44. Of all the different kinds of composite transactions the drafters of the 46th Amendment chose three specific situations, a works contract, a hire-purchase contract and a catering contract to bring within the fiction of a deemed sale. Of these three, the first and the third involve a kind of service and sale at the same time. Apart from these two cases where splitting of the service and supply has been constitutionally permitted in clauses (b) and (f) of clause (29A) of article 366, there is no other service which has been permitted to be so split....