TaxTMI 
TaxTMI 
TaxTMI 
2002 (12) TMI 596
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....rvice rendered in a hospital and distinguishing factors among the hospitals may be in regard to quality and volume of it, but essentially the activities in all the hospitals are one and the same. There is no case by any of the petitioner-hospitals that they are not supplying or selling medicines to the patients in the course of medical treatment which is the very basis on which sales tax authorities have issued notices calling them to take registration, to produce books of accounts, file returns and pay tax, if any due. Therefore, the essence of issue is whether the supply of medicine to patients in the course of treatment constitute "sale" bringing the petitioners within the scope of "dealer" under the Act making them liable in take out registration, file returns and to pay sales tax if payable. 2. I heard counsel for the petitioners and also the Special Government Pleader for taxes. 3. Before proceeding to the main issue, an aspect to be clarified is the distinction between medical practitioners on the one side and the hospitals and dispensaries on the other side. Notification SRO 1090/99 as amended by SRO 802/2001 provides exemption to medical practitioners....
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....pensaries are essentially consulting places where medicines also are supplied. In the case of hospitals, inpatients are taken and medical services are rendered involving supply of medicines. Exemption appears to be of a limited nature and is applicable only to dispensaries managed by doctors dispensing medicine to their own patients. In other words, essentially consultant doctors are granted exemption on the supplies of medicine in the course of consultation. This category of persons are enjoying exemption on the turnover of sale of medicines. The nature of exemption is evident and clear when the description of the dealer and the turnover exempted are read together. It is specifically mentioned in entry 13 that what is exempted is turnover relating to medicines dispensed to their patients in the course of treatment. This clearly establishes that the exemption is only to a doctor for the sale of medicine to his patients. However, an organised activity involving engagement of doctors and staff for treatment and supply of medicine is not covered by exemption because there is no correlation between the medical practitioner, his patient and the supply of medicine. In other words, exempt....
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...., adventure or concern; viii) "Dealer" means any person who carries on the business of buying, selling, supplying or distributing goods, (executing works contract, 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 and includes- (a) (xxxx) (b) a casual trader; (c) a commission agent, a broker, a del credere agent or an auctioneer or any other mercantile agent by whatever name called, who carries on the business of buying, selling, supplying or distributing goods (executing works contract, transferring right to use any goods or supplying by way of or as part of any service, any goods) on behalf of any principal; (d) 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 persons whether incorporated or not) situated outside the State; ((e) a person who, whether in the course of business or not sells; i) goods produced by him by manufacture, agriculture, horticulture or otherwise; or ii) trees which grow spontaneously a....
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.... improvement or repair of immovable property or used in the fitting out, improvement or repair of movable property) (and every kind of property (whether as goods or in some other form) involved in the execution of a works contract) and all growing crops, grass or things attached to, or forming part of the land which are agreed to be severed before sale or under the contract of sale; (xxi) "sale" with all its grammatical variations and cognate expressions means every 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 other valuable consideration, but does not include a mortgage, hypothecation, charge or pledge; Explanation (3C):- Any 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 shall be deemed to be a sale. (xxvii) "turnover" means the aggregate amount for which goods are either bought or sold, supplied or dist....
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....t 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 medical treatment either to inpatients or to outpatients has to be taken as one of the main activities in a hospital or in a clinic. The Supreme Court had occasion to consider as to when a person becomes a "dealer" in the decision in The State of Gujarat v. Raipur Manufacturing Co. Ltd. ((1967) 19 STC 1) wherein it was held as follows: "Whether a person carries on business in a particular commodity must depend upon the volume, frequency, continuity and regularity of transactions of purchase and sale in a class of goods and the transactions must ordinarily be entered into with a profit-motive. By the use of the expression "profit-motive" it is not intended that profit must in fact be earned. Nor does the expression cover a mere desire to make some monetary gain out of a transaction or....
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....finition 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 (42 STC 386) 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 take in "medicine". Even though the amendment was brought to cover hotels, the legislative intent is to enlarge the scope of the operation of the Act to cover sales effected in the course of rendering services also. Moreover, in the definition clause of "dealer" the supply of goods in the course of rendering service is not limited to food and articles of human consumption alone. Further, it is also not possible to compare the case of supply of food a....
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....efore, under the Drugs Control Order also hospitals and dispensaries are treated just like other dealers. 7. The petitioners have a case that medicine is, an item coming under entry 87 of the First Schedule to the Act which attracts tax at the point of first sale in the State and most of the petitioners are buying medicines within the State. Therefore, the Government gets no benefit by requiring the petitioners to take registration and comply with the formality by filing returns, as no tax is payable. It is one thing to say that the petitioners have no liability to pay tax and another to say that they are liable to conform to the discipline under the Act and Rules. If the medicines sold by the petitioners in the hospital are only second sales and the petitioners have bills to prove purchase in Kerala showing payment of tax, necessarily they will get exemption in the course of assessment and they will have no liability to pay tax. However, the requirement of registration under the Act and the filing of returns and production of books of accounts in support of the same is to enable the Department to ensure that the claim is correct or otherwise to levy tax if the petitioners are fou....
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....nstitution. However, the increase of registration fee is challenged as arbitrary, unreasonable and. hence violative of Article 14 of the Constitution. According to the petitioners, unlike tax there should be corresponding service for demanding registration fee. In other words, there should be quid pro quo to justify the demand of registration fee. However, nobody has doubted that there is no service rendered by the Department and there has been always registration fee at all time in the statute. The question therefore is whether the increase in registration fee periodically made is justified or not and whether the present rate particularly, the maximum rate at ₹ 20,000/- is excessive or arbitrary. The principle of quid pro quo stands established and the settled position is that the dealers are getting services from the Department and there is nothing to indicate that the Government has to establish the correlation between fees and service exactly in court to sustain it. Various services are rendered by the Sales Tax Department to dealers. The petitioners contend that the form supplied such as delivery note declarations etc. are separately charged, though the charges are not v....