TaxTMI 
TaxTMI 
2019 (3) TMI 1019
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....Respondent : SRI V.K. SHAMSUDHEEN SR GP JUDGMENT Vinod Chandran, J. The essential questions arising in all these cases are as follows: (1) Whether the drugs, implants and consumables used in the treatment of an inpatient in a hospital can be termed to be sale of goods exigible to sales tax under the Kerala Value Added Tax Act, 2003 ("KVAT Act", for short)? (2) Whether hospitals, which carry out inpatient and outpatient treatments and in the course of such treatments administer drugs, carries out invasive surgeries to make implants and uses consumables in the various medical procedures, are to be registered under the KVAT Act? (3) Whether the sales carried out in the pharmacies to outpatients can be categorised as sale of goods liable to tax under the KVAT Act? 2. There are also other issues involved in certain cases which we will have to deal separately with. As of now, the first issue has been answered by a Full Bench in 2019 (1) KLT 336 [Sanjose Parish Hospital v. Commercial Tax Officer]. The Full Bench held that drugs, implants and consumables used in the course of treatment in a hospital would not come within the definition of sale of good....
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....nding provision under the KVAT Act, specifically Section 8(e). However, it is argued that sale from a pharmacy cannot at all be treated as being in any way different from the drugs administered or consumables and implants used in the course of treatment of an inpatient. It is asserted that there could be no differentiation of the sale element, even when there is a supply of drugs or consumables in the course of treatment of an out-patient. There can be no consensus ad idem found in such supply also, since it is the prerogative of the attending Physician/Surgeon to prescribe such medicines. The patient has absolutely no control over the same. The decisions of the various High Courts are pointed out to urge that in those cases also the question considered was confined to that of treatment administered to inpatients and the drugs administered or consumables and implants used in the course of such treatment. Neither the various High Courts nor the Full Bench of this Court has considered the specific aspect of a sale from Pharmacy, which according to the learned Counsel is on the same footing as an in-patient treatment. The learned Counsel would also argue that there could be administra....
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....ed from pricing the drugs at MRP since then they would be collecting the tax, which is impermissible if there is no registration taken. A hospital who is not registered as a dealer would be disabled from collection of tax as provided under Section 30 of the KVAT Act. If a sale is made at MRP from the hospital, then the component of tax which is included in the MRP, as paid by the supplier or manufacturer to the State would have to be reduced by the hospital. Otherwise, it would entail prosecution proceedings as also forfeiture of the collected tax. 7. Sri.Kumar, per contra, would specifically draw the attention of this Court to Form No.8H prescribed for dealers in medicine selling compounded-tax-suffered medicines. Form 8H provides for two tax invoices; one to be issued by the manufacturer/first seller when tax is collected and the other to be issued by stockists/ wholesaler of medicines or drugs to retailer when tax is not collected. The retail bill, also included in Form 8H, is to be issued to customers who are not dealers. It is pointed out that when there is a clear exemption applicable, then there is no question of a registration in the case of hospitals, since there is no ....
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....nnot be confined to food or other articles for human consumption. That there is supply of goods in the course of treatment is undisputed. What has been held by the Full Bench is that the supply of goods cannot be separated from the composite medical service offered to a patient in a hospital and the same treated to be a sale of goods, liable to sales tax. The liability to sales tax is extinguished only since the supply is in the course of composite service offered to a patient which is the therapeutic care and medical treatment. 10. The minute a supply of goods is made other than in the course of a service, then necessarily levy of tax is attracted to the transaction as provided under the sales tax enactment. Hence, it is for the hospitals who are also involved in the supply of goods to prove before the Assessing Officer that the supply has been made in the course of treatment and not as a mere sale of goods. In this context, we would consider it worthwhile to examine the nature of the sale which is carried out in a Pharmacy as distinguished from a supply of goods in the course of medical treatment offered to an inpatient in a hospital. 11. As has already been held by the Ful....
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....tient of any goods from the pharmacy has the connotation of sale of goods. The supply of medicines from the pharmacy to an out-patient is mere sale of goods and not a supply in the course of medical service. It is at best a sale in pursuance of a service, ie: the consultation. We, hence, find that the hospitals with Pharmacies have to be necessarily registered under the KVAT Act and they also have to satisfy the liability to tax under the respective enactments in the various periods, on the medicines, consumables or implants supplied to an out-patient, as distinguished from an administration of drug or use of consumables or implants carried out within the hospital premises itself, subject however to the purchase having been made from a compounded dealer, who has already paid tax on the MRP. We say this specifically because an implant, a drug or a consumable may not be available in one hospital and a patient of that hospital may, on the advise of the hospital, purchase it from a Pharmacy of another hospital, or a medical store, when the transfer of goods is for all purposes a sale of goods, exigible to tax. 14. We have to accept the contention of the State that the goods being dr....
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....hospital or the Clinic. The X-Ray films though handed over to the patients cannot be said to be a transfer in the course of sale of goods. Likewise, the chemicals used in carrying out laboratory tests cannot at all be said to be even a transfer of goods to the patient, much less any sale of goods being involved. 17. Now, we have to deal with the issue raised by Sri.Shamsudheen as to the tax being included in the MRP as per the Drug Control Orders and the collection of tax component when the hospitals sell drugs at MRP. If they are not registered under the KVAT Act, they cannot avail the benefit under Section 30 and collection by such unregistered dealers would result in forfeiture of such amounts as also penalty imposition is the argument advanced. To our mind, two aspects arise in view of the compounding provision as per Section 8(e) of the Act, i.e., the purchases made from importers and manufacturers who opted to compound under Section 8(e) and those dealers or manufacturers who do not make such option. 18. In the case of importers, manufacturers or other distributors who have not resorted to compounding, there is no difficulty especially since the wholesaler would not sel....
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....red to reduce the tax element from the MRP. On these broad findings, we deal with the individual cases hereinafter. WP(C) No.14047/2018 20. Sri.Abdul Azeez appearing for the petitioner submits the issue is confined to the use of oxygen, nitrous oxide and X-Rays for the treatment of patients. Insofar as oxygen and nitrous oxide are concerned, the same are administered for providing respiratory therapy and as an anaesthetic agent respectively, which is provided within the hospital itself and to inpatients as also at times outpatients. The administration of the oxygen and nitrous oxide is definitely in the course of treatment and it cannot be said to be a sale of goods under the KVAT Act, since it is part of the service rendered in a hospital. X-Rays too when taken of the inpatients and outpatients are taken within the hospital and they cannot be treated as sale of goods, since it cannot be divided into a sale and service; the dominant intention being of provision of treatment, or diagnosis of ailment of the patients. WP(C) No.14047/2018 hence stands allowed to the extent of declaring that the drugs administered and implants & consumables used in the course of treatment within a ho....
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....nt in accordance with the findings in this judgment as also the order of the Full Bench of this Court. 24. When W.A.No.1896 of 2012 was pending, the assessment orders were passed for the assessment years 2005-06 to 2007-08; which are challenged in W.P.(C) No.13406 of 2013. The assessment order for the assessment year 2005-06 produced as Exhibit P5 in the writ petition is set aside on the ground of limitation. With respect to the other assessment years, the AO shall pass orders modifying the assessments to the extent the levy is found to be impermissible by the declarations herein above. W.A.No.2029 of 2012 25. In the writ petition giving rise to the above Writ Appeal what was impugned are the notices issued for the year 2005-06, 2006-07 and 2007-08, produced as Exhibits P2, P2A and P2B as also Exhibits P4, P5 and P6 assessment orders. With respect to the assessment year 2005-06, the notice is dated 17.01.2012 is beyond the period of limitation. Hence, Exhibit P2 notice and Exhibit P4 assessment order are set aside. With respect to the other assessment years, the AO shall pass orders modifying the assessments to the extent the levy is found to be impermissible by the declar....
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.... produced at Exhibit P8 and a modified order of the AO, as per the directions in first appellate order is produced as Exhibit P9. In Exhibit P9, the tax levied is on Oxygen, surgical items, ECG, Anaesthesia and sales turnover of X-Rays. All these goods and aspects have been excluded from levy of sales tax by the Full Bench and by us in the above judgment, since they are part of the services rendered in a hospital. The assessment order is, hence, set aside and the writ petition stands allowed. W.P(C)No.13872 of 2017 32. The challenge raised in this writ petition is against Exhibit P3 notice issued under Section 67 of the KVAT Act, followed up by Exhibits P5 and P8 notices. The assessee would appear before the Officer, who shall consider the issue in terms of the Full Bench decision and the declaration made herein above. This writ petition is disposed of. W.P(C)No.14754 of 2017 33. The above writ petition challenge the assessment orders of 2010-11 and 2011-12, produced at Exhibits P6 and P7. The AO shall pass orders modifying the assessments to the extent the levy is found to be impermissible in the aforesaid judgment. The writ petition is allowed as above. W.A.Nos.1993 a....