TaxTMI 
TaxTMI 
2020 (6) TMI 119
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....claim that they do not charge any amount separately towards the cost of these items and charge a consolidated amount from the patients towards cost of medical treatments and it is inclusive of all the expenditure incurred by it and therefore the respondent is not entitled to issue the impugned notices. 3.By the impugned notices, the respondent has called upon the petitioners to pay Value Added Tax (VAT) on the purported deemed sale of stents, valves, hip replacement and knee replacement etc. in the course of provision of medical services by the petitioners as "works contract" within the meaning of Section 2(43) of the Tamil Nadu Value Added Tax Act, 2006 chargeable to tax under Sections 5/6 of the said Act. 4. In all these Writ Petitions, the respective petitioners have challenged the impugned notices issued under Section 27 of the TNVAT Act, 2006 to reopen the completed assessment made under Section 22(2) of the TNVAT Act, 2006 on the ground that the petitioners have rendered "works contract" within the extended meaning of definition of "sale" under Section 2(33) of the TNVAT Act, 2006, chargeable to tax under Section 5/6 of the said Act. 5. The petitioners are corporate bodies....
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....2,307 (The amount mentioned in the last columns pertains to proposal to tax on the alleged sale of medicine, prosthetics and X-ray, MRI and similar items.) 10. Though these cases were listed and argued as a batch, there is no representation on behalf of the petitioner in W.P.Nos.3132 to 3240 of 2012 (Saveetha Medical College and Hospital). 11. There are other issues relating to sales of certain assets. These issues were not argued before this Court. The amounts tabulated above primarily pertain to medicine, prosthetics and on deemed sale of MRI/CT Scan/X-ray films. 12. Though these writ petitions are of the year 2012, the respondents have filed their counter only in W.P.Nos.2982 to 2987 of 2012 (Miot Hospital Ltd.). 13. Learned Counsel for the respondents submits that the counter filed in the above mentioned writ petition may be treated as the common counter in all the above writ petitions, since the issues are common. Therefore, all these cases are taken up together and disposed by this common order. The cases were argued over a period of time and thereafter it was reserved for passing orders on 25.02.2020. 14. At the outset, four different High Courts have already allowed c....
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.... on merits on the contentious issue alone. 21. The above four decisions of these four different High Courts are inspired from the observation of the Hon'ble Supreme Court in BSNL Vs UOI (2006)3SCC1;2006(2)STR161. 22. It is the contention of the commercial tax department that there is a "sale" within the extended meaning of the definition of "sale" under Section 2(33) read with 2(43) of the TNVAT Act, 2006 and Article 366, 29(A) clause (b) of the Constitution of India. 23. The petitioners had wrongly claimed benefit of G.O.Ms.No.976/Revenue dated 28.03.1959 read with G.O.Ms.No.343/Revenue dated 11.08.1961 which was wrongly allowed. For the sake of clarity, text of the respective G.O.Ms.No.976 Revenue dated 28.03.1959 is reproduced below:- "G.O.Ms.No.976 Revenue dated 28.03.1959 Notn S.R.O.A-1966 of 59 dated 28.3.1959 - Gazette dated 1.4.1959, Part I, P.488. NOTIFICATIONS UNDER SECTION 17 In exercise of the powers conferred by section 17 of the Madras General Sales Tax Act, 1959 (Madras Act I of 1959) and in supersession of all the notifications issued under section 6 of the Madras General Sales Tax Act, 1939 (Madras Act IX of 1939), the Governor of Madras hereby makes the ....
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....) 3 SCC 1 (BSNL Vs UOI for short). 26. In the said case, by way of illustration, an example of treatment of a patient in a hospital in Paragraph 44 was made. It is submitted that the Hon'ble Supreme Court explained the position with reference to a service of a Doctors and a lawyers and other professionals. In the illustration, it was observed that during the course of provision of medical services, when they write out and hand over prescriptions or a drafts of a document to his/her patient or client as the case may be, there is no sale though strictly speaking, with the payment of fees consideration it does pass to the patient or client from the doctor or lawyer in both cases. They submitted that the Hon'ble Supreme Court held that there was not sale of papers for the Sales Tax Authorities to tax the transaction as that of sale. They therefore submit that same logic and reason applies to medicines, MRI/CT Scan and implants and prosthetics etc. They submit that Medical/Health Service is not recognized as a sale or purchase under Art 366 (29A) of the Constitution of India and under Tamil Nadu Value Added Tax Act, 2006. 27. They therefore submit that the test therefore for composi....
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....o describe surgical procedures of the nature that is sought to be taxed. 30. He further submits that the intention of the legislature was not to include "surgical procedures" into the sales tax net which is amply clear from the choice of the words used in the definition. He further submits that a living human body even if infected or is challenged is not a "property" and therefore it would be absurd to even hazard a thought that there could be a "works contract" on the body of a living human being. 31. He further submits that substantive civil law is divided into:- i. the law of property, ii. law of obligations; and iii. the law of status. 32. He therefore submits that there is a clear distinction between the legal treatment of "property" and of "persons". Indeed, the very arrangement of chapters in Salmond on Jurisprudence bears out a testimony to the fact that "persons" (in chapter 10) are treated separately from "property". The law thus does not treat persons as "property". 33. It is submitted that while in its widest sense "property" includes all a person's legal rights, this usage however is obsolete in law. Besides, the law has always treated persons and property s....
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....ot a "property" under the law of the land and in any event for Tamil Nadu Value Added Tax Act, 2006. Therefore, "property" in S.2(43) of the TNVAT Act cannot be said to cover human being or their live/un-detached parts and organs. Thus, no tax may be levied in the score that surgical procedures are works contract. 39. Mr.K.Vaitheeswaran, the learned counsel for the petitioners in W.P.(MD) Nos.3476 to 3479 of 2012 (Appollo Hospitals) and 12137 to 12140 of 2012 (Fortis Malar Hospitals Ltd.) submitted that the impugned notices propose to impose VAT on an erroneous assumption that after the 46th amendment to the Constitution, the Commercial Tax Department is empowered to treat the hospital/medical service as "works contract" even if dominant intention of the contract was to render service. He submits such services are a class apart from those enumerated in Art 366(29A) of the Constitution of India. 40. He submits that Section 2(43) of the TNVAT Act, 2006 which defines the expression "works contract" cannot be made applicable for the services provided by corporate hospitals to its patients since the activities referred to in the said provision pertain to building construction, manufac....
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....r a treatment is provided, which may incidentally involve administration of medicines and drugs or which may involve medical treatment through implants, limbs, stents, hip etc. there is no contract or undertaking for bringing into existence some 'works'. 45. He submits that is not open for the respondent to argue to the contrary in these cases. He submits that as per the decision of the Hon'ble Supreme Court in CCE Vs. Sanju Silk Mills P. Ltd. (2011) 268 ELT 435 SC, the Revenue having conceded a case before Tribunal based on the earlier decision of Tribunal cannot agitate the same issue before the Hon'ble Supreme Court as decision which was unsuccessfully challenged before the Supreme Court and was dismissed. He drew attention to para 3 of the said order, which reads as under: "3. Accordingly, we are of the opinion that the Adjudicating authority has passed a proper, legal and correct order and that the appellants have not made out a case requiring any interference with the impugned order." 46. The learned counsel further submits that the treatment that is provided to a patient which may involve not only administration of medicines or treatment in the form of fixing implants/ p....
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.... the provisions of the Act. The said notification granted exemption on the sale of medicines by hospitals, nursing homes and dispensaries run by the Government or by the Medical practitioners themselves which dispense medicines to their patients only. He submits that the said notification was modified and subsequently it was clarified vide Government Letter No.976/F2/2004 dated 09.11.2005 that the petitioners were not eligible to claim exemption on the sale of medicines while collecting charges for services rendered with transfer of property in goods involved. 51. He submits that the term "sale" defined under Section 2(33) of the Act, with all its grammatical variations and cognate expressions means every transfer of the property in goods other than by way of a mortgage, hypothecation, charge of pledge by one person to another in the course of business. 52. He submits that the petitioners had received consideration under a package and the package included the charges from the stage of registration of the patient till their discharge inclusive of the cost of medicines and surgical disposals and prosthetics used in connection with the recovery of patient and allied services rendere....
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....tted that consumables are utilized for such services and therefore the there is a transfer of property when these services are provided to the patient. He submits that these transaction are liable to be taxed under entry 51 of Part C of First Schedule of Tamilnadu Value Added Tax Act, 2006. 61. It is submitted that the sale of these Medical implants/ prosthetics such as Ortho Plates, Surgical Plates, Screws, Knee replacement, Hip Replacements, Cardiac Implants, Stents, Valves, Pace Maker, Intra Aortic Balloon Pump, Pulmonary Ortho Catheter, Prosthetic Valves, Tissue Valves and other implants have not been reported and corresponding sales for which consideration was received from the patients by way of final bill. It is submitted that discharge receipts were also not disclosed and were fully suppressed while filing their respective monthly returns. Since the scheme VAT enables to officer to accept the monthly returns, upon inspection, it was found that there is whole scale suppression and failure to report these supply of medical implants/prosthetics for which consideration was received from the patients which would amount to transfer of ownership for the purpose of assessment. 6....
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....58) 9 STC 353 (SC) ii. The Assistant Sales Tax Officer and others V. B.C.Kame, Proprietor Kame Photo Studios - (1977) 1 SCC 634 (SC) iii. Rainbow Colour Lab and another V. State of M.P. and Others - (2000) 2 SCC 385 (SC). iv. )Associated Cement Companies Ltd. V. Commissioner of Customs - (2001) 4 SCC 593; v. Municipal Corporation of Delhi V. Gurnam Kaur - (1989) 1 SCC 101. vi. Catholic Syrian Bank Ltd. V. Commissioner of Income Tax, Thrissur (2012) 3 SCC 784; vii. M/s.GannonDunkerley and Co. and Others V. State of Rajasthan and Others - (1993) 1 SCC 364.; viii. Regional Director, Employees' State Insurance Corporation Vs. High Land Coffee Works of P.F.X.Saldanha and sons and another - (1991) 3 SCC 617. ix. Commissioner of Income Tax, Madras Vs. G.R.Karthikeyan, Coimbatore - 1993 Supp (3) SCC 222. x. C & E Comrs. V. Wellington Hospital (1995) BVC 245. xi. Commissioner, Central Excise and Customs, Kerala V. Larsen Toubro Limited - (2016) 1 SCC 170. xii. State of Madras V. Richardson and Cruddas Ltd. (1968) 21 STC 245. 67. I have considered the arguments advanced on behalf of the respective petitioners and the respondent. I have also perused the provision of the....
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....deration; vi) a 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; Explanation I.- The transfer of property involved in the supply or distribution of goods by a society (including a cooperative society), club, firm or any association 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 II.- Every transfer of property in goods by the Central Government or any 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 III.- Every transfer ....
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....ased 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. Section 2(43): "works contract" includes any agreement for carrying out for cash, deferred payment or other valuable consideration, building construction, manufacture, processing, fabrication, erection, installation, fitting out, improvement, modification, repair or commissioning, of any movable or immovable property; Section 5: Levy of tax on transfer of goods involved in works contract.- (1) Notwithstanding anything contained in this Act, but subject to the provisions of this Act, every dealer, shall pay, for each year, a tax on his taxable turnover, relating to his business of transfer of property in goods involved in the execution of works contract, either in the same form or some other form, which may be arrived at in such manner as may be prescribed, at such rates as specified in the First Schedule. Explanation. - Where any works contract involves more than one item of work, the rate of tax should be determined ....
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....ent or up gradation of such civil works by means of fixing and laying of all kinds of floor tiles, mosaic tiles, slabs, stones, marbles, glazed tiles, painting, polishing, partition, wall panelling, interior decoration, false ceiling, carpeting and extra fittings, or any manner of improvement on an existing structure. 71. In Cape Brandy Syndicate v Inland Revenue Comrs [1921] 1 KB 403, Rowlett J of the KING'S BENCH DIVISION held that "There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used." This proposition of law has been followed by the Hon'ble Supreme Court on a number of occasions while interpreting tax statutes. 72. I am therefore inclined to apply the above definitions to the facts of the case. There is no scope for inferring any ambiguity in the definition of "sale" and "works contract" in the Tamil Nadu Value Added Tax Act, 2006. 73.The expression "works contract" has an Indian flavour. Etymology/ origin/ historical adoption and use of the expression "works contract" indicates that it was perhaps coined by an ingenious assessee or his/her or their advocat....
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....f such goods in the execution of the contract. 79. The amendment to the Madras General Sales Tax Act, 1939 vide Madras General Sales Tax Amendment Act No. 25 of 1947 fell for consideration in State of Madras v. Gannon Dunkerley& Co. (Madras) Ltd., (1958) 9 STC 353 [1st Gannon Dunkerley's case] before the Hon'ble Supreme Court. 80. The definition of "Works Contract" under the Madras General Sales Tax Act, (Mad.9 of 1939) which fell for consideration of the Hon'ble Supreme Court in State of Madras v. Gannon Dunkerley& Co. (Madras) Ltd., (1958) 9 STC 353 reads as under:- Section 2(i) : "works contract" as means any agreement for carrying out for cash or for deferred payment or other valuable consideration, the construction, fitting out, improvement or repair of any building road, bridge or other immovable property or the fitting out, improvement or repair of any immovable property. 81. Thus, the definition of the expression "works contract" was confined to any agreement for carrying out for cash or for deferred payment or other valuable consideration:- i. the construction, fitting out, improvement or repair of any building road, bridge or other immovable property. Or ii. th....
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....rials and a contract for payment for work done. 86. In the result, the Division Bench of this Court held that the provisions introduced by the Amendment Act No. 25 of 1947, were ultra vires the powers of the Provincial Legislature and that the claim based on those provisions to include Rs. 29,51,528-7-4 into the taxable turnover of the assessee could not be maintained. As regards the item of Rs. 1,98,929-0-3 they held that the sale of food grains to the workmen was not in the course of any business of buying or selling those goods, that there was no profit motive behind it, that the assessees were not dealers as defined in Section 2(d) of the Act, and that, therefore, the amount in question was not liable to be taxed under the Act. In the result, both the amounts were directed to be excluded from the taxable turnover. 87. On a certificate under Article 133(1) of the Constitution of India, the Honourable Supreme Court in State of Madras versus Gannon Dunkerley& Co (Madras) Ltd (1958) 9 STC 553, while disposing of a batch of cases, ultimately held that "sale of goods" in Entry 48 is the nomen juris, its essential ingredients being an agreement to sell movables for a price and prope....
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....tax. 92.The Kerala High Court upheld the decision and held that that on the analogy of a photographer, dealt with in the decision in The Assistant Sales Tax Officer v. B.C. Kame (30 STC. 237), it was essentially a contract to do skilled labour. Moreover, if the teeth prepared by the dentist for a particular customer, was not taken delivery of by him, it would be a waste. In other words, it was held that what was manufactured was not a marketable goods. It was held that that is a very vital factor to decide whether there is a sale of goods. In the light of the above reasons, the Court held that 'teeth setting charges' was not a transaction of sale of goods exigible to levy of sales tax under the Act. 93. In a slightly different context under Industrial Disputes Act, 1947, the Hon'ble Supreme Court inSafdarjung Hospital v. Kuldip Singh Sethi, (1970) 1 SCC 735 at page 743 while explaining the meaning of the expression "material services" observed that Material services are not services which depend wholly or largely upon the contribution of professional knowledge, skill or dexterity for the production of a result. Such services being given individually and by individuals are service....
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....g an in-depth study, the Law Commission, in 1974 in its 61st Report gave the following three options to the Parliament:- (a) amending the State List, Entry 54, or (b) adding a fresh entry in the State List, or (c) inserting in Article 366 a wide definition of "sale" so as to include works contracts. 99. In its 61stLaw Commission's Report,the Law Commission stated that "By a series of subsequent decisions, the Supreme Court has, on the basis of the decision in Gannon Dunkerley's case, held various other transactions which resemble, in substance, transactions by way of sales, to be not liable to sales tax. As a result of these decisions, a transaction, in order to be subject to levy of sales tax under Entry 92 A of the Union List or Entry 54 of the State List, should have the following ingredients, namely parties competent to contract, mutual assent and transfer of property in goods from one of the parties to the contract to the other party thereto for a price". 100. The Parliament preferred the last alternative and acting on the recommendation (c) of the Law Commission, decided to amend Article 366 by expanding the definition of "tax on the sale or purchase of goods" to incl....
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....ocal sales tax laws were challenged in various High Courts. The Hon'ble Supreme Court in Builders Association of India & Others Vs Union of India (1989)2 SCC645 ultimately upheld the validity of the amendments. 104. In the context of "works contract", the Court there held that , "The object of the new definition introduced in clause (29-A) of Article 366 of the Constitution is, therefore, to enlarge the scope of 'tax on sale or purchase of goods' wherever it occurs in the Constitution so that it may include within its scope the transfer, delivery or supply of goods that may take place under any of the transactions referred to in sub-clauses (a) to (f) thereof wherever such transfer, delivery or supply becomes subject to levy of sales tax. " 105. So construed the expression 'tax on the sale or purchase of goods' in Entry 54 of the State List, therefore, includes a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a "works contract" also. The Court further held as under:- 41. We, therefore, declare that sales tax laws passed by the legislatures of States levying taxes on the transfer of property in goods (whether as goo....
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....o longer valid after the 46th amendment to the Constitution. 109. Invariably, universal defence of the dealers/assessee's was that such transactions amounted to " work contract" and other forms of transactions were outside the purview of definition of "sale" in the Act and therefore not taxable. However, this defence is no longer available with passing of the 46th Amendment to the Constitution. 110. The decision of the Hon'ble Supreme Court in Everest Copiers versus State of Tamil Nadu (1996)5SCC390 though rendered after the 46th amendment to the Constitution pertains to a dispute for the period before the 46th amendment to the Constitution came into force. There the assessee reported a total turnover of Rs. 77,659 for the assessment year 1979-80 and claimed exemption from tax on the entire turnover thereby reporting the taxable turnover to be "nil" in the form A1 return filed by them. Before the assessing authority, the assessee claimed deduction of the entire turnover as labour charges received. On the other hand, the assessing authority was of the view that the assessee sold copies of documents taken in "xerox" photostat copies and consequently, the transaction should be cons....
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....execution of a works contract, three conditions must be fulfilled: (i) there must be a works contract, (ii) the goods should have been involved in the execution of a works contract, and (iii) the property in those goods must be transferred to a third party either as goods or in some other form. ii. For the purposes of Article 366(29-A)(b), in a building contract or any contract to do construction, if the developer has received or is entitled to receive valuable consideration, the above three things are fully met. It is so because in the performance of a contract for construction of building, the goods (chattels) like cement, concrete, steel, bricks, etc. are intended to be incorporated in the structure and even though they lost their identity as goods but this factor does not prevent them from being goods. iii. Where a contract comprises of both a works contract and a transfer of immovable property, such contract does not denude it of its character as works contract. The term "works contract" in Article 366(29-A)(b) takes within its fold all genre of works contract and is not restricted to one specie of contract to provide for labour and services alone. Nothing in Article 366(2....
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....ambit of sale or purchase for the purposes of levy of sales tax. In other words, transfer of movable property in a works contract is deemed to be sale even though it may not be sale within the meaning of the Sale of Goods Act. xi. Taxing the sale of goods element in a works contract under Article 366(29-A)(b) read with Entry 54 List II is permissible even after incorporation of goods provided tax is directed to the value of goods and does not purport to tax the transfer of immovable property. The value of the goods which can constitute the measure for the levy of the tax has to be the value of the goods at the time of incorporation of the goods in works even though property passes as between the developer and the flat purchaser after incorporation of goods. 117. The court there are held that the expression " works contract" was of wide amplitude and cannot be confined to a particular understanding of the term or a particular form. It further held that the term "works contract" in Article 366 (29-A)(b) of the Constitution of India takes within its fold all genre of works contract and is not restricted to one specie of contract to provide for labour and service alone. Nothing in....
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....evy sales tax on the materials used in such contract if such contract otherwise has elements of "works contract". In constitutional terms, it is a transfer either in goods or some other form. 119. Further, in State of Andhra Pradesh versusKone Elevators [2005] 3 SCC 389, the Honourable Supreme Court had also earlier held that "it can be treated as well settled that there is no standard formula by which one can distinguish a "contract for sale" from a "works contract" and that it is largely dependent on the terms of the contract including the nature of the obligation to be discharged thereunder and the surrounding circumstances". Though Constitutional Bench of the Honourable Supreme Court in Kone Elevator India (P) Ltd. v. the State of T.N., (2014) 7 SCC 1 overruled the above decision in State of Andhra Pradesh versusKone Elevators [2005] 3 SCC 389 on other aspect, the above observation has not been diluted. The Court held that it may be noted here that in all the cases that have been brought before it, there is a composite contract for the purchase and installation of the lift. The price quoted was a composite one for both. There has to be a safety device. In certain states, it is....
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....rock that the components are brought to the site i.e. building, and prepared for delivery. The conclusion, as has been reached in Kone Elevators [State of A.P. v. Kone Elevators (India) Ltd., (2005) 3 SCC 389] , is based on the bedrock of incidental service for delivery. It would not be legally correct to make such a distinction in respect of lift, for the contract itself profoundly speaks of an obligation to supply goods and materials as well as installation of the lift which obviously conveys performance of labour and service. Hence, the fundamental characteristics of works contract are satisfied". Thus this Court concluded and held that the decision rendered in Kone Elevators [State of A.P. v. Kone Elevators (India) Ltd., (2005) 3 SCC 389] did not correctly lay down the law and it was, accordingly, overruled. 120.At the same, time, it has be kept in mind that the policy of the Government was to keep the "health service" from the bounds of tax net. It is perhaps for this reason exemption in G.O.Ms.No.976 Revenue dated 28.03.1959 referred to supra was issued. However, no other notifications were issued though the law had permanently changed with the 46th Amendment to the Constitu....
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....s, in relation to (b) and (c); or (5) turnkey projects including engineering, procurement and construction and commissioning (EPC) projects". 123. The Honourable Supreme Court in Commissioner of Central Excise versus Larsen and Toubro Ltd and another (2016)1SCC 170 while dealing with the above provision in the Finance Act, 1994 held that works contract is a separate species of contract distinct from contract for services simpliciter recognised by the world of commerce and law as such, and has to be taxed separately as such. This decision though was rendered in the context of levy of service tax on "works contract", make it clear on supply portion sales tax was payable. Thus, the Hon'ble Supreme Court has time and again recognized that "works contract" is a separate specie of contract distinct from contract for service. 124. With effect from 1.7.2012, the expression "works contract" was re-cast and re-defined in Section 65B(54) of the Finance Act, 1994 and was treated as a "Declared Service" in Section 65E(h) of the Act. The definition read as under:- Section 65B(54): "works contract" means a contract wherein transfer of property in goods involved in the execution of such cont....
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....y was made under the Finance Act, 1994. This definition was later modified in 2011 with effect from 8.4.2011. The amended definition reads as under: Section 65(105):- "taxable service" means any service provided or to be provided, - (zzzzo)to any person, - (i)by a clinical establishment; or (ii)by a doctor, not being an employee of a clinical establishment, who provides services from such premises for diagnosis, treatment or care for illness, disease, injury, deformity, abnormality or pregnancy in any system of medicine; 130. The expression "clinical establishment" was defined as follows: Section 65(25 a): "clinical establishment" means- (i) a hospital, maternity home, nursing home, dispensary, clinic, sanatorium or an institution, by whatever name called, owned, established, administered or managed by any person or body of persons, whether incorporated or not, having in its establishment the facility of central air-conditioning either in whole or in part of its premises and having more than twentyfive beds for in-patient treatment at any time during the financial year, offering services for diagnosis, treatment or care for illness, disease, injury, deformity, abnormal....
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....ntity or a part of an establishment to carry out diagnostic or investigative services of diseases; 135. Later vide amendment notification No.6/2015-ST dated 01.03.2015, the exemption was restricted to:- "(i) Health care services by a clinical establishment, an authorised medical practitioner or para-medics; (ii) Services provided by way of transportation of a patient in an ambulance, other than those specified in (I) above." 136. A possible conflict which would have arisen as to whether a "health service" having trappings of "works contract" as we understandnow in the said notification could also have been classified as a "works contract" also. Scope for such any confusion was averted by clever drafting by the draftsman in the Act. The definitions were defined separately. Section 65(F)(2) which dealt with "Principles of interpretation of specified descriptions of services" or bundled services left no scope for ambiguity. 137. As per Section 65F(2), where a service was capable of differential treatment for any purpose based on its description, the most specific description was to be preferred over a more general description. 138. For the purpose of service tax, "health servi....
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....ed". 144. The question that was posed before it was whether the supply of prosthetics and other services and the goods supplied to the hospital to a typical patient are so closely linked that form objectively a single economic supply which it would be artificial split. The answer was in the affirmative. 145. The court that held that supply must be regarded as single economic supply which it would be artificial to split if, from the point of view of a typical patient, the supply of prosthetics and medical care services are equally inseparable and indispensable because each is necessary for the other and meaningless without the other. 146. There the court observed that a typical patient who requires an artificial hip does not merely wish to purchase a prosthesis but wants a new hip. The ability of the patient to choose whether or not to be supplied with an element of the transaction is an important factor in determining whether there is a single supply or several independent supplies, although it is not decisive. In the case of the prosthetics, the court observed that we consider that the ability of the patient to choose was limited by the circumstances. In reality, the patient wo....
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....ents and for that purpose the TMH was realizing charges against the head Pharmacy without giving particulars and break-up as to what is the charge being realized for medicines, what is the charge being realized for surgical items and for x-ray films and plates etc. used in course of treatment to those indoor patients and, therefore, it cannot be said that the medicines, surgical items, x-ray films and plates etc, were sold by the TMH to the indoor patients. 152. There, the authorities had access to the documents and based on the same, the High Court gave its verdict. Whereas, in the present case, the writ petitioners have approached this Court at the very threshold. The supply of those articles was held part of service rendered by the TMH and during the treatment of the in-patients and, therefore the transaction was held not to be of 'sale' within the meaning of Section 2 (t) of the Bihar Finance Act, 1981". 153. The Court observed that the hospital was not selling any medicines or surgical items to any outdoor persons or patients, who are not admitted in the hospital for treatment. It, however, concluded that medicines, surgical items, x-ray films and plates etc., were ....
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....t of sale. The fact that in the bill which is raised on the patient, the hospital recovers, apart from the cost of the surgery, charges towards drugs and other consumables would not render the transaction of the implantation of a stent or valve a 'sale' within the meaning of S ection 2 ( ac) of the Act. We clarify that we have dealt with only the aforesaid factual situation and our judgment as aforesaid does not deal with any other factual situation which is not before the Court." 158.Though the above ruling is emphatic, yet, there is no discussion as to how the above conclusion was arrived, when indeed the very purpose expanding the scope of the expression "tax on the sale or purchase of goods" in Art.366(29A) by the 46th Amendment to the Constitution and the corresponding statutory amendments to the definitions in the respective tax enactments of the States were to include transaction which involve not only sale but also deemed sale which were traditionally not considered as "sale". The 46th amendment to the constitution was intended to obliterate the line of rulings in 1st Gannon Dunkerley case (1958) 9 STC 353. 159. In M/S Fortis Healthcare Limited And vs The State ....
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....tes or the elements set out in Article 366 (29-A) of the Constitution of India or the definition of sale under the Punjab and Haryana statutes and, therefore, cannot be held to involve a "sale". 161. In paragraph 31, the Court held as follows observed as under: "For the purpose of attracting VAT, a transaction or a part thereof, which is essentially a service would have to qualify as a sale within the meaning of Sales of Goods Act, 1930 or the definition of sale. The fiction of a deemed sale applies only to such situations as would fall within the subclauses of Article 366(29-A) of the Constitution of India which permit severance of the service element from the sale element and empowers the State to tax the element of sale. A perusal of Article 366(29-A) of the Constitution of India does not enable us to record an opinion that it covers services provided by hospitals. Before such a transaction is put to tax, whether under the Haryana or Punjab VAT Act, it would have to satisfy the dominant nature test by reference to the substance of the contract. A contract for medical treatment necessarily involves medicines, supply of surgical items, stents, implants, valves, without which a ....
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....t in M/s International Hospital Pvt. Ltd. v. State of U.P. and two others". 162. The Punjab and Haryana High Court ultimately held as follows:- "31.We have considered the relevant statutory provisions of the Punjab and Haryana Statutes, the Bihar Finance Act, the Uttar Pradesh Act, the judgment of the Jharkhand and Allahabad High Courts, judgments of the Kerala High Court (cited by the respondents) are in respectful agreement with the opinion recorded by the Jharkhand High Court and the Allahabad High Court and find no reason to record a contrary opinion or to hold that the supply of medicines, drugs, stents, implants etc. to a patient during a medical procedure inhers any element of sale, much less sets out the ingredients of a 'sale'. The power to impose sales tax/VAT flows from Entry 54 of List II of Schedile VII and Article 366(29-A) of the Constitution, the latter assigning the status of a deemed sale to transactions where one or the other element of sale is missing, but where the element of sale is altogether missing and the transaction does not fall within any of the clauses of Article 366(29-A) of the Constitution of India, a State shall not be empowered to levy ....
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....cal service cannot be said to be a contract for sale of a stent, or valve or of medicines to be used in a medical/surgical procedure. The essential element of such a contract is the procedure of knee replacement, hip replacement, angioplasty, which as an intrinsic and integral part involves placing an implant whether in the knee, hip or a heart etc. The only choice available to the patient is the nature of the implant, namely, its quality but such a procedure is admittedly, a medical procedure and a service that cannot be completed without an implant/drugs and medicines as an integral part of the procedure. A private hospital does not provide medical services for free. The fact that it charges money, for drugs, medicines etc. cannot raise an inference of intent to sell goods in the shape of medicines, stents, implants etc. We are, therefore, in complete agreement with the opinion recorded by the Jharkhand High Court in Tata Main Hospital(supra) and the Allahabad High Court in M/s International Hospital Pvt. Ltd. v. State of U.P. and two others. 33.An argument that the definition of "sale" under the Bihar and the Uttar Pradesh Acts, is entirely different, must also fail. A perusal....
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....TO Thrissur 2019 (3) TMI 1017) has considered all the three mentioned cases of the Jharkhand High Court, Allahabad High Court and that of the Punjab and Haryana High Court and has accepted the views given therein. Though the Full Bench of Kerala High Court has reproduced paragraph 50 from BSNL VS UOI in addition to other paragraphs Nos.44, 45 and 46, yet it has held as follows:- "With respect to all other composite transactions, the State would not have such power to distinctly tax the transfer of goods forming part of a composite contract or a rendering of service. As has been held in Bharat Sanchar Nigal Ltd. [2006]3VST95, the dominant nature test survives even after the 46th amendment. With due respect, we find the declaration of the Honourable Supreme Court as to hospital services not enabled of differentiation as sale and services to be binding with all the force as available under article 141 of the Constitution of India. The sale, if any made, in the course of the treatment of a patient in a hospital, is with the sole intention of curing the patient, which is an inseparable part of service offered in a hospital and it does not intend to create any separate rights on such d....
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....ct, be it a service contract or otherwise, may involve use of some material or other in the execution of the said contract. It said that State is not empowered by the amended law to impose sales tax on such incidental materials used in such contracts. 172. However, the above view was overruled by the Honourable Supreme Court subsequently in Associated Cement Companies Limited versus Commissioner of Customs (2001) 4SCC 593 by holding that the conclusion arrived in Rainbow Colour Lab Case referred to supra runs counter to the express provisions contained in Article 366 (29-A) as also to the decision of the Constitution Bench of the Supreme Court in Builders Association of India versus Union of India (1989) 2 SCC 645. Though the above view was also reiterated by the Hon'ble Supreme Court in BSNL versus Union of India case referred to supra, yet a different conclusion arrived in para 44 on an issue with which it was not concerned with. 173. Following paragraphs from the decision of the Hon'ble Supreme CourtinBSNL Vs UOI (2006) 3 SCC 1 which were relied in the 4 decisions of the High Courts :- 43. Gannon Dunkerley survived the Forty-sixth Constitutional Amendment in two respects....
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...., consideration does pass from the patient or client to the doctor or lawyer for the documents in both cases. 45. The reason why these services do not involve a sale for the purposes of Entry 54 of List II is, as we see it, for reasons ultimately attributable to the principles enunciated in Gannon Dunkerley case [State of Madras v. Gannon Dunkerley& Co. (Madras) Ltd., (1958) 9 STC 353 : AIR 1958 SC 560 : 1959 SCR 379] , namely, if there is an instrument of contract which may be composite in form in any case other than the exceptions in Article 366(29-A), unless the transaction in truth represents two distinct and separate contracts and is discernible as such, then the State would not have the power to separate the agreement to sell from the agreement to render service, and impose tax on the sale. The test therefore for composite contracts other than those mentioned in Article 366(29-A) continues to be: Did the parties have in mind or intend separate rights arising out of the sale of goods? If there was no such intention there is no sale even if the contract could be disintegrated. The test for deciding whether a contract falls into one category or the other is to as what is "the ....
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....on enabling the States to levy sales tax on the same transaction in respect of which the Union Government levies service tax? 176. The Majority view of the Hon'ble Supreme in para 87,88 and 92 in (2006)3 SCC 1 answered the above questions as follows: - 87. It is not possible for this Court to opine finally on the issue. What a SIM card represents is ultimately a question of fact, as has been correctly submitted by the States. In determining the issue, however the assessing authorities will have to keep in mind the following principles: if the SIM card is not sold by the assessee to the subscribers but is merely part of the services rendered by the service providers, then a SIM card cannot be charged separately to sales tax. It would depend ultimately upon the intention of the parties. If the parties intended that the SIM card would be a separate object of sale, it would be open to the Sales Tax Authorities to levy sales tax thereon. There is insufficient material on the basis of which we can reach a decision. However we emphasise that if the sale of a SIM card is merely incidental to the service being provided and only facilitates the identification of the subscribers, their c....
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....(B) There may be a transfer of right to use goods as defined in answer to the previous question by giving a telephone connection. (C)The nature of the transaction involved in providing the telephone connection may be a composite contract of service and sale. It is possible for the State to tax the sale element provided there is a discernible sale and only to the extent relatable to such sale. (D) The issue is left unanswered. (E) The 'aspect theory' would not apply to enable the value of the services to be included in the sale of goods or the price of goods in the value of the service. 177. The concurring and separate view authored by Hon'ble Mr. Justice A.R.Lashmanan reads as under:- 97. To constitute a transaction for the transfer of the right to use the goods, the transaction must have the following attributes: (a) there must be goods available for delivery; (b) there must be a consensus ad idem as to the identity of the goods; (c) the transferee should have a legal right to use the goods- consequently all legal consequences of such use including any permissions or licences required therefor should be available to the transferee; (d) for the period during which ....
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....n, the term "works contract" in Article 366(29-A)(b) is amply wide and cannot be confined to a particular understanding of the term or to a particular form. The term encompasses a wide range and many varieties of contract. Parliament had such wide meaning of "works contract" in its view at the time of the Forty-sixth Amendment. The object of insertion of clause (29-A) in Article 366 was to enlarge the scope of the expression "tax on sale or purchase of goods" and overcome Gannon Dunkerley (1) [State of Madras v. Gannon Dunkerley and Co. (Madras) Ltd., AIR 1958 SC 560 : 1959 SCR 379] . 183. Further, the decision of the Hon'be Supreme Court in BSNL versus Union of India (2006) 3 SCC 1, based on which the four High Courts have given relief to the four hospitals in Jharkand, Allahabad, Punjab and Haryana and Kerala ought to have been applied with caution and circumspection as the said case was concerned with "transfer of right of use" which is another specie of sale and different from "works contract". 184. In the four cited decisions on the subject, the respective High Court examined the issue from a common perspective. These courts have not examined the issue from the point view....
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...., metal plates, artificial hips and knees etc. 190. In my view, the extended definition of sale in Section 2(33) (ii) and the definition of the expression "works contract" as defined in section 2(43) of the Tamil Nadu Value Added Tax Act, 2006 makes it clear that it is of wide import as compared to the amended definitionof sale in Section 2 (h) of the Madras General Sales Tax Act, 1939 vide Madras General Sales Tax (Amendment) Act 25 of 1947 which fell for consideration in I Gannon Dunkerley's case. For an easy comparison both the definitions are extracted below:- Madras General Sales Tax Act, (Mad.9 of 1939) The Tamil Nadu Value Added Act Act, 2006 "works contract" as meaning any agreement for carrying out for cash or for deferred payment or other valuable consideration, the construction, fitting out, improvement or repair of any building road, bridge or other immovable property or the fitting out, improvement or repair of any immovable property. "works contract'' includes any agreement for carrying out for cash, deferred payment or other valuable consideration, building construction, manufacture, processing, fabrication, erection, installation, fitting out, improveme....
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....phole and leakage of revenue, the Madras General Sales Tax Act, 1939 was amended by the Madras General Sales Tax Act (Amendment) Act 25 of 1947. It sought to introduce new provisions into the Madras General Sales Tax Act, 1939. Since even this attempt also turned futile in the light of the 1st Gannon Dunkerley's case, the 46th amendment to the Constitution introduced and was later passed. This led to amendments to the definition of sale and introduction of a new definition of the expression "works contract". 197. The reasons given in the four High Courts' decision would have been acceptable in the era prior to the 46th amendment to the Constitution. Further, the definition of "sale" and "works contract" before the 46th amendment to the Constitution of in most of the Sales Tax enactments in the country was confined to " immoveable property" as is evident from a reading of the definition of sale in the Madras General Sales Tax Act, 1939 which fell for consideration in 1st Gannon Dunerkerly's case. 198. In my view, there is not only transfer of possession of prosthetics into the physiology of the patient but also the ownership of such prosthetics to the patient for consideration in....