TaxTMI 
TaxTMI 
TaxTMI 
2025 (8) TMI 328
X X X X Extracts X X X X
X X X X Extracts X X X X
....oparkar with learned advocate Mr. Uchit N. Sheth and learned advocate Mr. Manish K. Kaji for the petitioners and learned Advocate General Mr. Kamal Trivedi with learned Assistant Government Pleader Mr. Vinay Bairagra for the respondents. 2. Since common issue is involved in all these petitions, with the consent of the learned advocates for the respective parties, they have been heard analogously and are disposed of by this common judgment. 3. By this group of petitions, the petitioners have challenged the vires of provision of clause (g) of section 2(23) of the Gujarat Value Added Tax Act, 2003 (For short "the VAT Act") as being ultra vires the legislative competence of the State Legislature and further have prayed to quash and set aside the assessment orders and/or show cause notices for the relevant period declaring that supply of medicines, stents, implants, consumables etc. during the course of treatment of patients does not amount to 'sale' as defined in section 2(23) of the VAT Act. A) FACTS: 4. The petitioners are hospitals engaged in the activity of treatment of as indoor patients. In order to treat the patients, the petitioner hospitals use medicines, implants, stents,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s shall be construed accordingly. Explanation-(i) For the purposes of this clause, "sale within the State" includes a sale determined to be inside the State in accordance with the principles formulated in sub-section (2) of section 4 of the Central Act; (ii) for the purpose of sub-clause (b) of the expression "works contract" means a contract for execution of works and includes such works contract as the State Government may, by notification in the Official Gazette, specify; (iii) every transfer of property in goods by the Central Government, any State Government, a statutory body or a local authority for cash, 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;" 8. Clause (g) of section 2(23) of the VAT Act has been relied upon by the respondent authorities for justifying imposition of value added tax on supply of medicines, implants, stents, consumables, etc. used by the petitioner hospitals for treatment of indoor patients. 9. The petitioners have therefore, challenged the constitutional validity of section 2(23)(g) of the VAT Act on the ground that it is beyond the legisla....
X X X X Extracts X X X X
X X X X Extracts X X X X
....(a) a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration; (b) 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; (c) a tax on the delivery of goods on hire-purchase or any system of payment by instalments; (d) a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; (e) a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....agreement gets the goods on the date of the hire-purchase, it has been held that there is sale only when the purchaser exercises the option to purchase at a much later date and therefore only the depreciated value of the goods involved in such transaction the time the option purchase is exercised becomes assessable to sales tax. Similarly, while sale by registered club or other association of persons (the club association of persons having corporate status) its members is taxable, sales by an unincorporated club or association of persons to its members is taxable as such club or association, in law, has no separate existence from that of the members. In the Associated Hotels of India case (A.LR. 1972 S.C. 1131), the Supreme Court held that there is no sale involved in the supply of food or drink by a hotelier to a person lodged in the hotel. 4. In the New India Sugar Mills case (A.L.R. 1963 S.C. 1207), the Supreme Court took transfer of controlled view that in the commodities in pursuance of a direction under a Control Order, the element of volition by the seller, or mutual assent, is absent and, therefore, there is no sale as defined in the Sale of Goods Act, 1930. However, in O....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g on the basis that the Associated Hotels of India case was applicable only to supply of food drink by hotelier to a person lodged in the hotel and that tax was leviable on the sale of foodstuffs by a restaurant. But over-ruling the decision of the Delhi High Court, the Supreme Court has held in the above case that service of meals whether in a hotel restaurant does constitute a sale of food for the purpose of levy of sales tax but must be regarded as the rendering of a service in the satisfaction of a human need or ministering to the bodily want of human beings. It would not make any difference whether the visitor to the restaurant is charged for the meal as a whole or according to each dish separately. or not 9. It is, therefore, proposed to suitably amend include in article 366 a definition of "tax on the sale goods" by inserting a new clause (29A). The specifically include within the scope of that expression tax on Constitution or purchase of definition would to (i) transfer for consideration of controlled commodities; (ii) the transfer of property in goods involved in the execution of works contract; (iii) delivery of goods on hire-purchase or any system of payment by....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ther the respondent State can impose tax on the supply of medicines, stents, implants, consumables etc. used during the course of treatment of indoor patients while exercising the power to impose tax on transactions expressly defined as "deemed sale" under Article 366(29A) of the Constitution of India and (ii) whether the decision of the Hon'ble Apex Court in case of Gannon Dunkerly (supra) continues to operate insofar as transactions other than "deemed sales" are concerned. B) Submissions of the petitioners: 16. Learned Senior Advocate Mr. S.N. Soparkar with learned advocate Mr. Uchit Sheth and learned advocate Mr. Manish Kaji for the petitioners submitted that VAT is not leviable on medicines, implants, stents, consumables, etc. used during the course of treatment of indoor patients in petitioner hospitals. Reliance was placed on the decision of Hon'ble Apex Court in case of Gannon Dunkerly (supra) together with Statement of Objects and Reasons of the Constitution (Forty-sixth Amendment) Act, 1982 to submit that none of the clauses of Article 366(29A) of the Constitution of India would be applicable to consider such supply of medicines, implants, stents, consumables, etc. as 'd....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e content of the concepts remain static. The courts must move with the times. [See Attorney General v. Edison Telephone Co. of London Ltd., (1880) 6 QBD 244: 43 LT 697] But the Forty-sixth Amendment does not give a licence, for example, to assume that 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 Forty-sixth Amendment. That ingredient of a sale continues to have the same definition. The second respect in which Gannon Dunkerley [State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd., (1958) 9 STC 353: AIR 1958 SC 560: 1959 SCR 379] has survived is with reference to the dominant nature test to be applied to a composite transaction not covered by Article 366(29-A). Transactions which are mutant sales are limited to the clauses of Article 366(29-A). 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." 21. It was submitted that the Hon'ble Supreme Court in case of Bharat Sanchar Nigam Ltd. (supra) has specifically observed that "hospital services" are not "deemed sales" and they cannot be taxed even after the 46th Constit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f Goods, (1995 reprint) p. 27.]. We will, for the want of a better phrase, call this the dominant nature test." 22. It was submitted that the contention of the respondent that the aforementioned observations of the Hon'ble Supreme Court are in the nature of obiter dicta and that only a question is raised which is not answered by the Supreme Court is not at all tenable as it is specifically stated in para 44 that sub-clauses of Article 366(29A) do not cover "hospital services" and the Hon'ble Supreme Court in paragraph no. 45 has reiterated that such services do not involve sale for the purpose of Entry 54 of List II of the Seventh Schedule to the Constitution of India. 23. It was further submitted that the contention of the respondents that the observations of the Hon'ble Supreme Court in the case of Bharat Sanchar Nigam Ltd. (supra) are no longer good law in view of subsequent judgements is not at all tenable and in fact the judgement of Hon'ble Supreme Court in the case of Bharat Sanchar Nigam Ltd. (supra) was specifically referred to and approved by the subsequent judgements of Hon'ble Supreme Court in the case of Larsen and Toubro Ltd v/s State of Karnataka reported (2014) 1 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... VAT on drugs administered during the course of providing medical service. 28. It was further submitted that while the State has competence to impose tax on deemed sales as defined under Article 366(29A) of the Constitution of India, clause (g) of Section 2(23) of the VAT Act clearly seeks to expand the definition of "sale" beyond the constitutional contours by permitting splitting up of any transaction even if it does not fall within definition of "deemed sales" under the Constitution and therefore, the impugned provision is clearly unconstitutional. 29. It was submitted that once it is concluded that a statutory provision is unconstitutional, the same cannot be saved on mere statement on behalf of the Respondent-State that the same would not be applied in the case of the Petitioners and therefore, provision is required to be declared as unconstitutional. 30. It was submitted that for the purpose of imposition of service tax under the Finance Act, 1994, the healthcare services by a clinical establishment were considered to be a "service" which was exempt from tax by Entry No. 2 of Notification No. 25/2012-Service Tax dated 20.6.2012. Thus, the entire intention of the Government....
X X X X Extracts X X X X
X X X X Extracts X X X X
....jarat Value Added Tax Act, 2003, the petitioners have contended that the health care service being provided by a clinical establishment in favour of its indoor patients along with supply of medicaments and prosthetics, etc. during the course whereof, is not the "works contract, and hence, not excisable under the VAT Act, however, transfer/delivery/ supply of medicaments and prosthetics by the petitioner hospitals in favour of their indoor patients during the course of providing treatment, should be considered as "deemed sale", as defined under Article 366(29A) of the Constitution of India and consequently, the sale component involved in the health care service rendered by the petitioner hospitals, is exigible to tax under the VAT Act. It was submitted that the said transfer/ delivery/ supply of medicaments and prosthetics by the petitioners in favour of its indoor patients during the course of providing treatment, would be covered by sub-clause (b) of Article 366(29A) of the Constitution of India, failing which, in sub-clause (a) of Article 366(29A) of the Constitution of India. 35. It was submitted that the term 'works contract' used in sub-clause (b) of Article 366 (29A) has....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion (ii) to section 2(23) of the VAT Act explaining the expression "works contract" it was submitted that the expression is also required to be appreciated and understood in light of the constitutional meaning of the said expression: "Explanation- (i) xxxxx (ii) for the purpose of sub-clause (b) of the expression "works contract means a contract for execution of works and includes such works contract as the State Government may, by notification in the Official Gazette, specify." 38. Further reliance was placed on the following observations of the Hon'ble Apex Court in the case of Larsen & Toubro (supra): "87...... in our opinion, the distinction between contract for sale of goods and contract for work for service) has almost diminished in the matters of composite contract involving both contract of work / labour and a contract for sale, for the purposes of article 366(29A)(b)." 39. It was submitted that the Hon'ble Supreme Court in the case of State of Karnataka vs. Pro Lab, reported in (2015) 8 SCC 557 in para 20 thereof held that: ".... after insertion of clause (29A) in Article 366, the works contract which was indivisible one by legal fiction, altered into a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hall not include (a) an activity which constitutes merely (i) transfer of title in goods or immovable property, by way of sate, gift or in any other manner; or (ii) such transfer, delivery or supply of any goods which is deemed to be a sate within the meaning of clause (29A) of article 366 of the Constitution, or (iii) a transaction in money or actionable claim; (b) a provision of service by an employee to the employer in the course of or in relation to his employment, (c) fees taken in any Court or tribunal established under any law for the time being in force. Explanation 1. For the removal of doubts, it is hereby declared that nothing contained in this clause shall apply to,- (A) the functions performed by the Members of Parliament. Members of State Legislative, Members of Panchayats, Members of Municipalities and Members. of other local authorities who receive any consideration in performing the functions of that office as such member, or (B) the duties performed by any person who holds any post in pursuance of the provisions of the Constitution in that capacity, or (C) the duties performed by any person as a Chairperson or a Member or a Director in a body e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ent given to the patients in the clinical establishment is nothing, but a "service" being provided by a clinical establishment, along with supply of medicaments, prosthetics, etc. This would, at best be a composite arrangement called 'a composite service contract' involving rendition of "service", as well as "sale of goods" i.e. medicaments and prosthetics, etc. which would be falling within the term "works contract". Such a composite arrangement is now divisible by legal fiction after 46th Constitutional Amendment and can attract the service tax on the value of service being provided and would attract the tax on the "deemed sales" of the movables/articles, used during the course of the execution of the said 'service contract'. It was however pointed out that by Entry No. 2 of Notification No. 25/2012-Service Tax dated 20.6.2012, health care service were exempted. 45. Relying upon the case of Associated Cement Companies Ltd vs. Comm. Customs, reported in (2001) 4 SCC 593, it was submitted that the Apex Court while dealing with the contract for providing Architectural Services including design-development drawing, observed as under: "26 ....The Forty-sixth Amendment was made ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rst time prescribes, in cases like the present, where the provision of service is for a consideration which is not ascertainable, to be the amount as may be determined in the prescribed manner." 48. It was therefore submitted that any composite arrangement for providing medical services in a clinical establishment along with supply/ introduction of medicaments and prosthetics, would be covered by sub-clause (b) of Article 366(29A), which provides for "sales tax on transfer property in goods (whether as goods or in some other form) involved in execution of work contract". 49. With regard to the contention raised by the petitioners that as there is no accretion in the present case, the same cannot fall within the purview of 'works contract", it was submitted that after the 46th Constitutional Amendment and the law laid down by the Hon'ble Supreme Court in the case of Laser & Toubro Limited (supra), more particularly in para 90 thereof, there cannot be any absolute proposition in law that the ownership of the goods must pass by way of accretion, but can pass under the terms of a contract or by statute. Thus, the tests laid down in the judgments prior to the 46th Constitution....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t in case of Indian Hume Pipe Co. Ltd. v/s. State of Rajasthan reported in (2019) 14 SCC 584. (g) Arrangement / Contract for providing Medical Services along with the Supply of Medicaments and Prosthetics as dealt with the Apex Court in case of MIOT Hospital Ltd. vs. State of Tamil Nadu, reported in 2020 SCC OnLine Mad 28124. 51. Learned Advocate General Mr. Trivedi submitted that the reliance placed by the petitioners on the observations made by the Apex Court in para 44 of the judgment of the Apex Court in case of BSNL vs. Union of India, reported in (2006) 3 SCC 1, is totally misplaced, inasmuch as, in the said case, as observed in para 33 thereof, the Apex Court was considering the construction, particularly of sub-clause (d) of Article 366 (29A) of the Constitution and hence, there was no occasion before the Apex Court to consider the aspect of health care services provided by different hospitals, which can be covered under sub-clause (b) of Article 366(29A). Further, even in the said para 44, the Apex Court has merely raised questions, but without answering them and has not held that the hospital services would not be covered within the term "works contract" used in sub-cl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e) and a catering contract covered by sub-clause (f) of Article 366(29A)", is required to be appreciated in light of what has been further elaborated in para-49 of the judgment as under: "49 We agree. After the Forty-sixth Amendment, the sale element of those contracts which are covered by the six sub-clauses of clause (29-A) of Article 366 are separable and may be subjected to sales tax by the States under Entry 54 of List Il and there is no question of the dominant nature test applying." 53. It was further submitted that even while assuming without admitting the above referred arrangement of providing health care services in a clinical establishment along with the supply of medicaments, prosthetics etc. is not a "works contract", then in that case also, the supply/transfer of medication and prosthetics in favour of a patient would be taxable within the purview of sub-clause (a) of Article 366(29A) of the Constitution, which deals with "tax on transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration", more particularly when, it has got all the three elements of- (i) there being goods, (ii) ther....
X X X X Extracts X X X X
X X X X Extracts X X X X
....was passed by the concerned respondent herein. Coples of such invoices, the detailed ledger and bifurcation of drugs and medicines, sample copies of medicine requisition forms and copies of invoices of sale of drugs and medicines issued to in-patients and a statement indicating prices of drugs and medicines charged from patients along with their invoices accompanied by the labels of the drugs and medicines indicating the MRP of the said drugs and medicines are annexed herewith and collectively marked as Annexure Colly. at pg 318-350." 55. Referring to the decision in case of Tata Main Hospital v/s. State of Jharkhand reported in 2008 (2) JCR 174 (JHR) relied upon by the petitioners it was submitted that though the tests of "dominant intention" and "substance of contract have been given a go-bye with reference to the concept of "deemed sale" provided by way of legal fiction in case of six categories specified from sub-clauses (a) to (f) of Article 386(29A) of the Constitution, paragraphs 12 and 25 of the Judgment clearly hold that the test of deciding whether the contract falls into one of the aforesaid categories or the other is as to what is the subsistence of contract or the dom....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aid case also, the Hon'ble High Courts of Rajasthan and Kerala did not undertake the exercise of evaluating as to whether the hospital services would be falling within the purview of "works contract" under the sub-clause (b) of Article 366 (29A) of the Constitution and without there being any such evaluation, it has gone on the basis that the said services are not falling within any of the sub-clauses of Article 366(29A), and that, dominant intention test has been applied. 59. It was submitted that all the five judgments have, at the outset, accepted the conclusion that hospital services are not covered by any of the six categories /contingencies of "deemed sale" provided from clauses (a) to (f) of Article 366(29A), without discussing as to why and how the same cannot be covered even in any of the said six categories, much less, as "works contract" and also without appreciating the well settled legal position flowing from various judgements of the Apex Court, referred to and relied upon by the Respondent-State. 60. With regard to the opinions of the House of Lords in Appeal for judgment in the case relied upon by the petitioners, it was submitted that the United Kingdom, Valu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....al Government, exempts "health care services" by a clinical establishment, etc. from the payment of whole of the service tax leviable under Section 66(B) of the Finance Act, 1994, it does not necessarily mean that similar such exemption should also follow as a matter of course, in the matter of payment of Value Added Tax under the Gujarat Value Added Act, 2003 under the jurisdiction of the State Government. 63. It was submitted that reliance placed on Notification No. 12/2017-Central Tax (Rate) dated 18.06.2017 issued under Section 11 of CGST Act, Circular bearing F. No. 354/17/2018-TRU dated 12.02.2018, Advance Ruling No. KER/16/2018 dated 19.09.2018 and Advance Ruling No. 42/AR/2019 dated 23.09.2019 of State of Tamil Nadu Advance Ruling Authority relied by the petitioners are issued/passed under the later law i.e. Goods and Service Tax Act, 2017 which is totally misconceived inasmuch as, under the GST Act, there is a concept of "composite supply" and further, the GST Act has marked a significant advancement in cooperative federalism by enabling the Centre and States to levy taxes on goods and services concurrently, by merging various taxes including Service Tax Act and Sales Tax....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Referring to the decision in case of Commissioner of Income Tax, Gujarat-1, v/s. Sarabhai Hospital, reported in 1983, Vol.143 ITR 473 relied upon by the petitioner, it was submitted that the said judgment has been relied upon to contend that in conformity with the unanimous policy laid down in the Income Tax matters, whatever view has been taken by another Court on interpretation of the provisions of all India Statute, the same must be accepted. It was submitted that it was on the basis of the aforesaid philosophy that the Petitioners contend that five judgments of all the Hon'ble High Courts of Jharkhand, Allahabad, Punjab & Haryana, Kerala and Rajasthan are being required to be followed by this Hon'ble Court. It was submitted that all the aforesaid five judgments have, at the outset, accepted the conclusion that hospital services are not covered by any of the six categories/contingencies of "deemed sale" provided under sub-clauses (a) to (f) of Article 366(29A), without discussing as to why and how the same cannot be covered even in any of the said six categories, much less, as "works contract" and also without appreciating the well settled legal position flowing from the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng one single sub-clause (f) of Article 366(29A) of the Constitution. Reliance was placed on Article 366(29A)(f) which reads as under: "366(29A), tax on the sale or purchase of goods includes - Xxx (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." 68. It was submitted that it is well settled position of law that the Court should try to sustain the validity of any statutory provision to the extent possible by ironing defects, if any, in drafting and that while doing so, the said statutory provision should be interpreted purposively or should be read down, so as to save the same from the vice of unconstitutionality. In support of such submission, reliance is placed on the following two judgm....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng the applicability of either sub-clause (f) of Article 366(29A) of the Constitution or clause (g) of Section 2(23) of the VAT Act, in the present case. D) Rejoinder of the petitioners 72. Learned Senior Advocate Mr. S.N. Soparkar in rejoinder submitted that the submission of the respondents that the use of medicines, implants, consumables, etc. in the course of treatment of indoor patients is "deemed sales" under Article 366(29A)(b) of the Constitution of India is not tenable in law. 73. It was submitted that Article 366(29A) was incorporated in the Constitution of India by the 46th Constitutional Amendment to nullify specific judgements holding certain transactions to be not a "sale" for the purpose of Entry 54 of List II. 74. It was submitted that the scope of Article 366(29A) of the Constitution has to be restricted to these specific transactions sought to be brought within the ambit of the sales tax legislations, because, admittedly hospital services were not in consideration at the time of 46th Constitutional amendment and therefore they cannot be brought within the purview of "deemed sales" under Article 366(29A) of the Constitution of India. Reliance was placed in this....
X X X X Extracts X X X X
X X X X Extracts X X X X
....by the Respondents. Reference was made to the phrase "works contract" defined under clause (ii) of Explanation to Section 2(23) of the VAT Act as under: "Explanation - xxx (ii) for the purpose of sub-clause (b) of the expression "works contract" means a contract for execution of works and includes such works contract as the State Government may, by notification in the Official Gazette, specify; 77. It was submitted that Notification No. (GHN-23)/VAT-2006/(5.2)(23)(1)/TH dated 31.3.2006 notifies works as mentioned in the Schedule of the Notification as "works contracts" and all the notified "works contracts" are in the nature of contracts requiring affixation of goods on another form of moveable or immoveable property. 78. It was therefore submitted that even otherwise, "works contracts" are understood to be contracts where property is transferred to the recipient on the principle of accretion and Human body cannot be considered to be "property" and there cannot be any accretion on human body as treatment of patients by hospitals cannot be considered as "works contracts" as understood in law nor are they specifically notified to be "works contracts" under the Vat Act, hence,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ndents however, have sought to rely on some paragraphs of the judgement. It was submitted that reliance placed on para 72 of the said judgement by the respondents is completely misplaced because it only states that a contract will not cease to be "works contract" merely because there were certain additional obligations flowing from the contract other than "works contract". It was therefore submitted that this observation was in the context of the argument of the assessee in that case that since the agreement for sale of flats also involved sale of land, it would not be a "works contract",however, the very same paragraph again reiterates that there needs to be a contract for undertaking or bringing into existence some "works" and the meaning of the term "works" has already been discussed by Hon'ble Supreme Court in the preceding paragraphs. 82. It was further submitted that reliance placed on para 90 of the said judgement is also misplaced in as much as the same only states that the property need not pass by accretion only to the owners of the land. It was submitted that this observation was in the context of the argument that in case of tripartite agreement between owner of land, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ntract' passes by the act of affixation of the goods being transferred upon another property which may be moveable or immoveable. It was submitted that both these fundamental features of "works contract" are absent in so far as transaction of treatment of indoor patients by hospitals is concerned and therefore such transactions cannot be considered to be "works contracts". 86. It was further submitted that human body is not "property" and therefore principle of accretion cannot apply to treatment of patients because of following reasons: (a) Substantive civil law is divided into: (i) the law of property, (ii) the law of obligations; and (iii) the law of status. (b) There is a clear distinction between the legal treatment of "property" and of "persons". 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". (c) While in its widest sense "property" includes all of a person's legal rights, this usage however is obsolete in law. Besides, the law has always treated persons and property separately which is also ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....) 2 SCC 645 only laid down that even deemed sales under Article 366(29A) of the Constitution would be governed by other restrictions as applicable to Entry 54 of List II and Para 41 of the judgement states that there can be various varieties of "works contracts". However, it was submitted, this does not mean that the fundamental condition of coming into existence of "works" can be bypassed. (b) It was submitted that decision in case of Association of Leasing and Financial Service Companies v/s Union of India reported in (2011) 2 SCC 352 is with regard to competence of power to impose tax on financial leasing services which has no relevance in so far as meaning of phrase "works contract" is concerned. (c) It was submitted that decision in case of Kone Elevators India Pvt. Ltd. v/s State of Tamil Nadu reported in (2014) 7 SCC 1 was a judgement concerning the issue of whether a contract of supply, installation and commissioning of elevators could be considered to be "works contracts" and the judgement specifically affirms the earlier judgement in the case of Larsen and Toubro (supra), hence, it cannot be said that any different meaning is assigned to "works contract" than as discu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ein the meaning of the expression "works contract" has been clearly discussed. E) Analysis and Findings 88. Considering the submissions made by the learned advocates for the parties and considering the decision of Hon'ble Apex Court in case of Gannon Dunkerly (supra) and subsequent decision in case of Bharat Sanchar Nigam Ltd. and others v. Union of India and others reported in (2006) 3 SCC 1 and the judgments on the same issue rendered by various High Courts relied upon by the petitioners, the core issue involved in these petitions is whether the respondent State can levy Value Added Tax treating the supply of medicines, implants, stents, consumables, etc. used by the petitioner hospitals as "sale of goods" in execution of "works contract" or not as the learned Advocate General Mr. Kamal Trivedi has made a statement at Bar that the respondent State is not invoking clause (g) of section 2(23) of the VAT Act for levy of VAT on supply of medicines, implants, stents, consumables, etc. used by the petitioner hospitals during the course of its treatment of the patients and VAT will be leviable either under clauses (a) or (b) of section 2(23) as "deemed sales" or both. 89. As per the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....x Court following the decision in case of M/s. Gannon Dunkerly and Co.,(Madras) ltd.(supra) while considering the levy of tax on the "works contract" held in case of State of Madras v. Richardson & Cruddas Ltd. reported in [1968] 21 STC 245, that under the terms of contract when the respondents undertook to install a bottle cooling equipment, that is, to fabricate different parts of the unit according to the special requirements of the customer, and to install the unit in the premises of the customer, each bottle cooling equipment required special fabrication and had to be installed at the place selected by the customer and found suitable for installation of the unit. The contract being one for supplying for an inclusive price for a specially designed fabricated unit to be assembled and installed by specially trained technicians in the premises of the customer, it cannot be said to be a contract for sale of a unit or different parts of the unit as specific goods, but it amounts to "works contract". 93. Similarly, in case of Assistant Sales Tax Officer and others v. B.C. Kame, Proprietor of Kame Photo Studio reported in (1977) 1 SCC 634 the Hon'ble Apex Court held that when a photo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng by the contractor to the person who had assigned the contract and another part dealing with the supply of labour and services. sales tax was leviable on the goods which were agreed to be sold under the first part. But sales tax could not be levied when the contract in question was a single and indivisible works contract. After the 46th Amendment the works contract which was an indivisible one is by a legal fiction altered into a contract which is divisible into one for sale of goods and the other for supply of labour and services. After the 46th Amendment, it has become possible for the States to levy sales tax on the value of goods involved in a works contract in the same way in which the sales tax was leviable on the price of the goods and materials supplied in a building contract which had been entered into in two distinct and separate parts as stated above. It could not have been the contention of the revenue prior to the 46th Amendment that when the goods and materials had been supplied under a distinct and separate contract by the contractor for the purpose of construction of a building the assessment of sales tax could be made ignoring the restrictions and conditions in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pleby v. Meyersts: Materials worked by one into the property of another become part of that property'. This is equally true whether it be fixed or movable property. Bricks built into a wall become part of the house, thread stitched into a coat which is under repair, or planks and nails and pitch worked into a ship under repair, become part of the coat or the ship. Xxx 39. In view of the foregoing statements with regard to the passing of the property in goods which are involved in works contract and the legal fiction created by clause (29-A) of Article 366 of the Constitution it is difficult to agree with the contention of the States that the properties that are transferred to the owner in the execution of a works contract are not the goods involved in the execution of the works contract, but a conglomerate, that is the entire building that is actually constructed. After the 46th Amendment it is not possible to accede to the plea of the States that what is transferred in a works contract is the right in the immovable property. xxx 41. We, therefore, declare that sales tax laws passed by the legislatures of States levying taxes on the transfer of property in goods (whethe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nificance insofar as ambit and scope of the term "works contract" within the meaning of Article 366(29-A) is concerned. To say that insertion of clause (29-A) in Article 366 has not undone Gannon Dunkerley (1) in any manner, in our view, is not correct. The narrow meaning given to the term "works contract" in Gannon Dunkerley (1) now no longer survives. 68. There is no doubt that to attract Article 366(29-A)(b) there has to be a works contract but then what is its meaning. The term "works contract" needs to be understood in a manner that Parliament had in its view at the time of the Forty-sixth Amendment and which is more appropriate to Article 366(29-A)(b) 69. The ordinary dictionary meaning of the word "work" means a structure or apparatus of some kind; architecture or engineering structure, a building edifice. When it is used in the plural i.e. as works, it means architectural or engineering operations, a fortified building, a defensive structure, fortification or any of the several parts of such structures. In Webster's Comprehensive Dictionary, International Edition the term "work" is stated to be, ... (2) that upon which labor is expended; an undertaking task; (3) tha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f goods and materials and performance of labour and services, some additional obligations are imposed, such contract does not cease to be works contract. The additional obligations in the contract would not alter the nature of contract so long as the contract provides for a contract for works and satisfies the primary description of works contract. Once the characteristics or elements of works contract are satisfied in a contract then irrespective of additional obligations, such contract would be covered by the term "works contract". Nothing in Article 366(29-A)(b) limits the term "works contract" to contract for labour and service only. The learned Advocate General for Maharashtra was right in his submission that the term "works contract" cannot be confined to a contract to provide labour and services but is a contract for undertaking or bringing into existence some "works". We are also in agreement with the submission of Mr K.N. Bhat that 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. Parliament had all genre of works contract in view when....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nsaction between the parties may be sale of flat but it cannot be said that the characteristics of works contract are not involved in that transaction. When the transaction involves the activity of construction, the factors such as, the flat purchaser has no control over the type and standard of the material to be used in the construction of the building or he does not get any right to monitor or supervise the construction activity or he has no say in the designing or layout of the building, in our view, are not of much significance and in any case these factors do not detract the contract being works contract insofar as construction part is concerned. 89. For sustaining the levy of tax on the goods deemed to have been sold in execution of a works contract, in our opinion, 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. In a building contract or any contract to do construction, the above three things are fully met. In a contract to build a flat there will nec....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tinction between contract for sale of goods and contract for work (or service) is virtually diminished. 97.6. The dominant nature test has no application and the traditional decisions which have held that the substance of the contract must be seen have lost their significance where transactions are of the nature contemplated in Article 366(29-A). Even if the dominant intention of the contract is not to transfer the property in goods and rather it is rendering of service or the ultimate transaction is transfer of immovable property, then also it is open to the States to levy sales tax on the materials used in such contract if such contract otherwise has elements of works contract. The enforceability test is also not determinative. 97.7. A transfer of property in goods under clause (29-A)(b) of Article 366 is deemed to be a sale of the goods involved in the execution of a works contract by the person making the transfer and the purchase of those goods by the person to whom such transfer is made. 97.8. Even in a single and indivisible works contract, by virtue of the legal fiction introduced by Article 366(29-A) (b), there is a deemed sale of goods which are involved in the exec....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rty;'" The Court also noticed the definition of "dealer " and "taxable turnover" Xxxx 109. In Article 366(29-A)(b) the term "works contract" covers all genre of works contract and it is not limited to one specie of the contract. In Raheja Development¹ the definition of "works contract" in the KST Act was under consideration. That definition of "works contract" is inclusive and refers to building contracts and diverse construction activities for monetary consideration viz. for cash, deferred payment or other valuable consideration as works contract. Having regard to the factual position, inter alia, Raheja d Development entered into development agreements with the owners of the land and it also entered into agreements for sale with the flat purchasers, the consideration being payment in instalments and also the clauses of the agreement, the Court held that developer had undertaken to build for the flat purchaser and so long as there was no termination of the contract, the construction is for and on behalf of the purchaser and it remains a "works e contract". The legal position summarised by us and the foregoing discussion would justify the view taken by the two-Judge ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f laboratory testing equipments. It is true that the dominant intention of the contract was not to transfer the property in goods i.e. consumables, medicines, implant, stents etc. used in the treatment of indoor patients by the petitioner hospitals but the same was for rendering of services, however, the ultimate transaction is nothing but a transfer of movable property and it would be open for the respondent State to levy sales tax/VAT on the materials used in such contract if such contract otherwise has element of "works contract" which would fall within clause(b) of Article 366(29A) of the Constitution as it would amount to transfer either in goods or some other form. 104. The Hon'ble Apex Court in case of State of Andhra Pradesh v. Kone Elevators (India) Ltd. reported in (2005) 3 SCC 389 had also earlier held that there is no standard formula by which one can distinguish a "contract for sale" from a "works contract" and it would largely depend upon the terms of the contract including the nature of the obligations to be discharged thereunder and the surrounding circumstances. 105. Though the Constitution Bench of Hon'ble Apex Court in case of Kone Elevators India Pvt. Ltd. v/s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uld fall within the "composite service" contract involving rendition of service, as well as, sale of goods comprising medicaments and implants/prosthetics, etc. resulting into "works contract". Such a composite arrangement is now covered by legal fiction after 46th Constitutional Amendment and can attract the service tax on the value of service being provided and would attract the sales tax/VAT on the "deemed sale" on the movables/articles in form of medicaments, prosthetics, etc. used during the course of the execution of such "composite service contract". 108. The Hon'ble Apex Court in case of Associated Cement Companies Ltd vs. Comm. Customs, reported in (2001) 4 SCC 593 while dealing with the contract for providing Architectural Services including design-development drawing observed that even if the dominant intention of the contract is the rendering of service, it would amount to a works contract, if it is possible to bifurcate the contract and to levy sales tax on the value of the material involved in the execution of the works contract, notwithstanding that such value may represent a small percentage of the amount paid for the execution of the works contract and after the F....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Act or were exempted under any notification. 113. On perusal of the affidavit in reply filed on behalf of the respondent State, it emerges that the petitioner hospitals have issued invoices and received sale price at the Maximum Retail Price (MRP) inclusive of all taxes including sales tax. Reliance was placed on three specimen copies of Medicine Requisition Forms along with the corresponding invoices in respect of various items and medicines sold at MRP to in-patients by the hospital which clearly shows that the petitioner hospitals requires the patients to deposit an amount at the time of admission as indoor patients which is adjusted/applied towards the cost of service as well as goods i.e. medicines and other consumables, implants, stents etc. which clearly forms an element of sale, being part of the medical treatment service provided to the patient. Therefore, it is not in dispute that the petitioner hospitals charge MRP inclusive of all taxes and in some cases higher amount than MRP in the invoices raised upon the patients whereby clear bifurcation of sale of medicines, implants/prosthetics used in medical treatment is made available to the patients along with invoices rais....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the Constitution without examining in detail whether the hospital services would fall either in clause (a) or clause (b) applying the decision of Hon'ble Apex Court rendered in case of Larsen and Toubro Ltd. (supra). 121. Similarly, reliance placed by the petitioners in the opinions of the Lords of Appeal for judgment in the cause refers to Value Added Tax Act, 1994 of United Kingdom would not be applicable in the facts of the case as it is pertinent to note that the said Act does not provide for any legal fiction as is available in Constitution of India as per sub-clauses (a) to (f) of Article 366(29A) to consider "transfer", "delivery" or "supply" of goods as "deemed sales" by legal fiction being part of the contract which would be divisible into sale of goods and other supply of services. Therefore, the "test of dominant intention" which was pressed into service by the House of Lords would not be applicable in India in respect of six categories/contingencies, provided in sub-clauses (a) to (f) of Article 366(29A) of the Constitution of India. 122. Therefore, the question posed before us is whether the supply of prosthetics and other medicaments, consumables, stent, implants et....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o impose sales tax on such incidental materials used in such contracts. However, the aforesaid view was overruled by the Apex Court in case of Associated Cement Companies Limited c. Commissioner of Customs reported in (2001) 4 SCC 593 by holding that the conclusion arrived by the Apex Court in case of Rainbow Colour Lab and another v. State of MP reported in (2000) 2 SCC 385 runs counter to the express provisions contained in Article 366(29A) as also to the decision of the Constitution Bench of the Supreme Court in case of Builders Association of India (supra) which was reiterated in case of Bharat Sanchar Nigam Ltd. (supra). Though in paragraph no. 44 in case of Bharat Sanchar Nigam Ltd. (supra), the Hon'ble Apex Court has held that sub-clauses of Article 366(29A) do not cover hospital services, the same is overruled by the Apex Court itself in case of Larsen and Toubro Ltd. (supra). 124. The Hon'ble Apex Court in case of Bharat Sanchar Nigam Ltd. (supra) has laid down the test as to what would constitute "transfer of right to use" for the purpose of clause(b) of Article 366(29A) of the Constitution and although the examples in paragraph nos. 44 and 45 of the said decision appear....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ial Gazette, specify and therefore, as observed by the Hon'ble Apex Court in paragraph no.87 of the decision in case of Larsen and Toubro Ltd. (supra) that the distinction between contract for sale of goods and contract for work of services has almost diminished in the matters of composite contract involving both contract of work / labour and a contract for sale, for the purposes of Article 366(29A)(b) of the Constitution of India. Therefore "Works contract" includes any agreement for "fitting out" of any movable property. It is not confined to any genre of contract. Therefore, fitting out or implanting of items into the physiology or the body of a human patient for alleviation of pain or for improvement of the life of the patient in the course of medical/surgical procedure is required to be construed as "works contract", more particularly, when the petitioners have not been able to demonstrate how the definition of "works contract" is not attracted to the facts of the present case. 128. An attempt has been made on part of the petitioners to distinguish the contentions raised on behalf of the respondents by canvassing that passing of property by principle of accretion is fundament....
X X X X Extracts X X X X
X X X X Extracts X X X X
....)(b) of the Constitution read with section 2(23) of the VAT Act. The argument of the petitioners that accepting the submission that composite health services offered by the Hospitals would fall within the meaning of words "contract" within the ambit of Article 366 (29A)(b) of the Constitution would be retrograde step in jurisprudence is, on the contrary, a retrograde interpretation of the dynamic constitutional ingredients under Article 366 (29A)(b) of the Constitution which takes the entire jurisprudence back to pre-Gannon Dunkerly days, apart from stretching the context of "persons" and "property" to a point of absurdity. Therefore, definition of "sale" in section 2(23) of the VAT Act and the definition of the "works contract" as per explanation (ii) makes it clear that it is of wide import as the rendering of services together with supply of prosthetics, implants, stents, consumables, medicines etc. used for treatment of indoor patient cannot be given a restricted meaning by excluding the same from "works contract" on the basis that "works contract" as a concept was originally confined to contracts relating to immoveable properties alone. However, after the 46th Amendment to the....