TaxTMI 
TaxTMI 
2025 (8) TMI 328
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.... 1. Heard learned Senior Advocate Mr. S.N. Soparkar 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 ....
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....hypothecation, charge or pledge; and the words "sell", "buy" and "purchase" with all their grammatical variations and cognate expressions 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 pati....
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....ing clause (29A) in Article 366 of the Constitution of India effective from 02.02.1983 which reads as under: "(29A) "tax on the sale or purchase of goods" includes- (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, defe....
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....perty in the goods involved in the execution of such contract as it sale of the materials as such and the has been held that there is no property in them does not pass as movables. Though practically the at to or a not purchaser in a hire-purchase 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 tran....
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....ed that the same policy should be adopted. 8. Besides the above mentioned matters, a new problem has arisen as a result of the decision of the Supreme Court in Northern India Caterers (India) Ltd. Vs. Lt. Governor of Delhi (A.LR. 1978 S.C.. 1591). States have been proceeding 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 o....
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....oned in sub-clause (2) of clause 6 of the Bill are satisfied. In the case of food or drink supplied by Restaurants this relief will be available only in respect of the period after the date case and of judgment in the Northern India Caterers (India) Limited the commencement of the present Amendment Act." 15. Therefore, a short question arises as to (i) whether 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....
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.... except to the extent that the clauses in Article 366(29-A) operate. By introducing separate categories of "deemed sales", the meaning of the word "goods" was not altered. Thus, the definitions of the composite elements of a sale such as intention of the parties, goods, delivery, etc. would continue to be defined according to known legal connotations. This does not mean that the 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 Articl....
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....ther 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 substance of the contract" [See Atiyah: The Sale of 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 i....
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..... 27. It was further submitted that the case of the petitioner is also squarely covered by judgement of House of Lords of England in the case of Beynon and Partners (Respondents) v/s Her Majesty's Commissioners of Customs & Excise (Appellant), reported in (2004) UKHL 53 wherein it is held that services of doctors would constitute single supply of service and that it would not be permissible to split up the transactions so as to impose 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....
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.....2016]. It was submitted that the levy of tax on charitable hospital is therefore required to be quashed on this ground also apart from the other common contentions already made herein before which are applicable to all the hospitals. C) Submissions of the respondents 34. On the other hand learned Advocate General Mr. Kamal Trivedi for the respondents submitted that while challenging the constitutional validity of Clause (g) of Section 2(23) of the Gujarat 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....
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....s contract in Section 2(i) of the Madras General Sales Tax Act pales into insignificance insofar as ambit and scope of the term 'works contract within the meaning of Article 366(29A) is concerned. To say that insertion of clause 29(A) of 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." 37. Referring to the following Explanation (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 s....
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....ible on cumulative reading of Sections 65B (44) and 65(105)(zzzzo) of the Finance Act, 1994, which considers the 'health care services' provided by clinical establishments to any person as 'taxable services'. Reference was made to Section 65B(44) of the Finance Act, 1994, which defines the term "service" as under: "65B. in this chapter, unless, the context otherwise requires - (44) service" means any activity carried out by a person for another for consideration, and Includes a declared service, but shall 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 remov....
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....h "taxable service", wherein the services being provided by a clinical establishment or by a doctor not being an employee of a clinical establishment, would be "taxable service" as under: "65. In this chapter, unless the context otherwise requires, - 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;" 44. It was therefore submitted that the treatment 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....
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....t contained in these contracts. Thus, it becomes very important to segregate the two elements completely. xxxx 23. This would unmistakably show that what is referred to in the charging provision is the taxation of service contracts simpliciter and not composite works contracts, such as are contained on the facts of the present cases, it will also be noticed that no attempt to remove the non-service elements from the composite works contracts has been made by any of the aforesaid Sections by deducting from the gross value of the works contract the value of property in goods transferred in the execution of a works contract. 24. In fact, by way of contrast, Section 67 post amendment (by the Finance Act, 2006) for the first 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 pr....
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....) Contract of Financial Leasing Services, as dealt with the Apex Court in case of Association of Leasing and Financial Service Co. vis. Union of India, reported in (2011) 2 SCC 352. (c) Contract of Manufacture, Supply and Installation of Lift as dealt with the Apex Court in case of Kone Elevator India Pvt. Ltd. v/s. State of Tamil Nadu, reported in (2014) 7 SCC 1. (d) Contract of Processing and Supplying Photographs as dealt with the Apex Court in case of State of Karnataka vis. Pro Lab, reported in (2015) 8 SCC 557. (e) Contract of providing Pest Control Service - as dealt with the Apex Court in case of State of Gujarat v/s. Bharat Pest Control, reported in (2018) 14 SCC 685. (f) Contract of Supplying and Laying down Pipelines as dealt with the Apex Court 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....
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....with "the transfer of right to use any goods". Ultimately, it was held that the electromagnetic waves / radio frequencies are not "goods", and hence, no question arises of transfer of right to use the same and hence, there cannot be any "deemed sale" of the goods for the purpose of Article 366(29A)(d). However, at the same time, the Apex Court also held that it is possible for the State to tax the sale element in a composite contract of providing telephone connection, provided there is a discernible sale. It was submitted that even the observation in para-44 of the Apex Court in the case of Bharat Sanchar Nigam Ltd. (supra), to the effect that "splitting of the service and supply has been constitutionally permitted only in case of the works-contract covered by sub-clause (b), a hire-purchase contract covered by sub-clause (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....
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....le 366(29A) the State Legislature has full competence to levy sales tax with reference to sale of medicines and other consumables as contemplated under Article 368(204)(b) and/or Article 366(2A)(a) and/or Article 306(29A)(f) of the Constitution read with Section 223(g) of the VAT Act at pgs 307-308 (Para 14 @pg.307-306 of the Affidavit-in-Reply of the Respondents) xxxx 17. Further, in respect of several inpatients, the detailed bills towards medicines were scrutinised and it was observed after checking their price with the labels of medicines that all the drugs and medicines supplied to the in-patients were sold at maximum Retail Price (MRP) which was inclusive of all taxes and in some cases, even amount higher than MRP were charged It was after taking all these factual matrix and documentary evidence into consideration that the audit assessment order under the VAT Act 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 m....
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.... of Punjab (supra) relied upon by the petitioners it was submitted that paragraph 23 of the said Judgment clearly suggests that the Hon'ble Punjab and Haryana High Court has merely proceeded on the footing that the Hon'ble Apex Court in case of Bharat Sanchar Nigam Ltd. (supra) specifically observed (though as an illustration), that "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." 58. Referring to the decisions in case of Assistant Commissioner, Kota, Kota Eye Hospital & Research Foundation, reported in (2023) 120 GSTR 161 (Raj) in case of Sanjose Parish Hospital vs. Commercial Tax Officer reported in (2019) SCC OnLine Ker 232 relied upon by the petitioners, it was submitted that in the said 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 bein....
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.... in light of such facts and circumstances where the control of the goods and equipment in terms of effective possession never passed from one person to another, this Hon'ble Court held that the sales tax would not be applicable on such service contracts, since there is no transfer of right to use goods whereas, in the present case, the ownership and possession of the equipment in question i.e. medicines and prosthesis get transferred in favour of the patients during the course of treatment undertaken at the hospital. Thus, the said Judgment cannot be made applicable to the facts of the present case. 62. Referring to Notification No. 25 of 2012-ST dated 20.06.2012, as amended relied upon by the petitioners it was submitted that merely because the said Notification issued by the Central Government issued under the Finance Act, 1994 dealing with service tax regime under the jurisdiction of the Central 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 th....
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....which has been in currency, should be taken into consideration, however, in the said judgment, the Hon'ble Apex Court, while interpreting the term "Individual" occurring under the Income Tax Act, 1961, guidance was derived from the definition of a very term available under the Income Tax Act, 1922, which made the meaning of the term "explicit" which was "implicit" under the 1961 Act. It was submitted that in the present case, reliance on the later law i.e. Goods and Service Tax Act, for interpreting the provisions of VAT Act, is totally misconceived inasmuch as, both the Acts are quite different from each other and more particularly in view of the aspect of "composite supply' in the GST Act. It was therefore submitted that in the aforesaid judgment, the Acts during pre and post Amendment, had remained the same i.e. Income Tax Act, hence, the same cannot be applied to the facts of the present case. 65. 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 pol....
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....nd the scope and purview of Article 366(29A) of the Constitution which, inter-alia, deals with only six contingencies where the fiction of "deemed sale" would be applicable even in a composite contract which is not divisible. Reliance was placed on clause (g) Section 2(23) as well as clause (h) of the said Section 2(23) of VAT Act, which reads as under: "2(23) Sale means a sale of goods made with the State for cash or deferred payment or other valuable consideration and includes, - (g) supply of goods by way of or as part of any service or in any other manner whatsoever, of (h) supply 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." It was submitted that clauses (g) & (h) of Section 2(23) of the VAT Act are nothing but the provisions borrowed from the following 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, b....
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....ed in the aforesaid Section 2(10)(i) of the VAT Act, because of the fact that unless a person effecting transfer, delivery or supply of any goods is the "dealer" within the meaning of the said Section 2(10)(i) of the VAT Act, no question would arise about taxing such a transaction by applying clauses (g) and (h) of Section 2(23) of the VAT Act. Thus, the said two clauses (g) and (h) of Section 2(23) of the VAT Act are required to be read together and if it is so done, there is nothing unconstitutional about the said provision. It was submitted that even otherwise, it is now a specific stand on behalf of the Respondent State that the transfer/delivery/supply of medicaments and prosthetics by the Petitioners hospital in favour of their indoor patients during the course of providing treatment, is covered by sub-clause (b) of Article 366(29A) of the Constitution of India, failing which, sub-clause (a) of Article 366(29A) of the Constitution of India and therefore, there arises no question of considering 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....
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....side the purview of clause (a) of Article 366(29A) of the Constitution of India. It was submitted that the judgement of Hon'ble Supreme Court in the case of Sunrise Associates v/s Govt of NCT of Delhi reported in (2006) 5 SCC 603 which has been relied upon in the context of clause (a) is also not applicable as Para 7 of the said judgement only states that an agreement for sales is not necessary for constituting a sale under clause (a). it was therefore submitted that this does not mean that even a pure service transaction would come within the ambit of clause (a) which otherwise would be clearly contrary to the law laid down by Hon'ble Supreme Court in the case of Calcutta Club Ltd. (supra) that the 46th Constitutional Amendment cannot be made applicable beyond its intended scope. 76. It was further submitted that transactions of the petitioners are also not "works contracts" and therefore they are also not taxable under clause (b) of Article 366(29A) of the Constitution of India as sought to be contended 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 -....
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....ildings and equipment. 70. In Radha Raman [Radha Raman v. State of U.P., AIR 1954 All 7001 the Allahabad High Court stated (although in the context of Section 40 of the Land Acquisition Act, 1894) that: (AIR p. 702, para 5) "5.... the word 'work' has a very wide meaning. It is really used in two senses of bestowing labour and that upon which labour has been bestowed. When used in plural, the word certainly means some outstanding or important result of the labour that has been bestowed, and large industrial and scientific establishments are called works." 80. It was therefore, submitted that the aforementioned paragraphs clearly show that "works contracts" requires coming into existence of "works" which can be a structure or apparatus of some kind, however, treatment of indoor patients does not result into coming in existence of "works", such transaction clearly does not constitute "works contract". 81. It was submitted that the though the case of the petitioners is squarely covered by the judgment in the case of Larsen and Toubro (supra), the respondents however, have sought to rely on some paragraphs of the judgement. It was submitted that reliance placed....
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....016) 1 SCC 170 wherein the definition of "works contract" appearing in Explanation to Section 65(105)(zzzza) of the Finance Act, 1994 was reproduced which also would cover only 'works contracts' as per the said definition. It was submitted that the budget speech of the Finance Minister for introducing such definition has been reproduced in Para 26 of the judgement which shows that the same was introduced to levy service tax on the service portion of 'works contract' as the State Governments levy tax on transfer of property in goods involved in the execution of 'works contract'. It was submitted that therefore the meaning of the phrase "works contract" for the purpose of the VAT Act cannot be drastically different than the definition given by the Parliament under the Finance Act, 1994. 85. It was submitted that a collective reading of the aforementioned judgements clearly shows that "works contracts" requires firstly coming into existence of "works" and secondly that the property passes from seller to buyer by the principle of accretion, in other words the property in a 'works contract' passes by the act of affixation of the goods being transferred upon another property which may....
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....aken away by another legislation, the arguments that human body/organs is "property" also falls and fails miserably at its very core. (h) It would be disingenuous for the State to contend that the human organs are not property for any of the above purposes of section 19 of the Transplantation of Human Organs and Tissues Act, 1994, but property for the purpose of the Vat Act. To treat a medical procedure as a "works contract", the State would necessarily have to contend that a living human body, or for that matter even a particular organ, is property and such a contention is intrinsically abhorrent and would be an absurdity wrapped in an anomaly inside the aforesaid contradiction. If at all body parts are to be "property", it could only be such parts which are detachable and regenerative. 87. It was further submitted that the other judgments relied upon by the respondents also do not lay down any different law with regard to meaning of the phrase works contracts. Learned Senior Advocate Mr. S.N. Soparkar distinguished the cases cited by the respondents as under: (a) Decision in case of Builders Association of India v/s Union of India reported (1989) 2 SCC 645 on....
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....acts cannot be considered as works contracts and that hospital services cannot be made amenable to sales tax/Vat. (e) It was submitted that decision in case of State of Gujarat v/s Bharat Pest Control (2018) 14 SCC 685, there was no dispute as to whether the contract in question is a 'works contract' or not and Hon'ble Supreme Court simply reiterated the principle that dominant intention test is not to be applied in the case of a 'works contract'. (f) It was submitted that decision in case of Indian Hume Pipe Company Ltd. v/s State of Rajasthan reported in (2019) 14 SCC 584, it was categorically noted in Para 18 of the judgement that there was no dispute that the contract in question was a 'works contract', hence, the judgement is not relevant. (g) It was submitted that decision in case of Miot Hospitals Ltd. v/s State of Tamil Nadu reported in 2020 SCC Online Mad 28124 proceeds on the basis that all composite contracts are "works contracts" which is not only contrary to the observations of Hon'ble Supreme Court in the case of Bharat Sanchar Nigam Ltd. (supra) but also to other judgements of Hon'ble Supreme Court in the case of Larsen and Toubro (supra) a....
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.... and Government of India Act, 1935. Therefore, to plug the revenue leakage regarding the contract involving the "works contract", provision to tax "works contract" was incorporated. A reading of the case laws prior to decision of Hon'ble Apex Court in case of Gannon Dunkerly (supra) indicates that "works contract" to begin with was intended to tax only building and allied contracts, where a contractor provided a composite contract for both supply of service and goods or even used goods of considerable value in the course of provision of such services with or without break-up of cost of such goods in the execution of building contract. 91. Section 2(13) of the VAT Act defines "goods" as under: 2(13) "goods" means all kinds of movable property (other than newspapers, actionable claims, electricity, stocks and shares and securities) and includes live stocks, all materials, articles and commodities and every kind of property (whether as goods or in some other form) involved in the execution of works con-tract, alt intangible commodities and growing crops, grass, Standing timber or things attached to be forming part of the land, which are agreed to be severed before sale or ....
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....ndia and others reported in (1989) 2 Supreme Court Cases 645 in context of 'works contract' held that the object of the new definition introduced in clause (29A) 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. Therefore, the expression 'tax on the sale or purchase of goods' in Entry 54 of the List II of the Seventh Schedule of the Constitution of India (State List) 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. 96. The Hon'ble Apex Court further held as under: "36. Even after the decision of this Court in the State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. it was quite possible that where a contract entered into in connection with the construction of a building consisted of two parts, namely, one part relating t....
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....he contractor becomes liable to pay the sales tax ordinarily when the goods or materials are so used in the construction of the building and it is not necessary to wait till the final bill is prepared for the entire work. In Hudson's Building Contracts (8th edn.) at page 362 it is stated thus: 'The well known rule is that the property in all materials and fittings, once incorporated in or affixed to a building, will pass to the freeholder quicquid plantatur solo cedit. The employer under a building contract may not necessarily be the freeholder, but may be a lessee or licensee, or even have no interest in the land at all, as in the case of a sub-contract. But once the builder has affixed materials, the property in them passes from him, and at least as against him they become the absolute property of his employer, whatever the latter's tenure of or title to the land. The builder has no right to detach them from the soil or building, even though the building owner may himself be entitled to sever them as against some other person e.g., as tenant's fixtures. Nor can the builder reclaim them if they have been subsequently severed from the soil by the building owner....
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....ces. The supplier transfers the ownership and possession of the material used to the recipient in the course of execution of 'works contract' which sometimes result in a new identity altogether different from the material supplied while sometimes such materials become part of the existing structure or goods. 98. 'Works contract' can be both divisible and indivisible contract. In divisible works contract, it is possible to segregate the value of sale of goods and labour whereas in indivisible contract where the parties agree for lump-sum consideration for the entire contract without any break-up of the value of sale of goods and the labour. The sale consideration of material used in the contract and remuneration for the labour therefore, is not separately identifiable. 99. In case of Larsen and Toubro limited and another v. State of Karnataka and another reported in (2014) 1 Supreme Court Cases 708, Hon'ble Apex Court held as under: "67. Now, if by legal fiction provided in clause (29-A)(b) of Article 366, the works contract becomes separable and divisible, one for the materials and the other for services and for the work done, whatever has been said by this Court in ....
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....employer), works of building or civil engineering character. It continues to say that in the typical case, the work will be carried out upon the land of the employer or building owner, though in some special cases obligations to build may arise by contract where this is not so, for example, under building leases and contracts for the sale of land with a house in the course of erection upon it. The above statement by Hudson indicates that in a typical case work (structure, building, etc.) will be carried out upon the land of the employer or building owner though in some special cases an obligation to build may arise by contract where this is not so. Hudson gives an example of building leases and contracts for the sale of land with a house in the course of erection upon it. 72. In our opinion, 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 d of clause (29-A) in Article 366 was....
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.... in some other form from the contract of work and labour. A transfer of property in goods under clause (29-A)(b) of Article 366, is deemed to be a sale of 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. For this reason, the traditional decisions which hold that the substance of the contract must be seen have lost their significance. What was viewed traditionally has to be understood in the light of the philosophy of Article 366(29-A). 88. The question is : whether taxing sale of goods in an agreement for sale of flat which is to be constructed by the developer/promoter is permissible under the Constitution? When the agreement between the promoter/developer and the flat purchaser is to construct a flat and eventually sell the flat with the fraction of land, it is obvious that such transaction involves the activity of construction inasmuch as it is only when the flat is constructed then it can be conveyed. We, therefore, think that there is no reason why such activity of construction is not covered by the term "works contract". After all, the term "works contrac....
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.... have been sold in 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. 97.2. 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. 97.3. 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....
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....serves to bring transactions where essential ingredients of "sale" defined in the Sale of Goods Act, 1930 are absent within the 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. 97.11. 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. 98. The crucial question would now remain: whether the view taken in Raheja Development with reference to the definition of "works contract" in the KST Act is legally unjustified? The following definition of "works f contract" was under consideration before this Court in Raheja Deve....
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....ion of "service", where the factum of supply of the goods whether tangible or intangible is discernible, forming part of the service contract would be nothing but a "composite contract providing for "service" and "goods", falling within the purview of the term "works contract". 102. By virtue of legal fiction introduced by Article 366(29A)(b) of the Constitution, even if such a composite contract is single and indivisible contract, it would amount to "deemed sale" of goods which are involved in the execution of the "works contract" and exigible to Sales Tax. In paragraph no.87 of the decision in case of Larsen and Toubro Ltd. (supra), the Hon'ble Apex Court has succinctly drawn a distinction between the contract for sale of goods and contract for service by diminishing the distinction between the two in the matter of composite contract involving a contract of service/ labour and a contract for sale of goods in relation to Article 366(29A)(b) of the Constitution. 103. Therefore, reliance placed on behalf of the petitioners on the observations made by the Hon'ble Apex Court in case of Bharat Sanchar Nigam Ltd. (supra) which has been diluted in case of Larsen and Toubro Ltd. (su....
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.... "65B. in this chapter, unless, the context otherwise requires - (44) service" means any activity carried out by a person for another for consideration, and includes a declared service, but shall 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. xxxx Whereas, the following Section 65(105)(zzzzo) of the Finance Act, 1994 deals with "taxable service", wherein the services being provided by a clinical establishment or by a doctor not being an employee of a clinical establishment, would be "taxable service". 105. "taxable service" means any service provided or to be provided- (zzzzo) ....
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....ay under the terms of a contract or by statute. Therefore, the test laid down in the judgments prior to the 46th Constitutional Amendment would not be applicable in facts of the case. The Hon'ble Apex Court in case of Kone Elevator (supra) in paragraph no. 70 has observed that "once there is a composite contract for supply and installation, it has to be treated as a works contract, for it is not a sale of goods/chattel simpliciter. It is not chattel sold as chattel or, for that matter, a chattel being attached to another chattel." 110. "Works contract" has been also been defined in section 2(119) of the CGST Act, 2017 as follows: "works contract" means a contract for building construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract". 111. The most significant change with regard to works contract in GST is with regard to meaning of expression "works contract" which has been restricted to any work undertaken for an ....
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....t. 116. Similarly in case of International Hospital Pvt. Ltd, v/s. State of Uttar Pradesh reported in (2014) 71 VST 139 (All), Hon'ble Court had straightaway accepted that neither of the six categories of Article 366(29A) of the Constitution is attracted to the composite arrangement of providing medical services as well as medicament and prosthetics by following the decision of Jharkhand High Court in case of Tata Main Hospital v/s. State of Jharkhand (supra). 117. Hon'ble Punjab and Haryana High Court in case of Fortis Health Care Limited v/s. State of Punjab (supra) has followed the decision of Hon'ble Apex Court in case of Bharat Sanchar Nigam Ltd. (supra) which is further diluted by Apex Court in case of Larsen and Toubro Ltd. (supra). 118. Hon'ble Rajasthan High Court also 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 in case of Assistant Commissioner, Kota, v. Kota Eye Hospital & Research Foundation, reported in (2023) 120 GSTR 161 (Raj). 119. Hon'ble Kerala High Court also in case of Sanjose Parish Hospital v....
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.... or series of invoices. 123. It is also not in dispute that a patient who requires an artificial hip or requires to implant a stent in the heart may be able to choose such implant or stent from different categories and such element of transaction is an important factor in determining whether there is a single supply or several independent supplies, which may not be decisive. However, in case of implants, the ability of the patient to choose is limited as to whether or not such implant or stent to be used as per the advice of the consultant or possibly the hospital in which patient will be admitted to have the necessary surgery. Thereafter it is for the petitioner hospitals to provide medical care along with such implants/prosthesis resulting into a single transaction. However, the reason for introducing the 46th Amendment to the Constitution is to bring such indivisible contracts within the purview of sales tax. The Hon'ble Apex Court in case of Builders Association of India (supra) held that it is now open to the court to divide the "works contract" into two separate contracts by a legal fiction, one, contract for sale of goods involved in the said works contract; and second, f....
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.... Apex Court in case of Larsen and Toubro Ltd. (supra) has further held that the term "works contract" in Article 366(29A)(b) is amply wide and cannot be confined to a particular understanding of the term or to a particular form and the term encompasses a wide range and many varieties of contract and when the Parliament had provided for such wide meaning of "works contract" at the time of the Forty-sixth Amendment of the Constitution, the object of insertion of clause (29A) in Article 366 was to enlarge the scope of the expression "tax on sale or purchase of goods" to overcome the decision in case of Gannon Dunkerley (supra). 125. The decisions relied upon by the petitioners rendered by five Hon'ble High Courts giving reliefs to the hospitals in Jharkhand, Allahabad, Punjab and Haryana, Rajsthan and Kerala would not be applicable to the facts of the case as the said cases were concerned with transfer of right of use, which is another specie of sale and different from "works contract" and the Hon'ble High Courts examined the issue from a common perspective without examining the issue from the point of view of "works contract" and therefore, with due respect, we are unable to follo....
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....d persons and property separately which is also borne out from the provisions of the IPC by treating offences relating to persons and those related to property separately and even under the law of torts, torts relating to the person are treated separately from torts relating to property and therefore, to treat a live human body as a property is shockingly retrograde and harks back upon the pre-colonial era when humans were treated as objects and were kept in captivity as slaves and therefore, medical treatment to the human being cannot be equated with treatment to a property and therefore the use of medicines, implants, stents, consumables, etc. for such treatment cannot be subjected to sales tax under clause (b) of Article 366(29A) of the Constitution, and the treatment of the human body cannot be equated to "works contract". Reliance placed on section 19 of the Transplantation of Human Organs and Tissues Act, 1994 which prohibits the commercial dealing in human organs an offence punishable was also cited to canvas that there is a legislative drift to not to tax and the right to deal is the substratum of any property/ proprietary right and when such right has been taken away by an....