Case Law Details
Assistant Commissioner Vs Kota Eye Hospital and Research Foundation (Rajasthan High Court)
Conclusion: In case of rendering of health care/medical services and not supply of goods, the value recovered by the hospitals towards the cost of medicines, implants, stents, lenses and various other charges towards room rent, supply of food could not be classifiable as sale or supply of goods but the transaction would be of service on account of Predominant Test/ Aspect Doctrine.
Held: The case of the Revenue was that the respondents-clinical establishments/hospitals/nursing homes purchased the medical implants like stents, eye-lenses, pharmacy and surgical items after payment of tax/VAT from dealers and utilized the same during the course of medical treatment of patients in-house and as the same constituted transfer of goods in terms of Section 2(35) of the RVAT Act, 2003. The same also amounted to sale in terms of Section 2(11) of the RVAT Act, 2003 and as they were selling the same for consideration, they qualified to be a dealer and alternatively, by virtue of Section 2(44) of the RVAT Act, 2003, as they carry out work of installation, the same amounted to “works contract”. It was noted that the respondents were running health care services wherein the patients were categorized primarily in two categories; out patients and “in-patients” for administrative convenience. The out patients were those who visited a hospital for routine check ups or clinical visits. In-patients were those who were admitted in the hospital for the required treatment. The hospital was expected to provide not only primary services of medical treatment to in-patients but also to provide lodging, nursing care, supply of medicines, food and operational/ procedural treatment under the supervision of Doctor until discharge. There were bundle of services embodied to the primary services of medical treatment. The primary service without any doubt was of medical treatment but there were ancillary and incidental services of lodging, care, medicine, supply of food, implant of surgical items, installation of lenses, stents etc. Hence, the medicines, implants, room provided on rent used in the course of providing health care services/medical treatment to the patients admitted for diagnosis for treatment in the hospital or clinical establishment were undoubtedly naturally bundled in the main services of medical treatment and it was a composite supply to facilitate health care services. Whereas the out-patient pharmacy attached to the hospital provided drugs/medicines etc., upon valid prescription to outpatients and outside customers and receives consideration. No service of medical treatment was rendered and the dominant nature of the said transaction was sale of medicine. As far as out-patients were concerned, there was no control over its continuous treatment. The patient had absolute freedom to follow or not follow the prescription or to purchase the medicine from the hospitals’ drug store or from outside. The services in such cases were advisory in nature. If the drug store/ hospital sold the medicine, it was an isolated transaction and not a composite supply of health care service and was therefore, not covered under the ambit of health care services.
FULL TEXT OF THE JUDGMENT/ORDER OF RAJASTHAN HIGH COURT
1. Instant Sales Tax Revision Petitions under Section 84 of the Rajasthan Value Added Tax Act, 2003 (for short, ‘RVAT Act, 2003’) read with Section 86 of the Rajasthan Sales Tax Act, 1994 have been filed by the petitioner-Revenue assailing the order impugned passed by the learned Tax Board, Ajmer.
2. All Revision Petitions in the bunch of cases are involving identical questions of law and based on the same set of facts. Therefore, with the consent of learned counsels, the matter is taken up for final disposal. SB Sales Tax Revision Petition No.139/2019 is taken up as a lead case for deciding the questions of law which will apply mutatis-mutandis to all the connected Revisions.
3. The matter was heard on the following questions of law:-
“Whether in the facts and circumstances of the case, the learned Tax Board was right in law in deleting the tax and consequential interest as well as penalty on implants, surgical items and medicines sold by the respondents even though the same was falling within the ambit of definition of “sale” as defined under Section 2(35) of the RVAT Act, 2003 ?”
4. Learned counsels appearing for the petitioners-Revenue submitted that under Section 4 of the RVAT Act, 2003, the “levy of tax and its rates” is defined which is to be imposed on the event of sale as defined under Section 2(35) of the RVAT Act, 2003. The particular rate on the given “sale price” as defined under Section 2(36) has to be discharged by the “dealer” as defined under Section 2(11) of the RVAT Act, 2003 on the goods.
It is further submitted that as per Schedule-IV issued under Section 4 of the RVAT Act, 2003 more particularly Entry 86 provides as under:-
“86. Medical equipment/devices and implants including dental implants but excluding Pseudophakic Intra Ocular lens_____________
1. Substituted by clause (iii) of Notification No.F.12 (23) FD/Tax/ 2015-198 dated 09.03.2015 .
2. Substituted by notification No. F.12 (11) FD / Tax / 2016-187 dated 08.03.2016, for expression, Medical equipment/ devices and implants other than Pseudophakic Intra Ocular Lens”
5. While relying upon the said Entry 86, it is contended that the medical equipment/devices including dental implants but excluding Pseudophakie Intra Ocular Lens attracts tax at the rate of 5.5% on the sale price. It was further contended that the respondents, who are clinical establishments, nursing homes, hospitals providing health care services to the in-house patients, while selling medical equipment/devices, implants during the course of treatment, surgery, have not discharged sales tax/VAT on the said transactions even though it has been admitted that implants, consumables, drugs, pharma etc. have been sold during the course of treatment.
6. It was further contended that the learned Adjudicating Authority, while relying upon the provisions of Section 2(11) of the RVAT Act, 2003, which defines ‘Dealer’ and Section 2(35) which defines ‘Sale’ which includes any supply or transfer of property in goods during rendering services or in execution of works contract to be a deemed sale and therefore, held respondent liable for payment of VAT. It was further submitted that owing to transparent, broad and inclusive definition of ‘sale’, which was broadened by Article 366(29A) of the Constitution of India, it was obligatory on the part of the respondents to discharge VAT and therefore, they were liable as per Entry 86 under Schedule-IV at the rate of 5.5% or as per applicable rate.
7. Learned counsel for the petitioner-Revenue drew attention of this Court towards the findings arrived at by the learned Appellate Authority which provide as under:-
8. While replying upon the said findings of the Appellate Authority, learned counsel for the petitioner-Revenue submitted that in the invoices, there is a separate charge reflected towards the sale of eye lenses, consumables and other pharmaceutical items. He further submitted that the eye lenses sold to the patients are at value added price and therefore, by fiction of law and extended definition of sale in the light of Article 366(29A) of the Constitution of India and in terms of Section 2(35) of the RVAT Act, 2003, the sale of medicine/pharmaceutical items, installation of implants will qualify to be sale and therefore, liable for payment of tax and the hospitals in question will constitute as dealer and the transaction will amount to business.
9. In support of his submissions, learned counsels for the petitioner-Revenue relied upon the judgment of Madras High Court rendered in MIOT Hospitals Ltd. Vs. The State of Tamil Nadu & Ors.(W.P. Nos.2982 to 2987 of 2012 & other connected petitions) decided on 28/05/2020; Sanjose Parish Hospital Vs. Commercial Tax Officer: 2019 SCC OneLine Ker. 355; Fortis Health Care Limited Vs. State of Punjab: 2015 SCC Online P&H 2018. Relying upon the aforesaid judgments, learned counsel for the petitioners-Revenue submitted that the respondents have rendered works contract services which falls within the extended meaning of definition of sale and by fiction of law, when medical services provided by respondents involve composite contracts and when element of service is also involved, it will be counted as sale and the same will be taxable on entire transaction and consideration.
10. Learned counsel for the petitioners-Revenue also placed reliance upon Larger Bench judgment of the Apex Court rendered in Damodarasamy Naidu & Bros. and others Vs. State of T.N. and others: (2000) 1 SCC 521 wherein it was held that on supply of food and drinks in restaurants, there is a liability of sales tax even though service element is involved, in terms of Article 366(29A) and in terms of Entry 54 of List II of the Seventh Schedule of the Constitution of India on the commodities of goods, even though the same was part of services.
11. Per-contra, learned counsels appearing for the respondents submitted that the question of law formulated is duly answered by the learned Tax Board. Neither the respondents qualifies to be a dealers nor the transaction in question qualifies the test of sale. The transaction in hand is predominantly a service wherein implant of lenses, stents, surgical items and sale of drug is an incidental event. It was further submitted that in the light of the judgment of the Hon’ble Apex Court rendered in Bharat Sanchar Nigam Limited and Another Vs. Union of India and others: (2006) 145 STC 91 aspect theory needs to be applied. Predominantly, the transaction in question is a service and the same will fall under the Union List. The State has no competence to levy any tax on the same. Learned counsel for the respondents further submitted that for the purpose of illustration, there is a very thick distinction between the transaction of sale and transaction of service. If a Doctor or a nursing hospital, through its pharmacy or drug store, sell prescription drugs/medicines to outdoor patients or outsiders, same will be pure transaction of sale and VAT will be attracted. Whereas, when the indoor patient comes for treatment or for diagnosis, health care services are provided by the hospital which are bundled services and the predominancy is qua the treatment only. Other services including, but not limited to, room facility, installation of implants, consumption of drugs/medicine by the patient supplied via pharmacy are merely incidental and they will not pass litmus test to qualify for definition of sale u/s 2(35) of the Act, nor the clinical establishment/hospital will qualifies to fall under definition of “dealer.”
12. In support of their contentions, learned counsels for the respondents has laid emphasis upon the Apex Court judgment rendered in the case of Bharat Sanchar Nigam Limited and another (supra). He has further placed reliance upon judgments rendered in Tata Main Hospital Vs. State of Jharkhand & Ors.: (2008) 10 VAT Reporter 1 (Jharkhand); State of Jharkhand & Ors. Vs. Tata Main Hospital: (2008) 10 VAT Reporter 11 (SC); International Hospital Pvt. Ltd. Vs. State of U.P. & Ors.: (2014) 71 VST 139 (All); Aswini Hospital Pvt. Ltd. & Ors. Vs. Intelligence Officer, Squad No.1, Thrissur & Ors.: [2019] 61 GSTR 492 (Ker.) [FB], M/s. Crosslay Remedies Ltd. Vs. State of UP & Ors.: (2017) UP TC 536 and in M/s. Fortis Health Care Limited and another Vs. State of Punjab and others (Civil Writ Petition No.1922 to 1924 of 2012), decided on 23/01/2015 by the Punjab & Haryana High Court.
13. Learned counsel for the respondents, placing reliance on the aforesaid judgment of Tata Main Hospital (supra) submitted that while considering the pari-materia provisions of “sale” and “dealer“, the Hon’ble Jharkhand High Court has held that services rendered in the course of treatment of indoor patients fall outside the scope of term of sale. Further, a hospital/clinical establishment is not a dealer because firstly, as it was not engaged in the business of sale of medicines, vaccines, surgical items, x-ray films and plates etc; Secondly, the same was part of composite charges realized by the hospital towards treatment of indoor patients. The aforesaid judgment of Jharkhand High Court was upheld by the Apex Court and while dismissing the SLP, it was held by Hon’ble Apex Court that what one has to analyze before levy of sales tax is the substance of contract and the dominant nature test to decide whether the contract falls into sale or service to test the legislative competence as to whether the subject in question is of “Union List” or the “State List”. Merely by relying upon Article 366 (29A) of the Constitution of India and analyzing that the case in hand is of composite contract, it will not automatically fall under legal fiction of a deeming sale. Relying upon the aforesaid judgment, learned counsels for the respondents submitted for upholding the version of the learned Tax Board and for dismissal of the instant revision petitions filed by the petitioner-Revenue.
14. We have heard the respective counsels representing the petitioner-Revenue and the respondents-assessees. We have also perused records of the revision petitions and considered the various judgments cited at bar by the respective sides.
15. Before we analyze the case, it is essential to consider various provisions of the Constitution of India, RVAT Act, 2003 and the rules framed therein.
16. As per Article 246 of the Constitution of India, which is enshrined in Part XI, power of making laws is conferred upon the Parliament and Legislatures of the States. The respective subject matter on which law can be made by Union and State are enumerated in Schedule VII wherein List I pertains to subject matters on which Parliament can legislate i.e. Union List. List II pertains to State List, as to matters on which State Legislature has power to legislate. Lastly, List III is Concurrent List which deals with those subject matters that can be legislated by both Parliament and State Legislatures.
As per List I i.e. Union List of Schedule VII, Entry 92-C prescribes tax on service and Entry 97 prescribes residuary entry i.e. levy of tax on residuary matters not prescribed in any of the Lists.
17. Similarly, List II pertains to State list and Entry 54 specifies taxes on the sale or purchase of goods. The respective Entries namely; 92-C, 97 of List I and Entry 54 of List II are reproduced as under:-
“List I
92-C Taxes on services.
97. Any other matter not enumerated in List II or List III including any tax not mentioned in either of those Lists.
List II
54. Taxes on the sale of petroleum crude high speed diesel. motor spirit (commonly known as petrol) natural gas, aviation turbine fuel and alcoholic liquor for human consumption, but not including sale in the course of inter-State trade or commerce or sale in the course of international trade or commerce of such goods.”
18. As per the powers given under Entry 92-C read with Entry 97, Finance Act, 1994 was enacted with a view to impose tax on services. As per the powers enshrined under Entry 54, the Rajasthan Value Added Tax Act, 2003 alongwith rules was framed. Prior to the year 2017 i.e. before the advent of Goods & Service Tax, there was separate levy on the services by virtue of Union List and there was a separate levy by the State on intra-State sale of goods under the powers given under Entry 54 by virtue of VAT Act, 2003. To simply submit, prior to the year 2017, the Union had power to levy service tax on the services and State had power to levy sales tax on sale and purchase on intra-State transactions.
19. In the case in hand, before we advert to the issue, one has to analyze the nature of transaction whether it qualifies to be a “sale” or a “service” to decide the legislative competence. If the transaction in question is a service, then by no stretch of imagination, the petitioner-Revenue will have power to collect sales tax/VAT on the same. If the transaction in question amounts to sale, the power will be wholly exercised by the petitioner-Revenue as the same will be under their domain.
20. It is also important to analyze the relevant definitions and provisions of the Rajasthan Value Added Tax Act, 2003. It will be important to consider the preamble, Sections 2(11), 2(15), 2(35), 2(36) and 2(44) of the RVAT Act, 2003 which provide as under:-
2(11) “dealer” means any person, who carries on business in any capacity, of buying, selling, supplying or distributing goods directly or otherwise, or making purchases or sales as defined in clause (35) for himself or others, whether for cash or deferred payment, or for commission, remuneration or other valuable consideration and shall include–
(i) a factor, broker, commission agent, del credere agent or any other mercantile agent, by whatever name called, and whether of the same description as hereinbefore mentioned or not, who carries on the business of buying, selling, supplying or distributing any goods belonging to any principal whether disclosed or not;
(ii) an auctioneer, who sells or auctions goods belonging to any principal, whether disclosed or not and whether the offer of the intending purchaser is accepted by him or by the principal or a nominee of the principal;
(iii) a manager or an agent, of a non–resident dealer who buys, sells, supplies or distributes goods in the State belonging to such dealer;
(iv) any society, club, trust or other association, whether incorporated or not, which buys goods from or sells goods to its members;
(v) a casual trader;
(vi) the Central or any State Government or any of their Departments or offices which, whether or not in the course of business, buy, sell, supply or distribute goods directly or otherwise, whether for cash or deferred payment or for commission, remuneration or other valuable consideration; and
(vii) any trading, commercial or financial establishment including a bank, an insurance company, a transport company and the like which, whether or not in the course of its business, buys, sells, supplies or distributes goods, directly or otherwise, whether for cash or deferred payment, commission, remuneration or other valuable consideration; Explanation – A person, who sells agricultural or horticultural produce, grown by himself or grown on any land in which he has an interest as owner or tenant as defined in the Rajasthan Tenancy Act, 1955 (Act No. 3 of 1955), shall not be deemed to be a dealer in respect of such sales within the meaning of this clause;
2(15) “goods” means all kinds of movable property, whether tangible or intangible, other than newspapers, money, actionable claims, stocks, shares and securities, and includes materials, articles and commodities used in any form in the execution of works contract, livestock and all other things attached to or forming part of the land which is agreed to be severed before sale or under the contract of sale;
2(35) “sale” with all its grammatical variations and cognate expressions means every transfer of property in goods by one person to another for cash, deferred payment or other valuable consideration and includes–
(i) a transfer, otherwise than in pursuance of a contract, of property in goods for cash, deferred payment or other valuable consideration;
(ii) a transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract;
(iii) any delivery of goods on hire–purchase or other system of payment by instalments;
(iv) a transfer of the right to use goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration;
(v) a supply of goods by an unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; and
(vi) a supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply shall be deemed to be a sale and the word “purchase” or “buy” shall be construed accordingly;
Explanation.– Notwithstanding anything contained in this Act, where any goods are sold in packing, the packing material in such case shall be deemed to have been sold with the goods;
2(36) “sale price” means the amount paid or payable to a dealer as consideration for the sale of any goods less any sum allowed by way of any kind of discount or rebate according to the practice normally prevailing in the trade, but inclusive of any statutory levy or any sum charged for anything done by the dealer in respect of the goods or services rendered at the time of or before the delivery thereof, except the tax imposed under this Act;
Explanation I. – In the case of a sale by hire purchase agreement, the prevailing market price of the goods on the date on which such goods are delivered to the buyer under such agreement, shall be deemed to be the sale price of such goods;
Explanation II. – Cash or trade discount at the time of sale as evident from the invoice shall be excluded from the sale price but any ex post facto grant of discounts or incentives or rebates or rewards and the like shall not be excluded;
Explanation III. – Where according to the terms of a contract, the cost of freight and other expenses in respect of the transportation of goods are incurred by the dealer for or on behalf of the buyer, such cost of freight and other expenses shall not be included in the sale price, if charged separately in the invoice;
2(44) “works contract” means a contract for carrying out any work which includes assembling, construction, building, altering, manufacturing, processing, fabricating, erection, installation, fitting out, improvement, repair or commissioning of any movable or immovable property;”
21. It is also apposite to reproduce Section 4(1) of the RVAT Act, 2003 which pertains to levy of tax and its rate alongwith Schedule IV, Entry 86 (supra) for the relevant purpose in hand which provides as under:-
“4. Levy of tax and its rate. – (1) Subject to the other provisions of this Act and the provisions of the Central Sales Tax Act, 1956 (Central Act No. 74 of 1956), the tax payable by a dealer under this Act, shall be at such point or points, as may be prescribed, in the series of sales by successive dealers and shall be levied on the taxable turnover of sale of goods specified in Schedule III to Schedule VI at the rate mentioned against each of such goods in the said Schedules.”
22. The case of the petitioner-Revenue is that the respondents-clinical establishments/hospitals/nursing homes purchases the medical implants like stents, eye-lenses, pharmacy and surgical items after payment of tax/VAT from dealers and utilizes the same during the course of medical treatment of patients in-house and as the same constitutes transfer of goods in terms of Section 2(35) of the RVAT Act, 2003. The same also amounts to sale in terms of Section 2(11) of the RVAT Act, 2003 and as they are selling the same for consideration, they qualify to be a dealer and alternatively, by virtue of Section 2(44) of the RVAT Act, 2003, as they carry out work of installation, the same amounts to “works contract”.
23. In the case in hand, the respondents are running health care services wherein the patients are categorized primarily in two categories; out patients and “in-patients” for administrative convenience. The out patients are those who visit a hospital for routine check ups or clinical visits. In-patients are those who are admitted in the hospital for the required treatment. Normally, there is a central pharmacy from where the procured stock of medicines, implants, consumables etc. are supplied to its outlets such as; in-patient pharmacy, operation theater pharmacy and out-patient pharmacy. The in-patient pharmacy and operation theaters pharmacy supplies medicines and consumables only to in-patients. The hospital is expected to provide not only primary services of medical treatment but also to provide lodging, nursing care, supply of medicines, food and operational/ procedural treatment under the supervision of Doctor until discharge. There are bundle of services embodied to the primary services of medical treatment. The primary service without any doubt is of medical treatment but there are ancillary and incidental services of lodging, care, medicine, supply of food, implant of surgical items, installation of lenses, stents etc. Hence, the medicines, implants, room provided on rent used in the course of providing health care services/medical treatment to the patients admitted for diagnosis for treatment in the hospital or clinical establishment are undoubtedly naturally bundled in the main services of medical treatment and it is a composite supply to facilitate health care services.
24. Whereas the out-patient pharmacy attached to the hospital provided drugs/medicines etc., upon valid prescription to outpatients and outside customers and receives consideration. No service of medical treatment is rendered and the dominant nature of the said transaction is sale of medicine. As far as out-patients are concerned, there is no control over its continuous treatment.
The patient has absolute freedom to follow or not follow the prescription or to purchase the medicine from the hospitals’ drug store or from outside. The services in such cases are advisory in nature. If the drug store/ hospital sells the medicine, it is an isolated transaction and not a composite supply of health care service and is therefore, not covered under the ambit of health care services.
25. In the celebrated judgment of Bharat Sanchar Nigam Limited and another (supra), the Apex Court has observed and held as under:-
“45. Of all the different kinds of composite transactions the drafters of the 46th Amendment chose three specific situations, a works contract, a hire purchase contract and a catering contract to bring within the fiction of a deemed sale. Of these three, the first and third involve a kind of service and sale at the same time. Apart from these two cases where splitting of the service and supply has been Constitutionally permitted in clauses (b) and (g) of Clause 29A of Art. 366, there is no other service which has been permitted to be so split. For example the clauses of Art. 366(29A) do not cover hospital services. Therefore, if during the treatment of a patient in a hospital, he or she is given a pill, can the sales tax authorities tax the transaction as a sale? Doctors, lawyers and other professionals render service in the course of which can it be said that there is a sale of goods when a doctor writes out and hands over a prescription or a lawyer drafts a document and delivers it to his/her client? Strictly speaking with the payment of fees, consideration does pass from the patient or client to the doctor or lawyer for the documents in both cases.
46. The reason why these services do not involve a sale for the purposes of Entry 54 of List II is, as we see it, for reasons ultimately attributable to the principles enunciated in Gannon Dunkerley’s case, namely, if there is an instrument of contract which may be composite in form in any case other than the exceptions in Article 366(29-A), unless the transaction in truth represents two distinct and separate contracts and is discernible as such, then the State would not have the power to separate the agreement to sell from the agreement to render service, and impose tax on the sale. The test therefore for composite contracts other than those mentioned in Article 366 (29A) 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 . We will, for the want of a better phrase, call this the dominant nature test.
51. What are the “goods” in a sales transaction, therefore, remains primarily a matter of contract and intention. The seller and such purchaser would have to be ad idem as to the subject matter of sale or purchase. The Court would have to arrive at the conclusion as to what the parties had intended when they entered into a particular transaction of sale, as being the subject matter of sale or purchase. In arriving at a conclusion the Court would have to approach the matter from the point of view of a reasonable person of average intelligence.
87. It is not possible for this Court to opine finally on the issue. What a SIM card represents is ultimately a question of fact as has been correctly submitted by the States. In determining the issue, however the Assessing Authorities will have to keep in mind the following principles: If the SIM Card is not sold by the assessee to the subscribers but is merely part of the services rendered by the service providers, then a SIM card cannot be charged separately to sales tax. It would depend ultimately upon the intention of the parties. If the parties intended that the SIM card would be a separate object of sale, it would be open to the Sales Tax Authorities to levy sales tax thereon. There is insufficient material on the basis of which we can reach a decision. However we emphasise that if the sale of a SIM card is merely incidental to the service being provided and only facilitates the identification of the subscribers, their credit and other details, it would not be assessable to sales tax. In our opinion the High Court ought not to have finally determined the issue. In any event, the High Court erred in including the cost of the service in the value of the SIM card by relying on the aspects doctrine. That doctrine merely deals with legislative competence. As has been succinctly stated in Federation of Hotel & Restaurant Association of India Vs. Union of India (1989) 3 SCC 634- “subjects which in one aspect and for one purpose fall within the power of a particular legislature may in another aspect and for another purpose fall within another legislative power. They might be overlapping; but the overlapping must be in law. The same transaction may involve two or more taxable events in its different aspects. But the fact that there is overlapping does not detract from the distinctiveness of the aspects”. No one denies the legislative competence of States to levy sales tax on sales provided that the necessary concomitants of a sale are present in the transaction and the sale is distinctly discernible in the transaction.
88. This does not however allow State to entrench upon the Union list and tax services by including the cost of such service in the value of the goods. Even in those composite contracts which are by legal fiction deemed to be divisible under Art 366(29A), the value of the goods involved in the execution of the whole transaction cannot be assessed to Sales Tax. As was said in Larsen & Toubro Vs. Union of India (supra):-
“The cost of establishment of the contractor which is relatable to supply of labour and services cannot be included in the value of the goods involved in the execution of a contract and the cost of establishment which is relatable to supply of materials involved in the execution of the works contract only can be included in the value of the goods”.
26. Applying the ratio of the judgment of Bharat Sanchar Nigam Limited and another (supra), this Court has to analyze and apply the “Aspect Doctrine” or “Predominant Criteria Test” in order to determine whether the transaction in question constitutes supply of goods i.e. “sale” or rendering of medical treatment/health care services constituting “service”.
27. Analyzing the case in hand and considering that lenses, stents, implants and sale of medicines are made to the indoor patients while carrying out medical treatment services, it is beyond doubt that predominantly, the same constitutes medical treatment/ health service and it is a case of composite supply whereas the predominancy is of a service and other incidental sales/services are bundled into it. Therefore, the classification and categorization of the said transaction will be of service and not of a sale keeping in mind the dictum of the Hon’ble Apex Court in Bharat Sanchar Nigam Limited and another (supra).
28. Considering the “Predominance Test” and the “Aspects Doctrine”, the transaction in question is of service and therefore, the State authorities/petitioner-Revenue has no power, jurisdiction or competence to levy sales tax upon the same and therefore, the question formulated above needs to be decided against the petitioner-Revenue and the judgment of the Tax Board deserves to be upheld.
29. The arguments advanced by learned counsel for the petitioner-Revenue that as per Schedule-IV, it is specifically enlisted that the medical equipment/devices and implants are to be charged at the rate of 5.5%, has to be interpreted broadly. Only if a transaction qualifies to be a sale, will it be charged at the applicable rate of sales tax/VAT. In the case in hand, as the transaction in question amounts to service in the case of indoor patients, Entry 86 will not come in play. The significance of Entry 86 is attracted in the case of outdoor patients when the transaction in question is an isolated transaction of sale of goods in the form of medical equipment/devices and implants. There is no predominance of medical treatment in the said transaction, unlike in the case of indoor patients. Therefore, the provisions of Schedule-IV and Entry 86 are not attracted and applicable in the case of medical treatment given to indoor patients even though, while rendering medical treatment, certain services like supply of medical equipment, devices, installation of implants/lenses is involved.
30. The above said contentions find support from the relied upon judgment rendered by Hon’ble Jharkhand High Court in Tata Main Hospital (Supra) wherein in Paras 25 and 26, it was held as under:-
“25. Considering the facts of the present case, the argument advanced on behalf of the respective parties and the law in the subject noticed above it is to be held that in the present case, the medicines, which are supplied to the indoor patients are administered in course of treatment to those patients in the TMH. Therefore, it appears that the dominant nature test of contract is to provide medical services and in providing such medical services the medicines are administered, surgical items, x-ray plates and films are used, which are incidental to and a part of the medical services rendered by the TMH to the patients and for that the TMH is realizing charges against the head Pharmacy without giving particulars and break-up as to what is the charge being realized for medicines, what is the charge being realized for surgical items and for x-ray films and plates etc. used in course of treatment to those indoor patients and, therefore, it cannot be said that the medicines, surgical items, x-ray films and plates etc, were sold by the TMH to the indoor patients. In fact the supply of those articles were made by the TMH as a part of service rendered by the TMH during the treatment of the indoor patients and, therefore the transaction cannot be said to be ‘sale’ within the meaning of Section 2 (t) of the Bihar Finance Act.
26. The transaction of supply of medicines, vaccines, surgical items, x-ray films and plates etc. to the indoor patients in course of treatment in TMH does not come within the purview of the definition of ‘sale’ as envisaged under Section 2 (t) of the Bihar Finance Act for the following reasons:
(i) Supply of those articles are part and parcel of the treatment and they are essentially required for the treatment of the patients.
(ii) Supply of those articles are incidental to the medical service being rendered by the TMH to the patients.
(iii) Those articles are not being sold to the patients but the cost price of the same being adjusted against the head ‘pharmacy’ and are not being separately charged item wise.
(iv) Charge under the head “pharmacy” is part of the composite charge realized by the TMH towards the treatment of those indoor patients.”
31. The Hon’ble Jharkhand High Court in Tata Main Hospital (supra), has held that during the course of indoor services, predominantly, the services provided are of medical treatment and the same cannot be given a colour of transaction in nature of sale wherein pari-materia Section 2(t) of Bihar Finance Act, 1981 was under consideration. The definition of the dealer is also similar and after considering both it was held that the medical services during the course of treatment rendered to the indoor patients do not qualify as sale and the hospitals can’t be termed as dealer. The said judgment was upheld by the Apex Court.
32. The reliance placed by the respondents upon division bench judgment of Hon’ble Allahabad High Court in International Hospital Pvt. Ltd. (supra), is also worth consideration wherein relying upon judgment of BSNL (supra) and provisions of Article 366 and Article 29A of the Constitution of India, it was held that the supply of medicines, surgical items, vaccines, x-ray items, etc., which were supplied to the indoor patients admitted in the hospital for treatment and for which the hospital realizes charges, does not qualify to be considered as ‘sale‘, but predominantly is a transaction of service.
33. Respectfully following the judgments of both the High Courts, i.e. Jharkhand High Court and Allahabad High Court, which have attained finality upon dismissal of SLP of the Revenue preferred before the Hon’ble Supreme Court and the ratio of judgment being squarely applicable in the present case, this Court is of the view that the transaction in question and the question of law framed above has to be decided against the Revenue.
34. There is one other ground which is worth consideration. The theory of Goods and Service Tax has been introduced w.e.f. 2017 and an integrated tax is imposed but at different rates qua the service and qua the goods under the same set of legislation. In a case of Advanced Ruling under GST Act, 2017, it was held in KIMS Health Care Management Ltd. Kerala: [2018] 99 com 37 (AAR-Kerala) that supply of medicines, consumables and implants used in the course of providing medical health care services to the in-house patients for diagnosis or treatment by the hospital are naturally bundled services and are provided in conjunction with each other as a composite supply and will fall under exemption under the category of health care services and not individually as a goods and will not qualify as supply.
35. It is also noteworthy to mention that the transaction in question was clarified to be a service and exempted under the erstwhile law of service tax wherein vide notification No.25/2012, the health and care services rendered by clinical establishments were exempted and were declared as service and not sale/supply.
36. Learned counsel for the petitioner-Revenue has relied upon judgment in MIOT Hospitals Ltd. (supra) wherein while relying upon Tamil-Nadu VAT Act, 2006, the learned Single Bench of Madras High Court has finally held that the respondents shall exclude the value of medicine from the taxable value but has directed for exclusion of x-ray, C.T. Scan, PET Scan charges. The learned Court has held that the judgment of BSNL Vs. UOI: (2006) 3 SCC 1 cannot be construed as a binding ratio. This Court is entirely in disagreement with the said analogy for the reason that the Hon’ble Apex Court judgments are binding in nature and cannot be commented upon. The judgment of the learned Single Judge is also of contradictory nature where on one hand, the value of medicines are excluded and on the other hand, x-ray and CT Scan charges are included. For the reasons given in the Division Bench orders rendered by Allahabad High Court and Jharkhand High Court, the judgment rendered in MIOT Hospitals Ltd. (supra) is distinguishable.
37. The judgment rendered in Damodarasamy Naidu & Bros. and others (supra) relied upon by learned counsel for the petitioner-Revenue was pertaining to mutant sale under Section 366(29-A) of the Constitution of India to the supply of food and drink in hospitals. The matter was entirely different and not pertaining to medical treatment services. The said case was duly considered in Bharat Sanchar Nigam Limited (supra) along with other judgments of the Apex Court and only thereafter giving the concept of Aspect Theory and Predominant Test, the classification of service and sale was made out. The facts of above case are distinguishable and therefore, not applicable in the present case.
38. In the light of the fact that the case in hand pertains to rendering of health care/medical services and not supply of goods, this Court is of the view that the value recovered by the hospitals towards the cost of medicines, implants, stents, lenses and various other charges towards room rent, supply of food cannot be classifiable as sale or supply of goods but the transaction will be of service on account of Predominant Test/ Aspect Doctrine as reasoned above.
39. In the light of above, the substantial question of law formulated and arising out of the order impugned passed by the learned Tax Board is decided in favour of the respondents-assessees and against the petitioner-Revenue.
40. Consequently, all these Sales Tax Revision Petitions are dismissed. All pending applications stand disposed of in above terms. Cost made easy.
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