Case Law Details
U.P. Medical Supplies Corporation Ltd. Vs Union of India (Allahabad High Court)
The Allahabad High Court has stayed a substantial GST demand of ₹209.33 crores imposed on U.P. Medical Supplies Corporation Ltd., a state-owned entity that procures and supplies medicines exclusively to government hospitals. The corporation challenged the GST authorities’ claim that such transactions constitute a “supply” under Section 7(1)(a) of the CGST Act, 2017. The petitioner argued that it does not earn profit but merely receives centage (a service charge) from the government to cover operational expenses. While the corporation has paid GST on the centage, it disputes the broader liability imposed on the total value of medicines and liquidated damages received.
The key legal issue in the case revolves around the interpretation of “supply” under Section 7(1)(a). The corporation contends that its transactions do not fall within the definitions of sale, transfer, barter, or exchange as mentioned in the law. The High Court acknowledged the complexity of this issue, emphasizing that constitutional courts must decide such fundamental taxability questions, rather than relying solely on statutory appeals. Given the significant financial implications and legal uncertainty, the court stayed the enforcement of the GST demand and invited further arguments from both parties. It held: (i) whether there is a “supply” in terms of section 7 of the Act is a legal issue to be considered by the court; (ii) the said issue has not been considered by the adjudicating authority; (iii) alternate remedy is not a bar in entertaining the writ petition when legal issue is involved having far reaching consequences; (iv) considering the issue involved stays the operation of the impugned order; directs the department to file counter affidavits. The case is scheduled for hearing in February 2025.
The matter was argued by Ld. counsel Bharat Raichandani
FULL TEXT OF THE JUDGMENT/ORDER OF ALLAHABAD HIGH COURT
Heard Shri Bharat Rai Chandani, learned counsel appearing for the petitioner, Shri Rajesh Tiwari, learned Additional Chief Standing Counsel for the State, Shri Anuj Singh, learned counsel for the opposite parties no. 4 and 5, Shri Kuldeep Srivastava, learned counsel for the opposite party no. 3 and Shri Mohit Chandra holding brief of Shri Puneet Chandra, learned counsel for the opposite party no. 7.
In nutshell the contention of the petitioner’s counsel is that the petitioner is a Government Corporation wholly owned by the State of Uttar Pradesh which procures medicines and supplies them only to government hospitals. It receives only centage from the Government for the aforesaid transactions for meeting its expenses. It does not earn any profit nor receives any other consideration from the State Government. It is not liable to tax under the CGST Act, 2017. Though, the petitioner has paid tax under the said Act on the centage part even though it was not payable, that by itself does not preclude it from challenging its alleged liability under the Act, 2017. Moreover, not only the centage but the entire value of the medicines procured by the petitioner for being provided to government hospitals as also liquidated damages received by it is sought to be made liable to tax under the Act, 2017.
Section 7 (1)(a) of the Act, 2017 reads as under:
“7. Scope of supply. (1) For the purposes of this Act, the expression “supply” includes–
(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;”.
According to the petitioner’s counsel, the supply of goods referred in Section 7 (1) (a) of the Act, 2017 has to be a sale, transfer, barter, exchange, licence, rental, lease or disposal, which the transactions in question, are not, an aspect which has not been considered in the impugned orders.
Prima facie, unless and until the transactions fall within the meaning of ‘supply’ under Section 7 (1) (a) of the Act, 2017 the petitioner cannot be made liable under the Act, 2017.
Whether the words – ‘all forms of supply of goods’ are to be given a restricted meaning in the light of the succeeding words – ‘such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business’ or it has to be given an expanded meaning so as to include all forms of supply including those not specifically mentioned in Section 7 (1) (a) of the Act, 2017, and whether the supply of medicines by the petitioner to government hospitals is covered under Section 7(1)(a) of the Act, 2017 is the issue to be considered.
Let the learned counsel for the parties address the Court on this issue.
Counsel for the opposite parties seek time to file counter affidavit.
Considering the legal issues involved especially as interpretation of Section 7 (1) (a) and other provisions of the Act, 2017 may be required to decide the liability of the petitioner to tax under the said Act, 2017 and as this may have far reaching consequences, therefore, availability of appeal under the statute cannot be said to be an efficacious remedy in the facts of this case as such issues are required to be decided by a constitutional court. We, accordingly, entertain the writ petition subject to any further objections in this regard at the time of final hearing and also stay the impugned orders as the matter requires consideration and as huge financial liability of Rs.209,33,05,900/-(Rupees Two Hundred Nine Crores Thirty Three Lakhs Five Thousand and Nine Hundred) has been imposed upon the petitioner which is a government corporation engaged in the activity of procuring and supplying medicines to government hospitals.
Let counter affidavit be filed by the opposite parties within a period of four weeks.
Rejoinder affidavit, if any, may be filed within a period of two weeks thereafter.
List in the 1st week of February, 2025.
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