2002 (12) TMI 587 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether hospitals are "dealers" u/s the Kerala General Sales Tax Act.
2. Distinction between medical practitioners and hospitals/dispensaries.
3. Liability of hospitals to take registration and pay tax on the turnover of sale of medicines.
4. Validity of increased registration fees u/s 14 of the Act.
5. Applicability of compounded rate for registration fee.

Summary:

1. Whether hospitals are "dealers" u/s the Kerala General Sales Tax Act:
The core issue is whether the supply of medicine to patients in the course of treatment constitutes a "sale," thereby classifying hospitals as "dealers" u/s the Kerala General Sales Tax Act. The court concluded that hospitals, by supplying medicines as part of their services, engage in activities that meet the definition of "dealer" due to the volume, frequency, continuity, and regularity of such transactions.

2. Distinction between medical practitioners and hospitals/dispensaries:
The court clarified that medical practitioners dispensing medicines from their own dispensaries are exempt from being classified as "dealers" u/s the Act, as per Notification SRO No. 1090 of 1999. However, this exemption does not extend to hospitals and clinics, which are organized entities often owned by companies, trusts, or individuals, and not solely by doctors.

3. Liability of hospitals to take registration and pay tax on the turnover of sale of medicines:
Hospitals are required to register and pay tax on the turnover of medicines sold, as the supply of medicines is a significant and integral part of the medical services provided. The court rejected the argument that the supply of medicines is merely incidental to medical services, emphasizing that it constitutes a primary activity in hospitals.

4. Validity of increased registration fees u/s 14 of the Act:
The court upheld the amendment to section 14 of the Act, which increased the registration fee based on turnover, with a maximum limit of Rs. 20,000. It was determined that the fee is justified by the services rendered by the sales tax department and the administrative costs involved. The principle of quid pro quo was deemed satisfied, and the fee was not considered arbitrary or unreasonable.

5. Applicability of compounded rate for registration fee:
The court acknowledged the petitioners' concern regarding the compounded rate for registration fees but stated that this does not invalidate the slab rate system. Petitioners not enjoying compounding facilities cannot challenge the registration fee based on compounded rates.

Conclusion:
The court directed that the enforcement of the statute against hospitals should commence from the financial year 2001-2002. Hospitals were given three months to apply for registration, file returns, and comply with statutory provisions without penalty or interest for the delay, provided they adhere to the specified timeframe. The original petitions were disposed of accordingly.