2017 (9) TMI 1536 - HC - VAT and Sales Tax

Classification of goods - rate of tax - Blood Collection Monitors - Blood Storage Refrigerators and Deep Freezers - Platelet Agitators with incubators - Plasma Expressers (Electrical and Manual) - Cryobaths - whether the said goods would fall within the ambit and scope of Entry 61 of the III Schedule to the KVAT Act, 2003, which reads as 61. Medical Equipments, Devices and Implants taxable at the rate of 4% or would be taxable at the rate of 12.5% in the Residuary Entry as per Section 4(1)(b)(iii) of the KVAT Act, 2003? Held that - the well settled legal principles for interpretation of various Entries under the Tax Laws are that such Commodities have to be interpreted in the manner in which the persons concerned with that Trade will construe them to be or in other words, the Common Parlance Test or Trade Parlance Test has to be applied while making such interpretations. There is no doubt that the collection of Blood samples and Diagnosis of the various contents of the Blood is a useful and integral part of the Medical treatment and without the Diagnosis of the Blood samples, possibly, the Medical Science as far as Allopathy is concerned, cannot even work. The integrity of the Blood Banks and Blood Bank Equipments with the Medical profession comprising of Diagnosis and treatment of the human beings and animals cannot be doubted and they cannot be separated also. The nature of business of the petitioner-assessee who is a registered dealer with the Respondent Department is nothing except dealing with the Blood Bank Equipments and other Medical Equipments. It was not selling usual Refrigerators or Cold Storages. These Refrigerators are specially designed for storing only Blood samples before or after their processing. Therefore, there is no good reason even to treat the Refrigerators specially designed for Blood samples as not falling within the wide scope of Entry 61, which as quoted above reads as Medical Equipments, Devices and Implants - The other Blood Bank Equipments are undoubtedly covered by Entry 61 of the III Schedule to the KVAT Act, 2003. The goods viz. Blood Collection Monitors, Blood Storage Refrigerators and Deep Freezers, Platelet Agitators with incubators and Plasma Expressers (Electrical and Manual) and Cryobaths are taxable at the rate of 4% under Entry 61 Medical Equipments, Devices and Implants and not in the Residuary Entry of the KVAT Act, 2003 - petition allowed - decided in favor of petitioner.

Summary

Issues:
Interpretation of tax rate applicable to specific medical equipment under the Karnataka Value Added Tax Act, 2003.

Analysis:
1. The petitioner, a company dealing with Blood Bank Equipments and other Medical Equipments, challenged the order of the Commissioner of Commercial Taxes classifying the equipment under the Residuary Entry at 12.5% tax rate instead of the 4% rate under Entry 61 of the KVAT Act, 2003.
2. The petitioner argued that the equipment in question, like Blood Collection Monitors, Blood Storage Refrigerators, and Platelet Agitators, are essential for medical services as they aid in blood collection, storage, and treatment, and should be classified as Medical Equipments under Entry 61.
3. The Revenue contended that the equipment did not qualify as Medical Equipments as per their interpretation, relying on distinctions between Medical Equipments and Blood Bank Equipments based on Wikipedia definitions.
4. The Court applied the Common Parlance Test, emphasizing the integral role of the equipment in medical treatment and diagnosis, rejecting the Commissioner's differentiation between Medical Equipments and Blood Bank Equipments.
5. The Court found the Commissioner's reasoning flawed and emphasized the interconnected nature of Blood Bank and Hospital equipment, asserting that the equipment falls under Entry 61 as Medical Equipments.
6. The Court criticized the Commissioner for not taking a balanced view as required by Section 59(4) of the KVAT Act, highlighting the purpose of avoiding multiple interpretations and unnecessary litigation.
7. Consequently, the Court allowed the writ petition, setting aside the Commissioner's order and holding that the disputed equipment should be taxed at 4% under Entry 61 of the KVAT Act, 2003, as Medical Equipments.