1976 (4) TMI 86 - AT - Income Tax

Summary

Issues Involved:

1. Whether the appellant is a "dealer" under the Tamil Nadu General Sales Tax Act, 1959.
2. Whether the activities of the appellant constitute "business" under the Act.
3. Whether the supplies of drugs, oxygen, blood, anesthesia, artificial limbs, etc., constitute "sales."
4. Applicability of exemption notifications to the appellant.
5. Legality and justification of penalties imposed under Section 12(3) of the Act.

Issue-wise Detailed Analysis:

1. Whether the appellant is a "dealer" under the Tamil Nadu General Sales Tax Act, 1959:

The appellant, Christian Medical College Vellore Association, argued that it is not a "dealer" as defined under the Tamil Nadu General Sales Tax Act, 1959. The Tribunal examined the appellant's Memorandum of Association, which states the objective of providing medical education and health services without a profit motive. The Tribunal noted that the appellant's activities align with its charitable and educational objectives, and there is no provision for distributing surplus to its members. The Tribunal also considered the Supreme Court's decision in Safdarjung Hospital, which held that similar institutions are not "industries" under the Industrial Disputes Act due to their non-commercial nature. Consequently, the Tribunal concluded that the appellant is not a "dealer" under the Act.

2. Whether the activities of the appellant constitute "business" under the Act:

The Tribunal analyzed whether the appellant's activities could be classified as "business" under Section 2(d) of the Act, which includes any trade, commerce, or manufacture, regardless of profit motive. The Tribunal found that the appellant's activities, including the supply of medicines, artificial limbs, and other medical services, are integral to its primary objective of providing medical education and health services. The Tribunal emphasized that the appellant's operations lack commercial characteristics and are not intended for profit. Therefore, the Tribunal held that the appellant's activities do not constitute "business" under the Act.

3. Whether the supplies of drugs, oxygen, blood, anesthesia, artificial limbs, etc., constitute "sales":

The appellant contended that the supply of drugs, oxygen, blood, anesthesia, artificial limbs, etc., to patients is part of the medical treatment and not a sale. The Tribunal agreed, noting that these supplies are administered as part of the treatment process and are not sold to outsiders. The Tribunal cited English law and Indian case law, which support the view that supplies made by medical practitioners as part of treatment do not constitute sales. The Tribunal concluded that the supplies in question are not sales but are integral to the treatment provided by the appellant.

4. Applicability of exemption notifications to the appellant:

The Tribunal examined various government notifications exempting sales of medicines, artificial limbs, X-rays, etc., by hospitals and medical practitioners. The Tribunal found that these notifications apply to the appellant, as it is a hospital run by medical practitioners. The Tribunal rejected the Revenue's argument that the appellant is not covered by the notifications because it is managed by an association. The Tribunal emphasized that the notifications' preambles and the intent to exempt such supplies support the appellant's case. Therefore, the Tribunal held that the appellant is entitled to exemptions under the relevant notifications.

5. Legality and justification of penalties imposed under Section 12(3) of the Act:

The Tribunal considered the penalties imposed on the appellant for alleged willful failure to submit returns. The Tribunal referred to the Supreme Court's decision in Hindustan Steel Ltd., which established that penalties should not be imposed for technical or venial breaches or when the taxpayer acted under a bona fide belief. The Tribunal found that the appellant had a genuine belief that it was not liable to tax, supported by the authorities' past non-action and the exemptions granted. The Tribunal concluded that the penalties were unjustified and should be annulled.

Conclusion:

The Tribunal allowed all six appeals, holding that the appellant is not a dealer, its activities do not constitute business, the supplies in question are not sales, the appellant is entitled to exemptions, and the penalties imposed were unjustified. Consequently, the assessments were annulled.