2018 (9) TMI 806 - HC - VAT and Sales Tax

Levy of Tax - health care services provided by the petitioner to indoor patients in the hospital - Held that - The present petition deserves to be allowed while setting aside the order of assessment dated 10.06.2017 (Annexure P-2) as the same is squarely covered by the judgment of Division Bench of this Court passed in M/s Fortis Health Care Limited s case 2015 (2) TMI 1014 - PUNJAB & HARYANA HIGH COURT , where it was held that the medicines in the health care services provided to the indoor patients is not taxable as the amount charged cannot be bifurcated to cull out amount of sale of medicines, even if the amount is separately charged for pharmacy, laboratory services, implants services provided by the doctors as it is a composite medical service provided - petition allowed - decided in favor of petitioner.

Summary

Issues involved:
1. Impugning assessment order regarding tax on health care services provided to indoor patients.
2. Interpretation of taxability of medicines in health care services.
3. Consideration of conflicting judgments from different High Courts.
4. Application of dominant nature test to determine taxability under VAT Act.
5. Relevance of judgment from Kerala High Court in the context of the present case.

Analysis:
1. The petitioner challenged an assessment order levying tax on health care services provided to indoor patients. The petitioner relied on a Division Bench judgment where it was held that medicines in health care services are not taxable as they are part of a composite medical service. The State did not dispute this judgment but mentioned a pending Special Leave Petition before the Supreme Court and cited conflicting views from the Kerala High Court. However, no interim stay was granted by the Supreme Court regarding the Division Bench judgment. The High Court allowed the petition, setting aside the assessment order as it was covered by the Division Bench judgment.

2. The High Court referred to the Division Bench judgment in M/s Fortis Health Care Limited's case, which followed a judgment from the Jharkhand High Court. The judgment emphasized that for a transaction to attract VAT, it must qualify as a sale under the Sales of Goods Act, 1930. The court clarified that the supply of medicines, implants, and other items during medical procedures is integral to the service and cannot be considered a separate sale under the VAT Act. The court rejected the argument that the definition of sale in other state statutes differed, stating that the essence of the definition remained the same.

3. The High Court dismissed the State's reliance on the Kerala High Court judgment, stating that the Division Bench judgment had already considered it. The court reiterated that the supply of medicines and other items in medical services is not severable for VAT purposes and falls under the category of services, not sales. The court emphasized that the dominant nature test must be applied to determine taxability under the VAT Act, focusing on the substance of the contract rather than individual components of the service.

4. The High Court concluded that the medical services offered by the petitioner are services, and the supply of drugs, medicines, implants, and other items is integral to these services. The court held that these items cannot be severed to imply a sale under the Punjab or Haryana VAT Act, making them not liable for value-added tax. The court allowed the writ petition based on the Division Bench judgment, leaving other legal issues raised in the petition open for consideration in future cases.