2021 (9) TMI 421 - HC - VAT and Sales Tax

Classification of goods - rate of tax - sales of certain equipment treated as hospital equipment or hospital furniture instead of treating them as medical equipment - taxable at @ 14.5% or 5% under Entry 111 of IV schedule to the A.P. Value Added Tax, 2005? - HELD THAT - The tax or fiscal statutes shall be interpreted with reference to strict letter of law but not merely to the spirit or the substance of the law. In case when two constructions are possible, that one favourable to the tax payer has to be adopted. With this principle, it has now to be seen whether the different varieties of hospital equipments sold by the petitioner fall within the groove of medical equipment/device/implants as mentioned in Entry 111 of Schedule IV or fall under the term furniture so as to be charged under the residuary entry of Schedule V of the AP VAT Act, 2005. The term medical equipment/device/implants is not defined under the Act. The simple words equipment/device/implant may refer to any type and any purpose if they are not qualified by the important prefix medical . Therefore, it is important and germane at this juncture to derive the meaning of the word medical which governs the rest of the words. Testing on the anvil of medical purpose, there can be no demur to emphasise that hospital beds are customized or tailor-made to suit the diagnostic tests, treatment process and also for post-operative care and comfort of a patient. Though for argument sake one may say that a hospital bed can also be used as furniture at home, still it is a misfit to be called as furniture, for, home furniture is meant for elegant and decorative purposes. The same is the case with OT lights. These OT lights are also customized to provide LED (Light Emitting Diode) technology, Shadow less illumination, free rotation etc. to be used in diagnostic and treatment process. By no stretch of imagination the OT lights can be said to be part of home furniture - in substance, while hospital beds and OT lights satisfy the term medical equipment , bedside cabinets and lockers do not. Thus, it is concluded that those equipments, devices and implants which partake in the process of diagnosis, treatment, cure and care of the patients either directly or indirectly, will alone come under Entry 111 of Schedule IV of the AP VAT Act, 2005. Whether a particular equipment, device or implant fulfils the aforesaid test is a question of fact to be determined on case-to-case basis. The batch of writ petitions are partly allowed by setting aside the impugned assessment orders with a direction to the concerned Assessing Authorities to pass the fresh assessment orders by including the hospital beds and OT lights in Entry No.111 of Schedule IV and bedsides lockers/cabinets in residuary entry of Schedule V of the AP VAT Act, 2005.

Summary

Issues Involved:
1. Classification of hospital equipment for tax purposes under the A.P. VAT Act, 2005.
2. Determination of applicable tax rates for different types of hospital equipment.
3. Interpretation of the term "medical equipment/devices and implants" under Entry 111 of Schedule IV.

Detailed Analysis:

1. Classification of Hospital Equipment for Tax Purposes:

The petitioner filed ten writ petitions challenging the assessment orders passed by the 3rd respondent, which treated sales of certain equipment as hospital equipment or hospital furniture instead of medical equipment. The petitioner argued that the equipment sold, such as ICU beds, fowlers beds, semi-fowler hospital beds, emergency stretcher units, patient examination beds, and physiotherapy beds, should be taxed at 5% under Entry 111 of Schedule IV of the A.P. VAT Act, 2005, rather than 14.5% under the residuary Schedule V. The respondents contended that the equipment in question is hospital furniture and not medical equipment, and thus, should be taxed at 14.5%.

2. Determination of Applicable Tax Rates:

The core issue revolves around whether the equipment sold by the petitioner falls under the category of "medical equipment/devices and implants" as per Entry 111 of Schedule IV, which is taxed at 5%, or under the residuary entry of Schedule V, which is taxed at 14.5%. The petitioner argued that the equipment is specifically designed for use in either diagnosis or treatment of patients, and thus should be categorized as medical equipment. The respondents, however, maintained that items like hospital beds, racks, lockers, and OT lights are hospital furniture and do not qualify as medical equipment.

3. Interpretation of the Term "Medical Equipment/Devices and Implants":

The court noted that the term "medical equipment/devices and implants" is not defined under the A.P. VAT Act, 2005. Therefore, a purposive construction of the statute is essential. The court referred to various judgments and dictionaries to interpret the term "medical," concluding that it is associated with diagnosis and treatment of injury or illness either directly or indirectly. The court emphasized that the purpose for which the equipment is manufactured is crucial in determining its classification.

The court examined the specific equipment in question:
- Hospital Beds and OT Lights: These are customized for diagnostic tests, treatment processes, and post-operative care, thus qualifying as medical equipment under Entry 111 of Schedule IV.
- Bedside Cabinets and Lockers: These do not partake in the main task of diagnosis or treatment and can be used as home furniture. Therefore, they do not qualify as medical equipment and should be categorized under the residuary entry of Schedule V.

The court supported its conclusions with relevant case law, including:
- Commissioner of Sales Tax v. Associated Dental & Medical Supply Co.: The court held that dental chairs, designed for proper dental treatment, cannot be regarded as furniture but as medical equipment.
- Imperial Surgico Industries v. Commissioner of S.T., U.P.: The court ruled that items like bedside lockers and instrument tables, although used as furniture, are hospital equipment due to their specific use in medical settings.

The court dismissed the relevance of the respondents' cited case, Deputy Commissioner of Agricultural Income Tax and Sales Tax v. E.V. Industries, as it did not address a similar statutory context.

Judgment:

The court concluded that equipment partaking in the process of diagnosis, treatment, cure, and care of patients either directly or indirectly falls under Entry 111 of Schedule IV. The court directed the Assessing Authorities to reassess the tax liability, including hospital beds and OT lights under Entry 111 of Schedule IV and bedside lockers/cabinets under the residuary entry of Schedule V.

Result:

The batch of writ petitions was partly allowed, with the impugned assessment orders set aside and directions issued for fresh assessment orders. No costs were awarded, and any pending interlocutory applications were closed.