2022 (9) TMI 60 - HC - VAT and Sales Tax

Levy VAT - health care services - supply / sale of goods to patients - implants, surgical items and medicines sold by the respondents - sale or service - whether the same was falling within the ambit of definition of sale as defined under Section 2(35) of the RVAT Act, 2003 or not? - test of predominance - HELD THAT - If the transaction in question is a service, then by no stretch of imagination, the petitioner-Revenue will have power to collect sales tax/VAT on the same. If the transaction in question amounts to sale, the power will be wholly exercised by the petitioner-Revenue as the same will be under their domain. In the case in hand, the respondents are running health care services wherein the patients are categorized primarily in two categories; out patients and in-patients for administrative convenience. The out patients are those who visit a hospital for routine check ups or clinical visits. In-patients are those who are admitted in the hospital for the required treatment. Normally, there is a central pharmacy from where the procured stock of medicines, implants, consumables etc. are supplied to its outlets such as; in-patient pharmacy, operation theater pharmacy and out-patient pharmacy. The in-patient pharmacy and operation theaters pharmacy supplies medicines and consumables only to in-patients - the medicines, implants, room provided on rent used in the course of providing health care services/medical treatment to the patients admitted for diagnosis for treatment in the hospital or clinical establishment are undoubtedly naturally bundled in the main services of medical treatment and it is a composite supply to facilitate health care services. The case in hand pertains to rendering of health care/medical services and not supply of goods, this Court is of the view that the value recovered by the hospitals towards the cost of medicines, implants, stents, lenses and various other charges towards room rent, supply of food cannot be classifiable as sale or supply of goods but the transaction will be of service on account of Predominant Test/ Aspect Doctrine - the substantial question of law formulated and arising out of the order impugned passed by the learned Tax Board is decided in favour of the respondents-assessees and against the petitioner-Revenue. Sales Tax Revision Petitions are dismissed.

Summary

Issues Involved:

1. Whether the sale of implants, surgical items, and medicines by clinical establishments, nursing homes, and hospitals during medical treatment constitutes a "sale" under Section 2(35) of the RVAT Act, 2003.
2. Whether such transactions are subject to VAT under the RVAT Act, 2003.

Issue-wise Detailed Analysis:

1. Whether the sale of implants, surgical items, and medicines by clinical establishments, nursing homes, and hospitals during medical treatment constitutes a "sale" under Section 2(35) of the RVAT Act, 2003:

The court examined whether the transactions involving implants, surgical items, and medicines during medical treatment qualify as "sale" under Section 2(35) of the RVAT Act, 2003. The petitioner-Revenue argued that these transactions should be considered sales, as defined under Section 2(35), which includes any supply or transfer of property in goods during rendering services. They contended that the respondents, while providing healthcare services, sold medical equipment/devices and implants and should have discharged VAT on these transactions. The petitioner-Revenue relied on various judgments, including the Madras High Court's decision in MIOT Hospitals Ltd. and the Supreme Court's judgment in K. Damodarasamy Naidu & Bros., to support their argument that such transactions involve a deemed sale and are liable for VAT.

2. Whether such transactions are subject to VAT under the RVAT Act, 2003:

The respondents argued that the transactions in question are predominantly services and do not qualify as sales. They emphasized that the supply of implants, surgical items, and medicines is incidental to the primary service of medical treatment. They relied on the Supreme Court's judgment in Bharat Sanchar Nigam Limited and Another, which introduced the "Aspect Doctrine" and "Predominant Criteria Test" to determine whether a transaction constitutes a sale or a service. The respondents also cited judgments from the Jharkhand High Court in Tata Main Hospital and the Allahabad High Court in International Hospital Pvt. Ltd., which held that the supply of medicines and surgical items to indoor patients during medical treatment is part of the service and not a sale.

The court analyzed the nature of the transactions and applied the "Predominance Test" and "Aspect Doctrine." It concluded that the transactions involving the supply of implants, surgical items, and medicines to indoor patients during medical treatment are predominantly services. The court held that these transactions are composite supplies where the primary service is medical treatment, and other incidental supplies are bundled into it. Therefore, the transactions do not qualify as sales and are not subject to VAT under the RVAT Act, 2003.

Conclusion:

The court upheld the judgment of the Tax Board, concluding that the transactions involving the supply of implants, surgical items, and medicines during medical treatment are predominantly services and not sales. Consequently, these transactions are not subject to VAT under the RVAT Act, 2003. The substantial question of law was decided in favor of the respondents-assessees and against the petitioner-Revenue. All Sales Tax Revision Petitions were dismissed.