9911796707
TMI Blog1976 (4) TMI 86X X X X Extracts X X X X X X X X Extracts X X X X ..... llowing certain percentage for professional services. . Turnover determined Penalty 1970 - 71 85,66,649-00 3,85,498-00 1971 - 72 98,36,594-00 5,01,052-00 1972 - 73 1,09,88,749-00 5,76,909-00 Break up of figures as later ascertained from the records: 1970 -71: Drugs Rs. 24,87,238 Oxygen Rs. 76,126 Miscellaneous Rs. 12,320 . Rs. 25,75,684 (not income. Eye camp Rs. 3,218 - 71) 1971 - 72: Drugs Rs. 27,87,866 Oxygen Rs. 90,230 Miscellaneous Rs. 9,140 . Rs. 28,87,236 (incl. Value of glases supplied) 1973-74 Total turnover determined: by Assessing Officer . Rs. 63,76213-17 Exemption : . . Blood Plasma Rs. 4,62,192-00 . X-ray Rs. 10,82,317-00 . X-ray Rs. 2,377-00 . . . Rs. 15,46,886-00 . . Rs. 48,29327-17 Taxable at 3 % Rs. 45,02.508-00 . Taxable 7% Rs. 3,25,923-00 . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Technicians were added in 1944 and 1945. A Degree Course in Nursing was started in 1946. The College was affiliated to Madras University in 1950 and Post Graduate Courses in different branches of Medicine were also started besides training programmes in Radiography, Neuro-surgery, etc. The institution was fostered with the zeal of its founder who passed away in 1960. But it continued to grow and in 1962 it was recognised by the Government of India for imparting training to its medical officers and was also recognised by the World Health Organisation and other Voluntary Medical Institutions. Further courses were also introduced with the result that this institution is one of the pioneer post-graduate centres having M.D. and M.Sc. courses in all the major branches of Medicine besides numerous Diploma Courses. The one bedded clinic started by the dedicated Ida Sophia Scudder at the mission compound in Vellore has now grown up as an institution with 1176 beds with various specialities. The institution is engaged in the research activities with the aid of funds from India and abroad with the support of bodies viz., World Health Organisation, ICMR and CSMR. The result of such research in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... school, operation theatre hostels, etc., There is no provision for distribution of any surplus to its members. In fact, the Memorandum does not contemplate any surplus as it provides for availing voluntary contributions, concessions and privileges from Government, State and local authorities and other voluntary associations. Clauses 3 (k) and 3 (1) however say that if any surplus be available, it shall be applied in and towards furtherance of the object, "but not otherwise". Clause 3(1) further specifically provides as under:- "To any surplus made from any activity or any surplus in the hands of the Association solely for the purpose of the Association so that they shall at no time be distributed among the members". The accounts show that the appellant receives grants and donations from India and abroad, besides fees from students and income from Government. It also receives contributions from the patients from various centres of activities like Main Hospital, Eye Hospital, Mental Health Centre, Rural Hospitals, Rehabilitation Institute, etc. But it is the appellant s case that the expenditure actually exceeds the gross income from the students or the patients inasmuch as there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent clinic. Necessary appliances after taking elaborate measurements are made. Trial fitting is done. Then the artificial limb is finished, but the service of the artificial limb does not end there. The patient is given training in the use of the appliances either in the physiotheraphic or artificial therapies units. The concerned Doctor who originally prescribed the appliance is associated both with the approval of the fitting as well as its subsequent use. Even an ordinary orthopaedic shoe cannot be supplied from ready stock and it has to be carefully made while making prosthesis for an amputees leg or hand or calipers for a polio case which require high skill. The workshop is manned by qualified engineers and artisans. The charge, it is claimed, merely includes the cost of materials, labour and overheads for making and fitting as well as the professional skills involved throughout out the process and there is no profit at any stage. On the other hand, the patient does not receive merely an artificial limb or the appliances as mere goods but receives attention and training of competent medical and engineering staff. There is no supply to an outsider. Hence, it is the appellant s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... merce, manufacture, adventure or concern is carried on with a motive to make gain or profit and whether or not any profit accrues from such trade, commerce, manufacture, adventure or concern; and (ii) any transaction in connection with, or incidental or ancillary to, such trade, commerce, manufacture, adventure or concern." It is further submitted that the definition of the word "business" (under the Industrial Disputes Act) is wider and that with such a definition, the Labour Court had come to the conclusion that it cannot be an industry following the decisions of the Supreme court in Safadrajung Hospital, New Delhi vs. K.s. Sethi; M/s. T.B. Hospital, New Delhi vs. Workmen and Kurji Holy Family Hospital vs. The State of Bihar(1). The Supreme court had concluded that Safdarjung Hospital did not embark on any economic activity which can be said to be analogous to trade or business. It found that it was nothing more than a place "where persons can get treated." T.B. Hospital, besides being a charitable institution was primarily intended for research and training, and that the hospital with beds had to be maintained only for the purpose of such research and training. It was furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t a solicitor who draws up a document on the instruction of a client or an architect who draws a plan does not "sell" the papers which are handed over. What the client pays for is not for the chattel embodied in the papers received but the payment for professional consultation and advice, (Vide Benjamin s sale of Goods Act (1974 Edn.) Para 39 Sweet Maxwell Publication Number 11) The payment of the charges for prescription, it is submitted, is not different. Hence the alternative contention of the appellant is that no sales are involved. According to him, the supplies treated as alleged sale of drugs, oxygen, anithia, glasses, blood, X-rays, artificial limbs, diet, etc., would clearly constitute treatment of patients and not sales. In this view, he contended that we are left with sales of discarded miscellaneous items which he claimed included apparently supplies of glasses for eye hospital and similar such supplies. If these are removed, he contended, the miscellaneous sales of really discarded materials would be less than the taxable minimum practically for all the years. At any rate such sales were claimed to be not " in the course of business" 7. The appellant had still anot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dentures, artificial limbs, diet charges (where catered by the institution itself like the appellant and not by contractors), X-rays etc, and charges for blood, anesthesia and oxygen which by no stretch of imagination could be treated as sale as they are actually administered to patients, A demand of 40 laks by way of tax and penalty were raised and coercive action sought to be taken when the demand even if all the legal arguments of the appellant were not accepted, could not have exceeded Rs. 1,500. These facts, he submitted would speak for themselves. 8. Thiru J. Venugopal, the learned State Representative on the other hand opposed each of the arguments raised in favour of the appellant. According to him the appellant was a dealer for more than one reason. He claimed that the object of the association is " the establishment, maintenance and development of a Christain Medical College and Hospital in India". He claimed that Clause 3(n) authorising the association "generally to do all such acts and things as may seem to the association to be convenience and conductive to the carrying out of the objects of the association" enables the association to do its business. He also pointe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... larly exhaustive. The explanation (i) to the definition of clearly includes an association which buys, sells supplies or distributes goods even if it is to its members. In view of such statutory definitions of "business" and " dealer" he claimed that there is hardly any case for the appellant. He also cited the recent decision of the Supreme Court in the case of Northern Railway(5) pointing out that the Supreme Court stressed that the very activity of disposal of discarded material may constitute business by virtue of definition of business, even in the case of Government Railways. After all, the appellant had sought and obtained exemptions for part of its sales by its own petitions only because the appellant itself had no doubt that the sales were otherwise liable to tax. He therefore claimed that it is not too late in the day to question the basic assumption that the appellant is a dealer. 9. The learned State Representative next dealt with the plea that there has been n sale involved and that there is mere prescription and supply as part of treatment of patients. He submitted that even granting that the supplies of medicines can be part of treatment, it was not so in appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he sales by the Hospitals, Nursing Homes and Dispensaries run by the Govt. or private persons, or artificial limbs fitted by them to their patients from the liability to tax under the Madras General Sales Tax Act 1959." This preamble to the notification which is styled as an order of the Government clearly contemplates exemption even for private hospitals and Nursing Homes which are apparently run on profit motive. The learned State Representative s only argument in reply to the same is that the preamble is not part of the notification and that we are limited to interpret the words of the Notification as such which according to him do not spell out exemption. He also argued that even if we were to hold that the appellant is entitled to exemption on its sales under the terms of Notification not all its sales would be so exempt. Sales of miscellaneous items, sales of glasses etc., are not automatically covered. This submission, he was careful enough to add, was alternative in nature and it is the Department s case that the entire assessment are justified. 11. Penalties were also levied and this was stoutly opposed by the learned counsel on more than one ground. He argued that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been granted obviously for the same reason, though the very exemption is now sought to be utilised by the Revenue to say that it would be taxable on rest of the sales hitherto not taxed nor attempted to be taxed. As pointed out before us by a battery of documents and evidence, the institution as far as we can see has kept up the high aspirations of its founder late Ida Scudder and the object as incorporated in Clause 2 of its memorandum of association. We are unable to agree with Revenue that Clause 3 (n) with authorises the association to do all other "acts and things" are wide enough to include business. We find that business has not been mentioned in any of its clauses. Clause 3 (n) has to be read with other clauses and in our opinion it is an enabling provision found in such documents relating to public institutions in order that the powers to carry out the objects are not unduly restricted. Clause 3 (n) reads as under:- "Generally to do all such other acts and things as may seem to the association to be convenient and conducive to the carrying out of the object of the Association." It clearly shows that the Clause 3(n) hardly contemplated any activity outside the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Hospital in the same judgment was stated to be not an industry because it was primarily an institution for research and training. Treatment in the case of T.B. Hospital was considered as part of the research and training. The fact that such treatment was charged for too made no difference. Similarly the fact that the surplus is not to be distributed to members has been considered a very important consideration in judging whether an institution is a public one or not under the various laws. While we have no doubt in holding that the appellant is a public institution with service as its motto, we do agree that it is certainly possible for a public trust or institution to carry on business either in violation of its declared objects or even while carrying on its objects (eg. An Institution with the object of rehabilitating blind persons conducting a workshop for them). It can be a dealer qua certain activities. We have therefore, to consider whether any of the activities undertaken by the association can be taken to the business in this sense not withstanding the fact that there is clearly no profit motive. Profit motive is not always necessary to constitute business. In fact s.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discarded materials. A person running a Cinema House may be treated as a dealer though his primary purpose is not one of sale but running of entertainment business. We consider it quite possible that a person who is primarily in profession (medical) can also be a dealer when he is in such profession either with the object of earning profit or providing for himself a business occupation and carries on buying or selling activity. We therefore, agree with the learned State Representative that the word business should be given the largest connotation. But the mere activity of selling or purchasing will not constitute business unless there are commercial characteristics attached to such activities. These principles, in our opinion, are well established and in this context, it is not necessary to consider all the decisions cited by both the sides before us and which form part of our records and the written submission submitted by both the parties. A householder s purchasing grocery or selling old newspapers regularly does not become business merely by such activities. It is because Act of buying grocery or the Act of selling the old newspaper is not a business Act but primarly an Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or regular feature of an activity or its volume and frequency may not be decisive on the question whether a particular transaction is a sale by a dealer, the real point is whether at the point of purchase of the goods in question, the person concerned entertained the object of selling them or supplying them in a commercial way and if such an intention is discernible in the conduct of the buyer even at the inception and if the goods so purchased are dealt with by him and commercial course of his business and ultimately integrates the same with a sale, then such a transaction would come within the net of taxation. This is so because his primary intent to sell the same when he purchased it lends support and colour to the transaction as sale by a dealer within the meaning of taxation laws." The above principle laid down in the case of Deputy Commissioner of Commercial Taxes vs. Thirumal Mills Ltd(9) by the Madras High Court had also been approved by the Supreme court, though the decision itself was on another ground relating to prospective nature of amendment relating to incidental sales. It has been so observed in the judgement of the Delhi Court in East India Hotels Ltd. vs. Addl. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng a private medical practitioner who is in his profession for earning his livelihood with a training and research institution like that of the appellant. Again whether supplies of medicines would be part of the treatment or merely sales is a question of fact to be decided in each case. We do find reputed medical practitioners having a dispensing section or rendering service by way of supply of blood etc., as part of the treatment though separate charges may be collected for consultation, treatment and for medicine. It is well established that as long as these supplies are made only to patients as part of treatment, the fact that separate charges are made for medicine does not involve a divisible sale of medicine. One should consider this proposition to be well established in view of the authorities quoted from English law from Benjamin s "sales". such a view was adopted by the Punjab High Court in Kaviraj Pandit Durga Datt Sharma s(13) case. The Orissa High Court held the same view when X-ray photographs were supplied by a radiologist in the case of Mr. Golak Behari Mohanty(14). In fact the Supreme Court of India in the case of Commissioner of Sales Tax vs. Suridev considered that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounting with reference to cost for medicines. It is also fallacious to assume that blood, oxygen, anesthetic drugs etc., are sold to patients just because separate charges are made. Administration of blood by means of transfusion and similar administration of anesthetic drugs are specialised tasks among the Doctors. Certainly, a non-medical person does not possess the skill or the authority to handle such work. Hence there cannot be any supplies of blood, anesthesia etc., without actual administration thereof. Mere charging for blood as separate from other charges does not make the sale of a divisible one, because notwithstanding separate charges, administering service and skill s is automatically implied in the charges of oxygen, blood, anesthesia etc. It is common ground that the appellant does not supply oxygen, blood or anesthetic drugs to any persons other patients of the Hospital. In this context the learned State Representative cited a recent decision of the Supreme Court in the case of District Controller of Stores, Northern Railway vs. Assistant Commercial Taxation Officer(15) which considered that the activity in the selling of unserviceable material and scrap iron by its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the specific exemption granted involves a similar recognition on the part of the State. This is neither here nor there. No attempt was either made to tax the sale as it was considered exempt as no sale at all or exempt under Notifications available for all hospitals and Nursing Homes. When a small part of the sales was suspected to the taxable for some reasons or the other appellant approached for exemption and was readily granted. No special inference need be drawn from the same. Even assuming that the appellant admitted itself to be a dealer it does not debar the appellant from raising the plea now as long as it can show that is was really not a dealer. There is no estoppel involved. Under the circumstances we must hold that the appellant is not a dealer. On this finding alone, the appellant is entitled to succeed for all the years. However we consider it expedient to consider the alternative contentions also. 14. The next alternative question is whether there has been any sale involved. No doubt a sale did take place in the case of miscellaneous goods such as discarded materials,. But we find that no sale is involved where drugs, oxygen, blood, anesthesia and artificial li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sentative no doubt cited authorities showing that a Doctor can be a dealer and we have no doubt about the correctness of this general proposition but in this case the Hospital does not undertake the normal commercial operations for sale and the supplies here are part of treatment. The English law from Benjamin on Sale clearly shows that ordinary medicine dispensed by the doctor cannot be a sale. It does not become divisible as is suggested by the learned State Representative if separate charges are collected one for consultation and the other for "medicines". The charge for medicine is also really a charge for medicine is also really a charged for treatment in-as-much as a doctor does not offer the medicine at market rate or at a uniform margin for profit. He does not also offer them to anyone other than patients. The cost of medicine certainly involves compensation for treatment or administration as in the case of injection. In the case of the appellant some costing is done but the ultimate charge is less than the amount for which it is coasted and not more. At any rate we have no doubt that in the light of the facts of the appellant s case, not only drugs but even the supplies of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the appellant is a dealer, the sales of miscellaneous articles will not be liable for most of the years except for assessment years. 1969-70 and 1970-71 besides 1973-74 (because of typewriter sale), since the total turnover of such items falls below Rs.25,000 for other years. For assessment years. 1969-70 and 1970-71 there is marginal liability since the limit then was Rs.15,000. Of course, in the view taken here, there are no sales of drugs or other articles involved. At any rate, having held that the appellant is not a dealer and it is not in business, it is immaterial for us to consider whether the sales of discarded materials are sales which are incidental, ancillary or in connection with any business. In this view, we do not go into the break-up of such receipts and give any specific finding, which, in our opinion, is unnecessary in view of our earlier findings. The authorities have merely included all miscellaneous receipts, even if the appellant were a dealer it would have been necessary to show that these receipts are incidental, ancillary or in connection with the appellant s business. 17. The next alternative contention is found to clinch the appellant s claim. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the exemptions are notified as part of the statute. The authorities made no attempt to tax either the appellant or any private medical practitioner in the light of the same. It is now lamely suggested that the preamble is no part of the order and that the appellant does not run hospitals and the college "by paid medical practitioners". We must say that we are not at all impressed with these arguments. The appellant has no doubt established Christian Medical Colleges, Hospitals, and allied institutions but it will be totally incorrect to say that it is not being run by paid medical practitioners". The only argument for making such a preposterous claim is that it is run by an Association and it cannot therefore, be run by "paid medical practitioners". The confusion is between ownership and management. The Notification is concerned only with the later. We have therefore, no doubt that the appellant is exempt on sale of drugs and other goods by the terms of Notification, whether we look to the preamble or not. But it is not necessary for us to ignore the preamble which is styled as order. We do not consider it fair on the part of the learned State Representative to ask us to close ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpose penalty will be justified in refusing to impose penalty when there is a technical or venial breach of the provisions of the Act of where the breach follows from a bona fide belief that the offender is not liable to Act in the manner prescribed by the statute. Those in charge of the affairs of the company in failing to register the company as a dealer acted in the honest and genuine belief that the company was not a dealer. Granting that they erred, no case for imposing penalty was made out." This passage which lays down the basic requirements for levying penalty, is an essential part of Sales Tax Law, Income Tax Law as well as other laws relating to other fiscal offences. A number of citations were given by both the learned State Representative and the counsel for their respective positions. But the basic requirement as mentioned in the above passage remains. The offence should have been either in deliberate defiance of law or the tax payer should have been guilty of contumacious or dishonest conduct or he should have acted in conscious disregard of its obligation. The breach should not be technical or venial and should not have flown form a "bona fide belief", though such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ramakrishna Tapovanam, Salvation Army Women and Children s Home, Gandhigram Rural Institute, Hind Kusht Nivarana sangh, Bharat Sevak Samaj, etc. have been exempted out of benevolence of the Government even where some of these institutions could possibly be considered to be carrying on business for some purpose or other. The appellant itself had been exempted for two of its undertaking in G.O. : Nos. 258 dated 28th January, 1970. Even if sales of medicines etc., were sales in the course of business and not covered by existing Notifications as wrongly assumed by the authorities it would have still been an eminently fit case for exempting such sales just as the Government itself thought of exempting sales of Navejeevan Nilayam and Audio Visual Unit which are part of the appellants. The Government did not probably think of hitherto exempting the value of supplies of medicines, glasses, oxygen etc. Only because the appellant did not apply for exemption in the belief that it was not liable for the various reasons with which we are in agreement now and the authorities also apparently thought so for all the years. In view of the history of the institution similar exemptions granted and the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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