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TMI Blog2015 (2) TMI 1014X X X X Extracts X X X X X X X X Extracts X X X X ..... ld to involve a sale . The power to impose sales tax/VAT flows from Entry 54 of List II of Schedile VII and Article 366(29-A) of the Constitution, the latter assigning the status of a deemed sale to transactions where one or the other element of sale is missing, but where the element of sale is altogether missing and the transaction does not fall within any of the clauses of Article 366(29-A) of the Constitution of India, a State shall not be empowered to levy of value added tax on such a transaction. For the purpose of attracting VAT, a transaction or a part thereof, which is essentially a service would have to qualify as a sale within the meaning of Sales of Goods Act, 1930 or the definition of sale. The fiction of a deemed sale applies only to such situations as would fall within the sub-clauses of Article 366(29-A) of the Constitution of India which permit severance of the service element from the sale element and empowers the State to tax the element of sale. A perusal of Article 366(29-A) of the Constitution of India does not enable us to record an opinion that it covers services provided by hospitals. Before such a transaction is put to tax, whether under the Haryana or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Civil Writ Petition Nos. 1922 to 1924 of 2012 - - - Dated:- 23-1-2015 - Rajive Bhalla And Amit Rawal,JJ. For the Appellants : Mr N Venkatraman, Sr. Adv., Mr Amit Aggarwal, Adv., Mr Aashish Gupta, Adv. Mr Piyush Kant Jain, Addl A G, Punjab, Mr M P Devnath, Adv. Mr Sandeep Goyal, Adv. For the Respondent : Ms Tanisha Peshawaria, DAG, Haryana JUDGMENT Rajive Bhalla,J. By way of this order, we shall decide Civil Writ Petition Nos.1922, 1923,1924 of 2012, 241 and 18604 of 2014 and VAT Appeal No.74 of 2011, filed by M/s Fortis Health Care Limited and another, Civil Writ Petition Nos.23290 of 2012, 28498 of 2013, filed by M/s Escorts Hospital and Research Centre, Faridabad and Civil Writ Petition No.17117 of 2014, filed by International Hospital Limited, as they involve answer of the same question of law, namely, exigibility of medicines, drugs, stents, valves, implants and other consumables and incidentals provided to patients during a medical procedure/treatment to value added tax. The petitioners have taken different routes for arriving before this Court and though they essentially canvass the same point and pray for the same relief, it would be necessary to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 10.08.2005, held that medicines, implants, stents, etc. administered to a patient during a medical procedure like open heart surgery, angiography, knee surgery, hip replacement etc., are a sale under the Punjab VAT Act, 2005 and, therefore, exigible to VAT. The petitioner got itself registered as a dealer under the VAT Act and the Central Sales Tax Act, 1956 at Mohali and began complying with its statutory obligations. The petitioner reflected a total sale of ₹ 48,36,16,032/- with a tax liability of ₹ 1,96,14,867/- for the financial year 2005-06. The issue regarding applicability of VAT to medicines, stents, implants came up for consideration before the High Court of Jharkhand in Tata Main Hospital v. The State of Jharkhand and others, 2008(2) JCR 174 (Jhr.). After considering the definition of sale and nature of medical services the Jharkhand High Court held that the supply of medicines, vaccines, surgical items, implants, X-ray film etc. in the course of medical treatment does not involve a sale that would invite levy and payment of VAT. The State of Jharkhand, filed Special Leave Petition (Civil) No.3652 of 2008, which was dismissed by the Supreme Court on 10.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Constitution of India. The States of Punjab and Haryana have no jurisdiction to demand VAT on medicines, drugs, stents, etc. administered during a medical procedure. Counsel for the petitioner further contends that Article 366 (29-A) of the Constitution of India brings forth for taxation, transactions where one or the other element of sale, as defined under the Sale of Goods Act, is missing, but cannot be read to confer jurisdiction on the State to infer that administering drugs, medicines, stents and implants that are integral to any medical procedure/service, are a sale. The dominant purpose of a medical procedure is to provide medical services and as drugs etc. are not sold separately but are administered as an integral part of a medical procedure/service, they cannot be severed, so as to infer a sale or to hold that these articles are goods exigible to tax under the definition of sale in Section 2(z)(f) of the Punjab VAT Act, 2005 and Section 2 (1)(2e) of the Haryana VAT Act. Counsel for the petitioner further submits that the power of the State to impose tax on sale of goods emanates from Entry 54 of List II of Schedule VII of the Constitution of India. The petit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;sale', as defined under the Punjab and Haryana statutes, are materially different. It is further submitted that order dated 10.08.2005, has become final as no appeal was preferred. It is further submitted that it is correct that during the course of treatment, the petitioner supplies medicines, drugs, stents and other implants, to its patients, but at cost. The petitioner does not supply drugs, medicines, stents, and other implants etc., free of cost but sells them to the patients by taking into consideration the sale value of such medicines, drugs, stents and other implants, whether as part of a package or separately etc. The petitioner is, therefore, doing nothing more than selling these articles and whether they are sold as integral to a medical procedure or otherwise is entirely irrelevant. The question is not whether drugs etc. are integral to a medical procedure but whether the supply of drugs etc. is a sale. A perusal of the sample invoice annexed with the petition reveals that medicines, drugs, stents and other implants, are tabulated and charged separately, thereby proving that the stand taken by the States of Punjab and Haryana is factually and legally correct. Couns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding upon the nature of the surgical procedure administering of drugs, medicines, implants, stents etc. all as an integral part of a medical procedure/service, but at a price. A medical procedure commences with a patient visiting a hospital to elicit a doctor's opinion regarding his medical condition and in case he requires a medical procedure, information regarding the particulars of the procedure and the cost. The patient is, thereafter, informed of the particulars of the medical procedure, the drugs, implants, stents etc. that are required for his treatment/ medical procedure and the cost. The patient accepts the offer and opts for a particular procedure. Once having opted for a particular procedure, the choice of the drugs, implants, stents etc. would depend upon medical advice and only where, medically permissible, the choice of the patient. The question posed before us would, therefore, have to be further refined, namely, whether a medical procedure can be severed into separate elements of service and sale with service being the medical advise and medical procedure and the sale being the supply of medicines, surgical items, implants, to patients whether as part of a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ply and a purchase of those goods by the person to whom such transfer, delivery or supply is made. Sub clause(a) of Article 366(29-A) of the Constitution of India envisages situations where the element of consent is lacking; sub-clause(b) relates to works contracts, sub-clause (c) deals with hire-purchase agreements, sub-clause(d) deals with situations relating to right to use goods, as opposed to transfer of proprietary rights to the purchaser, sub-clause (e) covers situations which in law may not amount to a sale as the incorporated entity may be both, the owner as recipient of goods. Sub-clause (f) deals with situations pertaining to tax on goods which are part of any service of goods, being food or other articles for human consumption or drinks. Article 366(29-A) of the Constitution of India having provided a framework for the States to tax transactions where one of the other element of sale is missing, the States of Punjab and Haryana have defined sale in the following terms:- Punjab VAT Act, 2005 sale with all its grammatical or cognate expressions means any transfer of property in goods for cash, deferred payment or other valuable consideration and includes- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consumption or any drink (whether or not intoxicating) where such supply or service is for cash, deferred payment or other valuable consideration; and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made; A perusal of the definition of sale reveals that both statutes define sale to include transfer of property in goods for cash etc. and includes composite contracts as set out in Article 366 (29-A) of the Constitution of India. The States of Punjab and Haryana may, therefore, levy VAT on only such transactions as fall within the definition of sale whether as a sale of goods or as a composite contract. Where, however, the contract does not possess the element of a sale as set out in these sections nor is it a composite contract the State cannot by a legal fiction infer a sale and seek to tax the so called element of sale. Article 366(29-A) of the Constitution of India came up for consideration before the Supreme Court in Bharat Sanchar Nigam Limited and another v. Union of India and others, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of which can it be said that there is a sale of goods when a doctor writes out and hands over a prescription or a lawyer drafts a document and delivers it to his/her client? Strictly speaking with the payment of fees, consideration does pass from the patient or client to the doctor or lawyer for the documents in both cases. 45. The reason why these services do not involve a sale for the purposes of Entry 54 of List II is, as we see it, for reasons ultimately attributable to the principles enunciated in Gannon Dunkerley's case, namely, if there is an instrument of contract which may be composite in form in any case other than the exceptions in Article 366(29-A), unless the transaction in truth represents two distinct and separate co ntracts and is discernible as such, then the State would not have the power to separate the agreement to sell from the agreement to render service, and impose tax on the sale. The test therefore for composite contracts other than those mentioned in Article 366 (29A) continues to be - did the parties have in mind or intend separate rights arising out of the sale of goods. If there was no such intention there is no sale even if the contract could be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , stents to a patients on medical advice. The dominant purpose of medical treatment is medical services and integral to such a service is a medical procedure that involves administering medicines and drugs and may involve, implants, stents etc. as integral to a successfully medical treatment/procedure. Would the supply of medicines, stents, implants etc. at a price, enable the State to infer a fictional sale or a severable contract that can be brought forth to taxation as a sale? The answer in our considered opinion is no. A perusal of the statutory definition of sale in both the Punjab and Haryana enactments, reveals that after setting out that a sale is a transfer of ownership in goods for consideration it proceeds to replicate Article 366 (29-A) of the Constitution of India. A medical procedure is a pure service with no part having the attributes or the elements set out in Article 366 (29-A) of the Constitution of India or the definition of sale under the Punjab and Haryana statutes and, therefore, cannot be held to involve a sale . A similar controversy came up for consideration before the Jharkhand High Court in Tata Main Hospital v. The State of Jharkhand and others, 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;the substance of the contract. We will, for the want of a better phrase, call this the dominant nature test. 21. In the above quoted para-46 of this very judgment while interpreting the principle laid down in Gannon Dunkerley's case, it has been held that if there is an instrument of contract which may be composite in form in any case other than the exceptions in Article 366(29-A), unless the transaction in truth represents two distinct and separate contracts and is discernible as such, then the State would not have the power to separate the agreement to sell from the agreement to render service, and impose tax on the sale. 22. Thus, in view of the decision of the Supreme Court in the case of Bharat Sanchar Nigam Limited: (supra) the test of deciding whether the contract falls into one category or the other is aso to what is the substance of contract . According to the Supreme Court, it has to be seen as to what is the dominant nature test of the contract. The final conclusion that came to be recorded is as follows:- 26. The transaction of supply of medicines, vaccines, surgical items, x-ray films and plates etc. to the indoor patients in course of treatment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of a patient who enters the hospital for the purpose of a surgical procedure like an angioplasty, there is no intent between the parties to the agreement namely, the hospital and the individual that there would be a sale of a stent or valve by the hospital to the patient. The substance of the contract is not a contract for sale of the stent or valve that is used in the course of the surgical procedure. The contract, in substance, is an agreement in which the patient enters the hospital and is administered treatment in the form of a medical procedure, like an angioplasty. An intrinsic and integral element of that procedure, is the angioplasty. An intrinsic and integral element of that procedure, is the implantation of a stent or valve in the heart of the patient. True, the patient may have a choice of the nature of the stent or valve to be implanted, or in the nature of medicated stent or valve or otherwise, or in regard to the quality of the stent or valve which is implanted but even if that is so, that would not dilute the essential nature of the transaction, which is the performance of a medical procedure. The Allahabad High Court in view of the judgment of the Hon'bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reason to record a contrary opinion or to hold that the supply of medicines, drugs, stents, implants etc. to a patient during a medical procedure inhers any element of sale, much less sets out the ingredients of a 'sale'. The power to impose sales tax/VAT flows from Entry 54 of List II of Schedile VII and Article 366(29-A) of the Constitution, the latter assigning the status of a deemed sale to transactions where one or the other element of sale is missing, but where the element of sale is altogether missing and the transaction does not fall within any of the clauses of Article 366(29-A) of the Constitution of India, a State shall not be empowered to levy of value added tax on such a transaction. For the purpose of attracting VAT, a transaction or a part thereof, which is essentially a service would have to qualify as a sale within the meaning of Sales of Goods Act, 1930 or the definition of sale. The fiction of a deemed sale applies only to such situations as would fall within the sub-clauses of Article 366(29-A) of the Constitution of India which permit severance of the service element from the sale element and empowers the State to tax the element of sale. A perusal of A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted without an implant/drugs and medicines as an integral part of the procedure. A private hospital does not provide medical services for free. The fact that it charges money, for drugs, medicines etc. cannot raise an inference of intent to sell goods in the shape of medicines, stents, implants etc. We are, therefore, in complete agreement with the opinion recorded by the Jharkhand High Court in Tata Main Hospital (supra) and the Allahabad High Court in M/s International Hospital Pvt. Ltd. v. State of U.P. and two others. An argument that the definition of sale under the Bihar and the Uttar Pradesh Acts, is entirely different, must also fail. A perusal of the definition of sale in the Bihar and the Uttar Pradesh Statutes reveals that this argument has apparently been raised by disregarding the definition of sale in these statutes which are essentially identical to the definition of sale of the present statute. We therefore, have no hesitation in holding that medical procedures/services offered by the petitioners are a service. The supply of drugs, medicines, implant, stents, valves and other implants are integral to a medical services/procedures and cannot be severed to inf ..... X X X X Extracts X X X X X X X X Extracts X X X X
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