Ayurveda Hospital Managements Associations, Nagarjuna Ayurvedic Centre Ltd., Punamava Ayurveda Hospital Pvt. Ltd. v. State of Kerala and Others

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** ## **THE HONOURABLE MR. JUSTICE ANTONY DOMINIC** ## **MONDAY, THE 15TH DAY OF OCTOBER 2012/23RD ASWINA 1934** ## **WP(C). No. 23312 of 2008 (A)** ## **PETITIONERS:** **1. AYURVEDA HOSPITAL MANAGEMENTS ASOCIATIONS, REPRESENTED BY ITS GENERAL SECRETARY - DR. BABY KRISHNAN, OFFICE AT AYSWARYA HOSPITAL, POOKKATTUPADI, ERNAKULAM DIST.** **2. NAGARJUNA AYURVEDIC CENTRE LTD., THANNIPUZHA, OKKAL P.O., KALADY, PIN 683 550 REPRESENTED BY EXECUTIVE DIRECTOR - V.G. JATHAVEDAN.** **3. PUNAMAVA AYURVEDA HOSPITAL PVT. LTD., EDAPPALLY NORTH P.O., KOCHI -24 REPRESENTED BY ITS MANAGING DIRECTOR-DR. A.M. ANVAR.** **BY ADVS. SRI. V.V. ASOKAN** **SRI. K.I. MAYANKUTTY MATHER SMT. S. AMINA SRI. P.P. RAMACHANDRAN SRI. E.M. UNNIKRISHNAN (MANJERI)** ## **RESPONDENTS:** **1. STATE OF KERALA, REPRESENTED BY CHIEF SECRETARY TO GOVERNMENT, SECRETARIAT THIRUVANANTHAPURAM 695 001** **2. THE SECRETARY (TAXES), GOVERNMENT OF KERALA, SECRETARIAT, THIRUVANANTHAPURAM.** **3. THE COMMISSIONER, COMMERCIAL TAXES, THIRUVANANTHAPURAM.** **4. DEPUTY COMMISIONER, COMMERCIAL TAXES, ERNAKULAM.** **5. DEPUTY COMMISSIONER, COMMERCIAL TAXES, TRICHUR.** **6. INTELLIGENCE OFFICER, SQUAD NO.IV, COMMERCIAL TAXES, ERNAKULAM** **7. COMMERCIAL TAX OFFICER (AA), ERNAKULAM.** **BY SPL. GOVERNMENT PLEADER SRI. SOJAN JAMES GOVERNMENT PLEADER SRI. T.K. SHAIJ RAJ** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 24-09-2012, ALONG WITH WPC. 1390/2009, THE COURT ON 15-10-2012 DELIVERED THE FOLLOWING:** sp **WP(C). No. 23312 of 2008 (A)** ## **APPENDIX** ## **PETITIONERS' EXHIBITS:-** **EXT. P1 - COPY OF THE CERTIFICATE OF REGISTRATION OF THE 1ST PETITIONER ASSOCIATION. EXT. P2 - COPY OF THE INPATIENT RECORD MAINTAINED IN THE HOSPITAL OF THE 2ND PETITIONER. EXT. P3 - COPY OF THE FINANCE BILL, 2008 ALONG WITH THE DECLARATION UNDER THE KERALA PROVISIONAL COLLECTION OF REVENUES ACT, 1988. EXT. P4 - COPY OF THE MAHAZAR PREPARED BY THE 6TH RESPONDENT AT THE TIME OF THE INSPECTION. EXT. P5 - COPY OF THE NOTICE ISSUED BY THE 6TH RESPONDENT. EXT. P6 - COPY OF THE REPLY GIVEN BY THE 2ND PETITIONER TO THE 6TH RESPONDENT. EXT. P7 - COPY OF THE NOTICE ISSUED BY THE 6TH RESPONDENT. EXT. P8 - COPY OF THE MAHAZAR PREPARED BY THE 7TH RESPONDENT.** ## **RESPONDENTS' EXHIBITS:-** **ANX.R4(A) - COPY OF ROOM OCCUPANCY STATEMENT FOR THE OF DECEMBER, 2006. ANX. R4(B) - COPY OF CASH BILL NO.00293 NAC/0708 DATED 08.04.2008 FOR RS.72,877/.** ## **//TRUE COPY//** **P.A. TO JUDGE.** sp ## **ANTONY DOMINIC, J. ================ W.P.(C) NOS. 23312 of 2008 & 1390 OF 2009** ## **=========================** ## **Dated this the 15[th] day of October, 2012** ## **J U D G M E N T** Issues raised in these writ petitions being common, these cases were heard together and are disposed of by this common judgment, treating WP(C) No. 1390/09 as the leading case. 2. Petitioner states that it is an Ayurvedic Hospital, where various traditional Ayurvedic treatments are provided to patients. For this purpose, they have appointed qualified doctors and nursing staff. It is also stated that they are maintaining 26 cottages, 7 rooms and a general ward. They have obtained necessary licenses issued by the Drugs Controller and the Asst.Excise Commissioner, Palakkad. They have also obtained registration as a Private Hospital from the Chalissery Grama Panchayat and also License under the Kerala Panchayat Raj Act, 1994. 3. By Finance Act, 2008 (Act 21 of 2008), with effect from 1.4.2008, certain amendments were made to the Kerala Tax on Luxuries Act, 1976 (hereinafter referred to as the “Act” for short). **:2 :** ## **WPC.Nos.23312 of 2008 & 1390 OF 2009** By this amendment, hospitals were brought within the purview of the Act and “luxury provided in hospitals” was also made taxable. Thereupon, allegedly under compulsion, petitioner took out registration as provided under section 4(1)(III) of the Act and started complying with the requirements thereunder. It is stated that, while so, the 5[th] respondent conducted an inspection of the petitioner's hospital and thereafter issued Ext.P3 notice calling upon them to produce their certificate of registration and other documents and the relevant part of this notice reads thus: _“Documents to be produced_ _1. The Certificate of registration you have obtained, if any, from the Department of Commercial Taxes related with your business._ _2. The details of treatment/therapy/other services/ packages/ activities/amenities, rendered and offered by your hospital to the inmates/tourists and also the amount collected for such activities for the period from 2003-04 to 2008-09 for each year separately along with the books of accounts.”_ 4. It is stated that on receipt of this notice, petitioner's representative met the 5[th] respondent and explained that the demand in the notice is unsustainable and that the respondent threatened to make the petitioner liable for tax from 2003 onwards and levy penalty for non payment of tax due for the said **:3 :** ## **WPC.Nos.23312 of 2008 & 1390 OF 2009** period. It was thereupon this writ petition was filed seeking mainly to declare that the amendment extending coverage of the Act to hospitals unconstitutional and also to quash Ext.P3 notice. 5. During the course of his arguments, counsel for the petitioner mainly raised two contentions. First contention was that the establishment being a hospital, the Act became applicable only by virtue of Act 21 of 2008 and with effect from 1.4.2008, and therefore, the demand contained in Ext.P3 notice for the production of the documents from 2003 is illegal. The second point raised was that the Act, to the extent it covers hospitals, is beyond the powers conferred on the State Legislature under Entry 62 of List II of the 7[th] Schedule to the Constitution of India. 6. Respondents have filed a detailed counter affidavit justifying the notice issued by them. In the affidavit, it is contended that having regard to the luxuries that are provided, the establishment in question is liable to be treated as a hotel and hence they were entitled to issue the notice calling for the production of documents from 2003. They also contended that under Entry 62 of List II, the State Legislature was competent to **:4 :** ## **WPC.Nos.23312 of 2008 & 1390 OF 2009** pass the legislation in question. 7. I have considered the submissions made by both sides. 8. As far as the first question whether the petitioner's establishment is a hotel or not is concerned, if it is a hotel, since hotels were already covered by the Act, respondents were justified in requiring production of documents for the period from 2003-04. On the other hand, if it is a hospital, since the Act became applicable to hospitals only by virtue of Act 21 of 2008 with effect from 1.4.2008, petitioner could not have been called upon to produce documents for the period prior to 1.4.2008. 9. In so far as this issue is concerned, I am of the view that there is no substance in what the respondents contend. Even in Ext.P3 notice issued, the respondents themselves have described the establishment of the petitioner as a “hospital”. Once the respondents themselves have chosen to initiate proceedings on the basis that it is a hospital, they cannot turn around and contend before this Court that establishment of the petitioner is a hotel and not a hospital. Therefore, the first contention raised by the petitioner deserves acceptance. **:5 :** ## **WPC.Nos.23312 of 2008 & 1390 OF 2009** Consequently, the Act cannot have application to the petitioner's hospital for any period prior to 1.4.2008 and hence the demand for production of documents and details for any prior period is illegal. 10. The second contention regarding absence of legislative competence was argued mainly relying on the Apex Court judgment in _**Godfrey Philips India Ltd and Another vs. State of U.P & Others**_ (2005(2) SCC 515). Before proceeding further, it is necessary to understand the principles laid down by the Apex Court in the aforesaid judgment. _**Godfrey Philips**_ was a case where the appellants were either manufactures, dealers or sellers of tobacco and tobacco products. In this batch of cases, the Apex Court considered the constitutional validity of the provisions of Luxury Tax Acts of the State of Uttar Pradesh, Andhra Pradesh and West Bengal. In its judgments, the court examined the meaning and scope of Entry 62 of list II and as far as this case is concerned, the following extracts from the judgment shows that the principles laid down are: _“It has been held that the word “includes” may in certain contexts be a word of limitation (South Gujarat Roofing_ **WPC.Nos.23312 of 2008 & 1390 OF 2009** **:6 :** _Tiles Manufactures Assn. v. State of Gujarat). In the context of Entry 62 of List II this would not mean that the word “luxuries” would be restricted to entertainments, amusements, betting and gambling but would only emphasise the attribute which is common to the group. If luxuries is understood as meaning something which is purely for enjoyment and beyond the necessities of life, there can be no doubt that entertainments, amusements, betting and gambling would come within such understanding. Additionally, entertainments, amusements, betting and gambling are all activities. “Luxuries” is also capable of meaning an activity and has primarily and traditionally been defined as such. It is only derivatively and recently used to connote an article of luxury. One can assume that the coupling of these taxes under one entry was not fortuitous but because of these common characteristics.” (vide paragraph 74)._ _“Hence on an application of general principles of interpretation, we would hold that the word “luxuries” in Entry 62 of List II means the activity of enjoyment of or indulgence in that which is costly or which is generally recognized as being beyond the necessary requirements of an average member of society and not articles of luxury.” (vide paragraph 83)._ _“Given the language of Entry 62 and the legislative history we hold that Entry 62 of List II does not permit the levy of tax on goods or articles. In our judgment, the word “luxuries” in the entry refers to activities of indulgence, enjoyment or pleasure. Inasmuch as none of the impugned statutes seek to tax any activity and admittedly seek to tax goods described as luxury goods, they must be and are declared to be legislatively incompetent.” (vide paragraph 93)._ 11. Thus, from the principles laid down by the Apex Court it is clear that Entry 62 List II, does not authorise State Legislature to levy luxury tax on goods or articles and that luxury tax can be **:7 :** ## **WPC.Nos.23312 of 2008 & 1390 OF 2009** levied only on activities of indulgence, enjoyment or pleasure. 12. Having understood the scope of the relevant legislative entry, I shall proceed to survey the important provisions of the Act, Sections 2(de) and (fb) of the Act, as amended by Act 21 of 2008, define the expressions “hospital” and “luxury provided in a hospital” thus; _“2(de)-”hospital” includes a nursing home, therapy centre, rejuvenation or recuperation centre, nature care or cure centre, ayurvedic cure or care centre, sidha centre or any other treatment centre, personal care centre and beauty treatment centre, by whatever name called.”_ _“2(fb)- 'luxury provided in a hospital' means accommodation for residence for use of amenities and services provided in a hospital the rate of charges of which, excluding charges of food, medicine and professional services, is one thousand rupees per day or more”._ 13. Section 4(1)(III) provides that subject to the provisions of the Act, there shall be levied and collected, luxury tax in respect of any luxury provided in a hospital. Section 4(2)(e) provides thus; _“Sec.4(2) Luxury tax shall be levied and collected-_ _(e)- in respect of a hospital, for charges of accommodation for residence for use of amenities and services, at the rate of ten percent per room where the gross charges, excluding charges of food, medicine and professional services, is one thousand rupees per day or_ ## **WPC.Nos.23312 of 2008 & 1390 OF 2009** **:8 :** _more”._ ## 14. Section 4E providing for registration of hospitals read as under; “ _**4E-Registration of Hospitals** :- Every hospital having not less than five rooms to be rented for accommodation of patients for treatment or otherwise for which gross charges excluding charges for food, medicine and professional services is one thousand rupees or more per room, shall get itself registered with such authority and in such manner as may be prescribed, and the application for registration shall be accompanied by a registration fee of rupees one thousand. The registration shall be for a period_ ” _of one year and shall be renewed annually_ . 15. The aforesaid being the relevant provisions of the Act, these can be summarized thus; - 1) that levy of luxury tax is for accommodation for residence and use of the amenities and services provided in a hospital. - 2) that the gross charges levied by the hospitals shall be rupees one thousand or more. - 3) that in calculating the gross charges levied, the charges of food, medicine and professional services are excluded. - 4) that the rate of luxury tax shall be ten percent of **:9 :** ## **WPC.Nos.23312 of 2008 & 1390 OF 2009** the gross charges levied. 16. These provisions of the Act make it clear that luxury tax is not levied on hospitals as such, instead, the levy is for enjoying the accommodation for residence and the amenities and services for hospitably, such of those hospitals, which, exclusive of what it charges for food, medicine and professional services, charges rupees one thousand or more per day from the patients who enjoy the accommodation for residence and the amenities and services. Once it is found that the levy is not on goods or articles and that it is for using the accommodation provided for residence and for enjoying the amenities and services provided in hospitals, the first requirement of Entry 62 List II is satisfied. 17. Then the further issue to be considered is whether the amenities and services provided in a hospital can be defined to be an activity of indulgence, enjoyment or pleasure to be within the legislative competence of the State Legislature under Entry 62 list II. Petitioner contended that their hospital is providing Ayurvedic treatment to both inpatients and outpatients and that the amenities enjoyed or services provided to the patients are **:10 :** ## **WPC.Nos.23312 of 2008 & 1390 OF 2009** incidental to their treatment for various ailments and therefore is not an indulgence, enjoyment or pleasure or beyond the requirement of an average member of the society, to be taxed as a luxury under the Act. This again, in my view, is an untenable contention. 18. Competence of the Legislature under Entry 62 List II to levy tax on luxuries cannot be and was not disputed. It is trite that in deciding the question of legislative competence, the legislative entries in the relevant list should not be narrowly interpreted and that the interpretation should be broad and liberal. Subject to the limitations provided in the constitution itself, Legislature is supreme in its own sphere under the Constitution and it is for the Legislature to decide as to when and in what respect and on what subject matter laws are to be made and also regarding the nature of operation of the statutes. Thus, within the constitutional limitations, Legislature is free to choose the subject and the persons to be taxed. 19. Once this legislative freedom is recognised, it should be accepted that the Legislature is always within its rights to **WPC.Nos.23312 of 2008 & 1390 OF 2009** **:11 :** specify the items of luxury. It is accordingly that for using the accommodation for residence and the amenities and services provided in hospitals, which levy gross charges of rupees one thousand or more per day have been defined as “luxury provided in hospitals” for the purpose of the Act and in determining the gross charges, what is charged for food, medicine and professional services is excluded. By this process, the Legislature has kept out of the purview of the Act, hospitals which charge less than rupees one thousand per day. In other words, for the purposes of the Act, the legislature has differentiated the hospitals on the basis of the charges levied for the amenities and services provided to the patients. Similar definitions have been given to the expressions luxury provided in hotels, luxury provided in house boats and luxury provided in a home stay etc. Such provisions of the Act, are within the legislative competence of the State and consequently, there is no basis for the contention that, the Act to the extent it covers hospitals, is ultra-vires the Constitution. Therefore, the second contention raised by the petitioners is rejected. ## **WPC.Nos.23312 of 2008 & 1390 OF 2009** **:12 :** For the aforesaid reasons, the writ petitions are disposed of as follows; - 1) the provisions of the Act, levying tax on luxury - provided in hospitals are upheld. - 2) Ext.P3 notice is quashed. - 3) No costs. ## **ANTONY DOMINIC, JUDGE** Rp