M/S. NAVA BHARATH HOSPITAL, SASTHAMCOTTA P.O., Kollam-690521 v. STATE OF KERALA and INTELLIGENCE OFFICER (INVESTIGATION BRANCH), COMMERCIAL TAXES

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT:** ## **THE HONOURABLE MR.JUSTICE A.M.SHAFFIQUE** **TUESDAY, THE 31ST DAY OF MAY 2016/10TH JYAISHTA, 1938** ## **WP(C).No. 10388 of 2013 (W)** **----------------------------------------** **PETITIONER(S):** **-----------------------** **M/S. NAVA BHARATH HOSPITAL, SASTHAMCOTTA P.O., KOLLAM-690 521.** **BY ADVS.SRI.BECHU KURIAN THOMAS SMT.NISHA JOHN** ## **RESPONDENT(S):** **--------------------------** ## **1. STATE OF KERALA,** **REP BY ITS SECRETARY, DEPARTMENT OF COMMERCIAL TAXES, THIRUVANANTHAPURAM-695 001.** ## **2. INTELLIGENCE OFFICER,** **(INVESTIGATION BRANCH) - II, COMMERCIAL TAXES, NEETHI NAGAR, PATTATHANAM, KOLLAM-690 521.** **BY GOVERNMENT PLEADER SMT.LILLY K.T.** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 19-05-2016 THE COURT ON 31-05-2016, DELIVERED THE FOLLOWING:** **msv/** **WP(C).No. 10388 of 2013 (W) ----------------------------------------** ## **APPENDIX** ## **PETITIONER(S)' EXHIBITS -------------------------------------** ## **EXT.P1:-TRUE COPY OF THE NOTICE DTD 16/8/2011 ISSUED BY THE 2ND RESPONDENT** **EXT.P2:-TRUE COPY OF THE REPLY DTD 5/9/2011 MADE BY PETITIONER** **EXT.P3:-TRUE COPY OF THE NOTICE DTD 13/9/2011 ISSUED BY 2ND RESPONDENT** **EXT.P4:-TRUE COPY OF THE REPLY TO EXT P3 NOTICE DTD 10/10/2011** **EXT.P5-TRUE COPY OF THE NOTICE ISSUED UNDER SECTION 82 AND 81 OF KVAT DTD 21/10/2011** **EXT.P5(A):-TRUE COPY OF THE SUMMONS DTD 21/10/201 ISSUED BY 2ND RESPONDENT** **EXT.P6:-TRUE COPY OF THE ORDER DTD 20/7/2012 NUMBERED AS CR-27/12-13 IMPOSING PENALTY ON THE PETITIONER** **EXT.P6(A):-TRUE COPY OF THE NOTICE OF DEMAND DTD. NIL ISSUED BY THE 2ND RESPONDENT TO THE PETITIONER** **EXT.P7:-TRUE COPY OF THE RECORD OF PROCEEDINGS CONTAINING THE ORDER ADMITTING THE SLP(C)NO 13703/2009 DTD 8/7/2009 ON THE FILES OF SUPREME COURT** ## **RESPONDENT(S)' EXHIBITS:** **-----------------------------------------** ## **NIL** **//TRUE COPY//** **P.S.TO JUDGE** Msv/ ## **A.M. SHAFFIQUE, J.** ## ============= W.P. (C) No. 10388 of 2013 =================== Dated this, the 31[st] day of May, 2016 ## **J U D G M E N T** This writ petition is filed seeking to quash Exts.P6 and P6(a) and for a declaration that the petitioners are not dealers as contemplated under the Kerala Value Added Tax Act, 2003. Ext.P6 is the proceedings of the Intelligence Officer by which penalty had been imposed on the petitioner hospital under Section 67(1)(i) of the Act for the non compliance of directions contained in the statutory notices issued to him. Ext.P6(a) is the demand made. The main contention urged by the petitioner is that petitioner being a hospital cannot be termed as a dealer for the purpose of payment of Value Added Tax. It is contended that petitioner hospital which is dispensing medicines to the patients as part of treatment, is not a dealer under the KVAT Act. 2. Counter affidavit has been filed on behalf of the respondents _inter alia_ stating that petitioner hospital is effecting interstate purchase and sale of medicines within the State. Therefore, they are liable to take registration under Section 15 W.P(C) No. 10388/13 ## -:2:- and to pay tax under Section 6(1) of the KVAT Act, 2003. Though notices were issued by the 2[nd] respondent calling upon the petitioner to furnish copies of the audited statements, the petitioner did not comply with the same and was insisting that they cannot be called upon to furnish such details. In the said circumstances, the authority had no other option than to move under Section 67(1)(i) of the Act. 3. Heard the learned counsel for the petitioner and the learned Government Pleader. 4. Learned counsel for the petitioner places reliance upon the judgment of the Apex Court in _**Bharat Sanchar Nigam Ltd v. Union of India**_ [(2006) 3 SCC 1], wherein Apex Court while considering the question regarding the nature of transaction with reference to mobile phone connections, considered the question whether it is a sale or service or both. It was held at paragraphs 44 and 45 as under; _**“44.** Of all the different kinds of composite transactions the drafters of the Forty-sixth Amendment chose three specific situations, a works contract, a hire-purchase contract and a catering contract to bring them within the fiction of_ -:3:- ## W.P(C) No. 10388/13 _a deemed sale. Of these three, the first and third involve a kind of service and sale at the same time. Apart from these two cases where splitting of the service and supply has been constitutionally permitted in sub-clauses (b) and (f) of clause (29A) of Article 366, there is no other service which has been permitted to be so split. For example, the sub-clauses of Article 366(29-A) do not cover hospital services. Therefore, if during the treatment of a patient in a hospital, he or she is given a pill, can the Sales Tax Authorities tax the transaction as a sale? Doctors, lawyers and other professionals render service in the course 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 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 contracts and is discernible as such, then the State would not have the power to separate the_ ## W.P(C) No. 10388/13 ## -:4:- _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(29-A) 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 disintegrated. The test for deciding whether a contract falls into one category or the other is to as what is “the substance of the contract”. We will, for the want of a better phrase, call this the dominant nature test.”_ Learned counsel also placed reliance upon two other judgments. In the Division Bench judgment of High Court of Jharkhand ( _**Tata Main Hospital v. The State of Jharkhand**_ ), while considering the question as to whether a transaction of supply of medicines, surgical items, vaccines, X-ray items etc to its in-patients will amount to a transaction of sale or not, it was held that such services do not involve a sale for the purpose of Entry 54 of List II. Another judgment relied upon is that of Punjab and Haryana High Court in _**Fortis Health Care Limited v. State of Punjab**_ , wherein, Division Bench held at para 25 as under: _“25. Admittedly, hospitals administer drugs, implants, stents to a patients on medical advice._ -:5:- ## W.P(C) No. 10388/13 _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”.”_ 5. On the other hand, learned Government Pleader submits that the issue is totally different in the present case. Since the petitioner did not comply with the notices issued, penalty had been imposed invoking power under Section 67(1)(i) of the Act. Primarily, the question to be considered in the present writ petition would be whether petitioner can be treated as a ## W.P(C) No. 10388/13 ## -:6:- ## 'dealer' as defined under the Act. ## 6. Dealer is defined under Section 2(xv) of the Act, which ## reads as under: _“2(xv) “dealer” means any person who carries on the business of buying, selling, supplying or distributing goods, executing works contract, delivering any goods on hire-purchase or on any system of payment by installments; transferring the right to use any goods or supplying by way of or as part of any service, any goods directly or otherwise, whether for cash or for deferred payment, or for commission, remuneration or other valuable consideration not being an agriculturist and includes:-_ _(a) a casual trader;_ _(b) a commission agent, a broker or a delcredere agent or an auctioneer or any other mercantile agent, by whatever name called, of such dealer;_ _(c) a non-resident dealer or an agent of a nonresident dealer or a local branch of a firm or company or association or body of person whether incorporated or not situated outside the State;_ _(d) a person who, whether in the course of business or not, sells.-_ _(i) goods produced by him by manufacture or otherwise; or_ _(ii) trees which grow spontaneously and which are agreed to be severed before sale or under the_ ## W.P(C) No. 10388/13 ## -:7:- _contract of sale;_ _(e) a person who whether in the course of business or not,_ _(i) transfers any goods, including controlled goods whether in pursuance of a contract or not, for cash or for deferred payment or for other valuable consideration;_ _(ii) supplies, by way of or as part of any service or in any other manner whatsoever, goods, being food or any other articles for human consumption or any drink (whether or not intoxicating) where such supply or service is for cash, deferred payment or other valuable consideration.”_ The Apex Court in _**Assistant Commissioner v. Hindustan Urban Infrastructure Limited**_ [(2015 (2) KLT SN 56 Case No.69] considered the definition of 'dealer' under the Kerala General Sales Tax Act and held as under: _“Section 2(viii)(f) further expands the definition of “dealer” enabling a far wider class of persons to fall within its ambit. It includes any person who transfers any goods, transfers property in goods involved in the execution of a works contract, delivers any goods on hire purchase or any system of payment by installments, transfers the right to use any goods for any purpose and lastly, any food or beverage supplier or service provider, fit for human consumption. The Explanation 1 to sub-_ ## W.P(C) No. 10388/13 ## -:8:- _clause (f) includes a society, club, firm or an association or body of persons, whether incorporated or not. Explanation 2 includes the Central Government, State Government and any of its apparatus within the scope of this section. Therefore, given the exceptionally wide scope of the definition, prima facie, it can be concluded that any person or entity that carries on any activity of selling goods, could be categorized as a “dealer” under the Act, 1963.”_ ## 7. Similarly in _**Aswini Hospital (P) Ltd v. Intelligence**_ _**Officer**_ [2012 (4) KLT SN 81 (C.No.67)], a learned Single Judge of this Court had occasion to consider whether hospitals are liable to take registration and pay tax under the Act for the supply of medicines and other items meant for treatment. It was held that hospital is a dealer. Relevant portion reads as under; _“A comparative analysis of the provisions contained in the K.G.S.T. Act which were considered by this Court in PRS Hospital's case (2003 (1) KLT 633) and the aforesaid corresponding provisions of the K.V.A.T. Act show that the statutory provisions remain the same although the K.G.S.T. Act has been replaced by the K.V.A.T. Act. Therefore, the principles laid down by this Court in the PRS Hospital's judgment fully answers the contentions raised by the petitioners in these cases regarding_ W.P(C) No. 10388/13 -:9:- _their liability to be registered under the Act and to pay tax thereunder.”_ Having regard to the fact that this Court has taken a view taking into consideration the meaning of the word ' _dealer_ ', I do not think that any further enquiry is required in the matter. Judgments relied upon by the learned counsel for the petitioner emphasise on the question regarding sale and that too in the hospital services areas. That is not the question here. Here, what is to be considered is whether any action can be taken against the petitioner in terms of Section 67 of the Act. Section 67(1)(i) reads as under; _“_ _**67. Imposition of penalty by authorities** - (1) Notwithstanding anything contained in Section 71 if any authority empowered under this Act is satisfied that any person-_ _xxxxxxxxx_ _(i) has failed to comply with all or any of the terms of any notice or summons issued to him by or under the provisions of this Ac tor the rules made thereunder; or....”_ The requirement of Section 67(1) even applies to any person who has failed to comply with any of the terms of any notice or summons issued to him by or under the provisions of the Act or W.P(C) No. 10388/13 **==> picture [27 x 9] intentionally omitted <==** the rules made thereunder. Any person who is called upon to furnish materials to the concerned officer will have to act accordingly, failing which, the officer is entitled to impose penalty. In the result, there being no merit in the contentions urged, this writ petition is dismissed. Sd/- ## **A.M. SHAFFIQUE, JUDGE** Rp //True Copy// P.S to Judge