State of Kerala v. Karuna Hospital Thodupuzha

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** ## **&** **THE HONOURABLE MR. JUSTICE ASHOK MENON** **THURSDAY ,THE 28TH DAY OF FEBRUARY 2019 / 9TH PHALGUNA, 1940** **ST.Rev..No. 40 of 2012** **AGAINST THE ORDER/JUDGMENT IN TA 138/2010 of STAT ADDITIONAL BENCH, KOTTAYAM DATED 30-06-2011** ## **PETITIONER/APPELLANT/REVENUE:** **STATE OF KERALA REP. BY DEPUTY COMMISSIONER (LAW), COMMERCIAL TAXES, ERNAKULAM.** **BY ADV. SRI V.K.SHAMSUDHEEN, SR.GOVERNMENT PLEADER** ## **RESPONDENT/RESPONDENT/ASSESSEE:** **M/S.KARUNA HOSPITAL THODUPUZHA, PIN-685584.** **BY ADVS.** **SRI.JIJI THOMAS SRI.KURIAN GEORGE KANNANTHANAM (SR.) SRI.TONY GEORGE KANNANTHANAM** **THIS SALES TAX REVISION HAVING BEEN FINALLY HEARD ON 28.02.2019, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** ## S.T.Rev.40/12 -2- ## **O R D E R** **[S.T.Rev.No.40 of 2012]** ## Vinod Chandran, J. The only issue raised in the above revision is the sustainability of the penalty imposed on the assessee-respondent. The question of law is as to whether there could be a penalty imposed under Section 45A of the Kerala General Sales Tax Act, 1963, (“Act” for brevity) for reason of not responding to the summons issued by the Department. 2. Though a mere imposition of penalty, this particular case has to be viewed from a wider perspective. It involves the controversy as to whether hospitals administering medicines and using consumables in the course of treatment of their patients are involved in sale of goods; exigible to S.T.Rev.40/12 -3- sales tax. Also if they are exempted from the sales tax enactment by reason of the administration of medicines and use of consumables being in the course of and as an integral part of the medical services offered to the patients; are they liable to be registered under the sales tax enactment. The issue had been addressed by this Court in various decisions, against the hospitals and after the decision of the Honourable Supreme Court in _**(2006) 3 SCC 1 [Bharat Sanchar Nigam Ltd. & Another**_ v. _**Union of India and Others],**_ there was an altogether different view taken by the various High Courts in the Country. But this Court followed its earlier judgments. A Division Bench of this very Court then doubted the earlier judgments and referred it for consideration to a Larger Bench. The Full Bench has now answered the question in ## S.T.Rev.40/12 -4- favour of the hospitals and against the Revenue, insofar as the supply of drugs, consumables and implants in the course of medical treatment to the patients; being not capable of separation from the composite medical services offered to the patients, and hence, not exigible to sales tax, which liability arises only on sale of goods. 3. The question as to whether hospitals are to be registered in the light of the declaration of the Full Bench, was also considered by this Division Bench and answered in the affirmative just two days back finding the registration of hospitals to be imperative under the sales tax laws. What assumes significance, hence is that the entire issue was in a fluid state in all these years and there were instances of registrations not having been taken and properly taken. ## S.T.Rev.40/12 -5- 4. In the present case, a summons was issued by the Department to the assessee seeking production of books of accounts. The assessee did not respond to such notice taking a stand that they are not exigible to sales tax nor are liable to take registration under the Act. They were then issued with a notice under Section 45A which culminated in Annexure-A order produced in this revision. Annexure-A order specifically alleged that the respondent had not complied with the notices and summons issued from the office for production of books of accounts for the years 200102 and 2002-03 to ascertain the liability to take out registration under the Act and to pay tax due on the sale of medicines through the pharmacy attached to the hospital. Immediately it is to be noticed that the ground for imposition of penalty S.T.Rev.40/12 -6- was not non-registration or refusal to satisfy tax liability. The assessee is said to have taken time to produce the accounts, but however, did not do so. Hence, a notice was issued proposing to impose penalty of Rs.10,000/-. The penalty imposed is only on the ground of failure to comply with the summons issued by the department. 5. The learned Senior Government Pleader points out clauses (a), (e) and (g) of Section 45A to argue that the assessee had the responsibility to take out registration under the Act and had failed to comply with the notice for production of books of accounts and had also acted in contravention of the provisions of the Act and the Kerala General Sales Tax Rules, 1963 (“Rules” for brevity) for reason of having not taken out registration and produced books of accounts. It is -7- ## S.T.Rev.40/12 also argued that there is no requirement of _mens rea_ for imposition of penalty under Section 45A. 6. The learned counsel for the respondent, however, argues that as per the Division Bench decisions of this Court in _**1991 KLJ (Tax Cases) 557 [M/s Paisons Vs. Intelligence Officer] and 2006(3) KLT 72 (C.No.99) [Kulathunkal Motors v. Sales Tax Officer]**_ , there should be deliberate intention to defy the law or the orders, for penalty to be imposed. _**2008(4) KLT 454 [Yeses International v. State of Kerala]**_ and _**2014(1) KLT SN 12 (C.No.15) [Yogesh Trading Company v. State of Kerala]**_ were also relied on to contend that the discretion to impose penalty has to be exercised in a reasonable manner and on satisfaction of the officer, which should not be exercised if the ## S.T.Rev.40/12 -8- breach was technical or was result of a _bonafide_ belief. 7. We are of the opinion that in the specific clauses pointed out by the learned Senior Government Pleader, there is no requirement for _mens rea_ . _**Paisons**_ found that _mens rea_ or the mental element is embedded in the crucial words “evaded” or “sought to be evaded” as found in Section 45A. _**Kulathunkal Motors**_ was a case in which there was a sale to a defence personnel on the strength of a declaration issued from the canteen/stores department. The sale being not to the canteen/stores department, the exemption to sales tax was not available for such transaction, was the specific finding of the court. Both these were on the question on evasion of tax, wherein definitely a deliberate intention is required. ## S.T.Rev.40/12 -9- 8. When there is a violation of a civil obligation, statutorily cast on the assessee, like in the case of a failure to file returns; then without any thing more or a mental element there can be imposition of penalty under Section 45A. However, we are impressed by the argument of the learned counsel for the respondent that there was no _malafide_ intention or an attempt to evade tax in the present case, since the issue of registration and the exigibility to tax for drugs administered in hospitals, was debatable and was pending before various courts in the Country. The matter having attained finality by the judgment of the Honoruable Supreme Court in _**Bharat Sanchar Nigam Ltd. & Another** ,_ there was also certain anomalies to be ironed out and hence only by the Full Bench decision of this Court and the subsequent decision S.T.Rev.40/12 -10- of the Division Bench, has there been certainty to the issue. But the non-registration was not the cause for imposition of penalty. 9. We notice that the proposal for penalty was not for reason of non-registration of the hospital as is the defect under clause (a) of Section 45A. The failure to comply with the terms of notices or summons issued to a dealer could be a cause for imposition of penalty only in the context of a person who is covered under the enactment; which the respondent claimed it was not liable. The Assessing Officer did not pass any order holding the respondent to be so liable. Hence, there could also be no violation found of Section 45A(e). The said reasoning applies to clause (g) also. For finding of contravention of the provisions of the Act or the Rules made thereunder, ## S.T.Rev.40/12 **==> picture [20 x 9] intentionally omitted <==** first it has to be decided as to whether hospitals are to be registered under the sales tax enactment or not. 10. Issuance of summons to a dealer, who has not registered, for production of books of accounts and a failure to respond to the same, cannot lead to a penalty proceedings under Section 45A. If notice or summons has not been responded to, then, the Assessing Officer could decide the issue of registration as also failure to comply with the provisions of the Act in a proceeding in which best judgment assessment could also be made for estimation of the tax liability of a dealer, who is not so registered under the Act but is liable for registration. The Assessing Officer could also find on the requirement of registration. But that is not the exercise carried out here. We, -12- ## S.T.Rev.40/12 hence find, the imposition of penalty under Section 45A for reason of non-response to the notice issued, to be unsustainable under the various clauses as enumerated in Section 45A. We, hence, answer the question of law in favour of the assessee and against the Revenue and dismiss the S.T.Revision. No order as to costs. ## **Sd/-** ## **K.VINOD CHANDRAN** **JUDGE** **Sd/ASHOK MENON JUDGE** jg S.T.Rev.40/12 -13- ## **APPENDIX** **PETITIONER'S/S EXHIBITS:** **ANNEXURE-A A TRUE COPY OF THE PENALTY ORDER DATED 19/5/2004 ANNEXURE-B A TRUE COPY OF THE ORDER DATED 26/10/2009 OF THE DEPUTY COMMISSIONER (APPEALS) ANNEXURE-C A TRUE COPY OF THE ORDER OF THE TRIBUNAL DATED 30/6/2011.** [TRUE COPY] jg