Private Hospitals Liable To Pay VAT On Supply Of Medicines & Implants To In-Patients: Gujarat High Court

The Gujarat High Court has held that the supply of medicines and implants by private hospitals to in-patients amounts to 'deemed sale' and is liable to VAT (Value Added Tax). The issue before the bench was whether the supply of medicines, stents, implants, consumables, etc., during the course of treatment of patients amounts to 'sale' as defined in section 2(23) of the VAT Act. The bench, consisting of Justices Bhargav D. Karia and D.N. Ray, observed that after the 46th Amendment to the Constitution, the definition of “works contract” was widened and it is broad-based based taking within its fold every possible and conceivable contract involving transfer of property while providing services. The bench further stated that the definition of “works contract” can include hospital/ health/ Medical services, including composite contracts where the provision of services also includes the supply of goods along with medical services. The State was justified in proposing a demand to tax from the hospitals on the supply of consumables, medicines, stents, implants, etc., for the treatment of indoor patients, opined the bench. The bench stated that the treatment given to the patients in the clinical establishment is nothing, but a "service" being provided along with supply of medicaments, prosthetics, etc. which would fall within the “composite service” contract involving rendition of service, as well as, sale of goods comprising medicaments and implants/prosthetics, etc. resulting into “works contract”. In this case, the assessees/petitioners are private hospitals engaged in the activity of treatment of as indoor patients. By impugned show cause notices/orders, the department/respondents have imposed value-added tax under the VAT Act on the supply of such medicines, implants, stents, consumables, etc., used for the treatment of indoor patients, considering them as “sale of goods”. As per the assessee, use of medicines, implants, stents, consumables, etc., is neither 'sale' as understood under the Sales of Goods Act, 1930, nor 'deemed sales' as defined under Article 366(29A) of the Constitution of India. The assessee further argued that, therefore, the State does not have the competence to impose tax on such supply of goods under the VAT Act, as such imposition of tax would be beyond the legislative competence under Entry 54 of List II of the Seventh Schedule of the Constitution of India. The department submitted that transfer/delivery/ supply of medicaments and prosthetics by the assessee hospitals in favour of their indoor patients during the course of providing treatment, should be considered as “deemed sale”, as defined under Article 366(29A) of the Constitution of India and consequently, the sale component involved in the health care service rendered by the assessee hospitals, is exigible to tax under the VAT Act. The bench observed that prior to the 46th Amendment of the Constitution of India, “works contracts” were not liable to sales tax. However, the definition of “deemed sales” incorporated the expression “works contract” in Article 366(29A)(b). By virtue of legal fiction introduced by Article 366(29A)(b) of the Constitution, even if such a composite contract is a single and indivisible contract, it would amount to "deemed sale" of goods which are involved in the execution of the “works contract” and exigible to Sales Tax, opined the bench. The bench opined that when medical treatment is given to the indoor patient, there is not only transfer of possession of implants/prosthetics into the physiology of the patient but also the ownership of such prosthetics to the patient for consideration in the course of the provision of medical/health service. Similarly, in the course of taking X-ray, scan, MRI/CT scan for such an in-patient, the cost of which gets included in the package, is also liable to be taxed as such activity can be termed as the sale of immovable property, added the bench. In view of the above, the bench dismissed the petition. Case Title: Cardiogy Ltd. & Anr. v. Commissioner of Commercial Tax & Anr. Case Number: R/SPECIAL CIVIL APPLICATION NO. 16927 of 2011 Counsel for Petitioner/Assessee: SN Soparkar Counsel for Respondent/Department: Kamal TrivediClick Here To Read/Download The Order Citation : 2025 LiveLaw (Guj) 186

Private Hospitals Liable To Pay VAT On Supply Of Medicines & Implants To In-Patients: Gujarat High Court

Mehak Dhiman

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