MALANKARA ORTHODOX SYRIAN CHURCH Vs. SALES TAX OFFICER

JUDGEMENT

(1.) THE short question arising in these cases is whether a hospital is a "dealer" within the definition of that term contained in the Kerala General Sales Tax Act, hereinafter called "the Act". THE proceedings initiated against the petitioners by the sales tax authorities under the Act under challenge are issued on the basis that the petitioners are "dealers" under the Act. While in some cases notices are issued to the hospitals directing them to take registration under the Kerala General Sales Tax Act, in some cases hospitals are directed to produce books of accounts and in yet another category penalty is levied or proposed either for not registering or for non-compliance with other statutory provisions. THE validity or otherwise of all these proceedings will depend on whether the concerned hospital can be treated as a "dealer" to subject it to all the disciplines provided under the Act and Rules. THEre is a standard pattern of service rendered in a hospital and distinguishing factors among the hospitals may be in regard to quality and volume of it, but essentially the activities in all the hospitals are one and the same. THEre is no case by any of the petitioner-hospitals that they are not supplying or selling medicines to the patients in the course of medical treatment which is the very basis on which sales tax authorities have issued notices calling them to take registration, to produce books of accounts, file returns and pay tax, if any due. THErefore, the essence of issue is whether the supply of medicine to patients in the course of treatment constitute "sale" bringing the petitioners within the scope of "dealer" under the Act making them liable to take out registration, file returns and to pay sales tax if payable.

(2.) I heard counsel for the petitioners and also the Special Government Pleader for Taxes. Before proceeding to the main issue, an aspect to be clarified is the distinction between medical practitioners on the one side and the hospitals and dispensaries on the other side. Notification SRO No. 1090 of 1999 as amended by SRO No. 802 of 2001 provides exemption to medical practitioners which is as follows : " ---------------------------------------------------------------------- Sl. Name of dealer Turnover which is Conditions and No. exempted restrictions ----------------------------------------------------------------------- 13. Medical practitioners Turnover relating to Nil dispensing medicines the medicines dispensed from their own to their patients dispensaries in the course of treatment [explanation.- For the purpose of this serial number the term 'medical practitioners' shall not include any hospital or clinic. ] -----------------------------------------------------------------------" By virtue of the exemption provided under the above notification, there is no need to go into the question as to whether medical practitioners dispensing medicines are also "dealers" within the meaning of the Act because by virtue of the exemption available to medical practitioners that question is only academic in nature and I do not think there is any need for this Court to address such a question unnecessarily. The explanation to entry 13 to the above notification was introduced with effect from August 16, 2001. However, notices are seen issued by some officers way back in 1997 itself directing hospitals to comply with statutory provisions. In fact exclusion of hospitals and clinics from entry 13 above is only in the form of an explanation. Even prior to the introduction of the said explanation, entry 13 provided for exemption only to medical practitioners dispensing medicines from their own dispensaries who are different from hospitals and clinics. Therefore, even prior to the introduction of the explanation, such of the persons who generally come as medical practitioners dispensing medicines from their own dispensaries only can claim exemption under the said notification. All that item 13 of SRO No. 1090 of 1999 exempts is a category of doctors supplying medicine in the course of rendering medical service or treatment from their dispensaries. Such cases have to be taken as dispensaries run by doctors where medicine is dispensed with as part of service. The term "hospital" in the dictionary is given a meaning to cover an institution or place where sick or injured persons are given medical or surgical care. "dispensary" on the other hand is a place where medicines or medical or dental aid are dispensed to ambulant patients. While a dispensary is a place where medical care is rendered involving supply of medicines, hospital is a place where all facilities such as accommodation for inpatients for treatment is also provided. In other words, dispensaries are essentially consulting places where medicines also are supplied. In the case of hospitals, inpatients are taken and medical services are rendered involving supply of medicines. Exemption appears to be of a limited nature and is applicable only to dispensaries managed by doctors dispensing medicine to their own patients. In other words, essentially consultant doctors are granted exemption on the supplies of medicine in the course of consultation. This category of persons are enjoying exemption on the turnover of sale of medicines. The nature of exemption is evident and clear when the description of the dealer and the turnover exempted are read together. It is specifically mentioned in entry 13 that what is exempted is turnover relating to medicines dispensed to their patients in the course of treatment. This clearly establishes that the exemption is only to a doctor for the sale of medicine to his patients. However, an organised activity involving engagement of doctors and staff for treatment and supply of medicine is not covered by exemption because there is no correlation between the medical practitioner, his patient and the supply of medicine. In other words, exemption is only to doctors who supply medicine as part of their consultancy and service. The decisions relied on by the petitioners are to establish that the medical practitioner dispensing medicine is not engaged in manufacture or supply of medicine in the course of treatment. This activity does not amount to manufacture and sale of medicine is the decision by the High Courts in Kaviraj Pt. Durga Datt Sharma v. State of Punjab [1974] 33 STC 479 (P&h), Commissioner of Sales Tax v. Dr. Sukh Deo [1969] 23 STC 385 (SC) and in Dr. M. Narayanan v. Sales Tax Officer (1969) KLJ 311.

(3.) THE main contention of the petitioners as stated above is that supply of medicine though conceded, is only incidental and essentially the hospital is rendering medical services with professionals, namely, doctors and nurses who are experienced in the medical field. THE petitioners have relied on the decisions of the Supreme Court in State of Tamil Nadu v. Board of Trustees of the Port of Madras [1999] 114 STC 520 and in Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi [1978] 42 STC 386. Relying on the above two decisions the petitioners contended that the main activity being rendering of medical services, the supply of medicine is only incidental and it does not constitute "sale" to make the petitioners liable as a "dealer" under the Act. In this regard the petitioners have pointed out that the pattern of billing in the hospitals may vary from hospital to hospital. In some hospitals consolidated bills are raised including service charges, accommodation charges, charges for supply of medicine, food, etc. , whereas in some other hospitals separate bills are raised for medical services, supply of medicine, food, rent and other allied services like X-ray, ECG, etc. It may not be possible to bifurcate the amount charged to a patient for the various services rendered in hospital. However, there is no dispute that supply of medicine is an integral part of the services rendered and it is significant in terms of cost to the patient and charged separately. THErefore, the first question to be answered is whether the supply of medicine is only an incidental transaction or otherwise it is as important as any other service such as rendering medical service or other services. In the course of treatment except probably in surgical treatment, nobody can have a doubt that medicines account for the main cost along with consultancy charges for the doctor, expenditure in diagnosis, etc. THErefore, from common knowledge it is clear that medicine is as important, if not more in terms of value and purpose as anything else in the medical treatment. THErefore, in the first place, the petitioners' contention that supply of medicine is only incidental cannot be accepted at all. It is as important as medical consultation or other services in the hospital. THErefore, supply of medicine in the course of medical treatment either to inpatients or to outpatients has to be taken as one of the main activities in a hospital or in a clinic. THE Supreme Court had occasion to consider as to when a person becomes a "dealer" in the decision in State of Gujarat v. Raipur Manufacturing Co. Ltd. [1967] 19 STC 1, wherein it was held as follows : " Whether a person carries on business in a particular commodity must depend upon the volume, frequency, continuity and regularity of transactions of purchase and sale in a class of goods and the transactions must ordinarily be entered into with a profit-motive. By the use of the expression 'profit-motive' it is not intended that profit must in fact be earned. Nor does the expression cover a mere desire to make some monetary gain out of a transaction or even a series of transactions. It predicates a motive which pervades the whole series of transactions effected by the person in the course of his activity. In actual practice, the profit-motive may be easily discernible in some transactions; in others it would have to be inferred from a review of the circumstances attendant upon the transaction. For instance, where a person purchases a commodity in bulk and sells it in retail, it may readily be inferred that he has a profit-motive in entering into the series of transactions of purchase and sale. A similar inference may be raised where a person manufactures finished goods from raw materials belonging to him or purchased by him and sells them. But where a person comes to own in the course of his business of manufacturing or selling a commodity, some other commodity which is not a by-product or a subsidiary product of that business and he sells that commodity, cogent evidence that he has intention to carry on business of selling that commodity would be required. Where a person in the course of carrying on a business is required to dispose of what may be called his fixed assets or his discarded goods acquired in the course of the business, an inference that he desired to carry on the business of selling his fixed assets or discarded goods would not ordinarily arise. To infer from a course of transactions that it is intended thereby to carry on the business ordinarily the characteristics of volume, frequency, continuity and regularity indicating an intention to continue the activity of carrying on the transactions must exist. But no test is decisive of the intention to carry on the business; in the light of all the circumstances an inference that a person desires to carry on the business of selling goods may be raised. "