Sophisticated Medical Beds for Expecting Mothers are Subject to Luxury Tax, Kerala HC order

Ernakulam: The Kerala High Court recently held that 'sophisticated medical beds' provided for expecting mothers would be subject to luxury tax under the Kerala Tax on Luxuries Act of 1976.

This observation was made by the High Court bench while stressing that ultimately it was the "experience of luxury as regards the accommodation/amenities in the hospital" that was being taxed.

"Thus, ultimately what is taxed under the statute is the experience of luxury as regards the accommodation/ amenities in the hospital. There cannot be any challenge against an assessment with reference to the afore activity," observed the HC bench.

Cradle Calicut Maternity Care, a private limited company that provides specialized maternity care, had filed the plea before the Kerala HC bench. It was contended by the petitioner that sophisticated medical beds imported from abroad were being used to provide the best maternity care and therefore they should be outside the scope of the luxury tax.

When the Commercial Taxes Department initiated proceedings against the petitioner under Section 17A of the Act and the assessment authority imposed a penalty upon the petitioner for not paying luxury tax for the use of medical beds, the petitioner challenged the orders of the assessment authority before the High Court.

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The petitioner pointed out that these special beds are used to provide service to the patients/expecting mothers who require special medical care. Further, the petitioner pointed out that while room rent admittedly satisfies the luxury tax under the statute, the charges for the facility of "medical bed" are outside the purview of imposition of luxury tax under the Act.

It was argued by the petitioner's counsel that the medical beds were an essential part of the professional services provided in the hospital and therefore they were not liable for taxation.

On the other hand, the counsel for the Government referred to the nature of the use of these beds, highlighted in the plea, and argued that it proved that the sophisticated medical bed was nothing but a luxury. Referring to the provisions of the stature, the counsel for the State argued that the receipts against the medical beds have not been exempted from taxation.

While considering the matter, the HC bench perused that under the Kerala Tax on Luxuries Act of 1976 and noted, "Thus, as regards the luxury provided in a hospital, the statute provides for levy of tax on “charges of accommodation for residence for use of amenities and services” at a particular rate, when those charges collected from the patient are in excess of Rs.1000 per head."

"A reading of the afore provision would show that luxury tax is sought to be demanded for the accommodation for residence provided in the hospital. The fact that the petitioner is also admitting that as regards the expecting mothers, they are being permitted the use of amenities and services while being accommodated in the hospital rooms is not disputed. The stand of the learned counsel for the petitioner is, essentially, to the effect that the petitioner’s disputed receipts fall under the exclusion provided thereunder," the court further noted.

Therefore, the Court held that even if the hospital provides accommodation for the residence in the hospital, the gross charges for the purpose of taxation are to be arrived at after excluding the (i) charges for food, (ii) the charges for medicine and (iii) charges for professional services.

The High Court bench observed that the disputed receipts do not fall under the first two categories and the exclusion is the receipts for "professional services". 

"In other words, the exclusion can only be of the charges realized by a hospital for the professional services provided by the professionals, who were employed in the hospital and not any other receipts. Here, the disputed receipts collected are not towards any such professional services. Admittedly, the afore receipts are for the use of a furniture in the hospital, which is a costly specialized medical bed, as seen from Exts.P19 and P20 documents/photographs/ catalog produced by the petitioner. A reference to Ext.P20 catalog would show that certain specialized facilities are provided through the medical bed. Various features are also provided by the said medical bed. However, the fact that these are only certain devices that provide some additional facilities cannot be disputed," noted the Court.

Relying on the Supreme Court order in the case of Godfrey Phillips India Ltd. v. State of U.P. and Others, the HC bench noted that ultimately, what had to be considered was whether the facility provided was a necessary requirement of an average member of the society. 

"There cannot be any dispute that even without the aid of the medical bed provided by the petitioner, an expecting mother can give birth," highlighted the HC bench.

Further, referring to an earlier order of the HC, the bench noted that ultimately what was taxed under the statute was the experience of luxury as regards the accommodation/amenities in the hospital and there could not be any challenge against an assessment with reference to the this activity.

Accordingly, the Court held, "In the light of the above discussion, I am of the opinion that the petitioner is liable to tax on the charges collected as against the medical beds provided by it."

However, the Court also held that the petitioner could not be penalized under Section 17A, since they had not filed any untrue or incorrect returns. The Court observed that the petitioner were using medical beds with the bona fide belief that they were not liable to pay luxury tax and there was no mens rea.

"The fact that what is being imposed is a penalty shows that unless and until mens rea is established, no penalty can be levied. There cannot be any contumacious conduct on account of the non-inclusion of the afore amounts in the return," observed the Court.

Accordingly, the Court set aside the order imposing a penalty on the petitioner by declaring it "illegal".

To view the HC order, click on the link below:

https://medicaldialogues.in/pdf_upload/kerala-hc--262876.pdf

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