Gujarat HC Upholds VAT on sale of Medicines, Implants by Private Hospitals to indoor patients
Gujarat High Court
Vadodara: The Gujarat High Court recently upheld the State Government's decision to levy Value Added Tax (VAT) on the sale of medicine, implants, prosthetics, stents, and other consumables supplied by the private hospitals to their indoor patients during the course of treatment.
The HC Division bench comprising Justice B D Karia and Justice D N Ray observed that, after the 46th amendment to the Constitution, the definition of works contract was widened and it now can include hospitals, health and medical services involving composite contracts with the provision of service also including the supply of goods with medical service.
Back in 2011, the private hospitals in Gujarat had challenged the State Government's demand to levy VAT on certain hospitals and the consequent notices issued by the Government.
The list of hospitals that challenged the tax demands under the Gujarat Value Added Tax Act, 2003, included Sterling, Bankers Cardiology, Shalby, CIMS, and Wockhardt.
It was argued by these hospitals that the services rendered to indoor patients continued a composite medical service and therefore it could not be classified as a "sale" for the purpose of taxation.
On the other hand, appearing on behalf of the State, Advocate General Kamal Trivedi, assisted by Assistant Government Pleader Vinay Bairaga argued that after the 46th Amendment to the Constitution, healthcare services provided by private hospitals fall within the ambit of "works contract" as defined under Article 366 (29A) of the Constitution read with Section 2(23) of the Gujarat VAT Act. The State argued that the tax was being levied not on the entire medical service, but only on the transfer of goods involved during the course of treatment.
As per the latest media report by Indian Express, Advocate General Tribedi said that "A Division Bench comprising Justice B D Karia and Justice D N Ray accepted the State’s contentions, ruling that after the 46th Constitutional Amendment, all composite contracts, including those involving healthcare services to indoor patients, can be treated as ‘works contracts’. Consequently, the tax component on the transfer of goods embedded in such services is justified and valid."
While dictating the order orally on Friday, the HC bench observed, "Rendering services together with supply of implants, stents, medicine etc, for treatment of indoor patients cannot be given a restricted meaning by excluding the same from ‘works contract’. On the basis that the ‘works contract’ as a concept was originally confined to contracts involving properties alone…"
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"However, after the 46th amendment to the Constitution, definition of works contract was widened. It is broad based, taking within its fold every possible and conceivable contract involving transfer of property, providing service. Therefore… It can include hospitals, health and medical services involving composite contracts with the provision of service also including supply of goods with medical service. And the definition takes within its fold such services also and therefore, the respondent state was justified in proposing demand for tax…" the bench further observed.
After the ruling, it is now open for the State Government to levy VAT on hospitals and recover dues on the sale value of consumables and medical goods like medicaments, prosthetics, implants, stents, etc. provided during treatment to their patients.
Medical Dialogues had earlier reported that back in 2017, the Maharashtra Sales Tax Tribunal had ruled that the sales tax cannot be levied on drugs, medicines, stents etc that are supplied by a hospital pharmacy for the treatment of in-house patients. It was observed by the Tribunal that such items are used in the course of medical treatment in the hospital and therefore the same does not amount to sale.
