/ Indirect Tax

SUPPLY OF MEDICINES INTEGRAL TO MEDICAL SERVICES – HENCE COULD NOT BE SEVERED TO INFER A SALE

SUPPLY OF MEDICINES INTEGRAL TO MEDICAL SERVICES – HENCE COULD NOT BE SEVERED TO INFER A SALE

  • Recently in the case of Fortis Health Care Ltd. vs. State of Punjab {(2015) (Punjab and Haryana)} it has been decided by the P&H High Court that since the supply of drugs, medicines, surgical items, implants and stents was integral to the medical services and thus could not be severed to infer a sale.
  • In the said case, the assesse, a private hospital, provides medical services and supplied medicines, surgical items, implants and stents as part of medical procedures like open heart surgery, angiography, knee surgery, hip replacement, etc. The main point of consideration is whether the supply of medicines, drugs, stents and other implants, etc., during the course of treatment or a medical procedure, is a ‘sale’ within the meaning of section 2(ze) of the Haryana Value Added Tax Act, 2003 and section 2(zf) of the Punjab Value Added Tax Act, 2005.

The Decisions of the following cases were referred while deciding the present case:-

  • Tata Main Hospital v. State of Jharkhand 2008(2) JCR174 (Jhr.), Bharat Sanchar Nigam ltd. V. Union of India 2006 (3) STT 245 (SC), State of Madras v. Gannon Dunkerly and Co. (Madras) Ltd. 1958 (9) STC 353 (SC), International Hospital (P) Ltd. V. State of U.P. 2014 (48) Taxmann.com 159/47 GST 335 (All.), Malan Bara Orthodox Syrian Charch v. STO 2004 (135) STC 224 (Ker.), Larsen & Toubro Ltd. v. State of Karnataka 2004 (1) SCC 708, P.R.S. Hospital v. State of Kerala 2003  (Ker.), Aswini Hospital (P.) Ltd. v. Intelligence Officer (2013) (Ker.).
  • The Apex court in the case of Bharat Sanchar Nigam ltd. V. Union of India, specifically observed that the sub clauses of the Article 366 (29A) do not cover hospital services and also held that unless the transaction in truth represents two distinct and separate contracts, the state would not have the power to separate the agreement of sale from the agreement to render services. Further, the dominant nature test should be applied to the contracts which do not fall under the clauses of the said Article.
  • The issue regarding applicability of VAT has also been decided by the Jharkhand High Court in Tata Main Hospital v. State of Jharkhand, where it was held that the supply of medicines, surgical items, implants in the course of medical treatment does not involve a sale, that would invite levy and payment of VAT.
  • Consequently, in the present case it has been decided by the P&H High Court that the States of Punjab and Haryana may levy VAT only on such transactions, which fall within the definition of Sale, either as sale of goods (as defined in the respective VAT act) or composite contracts as set out in Article 366(29A) of the Constitution, thus the state cannot by legal fiction infer a sale and seek to tax the so called element of sale. In the present case, the medical procedures/services provided by the assessee is a service and the supply of drugs, medicines, implant, stents, valves and other implants is integral to a medical services/procedures and cannot be severed to infer a sale as defined under the Punjab VAT or the Haryana Act and, therefore, is not eligible to VAT.

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