Bombay Hospital vs. Asstt. Commercial Tax Officer

W. P. No.2826 of 2005 has been preferred by Choithram Charitable Trust challenging the order dated 12.07.2005 passed by the Deputy Commissioner, Commercial Tax, Indore confirming the levy of tax under the provisions of Madhya Pradesh Commercial Tax Act, 1994 (hereinafter referred to as 'the Act'), for declaration that petitioner is immune from levy of tax under the Act on supply of medicine in the course of activity of running its charitable hospital and for restraining the respondents from giving effect to the impugned order and also prohibiting them from enforcing/recovering demands against the petitioner. By way of amendment, proceedings taken subsequent to filing of the petition have also been challenged.

As per the petitioner, it is a charitable trust established with charitable objects. The trust amongst its various objects has also the object of providing medical relief to the public at large. The petitioner has established a hospital under the name and style of "Choithram Charitable and Research Center". The hospital is run by the petitioner in a charitable manner without any profit motive. Since the petitioner trust is a charitable trust running the hospital, it is not a dealer within the meaning of Section 2(h) of the Act

Proceedings were initiated by respondent No.1 against the petitioner under Section 6 of the Act for determining its liability as a dealer under the Act alleging that petitioner is engaged in the business of supply of medicine to the patients, hence is liable to pay commercial tax. By order dated 27.08.2002, respondent No.1 held that supply of medicine to the patients by the hospital constitutes a business and makes the petitioner liable to pay tax on such supply of medicine and forwarded the matter to the assessing authority. Separate proceedings were registered by the assessing authority but it also held the petitioner liable to pay the tax by order dated 28.01.2005. Being aggrieved by the said order, the petitioner preferred a Revision under Section 62 of the Act before respondent No.2 which has been dismissed by the impugned order dated 12.07.2005 holding that although the activity of petitioner trust of running a charitable hospital does not constitute 3 WP-473-2006 a business for the purpose of Commercial Tax Act, the emergency supply of medicine does constitute a business because a price is being recovered by the petitioner for supply of such medicine.

W.P. No.399 of 2006 has been preferred by the petitioner Bombay Hospital, Indore challenging the order dated 24.12 2024 [Annexure P/8] and order dated 28.08.2005 [Annexure P/10] passed by respondents No.2 and 3 whereby tax has been levied upon it in respect of supply of medicine to patients in the course of activity of running its charitable hospital. Since the issue involved and the questions raised in this petition are similar to those as raised in W.P. No.2826 of 2005, they are not being narrated in detail.

W.P. No.473 of 2006 has been preferred by the petitioner Bombay Hospital, Indore challenging the order dated 24.12.2004 [Annexure P/8] and order dated 28.08.2025 [Annexure P/10] passed by the respondents whereby tax has been imposed upon it on the sale /supplies from canteen run in its charitable hospital for the attendants of the patients. The issues involved and questions raised in this petition are similar to the one involved in the previous petitions i.e whether running of a canteen by the petitioner can be said to be bringing it within the purview of a dealer for attracting the liability of tax under the Act hence they are not being narrated in detail.

Learned Senior counsel for the petitioners has submitted that as per the definition of a dealer under the Act only those persons who carry on business of buying and selling goods are regarded as dealers. A person would not be a dealer unless he carries on business of buying or selling goods. The expression business as defined under the Act, includes any trade, commerce, 4 WP-473-2006 manufacture or other adventure or concern in the nature of trade, commerce or manufacture. The profit motive as also the other ingredients of business such as volume, frequency, continuity or regularity, etc. are not necessary or relevant for constituting a business. The petitioners' main activity of running the charitable hospital is not a business of buying and selling supplied goods. It does not constitute a business as understood for the purpose of the Act. The petitioners have not been treated as a dealer qua their main activity of running the charitable hospital. The petitioner also cannot be said to be dealer qua transaction of supply of medicine to their patients as the same does not amount to a business. In view of the finding that activity of running the charitable hospital does not amount to business, the supply of medicine to the patients being in the course of such activity is a part of such non- business activity which cannot be taxed in the hands of the petitioners. Since petitioner's main activity is a non-business activity then in such case Officer, Squard No.1, Thrissur and others [2019] 61 GSTR 492 (Ker [FB]), Bhailal Amin General Hospital vs. State of Gujarat and another [2017] 98 VST 415 (Guj)], The Base Repair Organisation Visakhapatnam vs. The State of Andhra Pradesh [1983] 53 STC 223 (AP), Commissioner of Sales Tax vs. Sai Publication Fund [2002] 126 STC 288X and Gowtham Residential Junior 5 WP-473-2006 College vs. Commercial Tax Officer, Benz Circle, Vijayawada (2009) 14 WP-473-2006 9. We have considered the submissions of the learned counsel for the parties and have perused the record.

The definition of business is given in Section 2(c) of the Act, 1994, which is as under : "(c) Business includes – (a) any trade, commerce, manufacture or any adventure or concern in the nature of trade, commerce or manufacture, whether or not such trade, commerce, manufacture, adventure or concern is carried on with a motive to make gain or profit and whether or not any gain or profit accrues from such trade, commerce, manufacture, adventure or concern and irrespective of the volume, frequency, continuity or regularity of such trade, commerce, manufacture, adventure or concern; and (b) any transaction of sale or purchase of goods in connection with or incidental or ancillary to the trade, commerce, manufacture, adventure or concern referred to in sub-clause (a), that is to say - (i) goods of the description referred to in sub-section (3) of Section 8 of the Central Sales Tax Act, 1956 (No. 74 of 1956), whether or not they are specified in the registration certificate, if any, of the dealer under the said Act and whether or not they are in their original form or in the form of second hand goods, unserviceable goods, obsolete or discarded goods, mere scrap or waste material; and (ii) goods which are obtained as waste products or by- products in the course of manufacture or processing of other goods or mining or generation of or distribution of electrical energy or any other form of power."

The definition of a dealer is given under Section 2(h) of the Act which is as under: "(h) Dealer means any person who carries on the business of buying, selling, supplying or distributing goods, directly or otherwise, whether for cash, or for deferred payment or for commission, remuneration or other valuable consideration and includes – i. a local authority, a company, an undivided Hindu family or any society (including a co-operative society), club, firm or association which carries on such business; ii. a society (including a co-operative society), club, firm or association which buys goods from, or sells, supplies or distributes goods to, its members; iii. a commission agent, broker, a del-credere agent, an auctioneer or any other mercantile agent, by whatever name called, who carries on the business of buying, selling, supplying or distributing goods on behalf of the principal; iv. any person who transfers the right to use any goods for any 7 WP-473-2006 purpose, (whether or not for a specified period) in the course of business to any other person; Explanation – (I) Every person who acts as an agent of a non-resident dealer, that is as an agent on behalf of a dealer residing outside the State and buys, sells, supplies or distributes goods in the State or acts on behalf of such dealer as – (i) a mercantile agent as defined in the Indian Sale of Goods Act, 1930; or (ii) an agent for handling goods or documents of title relating to goods; or (iii) an agent for the collection or the payment of the sale price of goods or as a guarantor for such collection or payment, and every local branch of a firm or company situated outside the State, shall be deemed to be a dealer for the purpose of this Act. (II) The Central or a State Government or any of their departments or offices which, whether or not in the course of business, buy, sell, supply or distribute goods, directly or otherwise, for cash or for deferred payment, or for commission, remuneration or for other valuable consideration, shall be deemed to be a dealer for the purpose of this Act."

The question involved in these petitions is whether supply of medicine by the hospital to the patients in the specified circumstances can be said to constitute business rendering the petitioners liable to tax on such supply of medicine particularly when their main activity of running a hospital does not amount to business within the meaning of the definition of the said word under the Act and further whether supply of such medicine only in specified circumstances as a part of their main non business activity of running the charitable hospital can be said to be connected, incidental or ancillary to their main non business activity and whether the same can be subjected to levy of tax under the Act.

Heavy reliance has been placed by the learned counsel for the respondents on the decision of the Apex Court in Cochin Port Trust (supra) to contend that the definition of a dealer is an inclusive definition, whereby 8 WP-473-2006 wide range of persons have been placed under the ambit of dealer. It includes persons involved in carrying on any business or trading activity and transactions are effected by them whether in the course of business or not. The definition of dealer is in consonance with legislative intent to place the persons engaged in activities of sale and trade which would not otherwise fall in the restricted definition of business. The said contention, in our opinion, is not acceptable for the reason that the definition of a dealer as given under the Kerala General Sales Tax Act 1963 is not pari materia with the definition of a dealer as given under the Act, 1994. The definition under the Kerala General Sales Tax Act, 1963 has specific clauses whereby those persons have also been included within the definition of a dealer who sell or transfer goods as specified therein "whether in the course of business or not". For ready reference the definition of a dealer as given under the Kerala General Sales Tax Act, 1963 is as under: "(viii) “Dealer” means any person who carries on the business of buying, selling, supplying or distributing goods, executing works contract, transferring the right to use any goods or supplying by way of or as part of any service, any goods directly or otherwise, whether for cash or for deferred payment, or for commission, remuneration or other valuable consideration and includes: - a) Omitted b) a casual trader c) a commission agent, a broker or a del credere agent or an auctioneer or any other mercantile agent, by whatever name called, who carries on the business of buying, selling, supplying or distributing goods executing works contract, transferring right to use any goods or supplying by way of or as part of any service, any goods on behalf of any principal; d) a non-resident dealer or an agent of a non-resident dealer, or a local branch of a firm or company or association or body of persons whether incorporated or not situated outside the State; e) a person who, whether in the course of business or not, sells; i. goods produced by him by manufacture, agriculture, horticulture or otherwise; or ii. trees which grow spontaneously and which are agreed to be severed before sale or under the contract of sale; (f) a person who whether in the course of business or not:- (1) transfers any goods, including controlled goods whether in pursuance of a 9 WP-473-2006 contract or not, for cash or deferred payment or other valuable consideration; (2) transfers property in goods (whether as goods or in some other form) involved in the execution of a works contract; (3) delivers any goods on hire-purchase or any system of payment by installments; (4) transfers the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; (5) supplies, by way of or as part of any service or in any other manner whatsoever, goods, being food or any other articles for human consumption or any drink (whether or not intoxicating), where such supply or service is for cash, deferred payment or other valuable consideration; Explanation:- A society including a co-operative society, club or firm or an association or body of persons, whether incorporated or not) which whether or not in the course of business, buys, sells, supplies or distributes goods from or to its members for cash or for deferred payment, or for commission, remuneration or other valuable consideration, shall be deemed to be a dealer for the purposes of this Act; Explanation: - (2) The Central Government or a State Government, which whether or not in the course of business, buy, sell, supply or distribute goods, directly or otherwise, for cash or for deferred payment, or for commission, remuneration or other valuable consideration, shall be deemed to be a dealer for the purposes of this Act. (g) a bank or a financing institution, which, whether in the course of its business or not, sells any gold or other valuable article pledged with it to secure any loan, for the realisation of such loan amount; Explanation I: - Bank for the purposes of this clause includes a Nationalized Bank or a Schedule Bank or a Co-operative Bank; Explanation II: - Financing Institution means a financing institution other than a bank;"

The words "whether in the course of business or not" as under the Kerela Act are wholly absent in the definition of a dealer as given under the M.P. Act. The definition under the M.P. Act defines a dealer to mean any person who carries on the business of buying, selling, supplying or distributing goods, etc. The only condition for attracting the definition of a dealer to a person is that he must be carrying on the business whereas under the Kerala General Sales Tax Act, 1963 that is not a precondition for bringing him within the definition of a dealer. He would be so included even if he is buying, selling, supplying or distributing goods whether in the course of business or not. The said judgment relied upon by the learned counsel for the respondents is distinguishable and is not applicable to the facts of the 10 WP-473-2006 present case.

Though the learned senior counsel for the petitioners has placed under : 11 WP-473-2006 "12 ……..…… With due respect, we find the declaration of the honourable Supreme Court as to hospital services not enabled of differentiation as sale and services to be binding with all the force as available under article 141 of the Constitution of India. The sale, if any made, in the course of the treatment of a patient in a hospital, is with the sole intention of curing the patient, which is an inseparable part of the service offered in a hospital and it does not intend to create any separate rights on such drugs, implants or consumables used in the course of treatment. * ---- * --- * --- * 18. …………… Deriving profit is not a criterion which could decide the levy of tax on sale goods. Profits and gains of business are taxed as income under the Income-tax Act, 1961 under a specific head of income as decipherable from section 14 of that Act. It can lead to a levy of sales tax only if there is a sale of goods as defined under the taxing enactment. * ---- * --- * --- *

With respect to hospital services, we cannot but observe that the sale of drugs, implants and other consumables are a part of the medical treatment rendered. There is no identity of the medicines or consumables or implants, as it does not lie in the mind or mouth of the patient to identify the drugs to be administered in the course of the treatment. Though a patient on his volition could refuse to take a particular drug, he cannot demand, as a matter of right, that a drug be administered to him in the course of the medical treatment. A demand of that nature will not be complied with by either a medical practitioner or a hospital, the latter of whom dispenses medicines only in accordance with the directions of the attending physician or surgeon. A person visits a hospital primarily for the purpose of curing an ailment or arresting or preventing it. At the hospital he places himself at the disposal of the physician or the surgeon who decides on the course of treatment to be taken which may or may not involve the administration of drugs, implants being carried out and other consumables being used in the course of the treatment. The cost of the implants, consumables or the drugs is irrelevant insofar as deciding what is the dominant nature of the transaction or service rendered to the patient in a hospital, which, without any doubt, is the therapeutic treatment rendered. The patient has no control or say, has limited control, on the procedures taken in the course of the treatment, the drugs administered and the consumables used. * ---- * --- * --- *

The declaration so made was with respect to the development contract which was held to be a works contract. As to the other transactions the dominant nature test applies and in hospital services the dominant intention is provision of medical care and treatment, to effectively cure the patient of his/her ailment and it is not the sale of drugs, implants or other consumables. The service offered is one of 12 WP-473-2006 medical treatment and the dispensation or administration of drugs or implants carried out in the course of surgical procedures and the consumables used in the course of any medical procedure would be an inseparable, indivisible part of the treatment rendered. The business expediency has no control in the administration of drugs, use of consumables or the implants carried out and neither does the control lie with the hospital, as a corporate or other legal entity. The supply of drugs use of consumables and the implants made are on professional medical advice intended at curing the patient and not deriving profits. Though not a charitable activity, hospitals cannot be said to be a business house established primarily for sale of drugs, consumables or implants. The principle is that mere passing of property in an article or commodity during the course of the performance of a contract or service, which is essentially one and indivisible, does not render it a transaction of sale, except in the case of the specific instances as available in clauses (b), (c) and (f) of article 366(29A). The fiction extends to only the specific clauses as coming under article 366(29A) and stops there and does not extend beyond that or encompass any other composite transaction. * ---- * --- * --- *

The fundamental fallacy, in the argument so raised, is the fact that the State fails to realise the distinction with respect to an essential commodity and a controlled commodity. In the present case, there is absolutely no restriction or control insofar as the drugs are concerned, which, though an essential commodity, the dispensation of which is neither restricted nor controlled by the State in the manner in which a commodity is subjected to a control as understood in the decisions above referred. Further, it has to be emphasised that it is not the absence of a contract between the hospital and patient, that takes away the sale or rather dispensation and administration of drugs, implants and consumables from the definition of sale of goods. The reigning factor which takes, such drugs, implants and consumables administered or used in the course of medical treatment, out of the definition of "sale of goods", is that it is an integral, indivisible part of the composite transaction rendering medical treatment and care, which is a service rendered. There can be no differentiation made of the various aspects or elements involved in such service rendered. The element of sale is an integral part of the medical service and cannot be separated or distinctly plucked away from the composite transaction so as to levy tax on the sale element. The consensual nature of a sale and the absence of a contract are not the fetter on the State to tax the sale of drugs, consumables and implants. The State is fettered in so far as the levy being not competent and permissible, when the sale is effected in the course of a composite service or contract ; not possible of bifurcation and isolation from the composite transaction, for effectuating a separate levy on the value of the sale effected."

In Bhailal Amin General Hospital (supra) the Gujarat High Court has also held that the petitioner therein being a charitable trust running and 13 WP-473-2006 maintaining a public hospital while purchasing, selling and supplying medicines to patients in order to achieve objects was not engaged in business activity and therefore was not a dealer. It was held as under :

We have heard learned counsel for the parties. We have gone through the material evidence available on record. Since the appellant being a charitable trust, is doing the activity of purchasing, selling and supplying medicines to patients in order to achieve its avowed objects, it is not engaged in business activity and therefore, the appellant is not a dealer within the meaning of exception (iii) to section 2(10) of the Act. In that view of the matter, we answer the question in favour of the appellant and against respondent."

Having gone through the judgments of the Kerala as well as the Gujarat High Court as aforesaid we are in complete agreement with the views taken therein and do not find any reason to take a contrary view.

Though it has been contended by the learned counsel for the respondents that the petitioner is earning profit from sale of medicines meaning thereby that it is carrying on completely independent business and its motive is to gain profit hence it has to be treated as a dealer under the Act, but in Aswini Hospital Private Limited and others (supra) it has been held that actually deriving profit from the sale of goods is by itself wholly insufficient for bringing a person within the definition of a dealer. The contention in this regard is hence liable to be rejected.

Though the learned counsel for respondents has submitted that the petitioner is not a charitable institution and is caring on its business for the motive of earnings profit but the revisional authority in the impugned order has itself held that petitioner's main activity of running the hospital is a part of its charitable activity and nor a profit earning activity. This argument is 14 WP-473-2006 (SURESH KUMAR KAIT) CHIEF JUSTICE (PRANAY VERMA) JUDGE

As a result of the aforesaid discussion, we hereby hold that the petitioners are exempted from levy of tax under the Act, 1994 on supply of medicine in the course of activity of running its charitable hospital. For the very same reasons as discussed above and applying the same principles we further hold that the petitioner is exempted from levy of tax under the Act, 1994 in respect of the canteen run by it for the attendants of the patients in the course of activity of running its charitable hospital.

Consequently, the petitions deserve to be and are accordingly allowed. The impugned orders challenged in the petitions are hereby quashed and so are also the consequential proceedings taken by the respondents pursuant thereto. No costs. jyoti