Karnataka High Court
Aditya Surgical Co vs The State Of Karnataka on 11 September, 2017
Author: Vineet Kothari
Bench: Vineet Kothari
1/17
R
IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 11th DAY OF SEPTEMBER, 2017
BEFORE
THE HON'BLE Dr.JUSTICE VINEET KOTHARI
WRIT PETITION No.41575/2016 (T-RES)
Between:
Aditya Surgical Co.,
No.46, West Anjaneya Temple Street
Basavanagudi, Bangalore-560004
Represented herein by its Proprietor
Mr. Girish T.K.
Age 53 years.
...Petitioner
(By Mr. K.P. Kumar, Sr. Counsel for
Mr. T. Suryanarayana, Advocate)
And:
1. The State of Karnataka
Represented herein by the
Principal Secretary
Finance Department
Government of Karnataka
Vidhana Soudha, Bangalore-560001.
2. Commissioner of Commercial Taxes
Vanijya Theriger Karyalaya
1st Floor, Gandhinagar, Bangalore-560009.
.... Respondents
(By Mr. T.K. Vedamurthy, AGA)
****
Date of Order 11-09-2017 W.P.No.41575/2016
Aditya Surgical Co., Vs.
The State of Karnataka and another
2/17
This Writ Petition is filed under Article 226 of the
Constitution of India praying to issue a writ, order or
direction quashing the impugned Clarification
No.CLR.CR.111/2013-14 dated 27-06-2016 (Annexure 'F')
issued by the 2nd Respondent under the provisions of the
Karnataka Value Added Tax Act, 2003 & etc.,
This Writ Petition coming on for Preliminary Hearing in
'B' Group this day, the Court made the following:-
ORDER
Mr. K.P. Kumar, Sr. Counsel for Mr. T. Suryanarayana, Advocate for Petitioner - Company Mr.T.K. Vedamurthy, AGA for Respondents
1. The petitioner - Aditya Surgical Company dealing with certain Blood Bank Equipments and other Medical Equipments is aggrieved by the order passed by the Respondent - Commissioner of Commercial Taxes under Section 59(4) of the Karnataka Value Added Tax Act, 2003 ('KVAT Act, 2003' for short), in which on an Application filed by the petitioner - Company seeking clarification from the Respondent - Commissioner of Commercial Taxes, about the Rate of Tax applicable to Blood Collection Monitors, Blood Storage Refrigerators Date of Order 11-09-2017 W.P.No.41575/2016 Aditya Surgical Co., Vs. The State of Karnataka and another 3/17 and Deep Freezers, Platelet Agitators with incubators and Plasma Expressers (Electrical and Manual) and Cryobaths, the learned Commissioner held affirming that the said goods would not fall within the ambit and scope of Entry 61 of the III Schedule to the KVAT Act, 2003, which reads as "61. Medical Equipments, Devices and Implants" taxable at the rate of 4% but would be taxable at the rate of 12.5% in the Residuary Entry as per Section 4(1)(b)(iii) of the KVAT Act, 2003.
2. The learned Senior Counsel for the petitioner - Company, Mr. K.P. Kumar, has drawn the attention of the Court that all these aforesaid items for which the clarification about the Rate of Tax was sought by the petitioner - Company rendered medical aid or performed the ancillary functions as Medical Equipments and the said explanation and details as narrated in the Memorandum of this Petition is quoted below for ready reference.
Date of Order 11-09-2017 W.P.No.41575/2016 Aditya Surgical Co., Vs. The State of Karnataka and another 4/17 " a. Blood Collection Monitors: The primary purpose of a blood collection monitor is to collect blood from a donor, which is thereafter used for various therapeutic purposes for patients. The blood collection monitor ensures that blood is collected safely and mixed with an anticoagulant solution to prevent the blood from clotting. Since the collection of blood requires precision and accuracy, the blood collection monitor monitors the flow of blood and ensures that the right volume of blood is collected. Blood collection monitors are mandatorily prescribed to operate a blood bank as per guidelines issued by the Ministry of Health and Family Welfare, Government of India;
b. Blood Storage Refrigerators: Blood storage refrigerators are specially designed for use in blood banks, and are mandatorily prescribed in order to operate a blood bank as per guidelines issued by the Ministry of Health and Family Welfare, Government of India. This equipment ensures that blood is safely stored at a temperature between 2 to Date of Order 11-09-2017 W.P.No.41575/2016 Aditya Surgical Co., Vs. The State of Karnataka and another 5/17 6 degrees Celsius in order to prevent the freezing of red blood cells and avoid bacterial contamination. A blood storage refrigerator has an inbuilt thermograph/TRCU (Temperature recording and control unit), which maintains the temperature of the blood and records the same on a specially prepared chart. This thermograph chart is required to be maintained for a period of 5 years as per Central Government regulations. If there are any abnormalities in the temperature of the blood being stored, the same is indicated through audio visual alarms so that the technician can rectify the abnormality. Pertinently, blood storage refrigerators are mandatorily prescribed to be used in blood banks as blood cannot be stored in regular refrigerators since they are not equipped with mandatory parameters like thermographs, audio visual alarms, auto defrosting (in order to prevent ice formation on the blood), temperature indicators (in order to maintain uniform temperatures), etc. Date of Order 11-09-2017 W.P.No.41575/2016 Aditya Surgical Co., Vs. The State of Karnataka and another 6/17 c. Platelet Agitators with incubators: These equipment are meant for storing blood platelets with gentle agitation in order to retain the viability of platelets suspended in the blood plasma. Platelet agitators ensure that viable platelets are available for adequate haemostasis (the human body's response to blood vessel injuries and bleeding) as a deficiency in the platelet count would result in severe bleeding in patients with low platelet counts. Platelets are generally infused into patients suffering from dengue and massive bleeding, and are also used during cardiac surgeries, oncology, and organ transplantations. The platelet agitator is specially designed to preserve platelets at a temperature of 20-24 degrees Celsius, and the platelets are consistently agitated at a set speed of approximately 65 agitations per minute. These equipment are also fitted with mandatory thermographs, internal fans insulation, battery backup and audio visual alarms for any abnormalities in the temperature;
Date of Order 11-09-2017 W.P.No.41575/2016 Aditya Surgical Co., Vs. The State of Karnataka and another 7/17 d. Plasma Expressers: A plasma expresser is a device used for separating plasma from centrifuged blood without layer disturbance and damage to cells. Highly sensitive opto-electronic sensors are provided to sense the red blood cells and prevent their contamination in plasma, thereby ensuring that the plasma does not result in any adverse reaction to patients after transfusion.
This equipment is essential and mandatory for plasma therapy, and is used in cases of burns, and skin and intestinal diseases in order to replenish fluids and proteins lost from the human body. e. Plasma and Cryobath: These are used for uniform thawing of frozen plasma and frozen cryo precipitate at-40 degrees and 80 degrees Celsius, respectively. Frozen plasma is thawed at a temperature of 37 degrees Celsius to retain coagulations factors, which are essential for patients suffering from burns, dengue, and skin and intestinal diseases in order to replenish fluids and Date of Order 11-09-2017 W.P.No.41575/2016 Aditya Surgical Co., Vs. The State of Karnataka and another 8/17 proteins lost from the human body. Cryo precipitate, on the other hand, is also thawed at 37 degrees Celsius to retain its anti- haemophilia factor, which is essential for patients suffering from haemophilia."
3. The learned Senior Counsel for the petitioner, Mr. Kumar, therefore, has submitted that the learned Commissioner on a misconception that the "Blood Bank Equipments" as aforesaid are not "Medical Equipments"
but are in the nature of 'Refrigerators, Weighing Machines and Storage Equipments', has wrongly held them to be falling under the Residuary Entry and not under Entry 61 of the III Schedule to the KVAT Act, 2003.
He submitted that the purpose of different and specially designed equipments as aforesaid are necessary for collection of the Blood samples in proper and safe prescribed manner and segregating the platelets and to allow uniform thawing of frozen cryo Date of Order 11-09-2017 W.P.No.41575/2016 Aditya Surgical Co., Vs. The State of Karnataka and another 9/17 precipitate etc. are all technical aspects of the blood collection sampling which are necessary, mandatorily prescribed and integral part of the medical services rendered by the Hospitals and Nursing Homes and these machines are specially designed machines and cannot be taken out of Entry 61 so as to fall in the Residuary Entry.
He submitted that if a particular commodity is relatable to a special entry under the Value Added Tax Law, then, the Revenue cannot tax the same in the Residuary Entry.
4. On the other hand, the learned counsel for the Revenue, Mr. T.K. Vedamurthy submitted that the learned Commissioner has relied upon the definitions of the "Medical Equipments" given in Wikipedia, the Free Encyclopedia and he has tried to distinguish between the "Blood Bank Equipments" and "Medical Equipments" by submitting that certain equipments referred to above were only for the purposes of storing Date of Order 11-09-2017 W.P.No.41575/2016 Aditya Surgical Co., Vs. The State of Karnataka and another 10/17 like Refrigerators used for storing Blood samples and therefore, they cannot be said to be "Medical Equipments" as they do not help in any diagnosis or treatment etc. of the human beings or animals. He, therefore, supported the impugned order passed by the Respondent - Commissioner of Commercial Taxes.
5. Having heard the learned counsels at the Bar, this Court is satisfied that the well settled legal principles for interpretation of various Entries under the Tax Laws are that such Commodities have to be interpreted in the manner in which the persons concerned with that Trade will construe them to be or in other words, the Common Parlance Test or Trade Parlance Test has to be applied while making such interpretations. There is no doubt that the collection of Blood samples and Diagnosis of the various contents of the Blood is a useful and integral part of the Medical treatment and without the Diagnosis of the Blood samples, possibly, the Medical Science as far as Date of Order 11-09-2017 W.P.No.41575/2016 Aditya Surgical Co., Vs. The State of Karnataka and another 11/17 Allopathy is concerned, cannot even work. The integrity of the Blood Banks and Blood Bank Equipments with the Medical profession comprising of Diagnosis and treatment of the human beings and animals cannot be doubted and they cannot be separated also.
6. The misconception in the impugned order passed by the learned Commissioner appears to be his notion of differentiation between "Blood Bank Equipments" and "Medical Equipments".
7. While heavily relying upon the information given in Wikipedia, a free Encyclopedia, in para 7 of the impugned order, the learned Commissioner has observed as under:-
"Para 7. Reliance placed on the letter of Superintendent of Central Excise Trivandrum dated 12-8-2012 is of no relevance to the facts of this case for the reason that, the entry in the schedule has not made any reference to Central Excise classification unlike entries relating to industrial inputs and IT products. Even though entry 60 refers to Drugs and Date of Order 11-09-2017 W.P.No.41575/2016 Aditya Surgical Co., Vs. The State of Karnataka and another 12/17 Cosmetics Act 1940 to classify the drugs and pharmaceutical preparations, medical devices and equipment are excluded. Such being the case, the commodities for which clarification is sought for are instruments and appliances which are exclusively used in Blood Bank shall be classified as unscheduled commodities. Drugs and Cosmetics Rules, 1945 classifies them as Blood Bank equipments. Government of India (No.X -11014/3/2001-DMS & PFA) in Regulatory requirements of blood and/or its components including blood products has enumerated the requirements of blood bank equipments. These equipments of blood bank as enumerated in Part X-B of the Drugs and Cosmetics Rules 1945 [http://www.cdsco. nic.in/]. The goods for which the applicant has sought clarification are also the goods which are Blood Bank equipments which are instruments and appliances and they are not 'Medical Equipments', as the Blood Bank equipments are not medical equipments or devices as defined above.
These goods are in the nature of Date of Order 11-09-2017 W.P.No.41575/2016 Aditya Surgical Co., Vs. The State of Karnataka and another 13/17 refrigerator, weighing machine and storage equipment designed to suit the needs of Blood Bank while medical devices are the equipments to aid diagnosis, prevention, monitoring, treatment or alleviation of disease or for Diagnosis, monitoring, treatment, alleviation of or compensation for an injury or handicap or Investigation, replacement or modification of the anatomy or of a physiological process. Therefore, the commodities for which the applicant has sought clarification are required to be classified as 'Blood Bank Equipments' and not 'Medical Devices or Medical equipments.
8. This Court does not find any substance or merit in the aforesaid reasoning given by the learned Commissioner in differentiating between the "Medical Equipments" and "Blood Bank Equipments" in so far as they aid or relate with the diagnosis, prevention, Date of Order 11-09-2017 W.P.No.41575/2016 Aditya Surgical Co., Vs. The State of Karnataka and another 14/17 monitoring, treatment or alleviation of diseases is concerned.
9. In common parlance or Trade parlance of Medical profession, these equipments in "Blood Banks"
and "Hospitals" are integrally connected and their separate existence in isolation, cannot be even conceived, much less sustained. The incidental user of these equipments like Refrigerators which are although designed specially for storing Blood samples only, for some other purpose would not take such commodity out of the scope of the said Entry 61 of III Schedule to KVAT Act, 2003.
10. The nature of business of the petitioner - assessee who is a registered dealer with the Respondent Department is nothing except dealing with the Blood Bank Equipments and other Medical Equipments. It was not selling usual Refrigerators or Cold Storages. These Refrigerators are specially designed for storing Date of Order 11-09-2017 W.P.No.41575/2016 Aditya Surgical Co., Vs. The State of Karnataka and another 15/17 only Blood samples before or after their processing. Therefore, there is no good reason even to treat the Refrigerators specially designed for Blood samples as not falling within the wide scope of Entry 61, which as quoted above reads as "Medical Equipments, Devices and Implants". The other Blood Bank Equipments are undoubtedly covered by Entry 61 of the III Schedule to the KVAT Act, 2003.
11. The learned Commissioner has wrongly taken the impugned view in the impugned order dated 23/06/2016, perhaps just to take a pro-revenue approach in the matter, whereas, Section 59 casts an obligation upon him to take a balanced and reasoned view of the matter, because the very purpose of Section 59(4) of the KVAT Act is to avoid multiplicity of litigation and avoid different views being taken by the different Assessing Authorities working in the said Department. Section 59 deals with "Instructions to Date of Order 11-09-2017 W.P.No.41575/2016 Aditya Surgical Co., Vs. The State of Karnataka and another 16/17 Subordinate Authorities" and Section 60 of the KVAT Act deals with "Clarification and Advance Rulings". These provisions contained in Chapter VI of the KVAT Act are precisely made to render Advance Rulings to obviate unnecessary litigation and give binding guidance to the lower Assessing Authorities. The rationale and reasons assigned by the learned Commissioner in the impugned order do not stand the test of judicial scrutiny and the common parlance test or Trade parlance test which have to be applied while making such interpretations in the exercise of powers under Sections 59 and 60 of the KVAT Act.
12. The present writ petition, therefore, deserves to be allowed. Accordingly, the same is allowed and setting aside the impugned order, Annexure F, dated 27/06/2016 and consequential Assessment Orders passed by the Assessing Authorities in pursuance of the said order, it is held that the goods viz. "Blood Date of Order 11-09-2017 W.P.No.41575/2016 Aditya Surgical Co., Vs. The State of Karnataka and another 17/17 Collection Monitors, Blood Storage Refrigerators and Deep Freezers, Platelet Agitators with incubators and Plasma Expressers (Electrical and Manual) and Cryobaths" are taxable at the rate of 4% under Entry 61 "Medical Equipments, Devices and Implants" and not in the Residuary Entry of the KVAT Act, 2003. No costs.
Sd/-
JUDGE BMV*