Gujarat High Court
Bankers Cardiogy Pvt Ltd vs Commissioner Of Commercial Tax on 25 July, 2025
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
NEUTRAL CITATION
C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025
undefined
Reserved On : 21/03/2025
Pronounced On : 25/07/2025
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 16927 of 2011
With
R/SPECIAL CIVIL APPLICATION NO. 865 of 2021
With
R/SPECIAL CIVIL APPLICATION NO. 13722 of 2021
With
R/SPECIAL CIVIL APPLICATION NO. 13723 of 2021
With
R/SPECIAL CIVIL APPLICATION NO. 13712 of 2021
With
R/SPECIAL CIVIL APPLICATION NO. 7823 of 2019
With
R/SPECIAL CIVIL APPLICATION NO. 14638 of 2021
With
R/SPECIAL CIVIL APPLICATION NO. 3123 of 2015
With
R/SPECIAL CIVIL APPLICATION NO. 5344 of 2015
With
R/SPECIAL CIVIL APPLICATION NO. 5345 of 2015
With
R/SPECIAL CIVIL APPLICATION NO. 5421 of 2015
With
R/SPECIAL CIVIL APPLICATION NO. 8443 of 2015
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR.JUSTICE D.N.RAY
==========================================================
Approved for Reporting Yes No
✓
==========================================================
BANKERS CARDIOGY PVT LTD & ANR.
Versus
COMMISSIONER OF COMMERCIAL TAX & ANR.
==========================================================
Page 1 of 191
Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025
NEUTRAL CITATION
C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025
undefined
Appearance:
MR SN SOPARKAR SENIOR ADVOCATE WITH MR UCHIT SHETH WITH
MR MANISH K KAJI(1030) for the Petitioner(s) No. 1,2
MR KAMAL TRIVEDI, ADVOCATE GENERAL WITH MR VINAY BAIRAGA
for the Respondent(s) No. 1,2
==========================================================
CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR.JUSTICE D.N.RAY
CAV JUDGMENT
(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)
1. Heard learned Senior Advocate Mr.S.N.Soparkar with learned advocate Mr.Uchit N. Sheth and learned advocate Mr.Manish K. Kaji for the petitioners and learned Advocate General Mr.Kamal Trivedi with learned Assistant Government Pleader Mr.Vinay Bairagra for the respondents.
2. Since common issue is involved in all these petitions, with the consent of the learned advocates for the respective parties, they have been heard analogously Page 2 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined and are disposed of by this common judgment.
3. By this group of petitions, the petitioners have challenged the vires of provision of clause (g) of section 2(23) of the Gujarat Value Added Tax Act, 2003 (For short "the VAT Act") as being ultra vires the legislative competence of the State Legislature and further have prayed to quash and set aside the assessment orders and/or show cause notices for the relevant period declaring that supply of medicines, stents, implants, consumables etc. during the course of treatment of patients does not amount to 'sale' as defined in section 2(23) of the VAT Act.
A) FACTS:
4. The petitioners are hospitals engaged Page 3 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined in the activity of treatment of as indoor patients. In order to treat the patients, the petitioner hospitals use medicines, implants, stents, consumables, etc.
5. In these petitions, by impugned show cause notices/orders, the respondents have imposed value added tax under the VAT Act on supply of such medicines, implants, stents, consumables, etc. used for treatment of indoor patients considering them as "sale of goods".
6. According to the petitioners, use of medicines, implants, stents, consumables, etc. is neither 'sale' as understood under the Sales of Goods Act, 1930 nor 'deemed sales' as defined under Article 366(29A) of the Constitution of India and Page 4 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined therefore, the respondent State does not have competence to impose tax on such supply of goods under the VAT Act, as such imposition of tax would be beyond the legislative competence under Entry 54 of List II of the Seventh Schedule of the Constitution of India.
7. Section 2(23) of the VAT Act defines "sales" as under:
"2(23) "sale" means a sale of goods made within the State for cash or deferred payment or other valuable consideration and includes,-
(a) transfer, otherwise than in pursuance of a contract, of property in goods for cash, deferred payment or other valuable consideration,
(b) transfer of property in goods (whether as goods or in some other form) involved in execution of a works contract, Page 5 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined
(c) delivery of goods on hire purchase or any system of payment by installments.
(d) transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration,
(e) supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration,
(f)supply of goods by a society or dub or an association to its members on payment of a price or of fees or subscription or any consideration,
(g) supply of goods by way of or as part of any service or in any other manner whatsoever, of
(h) supply of goods being food or any other article for human consumption or any drink (whether or not intoxicating) where such supply or service is for cash, deferred payment or other valuable consideration, Page 6 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined
(i) supply by way of barter of goods,
(j) disposal of goods by a person in the manner prescribed in Explanation
(iii) to clause 10 but does not include a mortgage, hypothecation, charge or pledge; and the words "sell", "buy" and "purchase" with all their grammatical variations and cognate expressions shall be construed accordingly.
Explanation-(i) For the purposes of this clause, "sale within the State" includes a sale determined to be inside the State in accordance with the principles formulated in sub-section (2) of section 4 of the Central Act;
(ii) for the purpose of sub-
clause (b) of the expression "works contract" means a contract for execution of works and includes such works contract as the State Government may, by notification in the Official Gazette, specify;
Page 7 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined (iii) every transfer of property in goods by the
Central Government, any State Government, a statutory body ora local authority for cash, deferred payment or other valuable consideration, whether or not in the course of business, shall be deemed to be a sale for the purposes of this Act;"
8. Clause (g) of section 2(23) of the VAT Act has been relied upon by the respondent authorities for justifying imposition of value added tax on supply of medicines, implants, stents, consumables, etc. used by the petitioner hospitals for treatment of indoor patients.
9. The petitioners have therefore, challenged the constitutional validity of section 2(23)(g) of the VAT Act on the ground that it is beyond the legislative competence of the State Legislature. Page 8 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025
NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined
10. Prior to enactment of the Constitution (Forty-sixth Amendment) Act, 1982 which came into effect from 02.02.1983, if there was one entire and indivisible works contract of service wherein, though the material used therein passed through and though the said contract could be broken for determining the value of the material used, it was not exigible to sales tax as the substance of the contract was not for sale of goods or materials and therefore, there was no agreement to sell the goods/materials as such and the property in the material did not pass as movables. The Hon'ble Supreme Court in case of The State of Madras v. M/s. Gannon Dunkerly and Co.,(Madras) ltd. reported in AIR 1958 SC 560 has held as Page 9 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined such.
11. Prior to 46th Constitutional Amendment, controversy arose as to what was the scope of the power of the States to impose tax under Entry 54 of List II of the Seventh Schedule of the Constitution of India. The Hon'ble Supreme Court in case of Gannon Dunkerly (supra) answered the question whether the State had competence to impose sales tax on the goods portion of an indivisible "works contract" in the negative. It was held by the Apex Court that 'sale' in the legal sense was required to be interpreted as understood under the Sales of Goods Act, 1930 and in case of a "works contract", the transfer of the property in goods did not pass pursuant to the agreement to sale Page 10 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined but by the principle of accretion and therefore, the State legislatures did not have competence to impose tax on the goods component of a "works contract".
12. Following the decision in case of Gannon Dunkerly (supra), Hon'ble Supreme Court in similar other cases held that compulsory sales under the statute (New India Sugar Mills reported in AIR 1963 SC 1207), food served in hotels (Associated Hotels of India reported in AIR 1972 SC 1131) and food served in restaurants (Northern India Caterers (India) Ltd. reported in AIR 1978 SC 1591), such items will not qualify as 'sales' as per the Sales of Goods Act, 1930.
13. In view of decision of the Hon'ble Page 11 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined Supreme Court in case of Gannon Dunkerly (supra), Parliament passed the Constitution (Forty-sixth Amendment) Act, 1982 by inserting clause (29A) in Article 366 of the Constitution of India effective from 02.02.1983 which reads as under:
"(29A) "tax on the sale or purchase of goods" includes-
(a) a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration;
(b) a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract;
(c) a tax on the delivery of goods on hire-purchase or any system of payment by instalments;
(d) a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for Page 12 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined cash, deferred payment or other valuable consideration;
(e) a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration;
(f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made;"
14. Statement of Objects and Reasons of the Constitution (Forty-sixth Amendment) Act, 1982 reads as under :Page 13 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025
NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined "STATEMENT OF OBJECTS AND REASONS Sales tax laws enacted in pursuance of the Government of India Act, 1935 as also the laws relating to sales tax passed after the coming into the to the footing that the rule as to broad case force of Constitution proceeded on expression "sale of goods", having regard interpretation of entries in the legislative lists, would be given a wider connotation. However, in Gannon Dunkerley's (A.I.R. 1958 S.C. 560), the Supreme Court held that the expression "sale of goods" as used in the entries in the Seventh Schedule to the Constitution has the same meaning as in the Sale of Goods Act, 1930. This decision related to works contracts.
2. By a series of subsequent decisions, the Supreme Court has, on the basis of the decision in Gannon Dunkerley's case, held various other transactions which resemble, sales, to be not liable to sales tax. As a result of these decisions, a transaction, in order to be in transactions substance, by way of subject to the levy of sales tax under entry 92A of the Union List or entry 54 of the State List, should have parties competent the mutual following ingredients, namely, assent and Page 14 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined transfer of property in goods from parties to the contract to the other party thereto for a price.
to one contract, of the
3. This position various ways. An of tax in inter-State or in has resulted for avoidance of scope example of this is the practice transfer of goods from head office or agent in another State or vice consignment account, payment of sales tax on inter-State sales under the Central Sales Tax consignment transfers, i.e., principal in one State to a versa branch on transfer of goods. or case of a to on to avoid the Act. While in the works contract, if the contract treats the sale of materials separately from the cost of the labour, the sale of materials would be taxable, but in the case of an indivisible works the transfer of levy sales tax contract, it is not possible property in the goods involved in the execution of such contract as it sale of the materials as such and the has been held that there is no property in them does not pass as movables. Though practically the at to or a not purchaser in a hire-purchase agreement gets the goods on the date of the hire-purchase, it has been held that there is sale only when the purchaser exercises the Page 15 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined option to purchase at a much later date and therefore only the depreciated value of the goods involved in such transaction the time the option purchase is exercised becomes assessable to sales tax. Similarly, while sale by registered club or other association of persons (the club association of persons having corporate status) its members is taxable, sales by an unincorporated club or association of persons to its members is taxable as such club or association, in law, has no separate existence from that of the members. In the Associated Hotels of India case (A.LR. 1972 S.C. 1131), the Supreme Court held that there is no sale involved in the supply of food or drink by a hotelier to a person lodged in the hotel.
4. In the New India Sugar Mills case (A.L.R. 1963 S.C. 1207), the Supreme Court took transfer of controlled view that in the commodities in pursuance of a direction under a Control Order, the element of volition by the seller, or mutual assent, is absent and, therefore, there is no sale as defined in the Sale of Goods Act, 1930. However, in Oil and Natural Gas Commission Vs. State of Bihar (A.L.R. 1976 S.C. Page 16 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined 2478), the Supreme Court had occasion to consider its regard liability controlled commodities to be charged to sales tax. The Supreme Court held that where statutory compulsions, itself should be treated as supplying the consensus and furnishing the modality of the consensus. In Vishnu Agencies Vs. Commercial Tax Officer (A.I.R. 1978 S.C. 449), six of the seven Judges concurred in over-ruling the decision, in New India Sugar Mills case while the seventh Judge held the case be distinguishable. It is, therefore, considered desirable to put the matter beyond any doubt. carlier decisions with there are to any to the of transfers the of statute
5. The various problems connected with the power of the States to levy a tax on the sale of goods and with the Central Sales Tax Act, 1956 were to the Law Commission of India. The Commission considered these matters in their Sixty-first Report and, recommended, inter alia, certain amendments in the Constitution if as Π matter of administrative policy it is decided to levy tax on transactions of the nature mentioned in the preceding paragraphs.
Page 17 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025
NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined
6. Device by way of lease of films has also been resulting in avoidance of sales tax. The main right in regard to a film relates to its exploitation and after exploitation for certain period of time, in most cases, the film ceases to have any value. It is, therefore, that instead of resorting to the outright sale of a film, only a leased or transfer of the right to exploitation is made.
7. There were reports from State Governments revenues from sales tax have been assigned, as the large scale avoidance of Central sales leviable inter-State sales of goods through the device of consignment of goods from one State to another and as to the leakage local sales tax in works contracts, hire-purchase transactions, lease of films, etc. Though Parliament could levy on these transactions, as tax on sales has all along been treated as an item of revenue to be assigned to the States, in regard to these transactions which resemble sales also, it is considered that the same policy should be adopted.
8. Besides the above mentioned matters, a new problem has arisen as a result of the decision of the Page 18 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined Supreme Court in Northern India Caterers (India) Ltd. Vs. Lt. Governor of Delhi (A.LR. 1978 S.C.. 1591). States have been proceeding on the basis that the Associated Hotels of India case was applicable only to supply of food drink by hotelier to a person lodged in the hotel and that tax was leviable on the sale of foodstuffs by a restaurant. But over-ruling the decision of the Delhi High Court, the Supreme Court has held in the above case that service of meals whether in a hotel restaurant does constitute a sale of food for the purpose of levy of sales tax but must be regarded as the rendering of a service in the satisfaction of a human need or ministering to the bodily want of human beings. It would not make any difference whether the visitor to the restaurant is charged for the meal as a whole or according to each dish separately. or not
9. It is, therefore, proposed to suitably amend include in article 366 a definition of "tax on the sale goods" by inserting a new clause (29A). The specifically include within the scope of that expression tax on Constitution or purchase of definition would to Page 19 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined
(i) transfer for consideration of controlled commodities;
(ii) the transfer of property in goods involved in the execution of works contract; a
(iii) delivery of goods on hire-purchase or any system of payment by instalments;
(iv) transfer of the right to use any goods for any purpose for cash, deferred payment or other valuable consideration;
(v) the supply of goods by persons to a an unincorporated association or body of member thereof for cash, deferred payment valuable consideration; or other
(vi) the supply, by way of or as part of any service, of food or any drink for cash, (See clause 4). deferred payment or other valuable consideration.
10. A new entry is sought to be inserted in the Union List in the Seventh Schedule, as to entry 92B, enable the levy of tax on the consignment ment of goods where such consignment takes place in the course of inter-State trade or commerce. (See clause 5).
Page 20 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025
NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined
11. Clause (1) of article 269 is proposed to be amended so that the levied on the consignment of goods in course of inter-State trade or commerce shall be assigned to the States. Clause (3) of that article is proposed to be amended to enable Parliament to formulate by law principles for determining when a consignment of goods takes place in the course of inter-State trade or commerce. (See clause 2). the
12. Clause (3) of article 286 is proposed be amended to enable Parliament the system of levy, rates and transfer of goods involved in the specify, by law, restrictions and conditions to in regard the other incidents of the tax on execution of a works contract, on the delivery of goods on hire-purchase or any system of payment by instalments and on the right to use any goods. (See clause 3).
13. The proposed amendments would help in the augmentation of the considerable extent. Cluase 6 of the Bill seeks drink for validate laws levying tax on the supply of food consideration and also the collection or recoveries made by way of tax under any such law. However, no sales tax will be Page 21 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined payable on food or drink supplied by a hotelier to a person lodged in the hotel during the period from the date of the judgment in the Associated Hotels of India case and the commencement of the present Amendment Act if the conditions mentioned in sub-clause (2) of clause 6 of the Bill are satisfied. In the case of food or drink supplied by Restaurants this relief will be available only in respect of the period after the date case and of judgment in the Northern India Caterers (India) Limited the commencement of the present Amendment Act."
15. Therefore, a short question arises as to (i) whether the respondent State can impose tax on the supply of medicines, stents, implants, consumables etc. used during the course of treatment of indoor patients while exercising the power to impose tax on transactions expressly defined as "deemed sale" under Article 366(29A) of the Constitution of India and
(ii) whether the decision of the Hon'ble Page 22 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined Apex Court in case of Gannon Dunkerly (supra) continues to operate insofar as transactions other than "deemed sales" are concerned.
B) Submissions of the petitioners:
16. Learned Senior Advocate Mr. S.N. Soparkar with learned advocate Mr. Uchit Sheth and learned advocate Mr. Manish Kaji for the petitioners submitted that VAT is not leviable on medicines, implants, stents, consumables, etc. used during the course of treatment of indoor patients in petitioner hospitals. Reliance was placed on the decision of Hon'ble Apex Court in case of Gannon Dunkerly (supra) together with Statement of Objects and Reasons of the Constitution (Forty-sixth Amendment) Act, 1982 to submit that none of the clauses of Article 366(29A) of the Page 23 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined Constitution of India would be applicable to consider such supply of medicines, implants, stents, consumables, etc. as 'deemed sales'.
17. Reference was also made to definition of 'sale' in section 2(23) of the VAT Act and more particularly, clause (g) of section 2(23) to point out that clause
(g) provides that "sale" means supply of goods by way of or as part of any service or in any other manner whatsoever is contrary to Article 366(29A) of the Constitution of India and therefore, the same may be declared as ultra vires as the respondent authorities have invoked section 2(23)(g) of the VAT Act to levy value added tax on the supply of medicines, implants, stents, consumables, Page 24 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined etc. used for treatment of indoor patients of the petitioner hospitals. It was submitted that if comparison is made of section 2(23)(g) of the VAT Act with Article 366(29A) of the Constitution of India, then clauses (g),(i) and (j) of section 2(23) of VAT Act are not found as per the Constitution and therefore, such clauses are required to be declared as unconstitutional.
18. It was pointed out that clauses (a) to
(d) of section 2(23) of the VAT Act are same as clauses (a) to (d) of Article 366(29A), Clause (e) of Article 366(29A) is divided in clause (e) and (f) in section 2(23) of the VAT Act, whereas clause (h) of section 2(23) is similar to that of as clause (f) of Article 366(29A) Page 25 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined
19. It was therefore, submitted that the respondent State could not levy VAT upon the use of medicines, implants, stents, consumables, etc. by the petitioner hospital for treatment of indoor patients.
20. It was submitted that the case of the petitioner is squarely covered by the decision in case of Bharat Sanchar Nigam Ltd. v/s Union of India (2006) 145 STC 91 (SC) wherein it has been observed as under:
"43. Gannon Dunkerley [State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd., (1958) 9 STC 353 AIR 1958 SC 560: 1959 SCR 379] survived the Forty-sixth Constitutional Amendment in two respects. First with regard to the definition of "sale" for the purposes of the Constitution in general and for the purposes of Entry 54 of List II in particular except to the extent that the clauses in Article 366(29-A) Page 26 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined operate. By introducing separate categories of "deemed sales", the meaning of the word "goods" was not altered. Thus, the definitions of the composite elements of a sale such as intention of the parties, goods, delivery, etc. would continue to be defined according to known legal connotations. This does not mean that the content of the concepts remain static. The courts must move with the times. [See Attorney General v. Edison Telephone Co. of London Ltd., (1880) 6 QBD 244: 43 LT 697] But the Forty-sixth Amendment does not give a licence, for example, to assume that a transaction is a sale and then to look around for what could be the goods. The word "goods" has not been altered by the Forty-sixth Amendment. That ingredient of a sale continues to have the same definition. The second respect in which Gannon Dunkerley [State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd., (1958) 9 STC 353: AIR 1958 SC 560: 1959 SCR 379] has survived is with reference to the dominant nature test to be applied to a composite transaction not covered by Article 366(29-A). Transactions which are mutant sales are limited to the clauses of Article 366(29-A). All other transactions would have to qualify as sales within the meaning of the Sale of Goods Act, 1930 for the Page 27 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined purpose of levy of sales tax."
21. It was submitted that the Hon'ble Supreme Court in case of Bharat Sanchar Nigam Ltd. (supra) has specifically observed that "hospital services" are not "deemed sales" and they cannot be taxed even after the 46th Constitutional Amendment. Reliance was placed on the following observations:
"44. Of all the different kinds of composite transactions the drafters of the Forty-sixth Amendment chose three specific situations, a works contract, a hire-purchase contract and a catering contract to bring them within the fiction of a deemed sale. Of these three, the first and third involve a kind of service and sale at the same time. Apart from these two cases where splitting of the service and supply has been constitutionally permitted in sub-clauses (b) and
(f) of clause (29-A) of Article 366, there is no other service which has been permitted to be so split. For example, the sub-Page 28 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025
NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined clauses of Article 366(29-A) do not cover hospital services. Therefore, if during the treatment of a patient in a hospital, he or she is given a pill, can the Sales Tax Authorities tax the transaction as a sale? Doctors, lawyers and other professionals render service in the course of which can it be said that there is a sale of goods when a doctor writes out and hands over a prescription or a lawyer drafts a document and delivers it to his/her client? Strictly speaking, with the payment of fees, consideration does pass from the patient or client to the doctor or lawyer for the documents in both cases.
45. The reason why these services do not involve a sale for the purposes of Entry 54 of List II is, as we see it, for reasons ultimately attributable to the in Gannon Dunkerley case[State of principles Madras v. Gannon Dunkerley & Co. (Madras) Ltd., (1958) 9 STC 353: AIR 1958 SC 560:
1959 SCR 379], namely, if there is an instrument of contract which may be composite in form in any case other than the exceptions in Article 366(29-A), unless the transaction in truth represents two distinct and separate contracts and is discernible as Page 29 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined such, then the State would not have the power to separate the agreement to sell from the agreement to render service, and impose tax on the sale. The test therefore for composite contracts other than those mentioned in Article 366(29-A) continues to be:
Did the parties have in mind or intend separate rights arising out of the sale of goods? If there was no such intention there is no sale even if the contract could be disintegrated. The test for deciding whether a contract falls into one category or the other is to as what is "the substance of the contract" [See Atiyah: The Sale of Goods, (1995 reprint) p.
27.]. We will, for the want of a better phrase, call this the dominant nature test."
22. It was submitted that the contention of the respondent that the aforementioned observations of the Hon'ble Supreme Court are in the nature of obiter dicta and that only a question is raised which is not answered by the Supreme Court is not at all tenable as it is Page 30 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined specifically stated in para 44 that sub-
clauses of Article 366(29A) do not cover "hospital services" and the Hon'ble Supreme Court in paragraph no.45 has reiterated that such services do not involve sale for the purpose of Entry 54 of List II of the Seventh Schedule to the Constitution of India.
23. It was further submitted that the contention of the respondents that the observations of the Hon'ble Supreme Court in the case of Bharat Sanchar Nigam Ltd. (supra) are no longer good law in view of subsequent judgements is not at all tenable and in fact the judgement of Hon'ble Supreme Court in the case of Bharat Sanchar Nigam Ltd. (supra) was specifically referred to and approved by the subsequent judgements of Hon'ble Page 31 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined Supreme Court in the case of Larsen and Toubro Ltd v/s State of Karnataka reported (2014) 1 SCC 708 as well as judgement of Hon'ble Supreme Court in the case of Kone Elevator India Pvt. Ltd. v/s State of Tamil Nadu reported in (2014) 7 SCC 1.
24. It was submitted that the judgment of Hon'ble Supreme Court in the case of Bharat Sanchar Nigam Ltd. (supra) has been followed by this Court in the case of Deep Industries Ltd. v/s State of Gujarat reported in 2018 (16) GSTL 392 (Guj.) wherein it has been held that composite contracts other than works contracts, hire-purchase contracts and catering contracts cannot be split up by the authorities.
Page 32 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025
NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined
25. It was submitted that the case of the petitioner hospitals is squarely covered by the decisions of following High Courts:
(a) International Hospital Pvt. Ltd. v/s State of UP and Others reported in (2014) 71 VST 139 (All.).
(b) Tata Main Hospital v/s State of Jharkhand and Others [Writ Petition (T) No. 2422 of 2006 decided on 7.9.2007.]
(c) Fortis Health Care Ltd. v/s State of Punjab [WP No. 1922 of 2012 decided on 23.1.2015].
(d) Sanjose Parish Hospital v/s Commercial Tax Officer [2019 SCC Ker 232.] Page 33 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined
(e) Assistant Commissioner, Anti Evasion, Kota v/s Kota Eye Hospital and Research Foundation [(2023) 120 GSTR 161 (Raj.)] It was submitted that the Hon'ble Supreme Court has dismissed Special Leave Petitions filed by the States against the decisions of Hon'ble Allahabad High Court in the case of International Hospital Pvt. Ltd. (supra) as well as Hon'ble Jharkhand High Court in the case of Tata Main Hospital (supra).
26. It was further submitted that when the issue with respect to scope of Entry 54 of List II of the Seventh Schedule to the Constitution of India and its non- applicability to hospital services have Page 34 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined been decided by various High Courts, such decisions should be followed by this Court. Reliance is placed in this regard on judgement of this Court in the case of Commissioner of Income Tax, Gujarat v/s Sarabhai Sons Ltd. reported in (1983) 143 ITR 473 (Guj.).
27. It was further submitted that the case of the petitioner is also squarely covered by judgement of House of Lords of England in the case of Beynon and Partners (Respondents) v/s Her Majesty's Commissioners of Customs & Excise (Appellant), reported in (2004) UKHL 53 wherein it is held that services of doctors would constitute single supply of service and that it would not be permissible to split up the transactions Page 35 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined so as to impose VAT on drugs administered during the course of providing medical service.
28. It was further submitted that while the State has competence to impose tax on deemed sales as defined under Article 366(29A) of the Constitution of India, clause (g) of Section 2(23) of the VAT Act clearly seeks to expand the definition of "sale" beyond the constitutional contours by permitting splitting up of any transaction even if it does not fall within definition of "deemed sales" under the Constitution and therefore, the impugned provision is clearly unconstitutional.
29. It was submitted that once it is Page 36 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined concluded that a statutory provision is unconstitutional, the same cannot be saved on mere statement on behalf of the Respondent-State that the same would not be applied in the case of the Petitioners and therefore, provision is required to be declared as unconstitutional.
30. It was submitted that for the purpose of imposition of service tax under the Finance Act, 1994, the healthcare services by a clinical establishment were considered to be a "service" which was exempt from tax by Entry No. 2 of Notification No. 25/2012-Service Tax dated 20.6.2012. Thus, the entire intention of the Government was not to impose burden of tax on healthcare services. This intention is sought to be defeated by the States by Page 37 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined seeking to artificially splitting up healthcare services and taxing the medicines, implants, etc. used in providing such services.
31. It was submitted that the GST regime has replaced the VAT and service tax regime from 1.7.2017 but the healthcare services continue to be fully exempted by virtue of Entry no. 74 of Notification no. 12/2017 Central Tax (Rate) dated 28.6.2017 and it has been further clarified by the Central Board of Indirect Taxes and Customs vide Circular no. 32/06/2018-GST dated 12.2.2018 that even food that is supplied to indoor patients is part of composite supply of healthcare services which is not separately taxable under the GST Acts.
Page 38 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025
NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined
32. It was submitted that it has been held by the Kerala Authority for Advance Ruling in the case of M/s Ernakulam Medical Centre Pvt. Ltd. in Advance Ruling No.Ker/16/2018 dated 19.09.2018 as well as by the Tamil Nadu Advance Ruling authority in the case of Shifa Hospitals in Order No.42/AAR/2019 dated 23.09.2019 that medicines, consumables, implants, etc. used for treatment of indoor patients would be considered as part of composite supply of "healthcare services" and they would not be taxable under the GST Acts. Reliance was placed in this regard on judgment of Hon'ble Supreme Court in the case of Yogendra Nath Naskar v/s Commissioner of Income Tax reported in (1969) 1 SCC 555.
Page 39 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025
NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined
33. Learned Senior Advocate Mr. Soparkar in the case of petitioner - Gujarat Research and Medical Institute, in alternative submitted that it is a charitable hospital registered under Section 12AA of the Income Tax Act, 1961, it is therefore outside the purview of the Vat Act by virtue of Exception (iii) to Section 2(10) of the Vat Act as held by this Court in the case of Bhailal Amin General Hospital v/s State of Gujarat [Tax Appeal No. 1673 of 2009 decided on 1.8.2016]. It was submitted that the levy of tax on charitable hospital is therefore required to be quashed on this ground also apart from the other common contentions already made herein before which are applicable to all the hospitals. Page 40 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025
NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined C)Submissions of the respondents
34. On the other hand learned Advocate General Mr. Kamal Trivedi for the respondents submitted that while challenging the constitutional validity of Clause (g) of Section 2(23) of the Gujarat Value Added Tax Act, 2003, the petitioners have contended that the health care service being provided by a clinical establishment in favour of its indoor patients along with supply of medicaments and prosthetics, etc. during the course whereof, is not the "works contract, and hence, not excisable under the VAT Act, however, transfer/delivery/ supply of medicaments and prosthetics by the petitioner hospitals in favour of their indoor patients during the course of providing treatment, should be considered Page 41 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined as "deemed sale", as defined under Article 366(29A) of the Constitution of India and consequently, the sale component involved in the health care service rendered by the petitioner hospitals, is exigible to tax under the VAT Act. It was submitted that the said transfer/ delivery/ supply of medicaments and prosthetics by the petitioners in favour of its indoor patients during the course of providing treatment, would be covered by sub-clause
(b) of Article 366(29A) of the Constitution of India, failing which, in sub-clause (a) of Article 366(29A) of the Constitution of India.
35. It was submitted that the term 'works contract' used in sub-clause (b) of Article 366 (29A) has not been defined Page 42 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined under the Constitution. The ordinary meaning of the term "works" means a structure or apparatus of some kind, architecture, engineering structure or a building edifice, etc. whereas commonly understood meaning of the expression "works contract" is a contract or an understanding to do some work on behalf of somebody else. However, the Hon'ble Apex Court in case of Larsen & Toubro Limited vis. State of Karnataka, reported in (2014) 1 SCC 708, while referring to the aforesaid ordinary meaning with reference to the expression "works contract" as defined under Section 2(1)(vii) of the Kamataka Sales Tax Act, 1957, which was confined to building, construction, etc. observed as under:
Page 43 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025
NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined "72. In our opinion, the term 'works contract in Article 366(29A)(b) is amply wide and cannot be confined to a particular understanding of term or to a particular form. The term encompasses a wide range and many variety of contract the term 'works contract' in Article 366(29A)(b) takes within its fold all genre of works contract and is not restricted to one specie of contract to provide for labour and service alone. Parliament had all genre of works contract in view when clause(29A) was inserted in Article 366."
36. It was submitted that similarly, while dealing with the definition of the term "works contract" given in Section 2(i) of the Madras General Sales Tax Act, 1947, as interpreted by the Hon'ble Apex Court in case of State of Madras vs. M/s. Gannon Dunkerley and Co., reported in AIR 1958 SC 560 , the Hon'ble Apex Court in the above case of Larsen & Toubro (supra) held as under:
Page 44 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025
NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined "67. Now, if by legal fiction provided in clause (29A) of Article 366, the works contract becomes separable and divisible, one for the materials and the other for services and for the work done, whatever has been said by this Court in Gannon Dunkerley(1) with regard to the definition of works contract in Section 2(i) of the Madras General Sales Tax Act pales into insignificance insofar as ambit and scope of the term 'works contract within the meaning of Article 366(29A) is concerned. To say that insertion of clause 29(A) of Article 366 has not undone Gannon Dunkerley(1) in any manner, in our view, is not correct. The narrow meaning given to the term 'works contract' in Gannon Dunkerley(1) now no longer survives."
37. Referring to the following Explanation (ii) to section 2(23) of the VAT Act explaining the expression "works contract" it was submitted that the expression is also required to be appreciated and understood in light of the Page 45 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined constitutional meaning of the said expression:
"Explanation-
(i) xxxxx
(ii) for the purpose of sub-
clause (b) of the expression "works contract means a contract for execution of works and includes such works contract as the State Government may, by notification in the Official Gazette, specify."
38. Further reliance was placed on the following observations of the Hon'ble Apex Court in the case of Larsen & Toubro (supra):
"87...... in our opinion, the distinction between contract for sale of goods and contract for work for service) has almost diminished in the matters of composite contract involving both contract of work / labour and a contract for sale, for the purposes of article 366(29A)(b)."Page 46 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025
NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined
39. It was submitted that the Hon'ble Supreme Court in the case of State of Karnataka vs. Pro Lab, reported in (2015) 8 SCC 557 in para 20 thereof held that:
".... after insertion of clause (29A) in Article 366, the works contract which was indivisible one by legal fiction, altered into a contract, which is permitted to be bifurcated into two; one for "sale of goods" and the other for "services", thereby making goods component of the contract exigible to sale tax. Further, while going into this exercise of divisibility, dominant intension behind such a contract, namely whether it is for sale of goods or for services, is rendered otiose or immaterial."
40. It was therefore submitted that while considering the aforesaid law laid down by the Apex Court, it is amply clear that an arrangement providing for any "service", where the factum of supply of Page 47 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined the goods (tangible or intangible) is discernible, though being essentially a service contract, would be nothing but a "composite contract" providing for "service" and "goods", falling within the purview of the term "works contract".
41. It was submitted that in light of the aforesaid discussion, even if such a composite contract is single and indivisible contract, then in that eventuality also, by virtue of legal fiction introduced by sub-clause (b) of Article 366(29A) of the Constitution, it would amount to "deemed sale" of goods which are involved in the execution of the works contract and exigible to VAT. It was submitted that it has been categorically held by the Apex Court in Page 48 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined case of Larsen and Toubro (supra) in para 87 thereof, the distinction between contract for sale of goods and contract for service has almost diminished in the matter of composite contract involving in both a contract of service / labour and a contract for sale of goods for the purposes of sub-clause (b) of Article 366(29A) of the Constitution.
42. It was submitted that so far as the present case is concerned, undisputedly the petitioners are providing "services", i.e. health care services to their patients together with supply of medicines, implants stent, consumables etc. The said aspect is also discernible on cumulative reading of Sections 65B (44) and 65(105)(zzzzo) of the Finance Act, Page 49 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined 1994, which considers the 'health care services' provided by clinical establishments to any person as 'taxable services'. Reference was made to Section 65B(44) of the Finance Act, 1994, which defines the term "service" as under:
"65B. in this chapter, unless, the context otherwise requires -
(44) service" means any activity carried out by a person for another for consideration, and Includes a declared service, but shall not include
(a) an activity which constitutes merely
(i) transfer of title in goods or immovable property, by way of sate, gift or in any other manner;
or
(ii) such transfer, delivery or supply of any goods which is deemed to be a sate within the meaning of clause (29A) of article 366 of the Constitution, or Page 50 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined
(iii) a transaction in money or actionable claim;
(b) a provision of service by an employee to the employer in the course of or in relation to his employment,
(c) fees taken in any Court or tribunal established under any law for the time being in force.
Explanation 1. For the removal of doubts, it is hereby declared that nothing contained in this clause shall apply to,-
(A) the functions performed by the Members of Parliament. Members of State Legislative, Members of Panchayats, Members of Municipalities and Members. of other local authorities who receive any consideration in performing the functions of that office as such member, or (B) the duties performed by any person who holds any post in pursuance of the provisions of the Constitution in that capacity, or (C) the duties performed by any person as a Chairperson or a Member or a Director in a body established by the Central Government or State Governments or local authority and who is not Page 51 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined deemed as an employee before the commencement of this section. Explanation 2. For the purposes of this clause, the expression "transaction in money or actionable claim" shall not include
(i) any activity relating to use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged;
(ii) any activity carried out, for a consideration, in relation to, or for facilitation of, a transaction in money or actionable claim, including the activity carried out-
(a) by a lottery distributor or selling agent on behalf of the State Government, in relation to promotion, marketing, organising, selling of lottery or facilitating in 7 organising lottery of any kind, in any other manner, in accordance with the provisions of the Lotteries (Regulation) Act, 1998, (17 of 1998):]
(b) by a foreman of chit fund for conducting or organising a chit in any manner;
Page 52 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025
NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined Explanation 3. For the purposes of this Chapter,
a) an unincorporated association or a body of persons, as the case may be, and a member thereof shall be treated as distinct persons;
(b) an establishment of a person in the taxable territory and any of his other establishment in a non-taxable territory shall be treated as establishments of distinct persons.
Explanation 4. A person carrying on a business through a branch or agency or representational office in any territory shall be treated as having an establishment in that territory."
43. Thereafter reference was made to Section 65(105)(zzzzo) of the Finance Act, 1994 which deals with "taxable service", wherein the services being provided by a clinical establishment or by a doctor not being an employee of a clinical establishment, would be "taxable service" Page 53 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025
NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined as under:
"65. In this chapter, unless the context otherwise requires, -
105. "taxable service" means any service provided or to be provided
-
(zzzzo) to any person, -
(i) by a clinical establishment, or
(ii) by a doctor, not being an employee of a clinical establishment, who provides services from such premises for diagnosis, treatment or care for illness, disease, injury, deformity, abnormality or pregnancy in any system of medicine;"
44. It was therefore submitted that the treatment given to the patients in the clinical establishment is nothing, but a "service" being provided by a clinical establishment, along with supply of medicaments, prosthetics, etc. This would, Page 54 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined at best be a composite arrangement called 'a composite service contract' involving rendition of "service", as well as "sale of goods" i.e. medicaments and prosthetics, etc. which would be falling within the term "works contract". Such a composite arrangement is now divisible by legal fiction after 46th Constitutional Amendment and can attract the service tax on the value of service being provided and would attract the tax on the "deemed sales" of the movables/articles, used during the course of the execution of the said 'service contract'. It was however pointed out that by Entry No. 2 of Notification No. 25/2012-Service Tax dated 20.6.2012, health care service were exempted.
Page 55 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025
NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined
45. Relying upon the case of Associated Cement Companies Ltd vs. Comm. Customs, reported in (2001) 4 SCC 593, it was submitted that the Apex Court while dealing with the contract for providing Architectural Services including design- development drawing, observed as under:
"26 ....The Forty-sixth Amendment was made precisely with a view to empower the State to bifurcate the contract and to levy sales tax on the value of the material involved in the execution of the works contract, notwithstanding that the value may represent a small percentage of the amount paid for the execution of the works contract. Even if the dominant intention of the contract is the rendering of service, which will amount to a work contract, after the Forty-sixth Amendment the State would now be empowered to levy sales tax on the material used in such contract."
46. It was further submitted that in the Page 56 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined later judgment of the Apex Court in case of Commissioner, Central Excise & Customs, Kerala v/s. Larsen & Toubro Limited, reported in (2016) 1 SCC 170 following five services specified under Section 65(105) of the Finance Act, 1994, containing non-service elements in addition to service elements in composite contracts, were held to be "works contract" liable to sales tax, with a categorical remark that if the said services were "service contracts simpliciter without any other element in them", would not be excisable to sales tax by the State Authorities.
47. Thereafter reference was made to the following observations of the Hon'ble Apex Court in case of Larsen & Toubro Ltd. (supra):
Page 57 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025
NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined "15 ....... In the present case, the dichotomy is between sales tax leviable by the States and service tax leviable by the Centre. When it comes to composite indivisible works contracts, such contracts can be taxed by Parliament as well as State legislatures. Parliament can only tax the service element contained in these contracts, and the States can only tax the transfer of property in goods element contained in these contracts. Thus, it becomes very important to segregate the two elements completely.
xxxx
23. This would unmistakably show that what is referred to in the charging provision is the taxation of service contracts simpliciter and not composite works contracts, such as are contained on the facts of the present cases, it will also be noticed that no attempt to remove the non-service elements from the composite works contracts has been made by any of the aforesaid Sections by deducting from the gross value of the works contract the value of property in goods transferred in the execution of a works contract.
24. In fact, by way of contrast, Section 67 post amendment (by the Page 58 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined Finance Act, 2006) for the first time prescribes, in cases like the present, where the provision of service is for a consideration which is not ascertainable, to be the amount as may be determined in the prescribed manner."
48. It was therefore submitted that any composite arrangement for providing medical services in a clinical establishment along with supply/ introduction of medicaments and prosthetics, would be covered by sub- clause (b) of Article 366(29A), which provides for "sales tax on transfer property in goods (whether as goods or in some other form) involved in execution of work contract".
49. With regard to the contention raised by the petitioners that as there is no accretion in the present case, the same Page 59 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined cannot fall within the purview of 'works contract", it was submitted that after the 46th Constitutional Amendment and the law laid down by the Hon'ble Supreme Court in the case of Laser & Toubro Limited (supra), more particularly in para 90 thereof, there cannot be any absolute proposition in law that the ownership of the goods must pass by way of accretion, but can pass under the terms of a contract or by statute. Thus, the tests laid down in the judgments prior to the 46th Constitutional Amendment would not be applicable. In addition, in the case of Kone Elevator (supra), more particularly in para 70 thereof it has been observed that "once there is a composite contract for supply and installation, it has to be treated as a works contract, for it is not Page 60 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined a sale of goods/chattel simpliciter. It is not chattel sold as chattel or, for that matter, a chattel being attached to another chattel". It was submitted that in fact, in subsequent and recent judgments of the Hon'ble Supreme Court, where the Hon'ble Supreme Court was dealing with purely service contracts with respect to Processing and Supplying Photographs, Pest Control Service and Supplying and Laying down Pipelines, though there is no aspect of accretion involved in such service contracts, the same have been considered to be "works contract", falling under clause (b) of Article 366(29A) of the Constitution.
50. It was submitted that on the basis of the scope, purview and meaning of the expression "works contract", the following Page 61 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined service contracts have been held to be "works contract" within the meaning of clause (b) of Article 366(29A) of the Constitution, wherein the element of sale of any material/goods being discernible has been held to be taxable by the State Authorities, regardless of the fact whether the element of service contained therein, was taxable or not at the hands of the Central Government:
a) Contract for providing Architectural Service including Design Development Drawings, as dealt with by the Apex Court in case of Associated Cement Company Limited v/s. Comm. Customs, reported in (2001) 4 SCC 593.
b) Contract of Financial Leasing Services, Page 62 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined as dealt with the Apex Court in case of Association of Leasing and Financial Service Co. vis. Union of India, reported in (2011) 2 SCC 352.
(c) Contract of Manufacture, Supply and Installation of Lift as dealt with the Apex Court in case of Kone Elevator India Pvt. Ltd. v/s. State of Tamil Nadu, reported in (2014) 7 SCC 1.
(d) Contract of Processing and Supplying Photographs as dealt with the Apex Court in case of State of Karnataka vis. Pro Lab, reported in (2015) 8 SCC 557.
(e) Contract of providing Pest Control Service - as dealt with the Apex Court in case of State of Gujarat v/s. Bharat Pest Page 63 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined Control, reported in (2018) 14 SCC 685.
(f) Contract of Supplying and Laying down Pipelines as dealt with the Apex Court in case of Indian Hume Pipe Co. Ltd. v/s.
State of Rajasthan reported in (2019) 14 SCC 584.
(g) Arrangement / Contract for providing Medical Services along with the Supply of Medicaments and Prosthetics as dealt with the Apex Court in case of MIOT Hospital Ltd. vs. State of Tamil Nadu, reported in 2020 SCC OnLine Mad 28124.
51. Learned Advocate General Mr. Trivedi submitted that the reliance placed by the petitioners on the observations made by the Apex Court in para 44 of the judgment Page 64 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined of the Apex Court in case of BSNL vs. Union of India, reported in (2006) 3 SCC 1, is totally misplaced, inasmuch as, in the said case, as observed in para 33 thereof, the Apex Court was considering the construction, particularly of sub- clause (d) of Article 366 (29A) of the Constitution and hence, there was no occasion before the Apex Court to consider the aspect of health care services provided by different hospitals, which can be covered under sub-clause (b) of Article 366(29A). Further, even in the said para 44, the Apex Court has merely raised questions, but without answering them and has not held that the hospital services would not be covered within the term "works contract" used in sub-clause (b) of the Article 366 (29A) of the Constitution. Page 65 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025
NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined Thus, the observations "For example, the sub-clauses of Article 366 (29A) do not cover hospital services. Therefore, if during the treatment of patient in a hospital, he or she is given a pill, can the Sales Tax Authorities tax the transaction as the same?", as contained in para 44 of the said judgment form obiter dicta, inasmuch as the said issue was not consciously determined by the Hon'ble Apex Court. Further, the said observations also do not form the ratio decidendi of the said judgment inasmuch as the same was not necessary for disposal of the said case, which was dealing with the interpretation of sub-clause (d) of Article 366(29A), involving tax on the transfer of the right to use any goods i.e. electromagnetic waves generated through mobile phone Page 66 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined connection. In support of such contention, reliance is placed on the following judgments:
(i) Kamleshkumar Ishwardas Patel vs. Union of India, reported in (1994) Mh.L.J. 1669.
(ii) Arnit Das vs. State of Bihar, reported in (2000) 5 SCC 488.
(iii) Career Institute Educational Society vs. Om Shree Thakurji Educational Society, reported in 2023 SCC Online SC 586.
52. It was submitted that in case of Bharat Sanchar Nigam Ltd.(supra), the Apex Court was confronted with a question as to whether the transaction by which mobile phone connections are enjoyed by the Page 67 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined subscribers, having "right to use electromagnetic waves /radio frequencies", would be a 'deemed sale' under Article 366 (29A)(d) of the Constitution which deals with "the transfer of right to use any goods". Ultimately, it was held that the electromagnetic waves / radio frequencies are not "goods", and hence, no question arises of transfer of right to use the same and hence, there cannot be any "deemed sale" of the goods for the purpose of Article 366(29A)(d). However, at the same time, the Apex Court also held that it is possible for the State to tax the sale element in a composite contract of providing telephone connection, provided there is a discernible sale. It was submitted that even the observation in para-44 of the Apex Court in the case of Page 68 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined Bharat Sanchar Nigam Ltd. (supra), to the effect that "splitting of the service and supply has been constitutionally permitted only in case of the works-contract covered by sub-clause (b), a hire-purchase contract covered by sub-clause (e) and a catering contract covered by sub-clause
(f) of Article 366(29A)", is required to be appreciated in light of what has been further elaborated in para-49 of the judgment as under:
"49 We agree. After the Forty-sixth Amendment, the sale element of those contracts which are covered by the six sub-clauses of clause (29-A) of Article 366 are separable and may be subjected to sales tax by the States under Entry 54 of List Il and there is no question of the dominant nature test applying."
53. It was further submitted that even Page 69 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined while assuming without admitting the above referred arrangement of providing health care services in a clinical establishment along with the supply of medicaments, prosthetics etc. is not a "works contract", then in that case also, the supply/transfer of medication and prosthetics in favour of a patient would be taxable within the purview of sub- clause (a) of Article 366(29A) of the Constitution, which deals with "tax on transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration", more particularly when, it has got all the three elements of (i) there being goods, (ii) there being transfer of property of goods, and (ii) there being valuable consideration. It was Page 70 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined submitted that this was so held by the Apex Court in case of Sunrise Associates, vis. Government of NCT of Delhi, reported in (2006) 5 SCC 603.
54. Learned Advocate General Mr. Trivedi thereafter relied upon the following averments made in affidavit in reply:
"10. The petitioners hospital has issued invoices and received sale price at the Maximum Retail Price (MRP) inclusive of all taxes including sales tax. Once the dealer has collected the entire price including tax, it must pay it to the government treasury.
Otherwise, I would amount to unjust enrichment. By way of specimen, copies of the 3 Medicine Requisition Forms along with the corresponding invoices in respect of various lems and medicines sold at MRP to in-patients to the hospital are attached herewith and collectively marked Annexure- (Colly) at pgs 312-317 (Para 10 pg 304 of the Affidavit-in-Reply of the Respondents) Page 71 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined xxxx
14. I respectfully say that as the normal practice prevalent in the State in all the commercial hospital including that of the petitioners, an amount is deposited by the patients at the time of admission as indoor patients which is adjusted/applied towards the cost of service as well as goods, i.e. medicines and other consumables wherefrom an element of sale, of course being part of the service/treatment being provided for, is very much discernible and that, therefore, after the 48 Constitution Amendment in Article 366(29A) the State Legislature has full competence to levy sales tax with reference to sale of medicines and other consumables as contemplated under Article 368(204)(b) and/or Article 366(2A)(a) and/or Article 306(29A)(f) of the Constitution read with Section 223(g) of the VAT Act at pgs 307-308 (Para 14 @pg.307-306 of the Affidavit-in- Reply of the Respondents) xxxx
17. Further, in respect of several inpatients, the detailed bills towards medicines were scrutinised and it was observed after checking their price with the labels of medicines that all the drugs and medicines supplied to the in- patients were sold at maximum Page 72 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined Retail Price (MRP) which was inclusive of all taxes and in some cases, even amount higher than MRP were charged It was after taking all these factual matrix and documentary evidence into consideration that the audit assessment order under the VAT Act was passed by the concerned respondent herein. Coples of such invoices, the detailed ledger and bifurcation of drugs and medicines, sample copies of medicine requisition forms and copies of invoices of sale of drugs and medicines issued to in-
patients and a statement indicating prices of drugs and medicines charged from patients along with their invoices accompanied by the labels of the drugs and medicines indicating the MRP of the said drugs and medicines are annexed herewith and collectively marked as Annexure Colly. at pg 318-350."
55. Referring to the decision in case of Tata Main Hospital v/s. State of Jharkhand reported in 2008 (2) JCR 174 (JHR) relied upon by the petitioners it was submitted that though the tests of Page 73 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined "dominant intention" and "substance of contract have been given a go-bye with reference to the concept of "deemed sale"
provided by way of legal fiction in case of six categories specified from sub-
clauses (a) to (f) of Article 386(29A) of the Constitution, paragraphs 12 and 25 of the Judgment clearly hold that the test of deciding whether the contract falls into one of the aforesaid categories or the other is as to what is the subsistence of contract or the dominant nature test. It was submitted that the aforesaid judgment runs counter to the dictum of law laid down by the Apex Court in various judgments cited on behalf of the respondent State, and hence, it is not a good law.Page 74 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025
NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined
56. Referring to the judgment in case of International Hospital Pvt. Ltd, v/s. State of Uttar Pradesh reported in (2014) 71 VST 139 (All) relied upon by the petitioners, it was submitted that the said judgment proceeds on the acceptance of proposition that a composite arrangement of providing medical services as well as medicament and prosthetics are not covered by any of the 6 categories specified from sub-clauses (a) to (f) of Article 366(29A) of the Constitution, without determining as to why and how the said composite arrangement cannot be covered by any of the said categories. It was submitted that paragraph 9 of the said Judgment clearly suggests that the Hon'ble Allahabad High Court had straightaway accepted that neither of the 6 sub-clauses Page 75 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined of Article 366 (29A) of the Constitution is attracted to the aforesaid composite arrangement. It was submitted that the judgment of Hon'ble Allahabad High Court follows the aforesaid judgment of Hon'ble Jharkhand High Court, which is not a good law and therefore, the said judgment also runs counter to the dictum of law laid down by the Apex Court in the above referred judgments and hence, it is not at all a good law.
57. Referring to the decision in case of Forties Health Care Limited v/s. State of Punjab (supra) relied upon by the petitioners it was submitted that paragraph 23 of the said Judgment clearly suggests that the Hon'ble Punjab and Haryana High Court has merely proceeded on Page 76 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined the footing that the Hon'ble Apex Court in case of Bharat Sanchar Nigam Ltd. (supra) specifically observed (though as an illustration), that "unless the transaction in truth represents two distinct and separate contracts and is discernible as such, then the State would not have the power to separate the agreement to sell from the agreement to render service, and impose tax on the sale."
58. Referring to the decisions in case of Assistant Commissioner, Kota, Kota Eye Hospital & Research Foundation, reported in (2023) 120 GSTR 161 (Raj) in case of Sanjose Parish Hospital vs. Commercial Tax Officer reported in (2019) SCC OnLine Ker 232 relied upon by the petitioners, it was Page 77 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined submitted that in the said case also, the Hon'ble High Courts of Rajasthan and Kerala did not undertake the exercise of evaluating as to whether the hospital services would be falling within the purview of "works contract" under the sub- clause (b) of Article 366 (29A) of the Constitution and without there being any such evaluation, it has gone on the basis that the said services are not falling within any of the sub-clauses of Article 366(29A), and that, dominant intention test has been applied.
59. It was submitted that all the five judgments have, at the outset, accepted the conclusion that hospital services are not covered by any of the six categories /contingencies of "deemed sale"
provided from clauses (a) to (f) of Page 78 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined Article 366(29A), without discussing as to why and how the same cannot be covered even in any of the said six categories, much less, as "works contract" and also without appreciating the well settled legal position flowing from various judgements of the Apex Court, referred to and relied upon by the Respondent-State.
60. With regard to the opinions of the House of Lords in Appeal for judgment in the case relied upon by the petitioners, it was submitted that the United Kingdom, Value Added Tax Act, 1994 does not provide for any legal fiction like what is available in Indian Constitution in respect of six categories/transactions specified under clauses (a) to (f) of Article 366(29A) where "transfer", Page 79 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined "delivery" or "supply" of goods that may take place under any of the categories referred to in clauses (a) to (f) of Article 366(29A), whereby the transactions involved in any of the said six categories, by legal fiction, would stand altered into a contract, which would be divisible into sale of goods and other supply of services. It was submitted that in para 30 of the said judgment, "test of dominant intention", was pressed in service, which is otherwise not applicable in our country in respect of six categories/contingencies, referred to above, in sub-clauses (a) to (f) of Article 366(29A).
61. With regard to decision in case of Deep Industries Ltd. v/s. State of Gujarat Page 80 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined reported in 2018 (16) GSTL 392 (Guj.), relied upon by the petitioners, it was submitted that in the said case, this Court was dealing with the issue that as to whether the service contracts entered into by the Petitioners therein with ONGC would be exigible to Tax under the VAT Act. It was submitted that in the said service contract, the equipment in question i.e. workover rigs, always remained with and under the control of the Petitioner therein and at no point the same were delivered to the ONGC nor ONGC ever used the same to the exclusion of the Petitioner therein, thus, in light of such facts and circumstances where the control of the goods and equipment in terms of effective possession never passed from one person to another, this Hon'ble Court held Page 81 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined that the sales tax would not be applicable on such service contracts, since there is no transfer of right to use goods whereas, in the present case, the ownership and possession of the equipment in question i.e. medicines and prosthesis get transferred in favour of the patients during the course of treatment undertaken at the hospital. Thus, the said Judgment cannot be made applicable to the facts of the present case.
62. Referring to Notification No.25 of 2012-ST dated 20.06.2012, as amended relied upon by the petitioners it was submitted that merely because the said Notification issued by the Central Government issued under the Finance Act, 1994 dealing with service tax regime under Page 82 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined the jurisdiction of the Central Government, exempts "health care services"
by a clinical establishment, etc. from the payment of whole of the service tax leviable under Section 66(B) of the Finance Act, 1994, it does not necessarily mean that similar such exemption should also follow as a matter of course, in the matter of payment of Value Added Tax under the Gujarat Value Added Act, 2003 under the jurisdiction of the State Government.
63. It was submitted that reliance placed on Notification No.12/2017-Central Tax (Rate) dated 18.06.2017 issued under Section 11 of CGST Act, Circular bearing F. No. 354/17/2018-TRU dated 12.02.2018, Advance Ruling No.KER/16/2018 dated Page 83 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined 19.09.2018 and Advance Ruling No.42/AR/2019 dated 23.09.2019 of State of Tamil Nadu Advance Ruling Authority relied by the petitioners are issued/passed under the later law i.e. Goods and Service Tax Act, 2017 which is totally misconceived inasmuch as, under the GST Act, there is a concept of "composite supply" and further, the GST Act has marked a significant advancement in cooperative federalism by enabling the Centre and States to levy taxes on goods and services concurrently, by merging various taxes including Service Tax Act and Sales Tax Act. Therefore, the said GST Act cannot be compared with VAT Act 2003, more particularly for the aspect of "deemed sale". It was therefore submitted that this is more particularly in view of Page 84 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined the fact that as per the provisions of Sections 2(30), 2(74), 2(90) and 8 of the GST Act read with entry 6 of Schedule II to the GST Act, for ascertaining the tax liability on the composite supply, the tax is to be considered on the principal supply involved in the said composite supply. It was submitted that after the enactment of the GST Act, with respect to the "composite supply" of goods and services, the dominant intention involved therein in the manner of principal supply has been incorporated, and hence, virtually, the era of pre-46th Constitutional Amendment has been brought back with respect to "composite supply". Therefore, the above-referred Notifications, Circulars and Advance Rulings cannot be relied upon for Page 85 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined evaluating the issues raised in these petitions, which are admittedly with respect to post-46th Constitutional Amendment period, where the aspect of "deemed sale" is provided and for that, "dominant intention" test was given a go- by.
64. Referring to the decision in case of Yogendra Nath Naskar v/s. Comm. Of I.T., reported in (1969) 1 SCC 555 relied upon by the petitioners it was submitted that the said judgment has been pressed in service to contend that while interpreting the provision of the earlier law, corresponding provision in the later law, which has been in currency, should be taken into consideration, however, in the said judgment, the Hon'ble Apex Court, Page 86 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined while interpreting the term "Individual" occurring under the Income Tax Act, 1961, guidance was derived from the definition of a very term available under the Income Tax Act, 1922, which made the meaning of the term "explicit" which was "implicit" under the 1961 Act. It was submitted that in the present case, reliance on the later law i.e. Goods and Service Tax Act, for interpreting the provisions of VAT Act, is totally misconceived inasmuch as, both the Acts are quite different from each other and more particularly in view of the aspect of "composite supply' in the GST Act. It was therefore submitted that in the aforesaid judgment, the Acts during pre and post Amendment, had remained the same i.e. Income Tax Act, hence, the same cannot be applied to the facts of the Page 87 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined present case.
65. Referring to the decision in case of Commissioner of Income Tax, Gujarat-1, v/s. Sarabhai Hospital, reported in 1983, Vol.143 ITR 473 relied upon by the petitioner, it was submitted that the said judgment has been relied upon to contend that in conformity with the unanimous policy laid down in the Income Tax matters, whatever view has been taken by another Court on interpretation of the provisions of all India Statute, the same must be accepted. It was submitted that it was on the basis of the aforesaid philosophy that the Petitioners contend that five judgments of all the Hon'ble High Courts of Jharkhand, Allahabad, Punjab & Haryana, Kerala and Rajasthan Page 88 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined are being required to be followed by this Hon'ble Court. It was submitted that all the aforesaid five judgments have, at the outset, accepted the conclusion that hospital services are not covered by any of the six categories/contingencies of "deemed sale" provided under sub-clauses
(a) to (f) of Article 366(29A), without discussing as to why and how the same cannot be covered even in any of the said six categories, much less, as "works contract" and also without appreciating the well settled legal position flowing from the later judgements of the Apex Court, hence, under such circumstances, the said judgments, with respect, do not deserve to be followed and therefore, the aforesaid judgment in case of Commissioner of Income Tax (supra), cannot be made Page 89 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined applicable to the facts of the present case.
66. Referring to decision in case of Bhailal Amin General Hospital v/s. State of Gujarat, reported in 2016 SCC OnLine Guj. 2539 relied upon by the petitioners it was submitted that the aforesaid case went in an appeal filed under Section 78 of the VAT Act for exempting the Appellant Hospital from sales tax liability on the ground that the same was found to be a charitable hospital on the basis of the material evidence available on record, as observed in Para-5 of the said judgment, whereas, in the present case, whether the Hospital run by the Petitioner is charitable or not, and whether there is any business purpose in running the same Page 90 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined or not, is required to be examined by leading evidence before various authorities under the VAT Act and such a finding cannot be reached on the basis of mere assertions advanced in the captioned writ petition, more particularly when, the said controversies are confronted with disputed questions of facts.
67. Regarding the Constitutional Validity of clause (g) of section 2(23) of VAT Act it was submitted that the petitioners have challenged the validity of the said clause
(g) of Section 2(23) of the VAT Act on the ground that the same goes beyond the scope and purview of Article 366(29A) of the Constitution which, inter-alia, deals with only six contingencies where the fiction of "deemed sale" would be applicable even Page 91 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined in a composite contract which is not divisible. Reliance was placed on clause
(g) Section 2(23) as well as clause (h) of the said Section 2(23) of VAT Act, which reads as under:
"2(23) Sale means a sale of goods made with the State for cash or deferred payment or other valuable consideration and includes, -
(g) supply of goods by way of or as part of any service or in any other manner whatsoever, of
(h) supply of goods being food or any other article for human consumption or any drink (whether or not intoxicating) where such supply or service is for cash, deferred payment or other valuable consideration."
It was submitted that clauses (g) & (h) of Section 2(23) of the VAT Act are nothing but the provisions borrowed from the following one single sub-clause (f) of Page 92 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined Article 366(29A) of the Constitution. Reliance was placed on Article 366(29A)(f) which reads as under:
"366(29A), tax on the sale or purchase of goods includes -
Xxx
(f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made."
68. It was submitted that it is well settled position of law that the Court Page 93 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined should try to sustain the validity of any statutory provision to the extent possible by ironing defects, if any, in drafting and that while doing so, the said statutory provision should be interpreted purposively or should be read down, so as to save the same from the vice of unconstitutionality. In support of such submission, reliance is placed on the following two judgments:
i) State of Bihar v. Bihar Distillery Ltd reproted in (1997) 2 SCC 453
ii) M. Rathinaswami v. State of Tamil Nadu reported in (2009) 5 SCC 625.
69. It was therefore, submitted that clauses (g) and (h) of Section 2(23) of the VAT Act may be read together so as to Page 94 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined put the same at par with the language used in sub-clause (f) of Article 366(29A) of the Constitution and if it is so done, the said provisions of the VAT Act can be saved from the same being unconstitutional.
70. It was submitted that the State Legislature has, while dealing with cognate provisions contained under Section 2(10) of the VAT Act defining the term "dealer", has sought to lay down clause
(i) by using the language, combining the above-referred clauses (g) and (h) of Section 2(23) by putting the same at par with the language used in Article 366(29A) of the Constitution, as under:
"2(10). Dealer means any person...... and includes, - Page 95 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025
NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined
(i) any person who supplies, by way of or as part of any service or in any other manner whatsoever, goods being food or any other article for human consumption or any drink (whether or not intoxicating) where such supply or service, is for cash, deferred payment or other valuable consideration."
71. It was therefore, submitted that clauses (g) and (h) of Section 2(23) may be read together in juxta-position of the definition of the term "dealer" as defined in the aforesaid Section 2(10)(i) of the VAT Act, because of the fact that unless a person effecting transfer, delivery or supply of any goods is the "dealer" within the meaning of the said Section 2(10)(i) of the VAT Act, no question would arise about taxing such a transaction by applying clauses (g) and (h) of Section Page 96 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined 2(23) of the VAT Act. Thus, the said two clauses (g) and (h) of Section 2(23) of the VAT Act are required to be read together and if it is so done, there is nothing unconstitutional about the said provision. It was submitted that even otherwise, it is now a specific stand on behalf of the Respondent State that the transfer/delivery/supply of medicaments and prosthetics by the Petitioners hospital in favour of their indoor patients during the course of providing treatment, is covered by sub-clause (b) of Article 366(29A) of the Constitution of India, failing which, sub-clause (a) of Article 366(29A) of the Constitution of India and therefore, there arises no question of considering the applicability of either sub-clause (f) of Article Page 97 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined 366(29A) of the Constitution or clause (g) of Section 2(23) of the VAT Act, in the present case.
D) Rejoinder of the petitioners
72. Learned Senior Advocate Mr. S.N. Soparkar in rejoinder submitted that the submission of the respondents that the use of medicines, implants, consumables, etc. in the course of treatment of indoor patients is "deemed sales" under Article 366(29A)(b) of the Constitution of India is not tenable in law.
73. It was submitted that Article 366(29A) was incorporated in the Constitution of India by the 46th Constitutional Amendment to nullify specific judgements holding certain transactions to be not a "sale" for the Page 98 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined purpose of Entry 54 of List II.
74. It was submitted that the scope of Article 366(29A) of the Constitution has to be restricted to these specific transactions sought to be brought within the ambit of the sales tax legislations, because, admittedly hospital services were not in consideration at the time of 46th Constitutional amendment and therefore they cannot be brought within the purview of "deemed sales" under Article 366(29A) of the Constitution of India. Reliance was placed in this regard on the judgement of Hon'ble Supreme Court in the case of State of West Bengal v/s Calcutta Club Ltd. (2019) SCC Online SC 1291 wherein it was categorically held that 46th Constitutional Amendment was made to overcome specific judgements and therefore Page 99 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined clause (f) deeming supply of food, articles of human consumption and drinks to be a sale could be applied only if such supply was by hotels and restaurants and that it could not be applied to supply of food and drink by clubs.
75. It was submitted that in any case clause (a) of Article 366(29) of the Constitution of India which is sought to be relied upon by the Respondents cannot cover the transactions in question. It was pointed out that it was clearly stated in the Statement of Objects and Reasons of the 46th Constitutional Amendment that this clause was for the purpose of taxing controlled commodities and to overcome the judgement of Hon'ble Supreme Court in the case of New India Sugar Mills (supra). It was submitted that in any case, even plain Page 100 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined reading of the clause suggests that it applies to transfers otherwise than in pursuant of a contract and in the present case, it is not as if contract is absent between hospitals and patients. It was therefore submitted that there is a composite agreement with the intention of curing the patients of their ailments, hence, such transactions clearly fall outside the purview of clause (a) of Article 366(29A) of the Constitution of India. It was submitted that the judgement of Hon'ble Supreme Court in the case of Sunrise Associates v/s Govt of NCT of Delhi reported in (2006) 5 SCC 603 which has been relied upon in the context of clause (a) is also not applicable as Para 7 of the said judgement only states that an agreement for sales is not necessary Page 101 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined for constituting a sale under clause (a). it was therefore submitted that this does not mean that even a pure service transaction would come within the ambit of clause (a) which otherwise would be clearly contrary to the law laid down by Hon'ble Supreme Court in the case of Calcutta Club Ltd. (supra) that the 46th Constitutional Amendment cannot be made applicable beyond its intended scope.
76. It was further submitted that transactions of the petitioners are also not "works contracts" and therefore they are also not taxable under clause (b) of Article 366(29A) of the Constitution of India as sought to be contended by the Respondents. Reference was made to the phrase "works contract" defined under Page 102 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined clause (ii) of Explanation to Section 2(23) of the VAT Act as under:
"Explanation -
xxx
(ii) for the purpose of sub-clause
(b) of the expression "works contract" means a contract for execution of works and includes such works contract as the State Government may, by notification in the Official Gazette, specify;
77. It was submitted that Notification No. (GHN-23)/VAT-2006/(5.2)(23)(1)/TH dated 31.3.2006 notifies works as mentioned in the Schedule of the Notification as "works contracts" and all the notified "works contracts" are in the nature of contracts requiring affixation of goods on another form of moveable or immoveable property.
78. It was therefore submitted that even Page 103 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined otherwise, "works contracts" are understood to be contracts where property is transferred to the recipient on the principle of accretion and Human body cannot be considered to be "property" and there cannot be any accretion on human body as treatment of patients by hospitals cannot be considered as "works contracts"
as understood in law nor are they specifically notified to be "works contracts" under the Vat Act, hence, tax cannot be imposed on hospitals by treating the agreement to treat patients as "works contracts".
79. Reference was made to the meaning of the expression "works contracts" as discussed by Hon'ble Supreme Court in the judgement in the case of Larsen and Toubro Page 104 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined Ltd. (supra) as under:
"68. There is no doubt that to attract Article 366(29-A)(b) there has to be a works contract but then what is its meaning. The term "works contract" needs to be understood in a manner that Parliament had in its view at the time of the Forty-sixth Amendment and which is more appropriate to Article 366(29-A)(b).
69. The ordinary dictionary meaning of the word "work" means a structure or apparatus of some kind; architecture or engineering structure, a building edifice. When it is used in the plural i.e. as works, it means architectural or engineering operations, a fortified building, a defensive structure, fortification or any of the several parts of such structures. In Webster's Comprehensive Dictionary, International Edition the term "work" is stated to be, ... (2) that upe upon which labor is expended; an undertaking task; (3) that which is produced by or as by labor, specifically, an engineering structure..... In the same dictionary, the term "works"
is stated as a manufacturing Page 105 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined establishment including buildings and equipment.
70. In Radha Raman [Radha Raman v. State of U.P., AIR 1954 All 7001 the Allahabad High Court stated (although in the context of Section 40 of the Land Acquisition Act, 1894) that: (AIR p. 702, para
5) "5.... the word 'work' has a very wide meaning. It is really used in two senses of bestowing labour and that upon which labour has been bestowed. When used in plural, the word certainly means some outstanding or important result of the labour that has been bestowed, and large industrial and scientific establishments are called works...."
80. It was therefore, submitted that the aforementioned paragraphs clearly show that "works contracts" requires coming into existence of "works" which can be a structure or apparatus of some kind, however, treatment of indoor patients does not result into coming in existence of "works", such transaction clearly does not Page 106 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined constitute "works contract".
81. It was submitted that the though the case of the petitioners is squarely covered by the judgment in the case of Larsen and Toubro (supra), the respondents however, have sought to rely on some paragraphs of the judgement. It was submitted that reliance placed on para 72 of the said judgement by the respondents is completely misplaced because it only states that a contract will not cease to be "works contract" merely because there were certain additional obligations flowing from the contract other than "works contract". It was therefore submitted that this observation was in the context of the argument of the assessee in that case that since the agreement for Page 107 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined sale of flats also involved sale of land, it would not be a "works contract" ,however, the very same paragraph again reiterates that there needs to be a contract for undertaking or bringing into existence some "works" and the meaning of the term "works" has already been discussed by Hon'ble Supreme Court in the preceding paragraphs.
82. It was further submitted that reliance placed on para 90 of the said judgement is also misplaced in as much as the same only states that the property need not pass by accretion only to the owners of the land. It was submitted that this observation was in the context of the argument that in case of tripartite agreement between owner of land, developer Page 108 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined and buyer of flat, the property in flat is transferred to the buyer of flat and not to land owner, however, this cannot be interpreted to mean that Hon'ble Supreme Court seeks to do away with principle of accretion which is applicable in case of "works contracts'.
83. Learned Senior Counsel Mr. Soparkar further relied upon the judgement of Hon'ble Supreme Court in the case of Kartar Singh Bhadana v/s Hari Singh Nalwa and Others reported in (2001) 4 SCC 661 for the purpose of meaning of expression of the phrase "works contract". Further, reliance was also placed on the judgement of Hon'ble Supreme Court in the case of State of Andhra Pradesh and Others v/s Larsen & Toubro Ltd. and Others reported Page 109 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined in (2008) 9 SCC 191 wherein not only the meaning of the phrase "works contract"
has been discussed but it has also been reiterated that the property in a works contract passes on the basis of "principle of accretion" and hence if the main contractor has sub-contracted the work to a sub-contractor, then the property will pass directly from sub-contractor to the contractee even if there is no privity of contract.
84. Reliance was also placed on judgement of Hon'ble Supreme Court in the case of Commissioner, Central Excise and Customs, Kerala v/s Larsen and Toubro Ltd. Reported in (2016) 1 SCC 170 wherein the definition of "works contract" appearing in Explanation to Section 65(105)(zzzza) Page 110 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined of the Finance Act, 1994 was reproduced which also would cover only 'works contracts' as per the said definition. It was submitted that the budget speech of the Finance Minister for introducing such definition has been reproduced in Para 26 of the judgement which shows that the same was introduced to levy service tax on the service portion of 'works contract' as the State Governments levy tax on transfer of property in goods involved in the execution of 'works contract'. It was submitted that therefore the meaning of the phrase "works contract" for the purpose of the VAT Act cannot be drastically different than the definition given by the Parliament under the Finance Act, 1994.
Page 111 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025
NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined
85. It was submitted that a collective reading of the aforementioned judgements clearly shows that "works contracts"
requires firstly coming into existence of "works" and secondly that the property passes from seller to buyer by the principle of accretion, in other words the property in a 'works contract' passes by the act of affixation of the goods being transferred upon another property which may be moveable or immoveable. It was submitted that both these fundamental features of "works contract" are absent in so far as transaction of treatment of indoor patients by hospitals is concerned and therefore such transactions cannot be considered to be "works contracts".
86. It was further submitted that human body is not "property" and therefore Page 112 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined principle of accretion cannot apply to treatment of patients because of following reasons:
(a) Substantive civil law is divided into:
(i) the law of property,
(ii) the law of obligations; and
(iii) the law of status.
(b) There is a clear distinction between the legal treatment of "property" and of "persons". The very arrangement of chapters in Salmond on Jurisprudence bears out a testimony to the fact that "persons"
(in chapter 10) are treated separately from "property". The law thus does not treat persons as "property".
(c) While in its widest sense "property" includes all of a person's legal rights, Page 113 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined this usage however is obsolete in law. Besides, the law has always treated persons and property separately which is also borne out from a sequencing of the provision in the IPC by treating offences relating to persons and those related to property separately.
(d) Even under the law of torts, torts relating to the person are treated separately from torts relating to property.
(e) To treat a live human body as a property is shockingly retrograde and harks back to the pre-colonial era when humans were treated as object and were kept in captivity as slave.
Page 114 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025
NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined
(f) If human body were to be treated as a property, it is an issue which involves sociological, medical, ethical, moral, philosophical, religious, economic issues and it is for the Parliament to legislate. Therefore, so until then there cannot be any tax. It is submitted that a human body cannot be subject to "works contract" by going beyond language used.
(g) If human body were property, it would amount to validating suicide, foeticide, prostitution and a host of other immoral activities. Besides section 19 of the Transplantation of Human Organs and Tissues Act, 1994 makes the commercial dealing in human organ an offence punishable. There is a legislative drift to not to tax. The right to deal is the Page 115 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined substratum of any property/ proprietary right. When such right has been taken away by another legislation, the arguments that human body/organs is "property" also falls and fails miserably at its very core.
(h) It would be disingenuous for the State to contend that the human organs are not property for any of the above purposes of section 19 of the Transplantation of Human Organs and Tissues Act, 1994, but property for the purpose of the Vat Act. To treat a medical procedure as a "works contract", the State would necessarily have to contend that a living human body, or for that matter even a particular organ, is property and such a contention is intrinsically abhorrent and would be an absurdity wrapped in an anomaly inside the Page 116 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined aforesaid contradiction. If at all body parts are to be "property", it could only be such parts which are detachable and regenerative.
87. It was further submitted that the other judgments relied upon by the respondents also do not lay down any different law with regard to meaning of the phrase works contracts. Learned Senior Advocate Mr. S.N. Soparkar distinguished the cases cited by the respondents as under:
(a) Decision in case of Builders Association of India v/s Union of India reported (1989) 2 SCC 645 only laid down that even deemed sales under Article 366(29A) of the Constitution would be Page 117 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined governed by other restrictions as applicable to Entry 54 of List II and Para 41 of the judgement states that there can be various varieties of "works contracts".
However, it was submitted, this does not mean that the fundamental condition of coming into existence of "works" can be bypassed.
(b) It was submitted that decision in case of Association of Leasing and Financial Service Companies v/s Union of India reported in (2011) 2 SCC 352 is with regard to competence of power to impose tax on financial leasing services which has no relevance in so far as meaning of phrase "works contract" is concerned.
(c) It was submitted that decision in case Page 118 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined of Kone Elevators India Pvt. Ltd. v/s State of Tamil Nadu reported in (2014) 7 SCC 1 was a judgement concerning the issue of whether a contract of supply, installation and commissioning of elevators could be considered to be "works contracts" and the judgement specifically affirms the earlier judgement in the case of Larsen and Toubro (supra), hence, it cannot be said that any different meaning is assigned to "works contract" than as discussed by Hon'ble Supreme Court. It was pointed out that the judgement then goes on to reiterate that dominant intention is not to be seen in case of a works contract, and there is no dispute to the proposition that in case of a 'works contract' dominant intention is not to be seen, however, for this purpose, firstly Page 119 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined the contract should qualify as 'works contract'. It was further submitted that the fact in the case of Kone Elevators (supra) very much involved installation of the elevators and therefore the principle of accretion was satisfied, whereas in the present case, the agreement to treat patients cannot be considered as "works contract" and therefore the dominant intention will very much be applicable as held by Hon'ble Supreme Court in the case of Bharat Sanchar Nigam Ltd. (supra).
(d) It was submitted that decision in case of State of Karnataka v/s Pro Lab and Others reported in (2015) 8 SCC 557 relies upon judgement in the case of Bharat Sanchar Nigam Ltd.(supra) and thereafter goes on to reiterate that dominant Page 120 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined intention is not to be seen in a "works contract" ,however, this in no way overrules or dilutes the conclusion in the case of BSNL that all composite contracts cannot be considered as works contracts and that hospital services cannot be made amenable to sales tax/Vat.
(e) It was submitted that decision in case of State of Gujarat v/s Bharat Pest Control (2018) 14 SCC 685, there was no dispute as to whether the contract in question is a 'works contract' or not and Hon'ble Supreme Court simply reiterated the principle that dominant intention test is not to be applied in the case of a 'works contract'.
(f) It was submitted that decision in case Page 121 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined of Indian Hume Pipe Company Ltd. v/s State of Rajasthan reported in (2019) 14 SCC 584, it was categorically noted in Para 18 of the judgement that there was no dispute that the contract in question was a 'works contract',hence, the judgement is not relevant.
(g) It was submitted that decision in case of Miot Hospitals Ltd. v/s State of Tamil Nadu reported in 2020 SCC Online Mad 28124 proceeds on the basis that all composite contracts are "works contracts" which is not only contrary to the observations of Hon'ble Supreme Court in the case of Bharat Sanchar Nigam Ltd. (supra) but also to other judgements of Hon'ble Supreme Court in the case of Larsen and Toubro (supra) and Kartar Singh (supra) wherein Page 122 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined the meaning of the expression "works contract" has been clearly discussed. E) Analysis and Findings
88. Considering the submissions made by the learned advocates for the parties and considering the decision of Hon'ble Apex Court in case of Gannon Dunkerly (supra) and subsequent decision in case of Bharat Sanchar Nigam Ltd. and others v. Union of India and others reported in (2006) 3 SCC 1 and the judgments on the same issue rendered by various High Courts relied upon by the petitioners, the core issue involved in these petitions is whether the respondent State can levy Value Added Tax treating the supply of medicines, implants, stents, consumables, etc. used by the petitioner hospitals as "sale of Page 123 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined goods" in execution of "works contract"
or not as the learned Advocate General Mr. Kamal Trivedi has made a statement at Bar that the respondent State is not invoking clause (g) of section 2(23) of the VAT Act for levy of VAT on supply of medicines, implants, stents, consumables, etc. used by the petitioner hospitals during the course of its treatment of the patients and VAT will be leviable either under clauses (a) or (b) of section 2(23) as "deemed sales" or both.
89. As per the definition of 'sale' in section 2(23) of the VAT Act, 'sale' means sale of goods made within the State for cash or deferred payment or other valuable consideration and includes clauses (a) to
(j) and as per clause (b), transfer of Page 124 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined property in goods (whether as goods or in some other form) involved in execution of "works contract". Therefore, expression "works contract" which has been pressed into service by the respondent State for levy of VAT in the facts of the present cases is required to be considered in light of the various decisions relied upon by both the sides.
90. Prior to 46th Amendment of the Constitution of India, "works contract"
were not liable to sales tax. However, definition of "deemed sales" incorporated the expression "works contract" in Article 366(29A)(b). Prior to 46th Amendment in the Constitution, definition of "sale" as it prevailed did not justify the proposals to tax goods used for the provision of Page 125 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined such services coupled with supply of goods or use of goods and the Courts frowned upon the attempt to tax such transactions and held the demand of tax to be without authority of law and in violation of Sale of Goods Act,1930 and Government of India Act, 1935. Therefore, to plug the revenue leakage regarding the contract involving the "works contract", provision to tax "works contract" was incorporated. A reading of the case laws prior to decision of Hon'ble Apex Court in case of Gannon Dunkerly (supra) indicates that "works contract" to begin with was intended to tax only building and allied contracts, where a contractor provided a composite contract for both supply of service and goods or even used goods of considerable value in the course of provision of such Page 126 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined services with or without break-up of cost of such goods in the execution of building contract.
91. Section 2(13) of the VAT Act defines "goods" as under:
2(13) "goods" means all kinds of movable property (other than newspapers, actionable claims, electricity, stocks and shares and securities) and includes live stocks, all materials, articles and commodities and every kind of property (whether as goods or in some other form) involved in the execution of works con-tract, alt intangible commodities and growing crops, grass, Standing timber or things attached to be forming part of the land, which are agreed to be severed before sale or under the contract of sale;"
92. Hon'ble Apex Court following the decision in case of M/s. Gannon Dunkerly and Co.,(Madras) ltd.(supra) while considering the levy of tax on the "works Page 127 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined contract" held in case of State of Madras v. Richardson & Cruddas Ltd. reported in [1968] 21 STC 245, that under the terms of contract when the respondents undertook to install a bottle cooling equipment, that is, to fabricate different parts of the unit according to the special requirements of the customer, and to install the unit in the premises of the customer, each bottle cooling equipment required special fabrication and had to be installed at the place selected by the customer and found suitable for installation of the unit. The contract being one for supplying for an inclusive price for a specially designed fabricated unit to be assembled and installed by specially trained technicians in the premises of the customer, it cannot be Page 128 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined said to be a contract for sale of a unit or different parts of the unit as specific goods, but it amounts to "works contract".
93. Similarly, in case of Assistant Sales Tax Officer and others v. B.C. Kame, Proprietor of Kame Photo Studio reported in (1977) 1 SCC 634 the Hon'ble Apex Court held that when a photographer undertakes to take a photograph, develop the negative, or do other photographic work and thereafter supply the prints to his client, he cannot be said to enter into a contract for sale of goods. On the contrary, the contract is for use of skill and labour by the photographer to bring about a desired result. It was further held that the occupation of a photographer, except insofar as he sells Page 129 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined the goods purchased by him, is essentially one of skill and labour.
94. Hon'ble Kerala High Court in case of Deputy Commissioner of Sales Tax v. Dr. Paran's Dental Laboratories, reported in (1987) 67 STC 249 following the decision of Hon'ble Apex Court in case of B.C. Kame (supra) held that the amount realised towards teeth setting charges was essentially a contract to do skilled labour and if the teeth prepared by the dentist for a particular customer, was not taken delivery of by him, it would be a waste. It was held that what was manufactured was not marketable goods and it was vital factor to decide whether there is a sale of goods.
Page 130 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025
NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined
95. The Hon'ble Apex Court in case of Builders' Association of India and others v. Union of India and others reported in (1989) 2 Supreme Court Cases 645 in context of 'works contract' held that the object of the new definition introduced in clause (29A) of Article 366 of the Constitution is, therefore, to enlarge the scope of 'tax on sale or purchase of goods' wherever it occurs in the Constitution so that it may include within its scope the transfer, delivery or supply of goods that may take place under any of the transactions referred to in sub- clauses (a) to (f) thereof wherever such transfer, delivery or supply becomes subject to levy of sales tax. Therefore, the expression 'tax on the sale or purchase of goods' in Entry 54 of the List Page 131 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined II of the Seventh Schedule of the Constitution of India (State List) includes a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a 'works contract' also.
96. The Hon'ble Apex Court further held as under:
"36. Even after the decision of this Court in the State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. it was quite possible that where a contract entered into in connection with the construction of a building consisted of two parts, namely, one part relating to the sale of materials used in the construction of the building by the contractor to the person who had assigned the contract and another part dealing with the supply of labour and services. sales tax was leviable on the goods which were agreed to be sold under the first part. But sales tax could not be levied when the contract in question was a single and indivisible works contract.Page 132 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025
NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined After the 46th Amendment the works contract which was an indivisible one is by a legal fiction altered into a contract which is divisible into one for sale of goods and the other for supply of labour and services. After the 46th Amendment, it has become possible for the States to levy sales tax on the value of goods involved in a works contract in the same way in which the sales tax was leviable on the price of the goods and materials supplied in a building contract which had been entered into in two distinct and separate parts as stated above. It could not have been the contention of the revenue prior to the 46th Amendment that when the goods and materials had been supplied under a distinct and separate contract by the contractor for the purpose of construction of a building the assessment of sales tax could be made ignoring the restrictions and conditions incorporated in Article 286 of the Constitution. If that was the position can the States contend after the 46th Amendment under which by a legal fiction the transfer of property in goods involved in a works contract was made liable to payment of sales tax that they are not governed by Article 286 while levying sales tax on sale of goods involved in a works contract? They cannot do so.Page 133 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025
NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined When the law creates a legal fiction such fiction should be carried to its logical end. There should not be any hesitation in giving full effect to it. If the power to tax a sale in an ordinary sense is subject to certain conditions and restrictions imposed by the Constitution, the power to tax a transaction which is deemed to be a sale under Article 366(29-A) of the Constitution should also be subject to the same restrictions and conditions. Ordinarily unless there is a contract to the contrary in the case of a works contract the property in the goods used in the construction of a building passes to the owner of the land on which the building is constructed, when the goods or materials used are incorporated in the building. The contractor becomes liable to pay the sales tax ordinarily when the goods or materials are so used in the construction of the building and it is not necessary to wait till the final bill is prepared for the entire work. In Hudson's Building Contracts (8th edn.) at page 362 it is stated thus:
'The well known rule is that the property in all materials and fittings, once incorporated in or affixed to a building, will pass Page 134 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined to the freeholder quicquid plantatur solo cedit. The employer under a building contract may not necessarily be the freeholder, but may be a lessee or licensee, or even have no interest in the land at all, as in the case of a sub- contract. But once the builder has affixed materials, the property in them passes from him, and at least as against him they become the absolute property of his employer, whatever the latter's tenure of or title to the land. The builder has no right to detach them from the soil or building, even though the building owner may himself be entitled to sever them as against some other person e.g., as tenant's fixtures. Nor can the builder reclaim them if they have been subsequently severed from the soil by the building owner or anyone else. The principle was shortly and clearly stated by Blackburn J. in Appleby v. Meyersts: Materials worked by one into the property of another become part of that property'. This is equally true whether it be fixed or movable property. Bricks built into a wall become part of the house, thread stitched into a coat which is under repair, or planks and nails and pitch worked into a ship under repair, become part of the coat or the ship.Page 135 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025
NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined xxx
39. In view of the foregoing statements with regard to the passing of the property in goods which are involved in works contract and the legal fiction created by clause (29-A) of Article 366 of the Constitution it is difficult to agree with the contention of the States that the properties that are transferred to the owner in the execution of a works contract are not the goods involved in the execution of the works contract, but a conglomerate, that is the entire building that is actually constructed. After the 46th Amendment it is not possible to accede to the plea of the States that what is transferred in a works contract is the right in the immovable property.
xxx
41. We, therefore, declare that sales tax laws passed by the legislatures of States levying taxes on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract are subject to the restrictions and conditions mentioned in each clause or sub-clause of Article 286 of the Constitution. We, however, make it clear that the cases argued before and considered Page 136 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined by us relate to one specie of the generic concept of 'works contracts'. The case-book is full of the illustrations of the infinite variety of the manifestation of 'works contracts'. Whatever might be the situational differences of individual cases, the constitutional limitations on the taxing power of the State as are applicable to 'works contracts' represented by "building contracts" in the context of the expanded concept of "tax on the sale or purchase of goods" as constitutionally defined under Article 366(29-A), would equally apply to other species of 'works contracts' with the requisite situational modifications."
97. The expression "works contract"
involves two fundamental elements namely,
(i) transfer of material/goods and (ii) rendering of services. The supplier transfers the ownership and possession of the material used to the recipient in the course of execution of 'works contract' which sometimes result in a new identity Page 137 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined altogether different from the material supplied while sometimes such materials become part of the existing structure or goods.
98. 'Works contract' can be both divisible and indivisible contract. In divisible works contract, it is possible to segregate the value of sale of goods and labour whereas in indivisible contract where the parties agree for lump-sum consideration for the entire contract without any break-up of the value of sale of goods and the labour. The sale consideration of material used in the contract and remuneration for the labour therefore, is not separately identifiable.
99. In case of Larsen and Toubro limited and another v. State of Karnataka and Page 138 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined another reported in (2014) 1 Supreme Court Cases 708, Hon'ble Apex Court held as under:
"67. Now, if by legal fiction provided in clause (29-A)(b) of Article 366, the works contract becomes separable and divisible, one for the materials and the other for services and for the work done, whatever has been said by this Court in Gannon Dunkerley (1) with regard to the definition of works contract in Section 2(i) of the Madras General Sales Tax Act pales into insignificance insofar as ambit and scope of the term "works contract" within the meaning of Article 366(29-A) is concerned. To say that insertion of clause (29-A) in Article 366 has not undone Gannon Dunkerley (1) in any manner, in our view, is not correct. The narrow meaning given to the term "works contract"
in Gannon Dunkerley (1) now no longer survives.
68. There is no doubt that to attract Article 366(29-A)(b) there has to be a works contract but then what is its meaning. The term "works contract" needs to be understood in a manner that Parliament had in its view at the Page 139 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined time of the Forty-sixth Amendment and which is more appropriate to Article 366(29-A)(b)
69. The ordinary dictionary meaning of the word "work" means a structure or apparatus of some kind; architecture or engineering structure, a building edifice. When it is used in the plural i.e. as works, it means architectural or engineering operations, a fortified building, a defensive structure, fortification or any of the several parts of such structures. In Webster's Comprehensive Dictionary, International Edition the term "work" is stated to be, ... (2) that upon which labor is expended; an undertaking task; (3) that which is produced by or as by labor, specifically, an engineering structure;.. In the same dictionary, the term "works" is stated as a manufacturing establishment including buildings and equipment.
70. In Radha Raman (AIR 1954 ALL
700) the Allahabad High Court stated (although in the context of Section 40 of the Land Acquisition Act, 1894) that: (AIR p. 702, para
5) Page 140 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined "5. the word 'work' has a very wide meaning. It is really used in two senses of bestowing labour and that upon which labour has been bestowed. When used in plural, the word certainly means some outstanding or important result of the labour that has been bestowed, and large industrial and scientific establishments are called works...."
71. Hudson's Building and Engineering Contracts, 11th Edn., Vol. 1, for the purposes of that book, starts by saying that a building or engineering contract may be defined as an agreement under which a person (called builder or contractor) undertakes for reward to carry out for another (building owner or employer), works of building or civil engineering character. It continues to say that in the typical case, the work will be carried out upon the land of the employer or building owner, though in some special cases obligations to build may arise by contract where this is not so, for example, under building leases and contracts for the sale of land with a house in the course of erection upon it. The above statement by Hudson indicates that in a typical case work (structure, Page 141 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined building, etc.) will be carried out upon the land of the employer or building owner though in some special cases an obligation to build may arise by contract where this is not so. Hudson gives an example of building leases and contracts for the sale of land with a house in the course of erection upon it.
72. In our opinion, the term "works contract" in Article 366(29-A)(b) is amply wide and cannot be confined to a particular understanding of the term or to a particular form. The term encompasses a wide range and many varieties of contract. Parliament had such wide meaning of "works contract" in its view at the time of the Forty-sixth Amendment. The object of insertion d of clause (29-A) in Article 366 was to enlarge the scope of the expression "tax on sale or purchase of goods" and overcome Gannon Dunkerley (1). Seen thus, even if in a contract, besides the obligations of supply of goods and materials and performance of labour and services, some additional obligations are imposed, such contract does not cease to be works contract. The additional obligations in the contract would not alter the nature of contract so long as the Page 142 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined contract provides for a contract for works and satisfies the primary description of works contract. Once the characteristics or elements of works contract are satisfied in a contract then irrespective of additional obligations, such contract would be covered by the term "works contract". Nothing in Article 366(29-A)(b) limits the term "works contract" to contract for labour and service only. The learned Advocate General for Maharashtra was right in his submission that the term "works contract" cannot be confined to a contract to provide labour and services but is a contract for undertaking or bringing into existence some "works". We are also in agreement with the submission of Mr K.N. Bhat that the term "works contract" in Article 366(29-A)(b) takes within its fold all genre of works contract and is not restricted to one specie of contract to provide for labour and services alone. Parliament had all genre of works contract in view when clause (29- A) was inserted in Article 366. xxx
86. In our opinion, the tests laid down in Hindustan Shipyard after the Forty-sixth Amendment are not Page 143 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined of much help in determining whether a contract is a works contract or sale of goods. In any case, Hindustan Shipyard also says that there is no absolute rule for distinguishing a contract for sale (of goods) and a contract for labour (or services).
87. It seems to us (and that is the view taken in some of the decisions) that a contract may involve both a contract of work and labour and a contract of sale of goods. In our opinion, the distinction between contract for sale of goods and contract for work (or service) has almost diminished in the matters of composite contract involving both a contract of work/labour and a contract for sale for the purposes of Article 366(29-A)(b). Now by legal fiction under Article 366(29-A)(b), it is permissible to make such contract divisible by separating the transfer of property in goods as goods or in some other form from the contract of work and labour. A transfer of property in goods under clause (29-A)(b) of Article 366, is deemed to be a sale of goods involved in the execution of a works contract by the person making the transfer and the purchase of those goods by the person to whom such transfer is Page 144 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined made. For this reason, the traditional decisions which hold that the substance of the contract must be seen have lost their significance. What was viewed traditionally has to be understood in the light of the philosophy of Article 366(29-A).
88. The question is : whether taxing sale of goods in an agreement for sale of flat which is to be constructed by the developer/promoter is permissible under the Constitution? When the agreement between the promoter/developer and the flat purchaser is to construct a flat and eventually sell the flat with the fraction of land, it is obvious that such transaction involves the activity of construction inasmuch as it is only when the flat is constructed then it can be conveyed. We, therefore, think that there is no reason why such activity of construction is not covered by the term "works contract". After all, the term "works contract" is nothing but a contract in which one of the parties is obliged to undertake or to execute works. Such activity of construction has all the characteristics or elements of works contract. The Page 145 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined ultimate transaction between the parties may be sale of flat but it cannot be said that the characteristics of works contract are not involved in that transaction. When the transaction involves the activity of construction, the factors such as, the flat purchaser has no control over the type and standard of the material to be used in the construction of the building or he does not get any right to monitor or supervise the construction activity or he has no say in the designing or layout of the building, in our view, are not of much significance and in any case these factors do not detract the contract being works contract insofar as construction part is concerned.
89. For sustaining the levy of tax on the goods deemed to have been sold in execution of a works contract, in our opinion, three conditions must be fulfilled : (i) there must be a works contract,
(ii) the goods should have been involved in the execution of a works contract, and (iii) the property in those goods must be transferred to a third party either as goods or in some other form. In a building contract or Page 146 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined any contract to do construction, the above three things are fully met. In a contract to build a flat there will necessarily be a sale of goods element. Works contracts also include building contracts and therefore without any fear of contradiction it can be stated that building contracts are species of the works contract.
90. Ordinarily in the case of a works contract the property in the goods used in the construction of the building passes to the owner of the land on which the building is constructed when the goods and materials used are incorporated in the building. But there may be contract to the contrary or a statute may provide otherwise. Therefore, it cannot be said to be an absolute proposition in law that the ownership of the goods must pass by way of accretion or exertion to the owner of the immovable property to which they are affixed or upon which the building is built.
xxx
97. In light of the above discussion, we may summarise the legal position, as follows: Page 147 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025
NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined 97.1. For sustaining the levy of tax on the goods deemed to have been sold in execution of a works contract, three conditions must be fulfilled : (i) there must be a works contract, (ii) the goods should have been involved in the execution of a works contract, and
(iii) the property in those goods must be transferred to a third party either as goods or in some other form.
97.2. For the purposes of Article 366(29-A)(b), in a building contract or any contract to do construction, if the developer has received or is entitled to receive valuable consideration, the above three things are fully met. It is so because in the performance of a contract for construction of building, the goods (chattels) like cement, concrete, steel, bricks, etc. are intended to be incorporated in the structure and even though they lost their identity as goods but this factor does not prevent them from being goods.
97.3. Where a contract comprises of both a works contract and a transfer of immovable property, such contract does not denude it of its character as works Page 148 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined contract. The term "works contract" in Article 366(29-A)(b) takes within its fold all genre of works contract and is not restricted to one specie of contract to provide for labour and services alone. Nothing in Article 366(29-A)(b) limits the term "works contract".
97.4. Building contracts are a species of the works contract. 97.5. A contract may involve both a contract of work and labour and a contract for sale. In such composite contract, the distinction between contract for sale of goods and contract for work (or service) is virtually diminished.
97.6. The dominant nature test has no application and the traditional decisions which have held that the substance of the contract must be seen have lost their significance where transactions are of the nature contemplated in Article 366(29-A). Even if the dominant intention of the contract is not to transfer the property in goods and rather it is rendering of service or the ultimate transaction is transfer of immovable property, then also it Page 149 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined is open to the States to levy sales tax on the materials used in such contract if such contract otherwise has elements of works contract. The enforceability test is also not determinative.
97.7. A transfer of property in goods under clause (29-A)(b) of Article 366 is deemed to be a sale of the goods involved in the execution of a works contract by the person making the transfer and the purchase of those goods by the person to whom such transfer is made.
97.8. Even in a single and indivisible works contract, by virtue of the legal fiction introduced by Article 366(29-A)
(b), there is a deemed sale of goods which are involved in the execution of the works contract. Such a deemed sale has all the incidents of the sale of goods involved in the execution of a works contract where the contract is divisible into one for the sale of goods and the other for supply of labour and services. In other words, the single and indivisible contract, now by the Forty-sixth Amendment has been brought on a par with a contract containing two separate agreements and the States Page 150 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined now have power to levy sales tax on the value of the material in the execution of works contract. 97.9. The expression "tax on the sale or purchase of goods" in Schedule VII List II Entry 54 when read with the definition clause (29-A) of Article 366 includes a tax on the transfer of property in goods whether as goods or in the form other than goods involved in the execution of works contract. 97.10. Article 366(29-A)(b) serves to bring transactions where essential ingredients of "sale" defined in the Sale of Goods Act, 1930 are absent within the ambit of sale or purchase for the purposes of levy of sales tax. In other words, transfer of movable property in a works contract is deemed to be sale even though it may not be sale within the meaning of the Sale of Goods Act.
97.11. Taxing the sale of goods element in a works contract under Article 366(29-A)(b) read with Entry 54 List II is permissible even after incorporation of goods provided tax is directed to the value of goods and does not purport to tax the transfer of immovable property. The value of Page 151 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined the goods which can constitute the measure for the levy of the tax has to be the value of the goods at the time of incorporation of the goods in works even though property passes as between the developer and the flat purchaser after incorporation of goods.
98. The crucial question would now remain: whether the view taken in Raheja Development with reference to the definition of "works contract" in the KST Act is legally unjustified? The following definition of "works f contract"
was under consideration before this Court in Raheja Development:
(SCC p. 166, para 12) "12...... 2. (1)(v-i) "works contract" includes any agreement for carrying out for cash, deferred payment or other valuable consideration, the building, construction, manufacture, processing, fabrication, erection, installation, fitting out, improvement, modification, repair or commissioning g of any movable or immovable property;'"
The Court also noticed the
definition of "dealer " and
"taxable turnover"
Page 152 of 191
Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025
NEUTRAL CITATION
C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025
undefined
Xxxx
109. In Article 366(29-A)(b) the term "works contract" covers all genre of works contract and it is not limited to one specie of the contract. In Raheja Development¹ the definition of "works contract"
in the KST Act was under consideration. That definition of "works contract" is inclusive and refers to building contracts and diverse construction activities for monetary consideration viz.
for cash, deferred payment or other valuable consideration as works contract. Having regard to the factual position, inter alia, Raheja d Development entered into development agreements with the owners of the land and it also entered into agreements for sale with the flat purchasers, the consideration being payment in instalments and also the clauses of the agreement, the Court held that developer had undertaken to build for the flat purchaser and so long as there was no termination of the contract, the construction is for and on behalf of the purchaser and it remains a "works e contract". The legal position summarised by us and the foregoing discussion would justify Page 153 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined the view taken by the two-Judge Bench in Raheja Development."
100. On perusal of the above decision of Hon'ble Apex Court, it is clear that the expression "works contract" is of wide amplitude and need not be confined to a particular understanding of the term or a particular form as it is held that the term "works contract" in Article 366 (29- A)(b) of the Constitution of India takes within its fold all genre of "works contract" and is not restricted to one specie of contract to provide for labour and service alone. Article 366 (29A)(b) does not limit the term "works contract"
and the object of insertion of clause (29A) in Article 366 was to enlarge the scope of the expression "tax on sale or purchase of goods" to overcome the ratio Page 154 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined of the Hon'ble Apex Court in case of Gannon Dunkerley (supra).
101. Thus, it is clear that provision of "service", where the factum of supply of the goods whether tangible or intangible is discernible, forming part of the service contract would be nothing but a "composite contract providing for "service" and "goods", falling within the purview of the term "works contract".
102. By virtue of legal fiction introduced by Article 366(29A)(b) of the Constitution, even if such a composite contract is single and indivisible contract, it would amount to "deemed sale" of goods which are involved in the execution of the "works contract" and exigible to Sales Tax. In paragraph no.87 of the decision in case of Larsen and Toubro Page 155 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined Ltd. (supra), the Hon'ble Apex Court has succinctly drawn a distinction between the contract for sale of goods and contract for service by diminishing the distinction between the two in the matter of composite contract involving a contract of service/ labour and a contract for sale of goods in relation to Article 366(29A)(b) of the Constitution.
103. Therefore, reliance placed on behalf of the petitioners on the observations made by the Hon'ble Apex Court in case of Bharat Sanchar Nigam Ltd. (supra) which has been diluted in case of Larsen and Toubro Ltd. (supra) and the example in paragraph no. 44 of the decision in case of Bharat Sanchar Nigam Ltd. (supra) cannot be stretched to include all kinds of "hospital services" Page 156 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025
NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined provided by the petitioners because a simple treatment with medicine cannot be equated with complicated medical procedures undertaken by the petitioner hospitals involving skill and use of expensive implants/prosthetics and use of laboratory testing equipments. It is true that the dominant intention of the contract was not to transfer the property in goods i.e. consumables, medicines, implant, stents etc. used in the treatment of indoor patients by the petitioner hospitals but the same was for rendering of services, however, the ultimate transaction is nothing but a transfer of movable property and it would be open for the respondent State to levy sales tax/VAT on the materials used in such contract if such contract otherwise has element of "works contract" which would fall Page 157 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined within clause(b) of Article 366(29A) of the Constitution as it would amount to transfer either in goods or some other form.
104. The Hon'ble Apex Court in case of State of Andhra Pradesh v. Kone Elevators (India) Ltd. reported in (2005) 3 SCC 389 had also earlier held that there is no standard formula by which one can distinguish a "contract for sale" from a "works contract" and it would largely depend upon the terms of the contract including the nature of the obligations to be discharged thereunder and the surrounding circumstances.
105. Though the Constitution Bench of Hon'ble Apex Court in case of Kone Elevators India Pvt. Ltd. v/s State of Tamil Nadu Page 158 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined reported in (2014) 7 SCC 1 has overruled the aforesaid decision in case of State of Andhra Pradesh v. Kone Elevators (India) Ltd.(supra) on other aspects, the above observations have not been diluted as it was observed by Hon'ble Apex Court that in all the cases which have been brought before it, there was a composite contract for the purchase and installation of the lift and the price quoted was a composite one for both.
106. It would therefore, be germane to refer to the provisions of service tax as provided in the Finance Act, 1994 and consider the provisions of Sections 65B(44) and 65(105)(zzzzo) of the Finance Act, 1994, which considers the 'health care services' provided by clinical establishments to any Page 159 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined person as 'taxable services' as under:
"65B. in this chapter, unless, the context otherwise requires -
(44) service" means any activity carmed out by a person for another for consideration, and includes a declared service, but shall not include
(a) an activity which constitutes merely
(i) transfer of title in goods or immovable property, by way of sate, gift or in any other manner;
or
(ii) such transfer, delivery or supply of any goods which is deemed to be a sate within the meaning of clause (29A) of article 366 of the Constitution, or
(iii) a transaction in money or actionable claim;
(b) a provision of service by an employee to the employer in the course of or in relation to his employment,
(c) fees taken in any Court or tribunal established under any law for the time being in force.
xxxx Page 160 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined Whereas, the following Section 65(105)(zzzzo) of the Finance Act, 1994 deals with "taxable service", wherein the services being provided by a clinical establishment or by a doctor not being an employee of a clinical establishment, would be "taxable service".
105. "taxable service" means any service provided or to be provided
-
(zzzzo) to any person, -
(i) by a clinical establishment, or
(ii) by a doctor, not being an employee of a clinical establishment, who provides services from such premises for diagnosis, treatment or care for illness, disease, injury, deformity, abnormality or pregnancy in any system of medicine;"
107. Therefore, the treatment given to the patients in the clinical establishment is nothing, but a "service" being provided along with supply of medicaments, Page 161 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined prosthetics, etc. which would fall within the "composite service" contract involving rendition of service, as well as, sale of goods comprising medicaments and implants/prosthetics, etc. resulting into "works contract". Such a composite arrangement is now covered by legal fiction after 46th Constitutional Amendment and can attract the service tax on the value of service being provided and would attract the sales tax/VAT on the "deemed sale" on the movables/articles in form of medicaments, prosthetics, etc. used during the course of the execution of such "composite service contract".
108. The Hon'ble Apex Court in case of Associated Cement Companies Ltd vs. Comm. Customs, reported in (2001) 4 SCC 593 while Page 162 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined dealing with the contract for providing Architectural Services including design- development drawing observed that even if the dominant intention of the contract is the rendering of service, it would amount to a works contract, if it is possible to bifurcate the contract and to levy sales tax on the value of the material involved in the execution of the works contract, notwithstanding that such value may represent a small percentage of the amount paid for the execution of the works contract and after the Forty-sixth Amendment the State would be empowered to levy sales tax/VAT on the material used while rendering in such composite health service contract.
109. The contention raised on behalf of the petitioners that there is no accretion in Page 163 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined the facts of the present cases and therefore, rendering of medical treatment to indoor patients cannot fall within the purview of 'works contract' is very attractive at first blush however, after 46th Constitutional Amendment and in view of law laid down by Hon'ble Apex Court in case of Larsen and Toubro Ltd. (supra), there cannot be any absolute proposition in law that the ownership of the goods must pass away by way of accretion, but same can also pass away under the terms of a contract or by statute. Therefore, the test laid down in the judgments prior to the 46th Constitutional Amendment would not be applicable in facts of the case. The Hon'ble Apex Court in case of Kone Elevator (supra) in paragraph no. 70 has observed that "once there is a composite contract for supply and Page 164 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined installation, it has to be treated as a works contract, for it is not a sale of goods/chattel simpliciter. It is not chattel sold as chattel or, for that matter, a chattel being attached to another chattel."
110. "Works contract" has been also been defined in section 2(119) of the CGST Act, 2017 as follows:
"works contract" means a contract for building construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract".
111. The most significant change with regard to works contract in GST is with regard to meaning of expression "works Page 165 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined contract" which has been restricted to any work undertaken for an 'immovable property' unlike under the VAT regime and service tax law under the Finance Act, 1994 where "works contract" was applicable to movable properties.
112. It is for this reason that health services have been specifically exempted under the Finance Act, 1994 as well as under
the GST Act but at the same time, it cannot be said that the health services involving the implanting of prosthetics or other artificial parts inside the body of patient were either outside the purview of the tax levy under VAT Act or were exempted under any notification.
113. On perusal of the affidavit in reply filed on behalf of the respondent State, it Page 166 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined emerges that the petitioner hospitals have issued invoices and received sale price at the Maximum Retail Price (MRP) inclusive of all taxes including sales tax. Reliance was placed on three specimen copies of Medicine Requisition Forms along with the corresponding invoices in respect of various items and medicines sold at MRP to in- patients by the hospital which clearly shows that the petitioner hospitals requires the patients to deposit an amount at the time of admission as indoor patients which is adjusted/applied towards the cost of service as well as goods i.e. medicines and other consumables, implants, stents etc. which clearly forms an element of sale, being part of the medical treatment service provided to the patient. Therefore, it is not in dispute that the petitioner hospitals Page 167 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined charge MRP inclusive of all taxes and in some cases higher amount than MRP in the invoices raised upon the patients whereby clear bifurcation of sale of medicines, implants/prosthetics used in medical treatment is made available to the patients along with invoices raised by the petitioner hospitals.
114. In view of such factual matrix, reliance placed by the petitioners on the decisions of various High Courts would not be applicable to the facts of the case.
115. In case of Tata Main Hospital vis.
State of Jharkhand reported in 2008 (2) JCR 174 (JHR), the test of "dominant intention"
and "substance of contract" have to be given a go-by with reference to the concept of "deemed sales" as per legal fiction in case Page 168 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined of six categories specified from sub-clauses
(a) to (f) of Article 366(29A) of the Constitution, and once the contract falls into one of such categories, it would amount to the subsistence of contract or the dominant nature test.
116. Similarly in case of International Hospital Pvt. Ltd, v/s. State of Uttar Pradesh reported in (2014) 71 VST 139 (All), Hon'ble Court had straightaway accepted that neither of the six categories of Article 366(29A) of the Constitution is attracted to the composite arrangement of providing medical services as well as medicament and prosthetics by following the decision of Jharkhand High Court in case of Tata Main Hospital v/s. State of Jharkhand (supra).
117. Hon'ble Punjab and Haryana High Court Page 169 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined in case of Fortis Health Care Limited v/s. State of Punjab (supra) has followed the decision of Hon'ble Apex Court in case of Bharat Sanchar Nigam Ltd. (supra) which is further diluted by Apex Court in case of Larsen and Toubro Ltd. (supra).
118. Hon'ble Rajasthan High Court also did not undertake the exercise of evaluating as to whether the hospital services would be falling within the purview of "works contract" under the sub-clause (b) of Article 366 (29A) of the Constitution in case of Assistant Commissioner, Kota, v. Kota Eye Hospital & Research Foundation, reported in (2023) 120 GSTR 161 (Raj).
119. Hon'ble Kerala High Court also in case of Sanjose Parish Hospital vs. Commercial Tax Officer reported in (2019) SCC OnLine Page 170 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined Ker 232, did not undertake the exercise of evaluating as to whether the hospital services would be falling within the purview of "works contract" under the sub-clause (b) of Article 366 (29A) of the Constitution.
120. Therefore, all the judgments relied upon by the petitioners have accepted the conclusion that hospital services are not covered by any of the six categories /contingencies of "deemed sales" as provided from sub-clauses (a) to (f) of Article 366(29A) of the Constitution without examining in detail whether the hospital services would fall either in clause (a) or clause (b) applying the decision of Hon'ble Apex Court rendered in case of Larsen and Toubro Ltd. (supra).
121. Similarly, reliance placed by the Page 171 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined petitioners in the opinions of the Lords of Appeal for judgment in the cause refers to Value Added Tax Act, 1994 of United Kingdom would not be applicable in the facts of the case as it is pertinent to note that the said Act does not provide for any legal fiction as is available in Constitution of India as per sub-clauses (a) to (f) of Article 366(29A) to consider "transfer", "delivery" or "supply" of goods as "deemed sales" by legal fiction being part of the contract which would be divisible into sale of goods and other supply of services. Therefore, the "test of dominant intention"
which was pressed into service by the House of Lords would not be applicable in India in respect of six categories/contingencies, provided in sub-clauses (a) to (f) of Article 366(29A) of the Constitution of Page 172 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined India.
122. Therefore, the question posed before us is whether the supply of prosthetics and other medicaments, consumables, stent, implants etc. supplied by the petitioner hospitals to an indoor patient which are closely linked to form objectively a single economic supply would be subject to an artificial split or not? We are of the opinion that the answer would be in the affirmative as the transaction between the hospital and the patient is required to be regarded from an economic point of view because the material available on record clearly shows that the payments are made by the patient or an insurer to the petitioner hospitals for all the supplies in relation to supply of prosthetics and other medicaments, consumables, stent, implants Page 173 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined etc. and associated hospital care, together, in one invoice or series of invoices.
123. It is also not in dispute that a patient who requires an artificial hip or requires to implant a stent in the heart may be able to choose such implant or stent from different categories and such element of transaction is an important factor in determining whether there is a single supply or several independent supplies, which may not be decisive. However, in case of implants, the ability of the patient to choose is limited as to whether or not such implant or stent to be used as per the advice of the consultant or possibly the hospital in which patient will be admitted to have the necessary surgery. Thereafter it is for the petitioner hospitals to provide medical care along with such Page 174 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined implants/prosthesis resulting into a single transaction. However, the reason for introducing the 46th Amendment to the Constitution is to bring such indivisible contracts within the purview of sales tax. The Hon'ble Apex Court in case of Builders Association of India (supra) held that it is now open to the court to divide the "works contract" into two separate contracts by a legal fiction, one, contract for sale of goods involved in the said works contract; and second, for supply of labour and service. Such division of contract under the amended law could be made only if the "works contract" involves a dominant intention to transfer the property in goods and not in contracts were the transfer of property takes place as an incident of the contract of service. The Hon'ble Apex Court, Page 175 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined therefore, has held that every contract, whether it is service contract or otherwise, may involve use of some material or other in the execution of such contract and the State is now empowered by the 46th Amendment to impose sales tax on such incidental materials used in such contracts. However, the aforesaid view was overruled by the Apex Court in case of Associated Cement Companies Limited c. Commissioner of Customs reported in (2001) 4 SCC 593 by holding that the conclusion arrived by the Apex Court in case of Rainbow Colour Lab and another v. State of MP reported in (2000) 2 SCC 385 runs counter to the express provisions contained in Article 366(29A) as also to the decision of the Constitution Bench of the Supreme Court in case of Builders Association of India (supra) which was Page 176 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined reiterated in case of Bharat Sanchar Nigam Ltd. (supra). Though in paragraph no.44 in case of Bharat Sanchar Nigam Ltd. (supra), the Hon'ble Apex Court has held that sub- clauses of Article 366(29A) do not cover hospital services, the same is overruled by the Apex Court itself in case of Larsen and Toubro Ltd. (supra).
124. The Hon'ble Apex Court in case of Bharat Sanchar Nigam Ltd. (supra) has laid down the test as to what would constitute "transfer of right to use" for the purpose of clause(b) of Article 366(29A) of the Constitution and although the examples in paragraph nos. 44 and 45 of the said decision appears to be the basis of the relief granted by the other High Courts, the same cannot be applied to the kinds of hospital/medical services provided by the Page 177 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined petitioners, in view of the observations made by the Apex Court in paragraph no.41 in case of Builders Association of India (supra) as well as in light of observations of Apex Court in case of Larsen and Toubro Ltd. (supra), wherein it was held that in Article 366 (29A)(b), the term "works contract" covers all genre of "works contract" and it is not limited to one specie of the contract and the Parliament had all genre of "works contract" in view when clause (29A) was inserted in Article
366. The Hon'ble Apex Court in case of Larsen and Toubro Ltd. (supra) has further held that the term "works contract" in Article 366(29A)(b) is amply wide and cannot be confined to a particular understanding of the term or to a particular form and the term encompasses a wide range and many Page 178 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined varieties of contract and when the Parliament had provided for such wide meaning of "works contract" at the time of the Forty-sixth Amendment of the Constitution, the object of insertion of clause (29A) in Article 366 was to enlarge the scope of the expression "tax on sale or purchase of goods" to overcome the decision in case of Gannon Dunkerley (supra).
125. The decisions relied upon by the petitioners rendered by five Hon'ble High Courts giving reliefs to the hospitals in Jharkhand, Allahabad, Punjab and Haryana, Rajsthan and Kerala would not be applicable to the facts of the case as the said cases were concerned with transfer of right of use, which is another specie of sale and different from "works contract" and the Hon'ble High Courts examined the issue from Page 179 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined a common perspective without examining the issue from the point of view of "works contract" and therefore, with due respect, we are unable to follow the same as the same are not binding on this Court.
126. "Works Contract" is defined as per Explanation (ii) to section 2(23) of the VAT Act explaining the expression "works contract" and it is to be appreciated and understood in light of the constitutional meaning.
127. Clause (ii) of the Explanation to section 2(23) stipulates that for the purpose of sub-clause (b) of the expression "works contract' means a contract for execution of works and includes such "works contract" as the State Government may, by notification in the Official Gazette, Page 180 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined specify and therefore, as observed by the Hon'ble Apex Court in paragraph no.87 of the decision in case of Larsen and Toubro Ltd. (supra) that the distinction between contract for sale of goods and contract for work of services has almost diminished in the matters of composite contract involving both contract of work / labour and a contract for sale, for the purposes of Article 366(29A)(b) of the Constitution of India. Therefore "Works contract" includes any agreement for "fitting out" of any movable property. It is not confined to any genre of contract. Therefore, fitting out or implanting of items into the physiology or the body of a human patient for alleviation of pain or for improvement of the life of the patient in the course of medical/surgical procedure is required to be Page 181 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined construed as "works contract", more particularly, when the petitioners have not been able to demonstrate how the definition of "works contract" is not attracted to the facts of the present case.
128. An attempt has been made on part of the petitioners to distinguish the contentions raised on behalf of the respondents by canvassing that passing of property by principle of accretion is fundamental to "works contract" and human body is not a "property" and therefore, principle of accretion cannot apply to the treatment of patients because substantive civil law is divided into the law of property, the law of obligations and the law of status and there is a clear distinction between the legal treatment of "property" and of "persons". Reference was Page 182 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined made to Salmond on Jurisprudence to submit that "persons" in chapter 10 are treated separately from "property" and the law does not treat persons as "property". It was also submitted that the "property" includes legal rights of a person, but such usage is obsolete in law as law has always treated persons and property separately which is also borne out from the provisions of the IPC by treating offences relating to persons and those related to property separately and even under the law of torts, torts relating to the person are treated separately from torts relating to property and therefore, to treat a live human body as a property is shockingly retrograde and harks back upon the pre-colonial era when humans were treated as objects and were kept in captivity as slaves and therefore, medical Page 183 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined treatment to the human being cannot be equated with treatment to a property and therefore the use of medicines, implants, stents, consumables, etc. for such treatment cannot be subjected to sales tax under clause (b) of Article 366(29A) of the Constitution, and the treatment of the human body cannot be equated to "works contract". Reliance placed on section 19 of the Transplantation of Human Organs and Tissues Act, 1994 which prohibits the commercial dealing in human organs an offence punishable was also cited to canvas that there is a legislative drift to not to tax and the right to deal is the substratum of any property/ proprietary right and when such right has been taken away by another legislation, it cannot be said that human body/organs is "property". These submissions Page 184 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined and contentions raised on behalf of the petitioners are very attractive but the same are not tenable in view of the decision of Hon'ble Apex Court in relation to the "works contract" as it is not in dispute that petitioner hospitals render composite health services which include the use and supply of prosthetics, consumables, implant, stents, medicines, etc. while treating the human body and therefore it would fall within the ambit of Article 366(29A)(b) of the Constitution read with section 2(23) of the VAT Act. The argument of the petitioners that accepting the submission that composite health services offered by the Hospitals would fall within the meaning of words "contract" within the ambit of Article 366 (29A)(b) of the Constitution would be retrograde step in jurisprudence is, on the Page 185 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined contrary, a retrograde interpretation of the dynamic constitutional ingredients under Article 366 (29A)(b) of the Constitution which takes the entire jurisprudence back to pre-Gannon Dunkerly days, apart from stretching the context of "persons" and "property" to a point of absurdity. Therefore, definition of "sale" in section 2(23) of the VAT Act and the definition of the "works contract" as per explanation (ii) makes it clear that it is of wide import as the rendering of services together with supply of prosthetics,implants, stents, consumables, medicines etc. used for treatment of indoor patient cannot be given a restricted meaning by excluding the same from "works contract" on the basis that "works contract" as a concept was originally confined to contracts relating to immoveable Page 186 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined properties alone. However, after the 46th Amendment to the Constitution, the definition of "works contract" was widened and it is broad based taking within its fold every possible and conceivable contracts involving transfer of property while providing services. Therefore, the definition of "works contract" can include hospital/ health/ Medical services including composite contracts where the provision of services also includes supply of goods along with medical service and the definition takes within its fold such services also and therefore, the respondent State was justified in proposing a demand to tax from the petitioner hospitals on supply of consumables, medicines, stents, implants, etc. for treatment of indoor patients and the reasons given in the decisions of five Page 187 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined Hon'ble High Courts would have been acceptable in the era prior to the 46th Amendment to the Constitution as per the decision of Hon'ble Apex Court in case of Gannon Dunerkerly (supra) which has required the Parliament to introduce 46th Amendment to the Constitution so as to bring all genre of contents of services including the supply of goods within the purview of "works contract" as held by Hon'ble Apex Court in case of Larsen and Toubro Ltd. (supra).
129. It is also pertinent to observe that when medical treatment is given to the indoor patient there is not only transfer of possession of implants/prosthetics into the physiology of the patient but also the ownership of such prosthetics to the patient for consideration in course of the provision of medical/health service. Similarly, in the Page 188 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined course of taking X-ray, scan, MRI/CT Scan for such in-patient, cost of which gets included into the package are also liable to be taxed as such activity can be termed as the sale of immoveable property.
130. In view of the foregoing reasons, the petitions therefore, fail and are accordingly dismissed. Rule is discharged.
(BHARGAV D. KARIA, J) (D.N.RAY,J) After pronouncement of the judgment, learned Senior Advocate Mr. S.N. Soparkar prayed for stay of implementation and operation of the impugned judgment for a further period of 8 weeks and also prayed Page 189 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined for time to file appeal in cases where order-in-original is challenged and to file reply in those petitions in which show cause notices are challenged before this Court.
In view of the fact that these petitions are pending for a considerable time and taking into consideration the controversy involved therein both the prayers are granted and implementation and operation of the judgment shall remain stayed for a period of eight weeks and the petitioners shall be entitled to file reply to the show cause notice within a period of eight weeks from the date of uploading this order and in the petitions where show cause notices are challenged and the petitioners shall be entitled to file an appeal in the petitions Page 190 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025 NEUTRAL CITATION C/SCA/16927/2011 CAV JUDGMENT DATED: 25/07/2025 undefined challenging the order-in-original within the statutory time period available from the date of uploading this order.
(BHARGAV D. KARIA, J) (D.N.RAY,J) RAGHUNATH R NAIR Page 191 of 191 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Jul 30 2025 Downloaded on : Wed Jul 30 21:48:32 IST 2025