Madhya Pradesh High Court
Choithram Charitable Trust vs Commercial Tax Officer on 11 March, 2025
Author: Pranay Verma
Bench: Pranay Verma
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IN THE HIGH COURT OF MADHYA PRADESH
AT INDORE
BEFORE
HON'BLE SHRI JUSTICE SURESH KUMAR KAIT,
CHIEF JUSTICE
&
HON'BLE SHRI JUSTICE PRANAY VERMA
WRIT PETITION No. 2826 of 2005
CHOITHRAM CHARITABLE TRUST
Versus
COMMERCIAL TAX OFFICER AND OTHERS
WITH
WRIT PETITION No. 399 of 2006
BOMBAY HOSPITAL INDORE
Versus
ASSISTANT COMMERCIAL TAX OFFICER INDORE AND OTHERS
WITH
WRIT PETITION No. 473 of 2006
BOMBAY HOSPITAL
Versus
ASSTT. COMMERCIAL TAX OFFICER AND OTHERS
Appearance:
Shri P. M. Choudhary - Senior Advocate along with Shri Anand
Prabhawalkar - Advocate for the petitioners.
Shri Anand Soni - Additional Advocate General for the
respondent/State.
Reserved on : 09.12.2024
Pronounced on :11.03.2025
Signature Not Verified
Signed by: JYOTI
CHOURASIA
Signing time: 11-3-25
11:16:42
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ORDER
Per: Hon'ble Shri Justice Pranay Verma :
Since these petitions raise common questions of facts and law, they
have been heard together and are being decided by a common order.
2. W. P. No.2826 of 2005 has been preferred by Choithram Charitable
Trust challenging the order dated 12.07.2005 passed by the Deputy
Commissioner, Commercial Tax, Indore confirming the levy of tax under the
provisions of Madhya Pradesh Commercial Tax Act, 1994 (hereinafter
referred to as 'the Act'), for declaration that petitioner is immune from levy of
tax under the Act on supply of medicine in the course of activity of running
its charitable hospital and for restraining the respondents from giving effect
to the impugned order and also prohibiting them from enforcing/recovering
demands against the petitioner. By way of amendment, proceedings taken
subsequent to filing of the petition have also been challenged.
3. As per the petitioner, it is a charitable trust established with
charitable objects. The trust amongst its various objects has also the object of
providing medical relief to the public at large. The petitioner has established
a hospital under the name and style of "Choithram Charitable and Research
Center". The hospital is run by the petitioner in a charitable manner without
any profit motive. Since the petitioner trust is a charitable trust running the
hospital, it is not a dealer within the meaning of Section 2(h) of the Act
hence is not liable to pay any tax under the Act. The petitioner is required to
provide and supply medicine to the patients admitted in the hospital for
treatment. Such medicine is supplied to the hospital only in emergency
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circumstances, and not on regular basis or in a routine manner. The petitioner
is not doing business of purchase and sale of medicine but only certain
emergency medicine is supplied in emergency cases for which the cost is
recovered from the patients. The same is on a no profit and no loss basis.
Supply of medicine is merely part of the service to patients and is integral
part of the activity of running the hospital and is not an independent business
of purchase and sale of medicine. The petitioner is having a medical shop in
the name of M/s Shanti Chemist, which is a separate registered dealer under
the provisions of the Act. The patients purchase medicine from the said
medical shop except the emergency medicine which are provided by the
hospital in case of emergency by charging cost for the same.
4. Proceedings were initiated by respondent No.1 against the petitioner
under Section 6 of the Act for determining its liability as a dealer under the
Act alleging that petitioner is engaged in the business of supply of medicine
to the patients, hence is liable to pay commercial tax. By order dated
27.08.2002, respondent No.1 held that supply of medicine to the patients by
the hospital constitutes a business and makes the petitioner liable to pay tax
on such supply of medicine and forwarded the matter to the assessing
authority. Separate proceedings were registered by the assessing authority
but it also held the petitioner liable to pay the tax by order dated 28.01.2005.
Being aggrieved by the said order, the petitioner preferred a Revision under
Section 62 of the Act before respondent No.2 which has been dismissed by
the impugned order dated 12.07.2005 holding that although the activity of
petitioner trust of running a charitable hospital does not constitute a business
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for the purpose of Commercial Tax Act, the emergency supply of medicine
does constitute a business because a price is being recovered by the
petitioner for supply of such medicine.
5. W.P. No.399 of 2006 has been preferred by the petitioner Bombay
Hospital, Indore challenging the order dated 24.12 2024 [Annexure P/8] and
order dated 28.08.2005 [Annexure P/10] passed by respondents No.2 and 3
whereby tax has been levied upon it in respect of supply of medicine to
patients in the course of activity of running its charitable hospital. Since the
issue involved and the questions raised in this petition are similar to those as
raised in W.P. No.2826 of 2005, they are not being narrated in detail.
6 . W.P. No.473 of 2006 has been preferred by the petitioner Bombay
Hospital, Indore challenging the order dated 24.12.2004 [Annexure P/8] and
order dated 28.08.2025 [Annexure P/10] passed by the respondents whereby
tax has been imposed upon it on the sale /supplies from canteen run in its
charitable hospital for the attendants of the patients. The issues involved and
questions raised in this petition are similar to the one involved in the
previous petitions i.e whether running of a canteen by the petitioner can be
said to be bringing it within the purview of a dealer for attracting the
liability of tax under the Act hence they are not being narrated in detail.
7. Learned Senior counsel for the petitioners has submitted that as per
the definition of a dealer under the Act only those persons who carry on
business of buying and selling goods are regarded as dealers. A person would
not be a dealer unless he carries on business of buying or selling goods. The
expression business as defined under the Act, includes any trade, commerce,
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manufacture or other adventure or concern in the nature of trade, commerce
or manufacture. The profit motive as also the other ingredients of business
such as volume, frequency, continuity or regularity, etc. are not necessary or
relevant for constituting a business. The petitioners' main activity of running
the charitable hospital is not a business of buying and selling supplied goods.
It does not constitute a business as understood for the purpose of the Act.
The petitioners have not been treated as a dealer qua their main activity of
running the charitable hospital. The petitioner also cannot be said to be
dealer qua transaction of supply of medicine to their patients as the same
does not amount to a business. In view of the finding that activity of running
the charitable hospital does not amount to business, the supply of medicine
to the patients being in the course of such activity is a part of such non-
business activity which cannot be taxed in the hands of the petitioners. Since
petitioner's main activity is a non-business activity then in such case
incidental or ancillary activity of sale of medicine and running a canteen will
not amount to a business. It is hence submitted that the impugned orders
passed by the respondents and all subsequent proceedings be quashed.
Reliance has been placed by the learned counsel on the decisions in State of
Tamil Nadu and another vs. Board of Trustees of the Port of Madras 1999(4)
SCC 630, Aswini Hospital Private Limited and others vs. Intelligence
Officer, Squard No.1, Thrissur and others [2019] 61 GSTR 492 (Ker [FB]),
Bhailal Amin General Hospital vs. State of Gujarat and another [2017] 98
VST 415 (Guj)], The Base Repair Organisation Visakhapatnam vs. The State
of Andhra Pradesh [1983] 53 STC 223 (AP), Commissioner of Sales Tax vs.
Sai Publication Fund [2002] 126 STC 288X and Gowtham Residential Junior
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College vs. Commercial Tax Officer, Benz Circle, Vijayawada (2009) 14
STH 617 (AP).
8. Reply has been filed by the respondents in the petitions and the
learned counsel for the respondents has submitted that the activity of supply
of medicine is business within the meaning of the Act. The same in course of
treatment is not just incidental but is main and integral part of the treatment
and supply of medicine or sale of medicine as such is a part of the business
of the hospital. Mere registration as a charitable trust cannot exempt the
petitioners from the liability of payment of tax. The documents filed by the
petitioners themselves establish that there is a regular activity of purchasing
and selling of medicine in the shop of the petitioners, hence it is clear that
they are dealers and are carrying the business independently and same cannot
be said to be an ancillary or incidental activity. Supply of medicine to the
patients and running a canteen while issuing separate bills certainly can be
said to be bringing the petitioners within the purview of a dealer within the
definition of the Act. The volume purchase of the medicine, frequency,
continuity and regularity can be certainly said to be business. It is not
intended that profit must be earned not does the definition cover a mere
desire to make some monetary gain out of transaction or even series of
transactions. It predicates a motive which pervades the whole series of
transactions affected by the person in the course of his activity. The findings
recorded by the respondents are perfectly justified. It is hence submitted that
the petitions deserve to be dismissed. Reliance has been placed by the
learned counsel for the respondents on the decisions of the Apex Court in
Cochin Port Trust vs. State of Kerala (2025) 11 SCC 618.
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9. We have considered the submissions of the learned counsel for the
parties and have perused the record.
10. The definition of business is given in Section 2(c) of the Act,
1994, which is as under :
"(c) Business includes -
(a) any trade, commerce, manufacture or any adventure or concern in the
nature of trade, commerce or manufacture, whether or not such trade,
commerce, manufacture, adventure or concern is carried on with a motive to
make gain or profit and whether or not any gain or profit accrues from such
trade, commerce, manufacture, adventure or concern and irrespective of the
volume, frequency, continuity or regularity of such trade, commerce,
manufacture, adventure or concern; and
(b) any transaction of sale or purchase of goods in connection with or
incidental or ancillary to the trade, commerce, manufacture, adventure or
concern referred to in sub-clause (a), that is to say - (i) goods of the
description referred to in sub-section (3) of Section 8 of the Central Sales
Tax Act, 1956 (No. 74 of 1956), whether or not they are specified in the
registration certificate, if any, of the dealer under the said Act and whether
or not they are in their original form or in the form of second hand goods,
unserviceable goods, obsolete or discarded goods, mere scrap or waste
material; and (ii) goods which are obtained as waste products or by-
products in the course of manufacture or processing of other goods or
mining or generation of or distribution of electrical energy or any other
form of power."
11. The definition of a dealer is given under Section 2(h) of the Act
which is as under:
"(h) Dealer means any person who carries on the business of buying,
selling, supplying or distributing goods, directly or otherwise, whether
for cash, or for deferred payment or for commission, remuneration or
other valuable consideration and includes -
i. a local authority, a company, an undivided Hindu family or any
society (including a co-operative society), club, firm or association
which carries on such business;
ii. a society (including a co-operative society), club, firm or
association which buys goods from, or sells, supplies or distributes
goods to, its members;
iii. a commission agent, broker, a del-credere agent, an auctioneer or
any other mercantile agent, by whatever name called, who carries on
the business of buying, selling, supplying or distributing goods on
behalf of the principal;
iv. any person who transfers the right to use any goods for any
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purpose, (whether or not for a specified period) in the course of
business to any other person;
Explanation -
(I) Every person who acts as an agent of a non-resident dealer, that is
as an agent on behalf of a dealer residing outside the State and buys,
sells, supplies or distributes goods in the State or acts on behalf of such
dealer as -
(i) a mercantile agent as defined in the Indian Sale of Goods Act,
1930; or
(ii) an agent for handling goods or documents of title relating to
goods; or
(iii) an agent for the collection or the payment of the sale price of
goods or as a guarantor for such collection or payment, and every local
branch of a firm or company situated outside the State, shall be deemed
to be a dealer for the purpose of this Act.
(II) The Central or a State Government or any of their departments or
offices which, whether or not in the course of business, buy, sell,
supply or distribute goods, directly or otherwise, for cash or for
deferred payment, or for commission, remuneration or for other
valuable consideration, shall be deemed to be a dealer for the purpose
of this Act."
12. The question involved in these petitions is whether supply of
medicine by the hospital to the patients in the specified circumstances can be
said to constitute business rendering the petitioners liable to tax on such
supply of medicine particularly when their main activity of running a
hospital does not amount to business within the meaning of the definition of
the said word under the Act and further whether supply of such medicine
only in specified circumstances as a part of their main non business activity
of running the charitable hospital can be said to be connected, incidental or
ancillary to their main non business activity and whether the same can be
subjected to levy of tax under the Act.
13. Heavy reliance has been placed by the learned counsel for the
respondents on the decision of the Apex Court in Cochin Port Trust (supra)
to contend that the definition of a dealer is an inclusive definition, whereby
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wide range of persons have been placed under the ambit of dealer. It includes
persons involved in carrying on any business or trading activity and
transactions are effected by them whether in the course of business or not.
The definition of dealer is in consonance with legislative intent to place the
persons engaged in activities of sale and trade which would not otherwise
fall in the restricted definition of business. The said contention, in our
opinion, is not acceptable for the reason that the definition of a dealer as
given under the Kerala General Sales Tax Act 1963 is not pari materia with
the definition of a dealer as given under the Act, 1994. The definition under
the Kerala General Sales Tax Act, 1963 has specific clauses whereby those
persons have also been included within the definition of a dealer who sell or
transfer goods as specified therein "whether in the course of business or not".
For ready reference the definition of a dealer as given under the Kerala
General Sales Tax Act, 1963 is as under:
"(viii) "Dealer" means any person who carries on the business of buying, selling,
supplying or distributing goods, executing works contract, transferring the right to
use any goods or supplying by way of or as part of any service, any goods directly or
otherwise, whether for cash or for deferred payment, or for commission,
remuneration or other valuable consideration and includes: -
a) Omitted
b) a casual trader
c) a commission agent, a broker or a del credere agent or an auctioneer or any
other mercantile agent, by whatever name called, who carries on the business of
buying, selling, supplying or distributing goods executing works contract,
transferring right to use any goods or supplying by way of or as part of any service,
any goods on behalf of any principal;
d) a non-resident dealer or an agent of a non-resident dealer, or a local branch of a
firm or company or association or body of persons whether incorporated or not
situated outside the State;
e) a person who, whether in the course of business or not, sells;
i. goods produced by him by manufacture, agriculture, horticulture or otherwise;
or
ii. trees which grow spontaneously and which are agreed to be severed before sale
or under the contract of sale;
(f) a person who whether in the course of business or not:-
(1) transfers any goods, including controlled goods whether in pursuance of a
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contract or not, for cash or deferred payment or other valuable consideration;
(2) transfers property in goods (whether as goods or in some other form) involved in
the execution of a works contract;
(3) delivers any goods on hire-purchase or any system of payment by installments;
(4) transfers the right to use any goods for any purpose (whether or not for a
specified period) for cash, deferred payment or other valuable consideration;
(5) supplies, by way of or as part of any service or in any other manner whatsoever,
goods, being food or any other articles for human consumption or any drink
(whether or not intoxicating), where such supply or service is for cash, deferred
payment or other valuable consideration;
Explanation:- A society including a co-operative society, club or firm or an
association or body of persons, whether incorporated or not) which whether or not in
the course of business, buys, sells, supplies or distributes goods from or to its
members for cash or for deferred payment, or for commission, remuneration or other
valuable consideration, shall be deemed to be a dealer for the purposes of this Act;
Explanation: - (2) The Central Government or a State Government, which whether
or not in the course of business, buy, sell, supply or distribute goods, directly or
otherwise, for cash or for deferred payment, or for commission, remuneration or
other valuable consideration, shall be deemed to be a dealer for the purposes of this
Act.
(g) a bank or a financing institution, which, whether in the course of its business
or not, sells any gold or other valuable article pledged with it to secure any loan, for
the realisation of such loan amount;
Explanation I: - Bank for the purposes of this clause includes a Nationalized Bank or
a Schedule Bank or a Co-operative Bank;
Explanation II: - Financing Institution means a financing institution other than a
bank;"
14. The words "whether in the course of business or not" as under the
Kerela Act are wholly absent in the definition of a dealer as given under the
M.P. Act. The definition under the M.P. Act defines a dealer to mean any
person who carries on the business of buying, selling, supplying or
distributing goods, etc. The only condition for attracting the definition of a
dealer to a person is that he must be carrying on the business whereas under
the Kerala General Sales Tax Act, 1963 that is not a precondition for
bringing him within the definition of a dealer. He would be so included even
if he is buying, selling, supplying or distributing goods whether in the course
of business or not. The said judgment relied upon by the learned counsel for
the respondents is distinguishable and is not applicable to the facts of the
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present case.
15. Though the learned senior counsel for the petitioners has placed
heavy reliance upon the decision of the Apex Court in State of Tamil Nadu
and another vs. Board of Trustees (supra) but the same has been
distinguished and statutorily superseded by the Apex Court in the case of
Cochin Port Trust (supra) and does not help him in any manner. However,
the issue involved in this petition i.e. whether medicine supplied for
treatment of inpatients in a hospital of which price is recovered from the
patients would be deemed to be sale of drugs has been specifically
considered by the Full Bench of the Kerala High Court in Aswini Hospital
Private Limited and others (supra) wherein it has been held that when
medicine is supplied as part of treatment of patients in a hospital the price of
which is recovered by way of bills from the patients, there is no deemed sale
of the drugs. This sale in course of treatment of patients in a hospital is with
the sole intention of curing the patients which is an inseparable part of the
service offered in the hospital and it does not intend to create any separate
rights on such drugs used in the course of treatment. Deriving profit is not a
criteria which could decide the levy of tax on sale of goods. Profits and gains
of business are taxed as income under the Income Tax Act under a specific
head of income. It can lead to levy of sales tax only if there is a sale of goods
as defined under the taxing enactment . Sale of drugs by a hospital to its
inpatients in the course of medical treatment administered cannot be
separated from the composite indivisible service of providing medical care
and treatment and it cannot be said to be a sale of goods. It has been held as
under :
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"12 .............. With due respect, we find the declaration of the honourable
Supreme Court as to hospital services not enabled of differentiation as sale
and services to be binding with all the force as available under article 141 of
the Constitution of India. The sale, if any made, in the course of the
treatment of a patient in a hospital, is with the sole intention of curing the
patient, which is an inseparable part of the service offered in a hospital and
it does not intend to create any separate rights on such drugs, implants or
consumables used in the course of treatment.
* ---- * --- * --- *
18. ............... Deriving profit is not a criterion which could decide the
levy of tax on sale goods. Profits and gains of business are taxed as income
under the Income-tax Act, 1961 under a specific head of income as
decipherable from section 14 of that Act. It can lead to a levy of sales tax
only if there is a sale of goods as defined under the taxing enactment.
* ---- * --- * --- *
19. With respect to hospital services, we cannot but observe that the
sale of drugs, implants and other consumables are a part of the medical
treatment rendered. There is no identity of the medicines or
consumables or implants, as it does not lie in the mind or mouth of the
patient to identify the drugs to be administered in the course of the
treatment. Though a patient on his volition could refuse to take a
particular drug, he cannot demand, as a matter of right, that a drug be
administered to him in the course of the medical treatment. A demand
of that nature will not be complied with by either a medical practitioner
or a hospital, the latter of whom dispenses medicines only in
accordance with the directions of the attending physician or surgeon. A
person visits a hospital primarily for the purpose of curing an ailment
or arresting or preventing it. At the hospital he places himself at the
disposal of the physician or the surgeon who decides on the course of
treatment to be taken which may or may not involve the administration
of drugs, implants being carried out and other consumables being used
in the course of the treatment. The cost of the implants, consumables or
the drugs is irrelevant insofar as deciding what is the dominant nature
of the transaction or service rendered to the patient in a hospital, which,
without any doubt, is the therapeutic treatment rendered. The patient
has no control or say, has limited control, on the procedures taken in
the course of the treatment, the drugs administered and the
consumables used.
* ---- * --- * --- *
21. The declaration so made was with respect to the development
contract which was held to be a works contract. As to the other
transactions the dominant nature test applies and in hospital services
the dominant intention is provision of medical care and treatment, to
effectively cure the patient of his/her ailment and it is not the sale of
drugs, implants or other consumables. The service offered is one of
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medical treatment and the dispensation or administration of drugs or
implants carried out in the course of surgical procedures and the
consumables used in the course of any medical procedure would be an
inseparable, indivisible part of the treatment rendered. The business
expediency has no control in the administration of drugs, use of
consumables or the implants carried out and neither does the control lie
with the hospital, as a corporate or other legal entity. The supply of
drugs use of consumables and the implants made are on professional
medical advice intended at curing the patient and not deriving profits.
Though not a charitable activity, hospitals cannot be said to be a
business house established primarily for sale of drugs, consumables or
implants. The principle is that mere passing of property in an article or
commodity during the course of the performance of a contract or
service, which is essentially one and indivisible, does not render it a
transaction of sale, except in the case of the specific instances as
available in clauses (b), (c) and (f) of article 366(29A). The fiction
extends to only the specific clauses as coming under article 366(29A)
and stops there and does not extend beyond that or encompass any
other composite transaction.
* ---- * --- * --- *
28. The fundamental fallacy, in the argument so raised, is the fact that
the State fails to realise the distinction with respect to an essential
commodity and a controlled commodity. In the present case, there is
absolutely no restriction or control insofar as the drugs are concerned,
which, though an essential commodity, the dispensation of which is
neither restricted nor controlled by the State in the manner in which a
commodity is subjected to a control as understood in the decisions
above referred. Further, it has to be emphasised that it is not the
absence of a contract between the hospital and patient, that takes away
the sale or rather dispensation and administration of drugs, implants
and consumables from the definition of sale of goods. The reigning
factor which takes, such drugs, implants and consumables administered
or used in the course of medical treatment, out of the definition of "sale
of goods", is that it is an integral, indivisible part of the composite
transaction rendering medical treatment and care, which is a service
rendered. There can be no differentiation made of the various aspects
or elements involved in such service rendered. The element of sale is
an integral part of the medical service and cannot be separated or
distinctly plucked away from the composite transaction so as to levy
tax on the sale element. The consensual nature of a sale and the
absence of a contract are not the fetter on the State to tax the sale of
drugs, consumables and implants. The State is fettered in so far as the
levy being not competent and permissible, when the sale is effected in
the course of a composite service or contract ; not possible of
bifurcation and isolation from the composite transaction, for
effectuating a separate levy on the value of the sale effected."
16. In Bhailal Amin General Hospital (supra) the Gujarat High Court
has also held that the petitioner therein being a charitable trust running and
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maintaining a public hospital while purchasing, selling and supplying
medicines to patients in order to achieve objects was not engaged in business
activity and therefore was not a dealer. It was held as under :
"5. We have heard learned counsel for the parties. We have gone
through the material evidence available on record. Since the appellant
being a charitable trust, is doing the activity of purchasing, selling and
supplying medicines to patients in order to achieve its avowed objects,
it is not engaged in business activity and therefore, the appellant is not
a dealer within the meaning of exception (iii) to section 2(10) of the
Act. In that view of the matter, we answer the question in favour of the
appellant and against respondent."
17. Having gone through the judgments of the Kerala as well as the
Gujarat High Court as aforesaid we are in complete agreement with the
views taken therein and do not find any reason to take a contrary view.
18. Though it has been contended by the learned counsel for the
respondents that the petitioner is earning profit from sale of medicines
meaning thereby that it is carrying on completely independent business and
its motive is to gain profit hence it has to be treated as a dealer under the Act,
but in Aswini Hospital Private Limited and others (supra) it has been held
that actually deriving profit from the sale of goods is by itself wholly
insufficient for bringing a person within the definition of a dealer. The
contention in this regard is hence liable to be rejected.
19. Though the learned counsel for respondents has submitted that the
petitioner is not a charitable institution and is caring on its business for the
motive of earnings profit but the revisional authority in the impugned order
has itself held that petitioner's main activity of running the hospital is a part
of its charitable activity and nor a profit earning activity. This argument is
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hence contrary to the findings recorded by the revisional authority itself and
cannot be entertained.
20. As a result of the aforesaid discussion, we hereby hold that the
petitioners are exempted from levy of tax under the Act, 1994 on supply of
medicine in the course of activity of running its charitable hospital. For the
very same reasons as discussed above and applying the same principles we
further hold that the petitioner is exempted from levy of tax under the Act,
1994 in respect of the canteen run by it for the attendants of the patients in
the course of activity of running its charitable hospital.
21. Consequently, the petitions deserve to be and are accordingly
allowed. The impugned orders challenged in the petitions are hereby quashed
and so are also the consequential proceedings taken by the respondents
pursuant thereto.
No costs.
(SURESH KUMAR KAIT) (PRANAY VERMA)
CHIEF JUSTICE JUDGE
jyoti
