The Kerala High Court has ruled that the medicines sold to the patients through the hospital pharmacy are taxable under Kerala Value Added Tax (KVAT) Act, 2003.
Justice Antony Dominic also made it clear that the hospitals are liable to take registration and pay tax under the Act for the supply of medicines and other items meant for treatment.
The court also held that the facilities provided in the hospitals cannot be said to be a non-business activity.
A clinical laboratory can independently function outside a hospital and if it is housed in a hospital the service rendered cannot be treated as a non-business activity.
The bench was considering a batch of petitions filed by Kerala Private Hospitals Association (modern medicine) State Committee agaisnt the their liability to register as dealers under the KVAT Act and to pay tax for the medicines sold to patients.
The hospital argued that they are not carrying a business and hence buying and selling of medicines through its pharmacy is a non-business activity. So hospitals will not come within the meaning of the term 'dealer', the petitioner argued.
Dismissing the contentions the court held that doctors of various specialties doing service in hospitals by their intellectual skill in treating the patients is may not be a business activity and that is their profession.
The court also refused to declare Section 6 of the VAT act as unconstitutional. It provides for levy of tax on sale or purchase of goods.
“If in an individual case, a particular transaction is not a sale, it is for the concerned hospital to contest the issue in accordance with law. However it does not mean that whole hospital industry in the state can remain out side the KVAT Act,” Court said.