Karnaraka HC quashes Order imposing VAT on Goods relying information available on ‘Wikipedia’ [Read Order]

The Karnataka High Court has quashed an order issued by the Commissioner of Commercial Taxes for imposing Value Added Tax (VAT) on Goods relying information available on the online free encyclopedia “Wikipedia”.

The petitioner, Aditya Surgical Company dealing with certain Blood Bank Equipments and other Medical Equipments is aggrieved by the order passed by the Commissioner of Commercial Taxes under Section 59(4) of the Karnataka Value Added Tax Act, 2003 in which on an Application filed by the petitioner – Company seeking clarification from the Respondent about the Rate of Tax applicable to Blood Collection Monitors, Blood Storage Refrigerators and Deep Freezers, Platelet Agitators with incubators and Plasma Expressers (Electrical and Manual) and Cryobaths. The learned Commissioner held affirming that the said goods would not fall within the ambit and scope of Entry 61 of the III Schedule to the KVAT Act, 2003, which reads as “61. Medical Equipments, Devices and Implants” taxable at the rate of 4% but would be taxable at the rate of 12.5% in the Residuary Entry as per Section 4(1)(b)(iii) of the KVAT Act, 2003.

The petitioner submitted that Commissioner on a misconception that the “Blood Bank Equipments” as aforesaid are not “Medical Equipments” but are in the nature of ‘Refrigerators, Weighing Machines and Storage Equipments’, has wrongly held them to be falling under the Residuary Entry and not under Entry 61 of the III Schedule to the KVAT Act, 2003. According to Schedule III of the Karnataka Value Added Tax Act, 2003, medical equipment, devices and implants are taxed at 4%. The commercial taxes commissioner had imposed 12.5% referring to these medical equipment as residuary entry.

The High Court rejected the revenue submission that the learned Commissioner has relied upon the definitions of the “Medical Equipments” given in Wikipedia, the Free Encyclopedia and he has tried to distinguish between the “Blood Bank Equipments” and “Medical Equipments” by submitting that certain equipments referred to above were only for the purposes of storing like Refrigerators used for storing Blood samples and therefore, they cannot be said to be “Medical Equipments” as they do not help in any diagnosis or treatment etc. of the human beings or animals. He, therefore, supported the impugned order passed by the Respondent.

While quashing the Order, the  Karnataka High Court is said that, “it is well settled legal principles for interpretation of various Entries under the Tax Laws are that such Commodities have to be interpreted in the manner in which the persons concerned with that Trade will construe them to be or in other words, the Common Parlance Test or Trade Parlance Test has to be applied while making such interpretations. There is no doubt that the collection of Blood samples and Diagnosis of the various contents of the Blood is a useful and integral part of the Medical treatment and without the Diagnosis of the Blood samples, possibly, the Medical Science as far as Allopathy is concerned, cannot even work. The integrity of the Blood Banks and Blood Bank Equipments with the Medical profession comprising of Diagnosis and treatment of the human beings and animals cannot be doubted and they cannot be separated also”.

Justice Vineet Kothari also said that, “In common parlance or Trade parlance of Medical profession, these equipments in “Blood Banks” and “Hospitals” are integrally connected and their separate existence in isolation, cannot be even conceived, much less sustained. The incidental user of these equipments like Refrigerators which are although designed specially for storing Blood samples only, for some other purpose would not take such commodity out of the scope of the said Entry 61 of III Schedule to KVAT Act, 2003”.

“The nature of business of the petitioner – assessee who is a registered dealer with the Respondent Department is nothing except dealing with the Blood Bank Equipments and other Medical Equipments. It was not selling usual Refrigerators or Cold Storages. These Refrigerators are specially designed for storing only Blood samples before or after their processing. Therefore, there is no good reason even to treat the Refrigerators specially designed for Blood samples as not falling within the wide scope of Entry 61, which as quoted above reads as ”Medical Equipments, Devices and Implants”. The other Blood Bank Equipments are undoubtedly covered by Entry 61 of the III Schedule to the KVAT Act, 2003”, the Court also said.

Read the full text of the Order below.

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