In a significant case, the Kerala High Court has held that ‘sophisticated medical beds’ provided for expecting mothers would be subject to luxury tax under the Kerala Tax on Luxuries Act of 1976.
The court observed that there cannot be any dispute that even without the aid of the medical bed provided by the petitioner, an expecting mother can give birth.
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Cradle Calicut Maternity Care, the petitioner is a private limited company engaged in providing specialized maternity care. They contended that sophisticated medical beds imported from abroad were used for providing the best maternity care and were outside the scope of the luxury tax.
The petitioner has four suite rooms and eighteen deluxe rooms and is registered under the Kerala Tax on Luxuries Act of 1976. The petitioner said that it was providing sophisticated medical beds to the patients/expecting mothers who require special medical care, collecting a separate amount towards the use of this bed. The petitioner was admittedly satisfying luxury tax with regard to the room rent collected. However for charges for the facility of “medical bed”, the petitioner had not declared the receipts under the statute and was also not paying tax, taking the stand that the receipts for the use of the medical bed are outside the purview of imposition of luxury tax under the Act.
The Commercial Taxes Department initiated proceedings under Section 17A of the Act and assessment authority imposed a penalty upon the petitioner for not paying luxury tax for the usage of medical beds. The orders of the assessment authority were challenged before the High Court by the petitioner.
The Counsel for Petitioner submitted that sophisticated medical beds were provided for expecting mothers who require special care and that they fall outside the scope of the luxury tax. It was argued that medical beds were an essential part of the professional services provided in the hospital and were not liable for taxation. On the other hand, the respondents submitted that sophisticated medical beds are luxury and they have not been exempted from taxation.
The Court found that as per Section 4 of the Act, luxury tax could be collected from the hospital for charges of accommodation for residence for use of amenities and services at a particular rate, when those charges collected from the patient are in excess of rupees 1000. It noted that exclusion could only be provided under Section 4 (2) (e) for charges for food, charges for medicine and charges for professional services and that medical beds do not get exemption under these three exclusions.
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It was viewed that ultimately what is taxed under the statute is the experience of luxury as regards the accommodation/ amenities in the hospital. There cannot be any challenge against an assessment with reference to the aforementioned activity.
The petitioner is liable to tax on the charges collected as against the medical beds provided by it. The 2nd issue arising for consideration is as to the sustainability or otherwise of the penalty imposed under Section 17A of the Act.
Thus, the statute entitles the assessing authority to impose a penalty in a situation, where an assessee has submitted an ‘untrue or incorrect return’. The fact that the petitioner had filed returns and satisfied tax as regards the receipts, excluding the receipts for the medical bed in question, is not in dispute. In other words, the fact that the petitioner had satisfied tax on receipts as against the 22 rooms is admitted by the department. It is only that the receipts for the use of the medical bed were not declared in the return.
On a perusal of the impugned orders of penalty, it is seen that the petitioner was proceeding on the bona fide belief with reference to its non-liability as against the receipts for the use of the medical beds. The fact that what is being imposed is a penalty shows that unless and until mens rea is established, no penalty can be levied. There cannot be any contumacious conduct on account of the non-inclusion of the afore amounts in the return.
A single bench of Justice Harisankar V. Menon held that “Thus, ultimately, what is to be looked into is as to whether the facility provided is a necessary requirement of an average member of the society. There cannot be any dispute that even without the aid of the medical bed provided by the petitioner, an expecting mother can give birth.”
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The court found that the petitioner has the liability to satisfy luxury tax under the Act as against the receipts for the use of medical beds.
The Court further stated that the petitioner cannot be penalized under Section 17A, since they have not filed any untrue or incorrect returns. The Court stated that they were using medical beds with the bona fide belief that they were not liable to pay luxury tax and there was no mens rea.
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