Gujarat HC Prevents Levy of VAT on Hospital Supplies as Unsustainable by Constitutional Limits [Read Order]
The Court examined that issue in the light of Gannon Dunkerley principle on indivisibility of composite contracts.
![Gujarat HC Prevents Levy of VAT on Hospital Supplies as Unsustainable by Constitutional Limits [Read Order]](https://images.taxscan.in/h-upload/2025/11/07/2103090-gujarat-hc-prevents-levy-vat-on-hospital-supplies-constitutional-limits-taxscan.webp "Gujarat HC Prevents Levy of VAT on Hospital Supplies as Unsustainable by Constitutional Limits [Read Order]")
The Gujarat High Court held that the levy of Value Added Tax on the supply of medicines, implants, stents and consumables provided to indoor patients during medical treatment is unsustainable due to constitutional limitations on the State’s power to tax such transactions under value added tax laws.
Petitioners, Bankers Cardiogy Pvt. Ltd. and several hospitals providing treatment to indoor patients were issued assessment orders and show-cause notices treating use of medicines and consumables as a “sale” attracting value added tax.
The hospitals challenged the constitutional validity of Section 2(23)(g) of the Gujarat Value Added Tax Act, 2003 and argued that the supply of drugs and implants during treatment is not a severable commercial transaction.
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S. N. Soparkar, Uchit Sheth and Manish Kaji, on behalf of the petitioners submitted that Section 2(23)(g) is unconstitutional as it expands the scope of the term “sale” beyond what is contemplated under Article 366(29A) of the Constitution of India. It was contended that relying on Gannon Dunkerley (1958) to submit that there cannot be a tax on the sale of goods unless there is a transfer of property in goods as understood under the Sale of Goods Act, 1930.
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It was further argued that the Supreme Court in Bharat Sanchar Nigam Ltd. v. Union of India held that hospital services do not fall within any sub-clause of Article 366(29A), and therefore the State has no authority to treat the supply as a deemed sale.
Kamal Trivedi and Vinay Bairagra, on the behalf of respondents submitted that the power to tax arises from Entry 54 of List II and the definition of sale under Section 2(23) expressly includes the category under clause (g). It was argued that the transfer of medicines and consumables to indoor patients constitutes a deemed sale under Article 366(29A)(a) and (b), making the levy constitutionally permissible.
The Bench of Justice Bhargav D. Karia & Justice D. N. Ray noted that Article 366(29A) provides specified categories of deemed sale and observed the submission that hospital supplies do not fall within any such category, as recognised in Bharat Sanchar Nigam Ltd. v. Union of India (2006).
The Court consistently upheld that supply of medicines, implants and consumables to indoor patients cannot be assessed to tax under value added tax legislations, and recorded that Special Leave Petitions filed against such decisions had been dismissed by the Supreme Court.
Accordingly, the show-cause notices and assessment actions issued to hospitals for such levy were set aside.
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