VAT applicable on ‘Works Contract’ for ‘Fitting Out’ any Movable Property into Patient’s Body for improvement of Life: Madras HC [Read Judgment]

The Madras High Court held that “works contract” includes any agreement for “fitting out” or implanting of prosthetics into the physiology or the body of the patient for the alleviation of pain or for improvement of the life of the patient in the course of medical/surgical procedure can be construed as “works contract”. Consequently, the Value Added Tax (VAT) is applicable.

The petitioners, MIOT Hospitals Ltd. claim that they do not charge any amount separately towards the cost of these items and charge a consolidated amount from the patients towards the cost of medical treatments and it is inclusive of all the expenditure incurred by it and therefore the respondent is not entitled to issue the impugned notices so as to demand the tax.

The issue raised in this case was whether, in the course of providing the medical service, petitioners who are private hospitals were liable to pay Value Added Tax (VAT) under the provisions of the Tamil Nadu Value Added Tax Act, 2006 on the stents, valves, medicines, x-ray and other goods used while treating theirs in house patients.

The Single Judge Bench of Justice C. Saravanan observed that after the 46th amendment to the Constitution, the definition of “work contract” was widened and it is broad-based taking within its fold every possible and conceivable contracts involving the transfer of property while providing services.

The court further said that the definition of “works contract” can include hospitals or health or Medical services involving composite contracts where there is not only a provision of service but also a supply of goods along with such service. The definition takes within its fold such services also. The respondents are therefore justified in proposing a demand to tax the petitioner.

“In my view, there is not only transfer of possession of prosthetics into the physiology of the patient but also the ownership of such prosthetics to the patient for consideration in the course of the provision of medical or health service. Similarly, in the course of taking x-ray, scan, MRI/CT Scan for such in-patient, costs of which get included in the package are taxable as such activity can be termed as the processing of moveable property,” the court said.

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