25-07-2025
Gujarat HC upholds state government's move to levy VAT on sale of medicines, implants by private hospitals to indoor patients
The Gujarat High Court on Friday upheld the state government's decision to levy VAT on the sale of medicines, implants, prosthetics, stents, and other consumables supplied by private hospitals to their indoor patients during the course of treatment. The HC was hearing a 2011 petition moved by private hospitals in the state challenging the notices issued and demand by the state government to levy VAT on certain hospitals.
Leading hospitals, including Sterling, Bankers Cardiology, Shalby, CIMS, and Wockhardt, had challenged the tax demands issued under the Gujarat Value Added Tax (VAT) Act, 2003, contending that healthcare services rendered to indoor patients constitute a composite medical service and cannot be classified as a 'sale' for the purpose of taxation.
Countering the petitions on behalf of the State, Advocate General Kamal Trivedi, assisted by Assistant Government Pleader Vinay Bairagra, argued that following the 46th Amendment to the Constitution, health care services provided by private hospitals fall within the ambit of 'works contract' as defined under Article 366 (29A) of the Constitution read with Section 2(23) of the Gujarat VAT Act. The State contended that tax was being levied not on the entire medical service, but only on the transfer of goods involved during the course of treatment.
'A Division Bench comprising Justice B D Karia and Justice D N Ray accepted the State's contentions, ruling that after the 46th Constitutional Amendment, all composite contracts, including those involving healthcare services to indoor patients, can be treated as 'works contracts'. Consequently, the tax component on the transfer of goods embedded in such services is justified and valid,' Advocate General Trivedi said.
The judgment clears the way for the VAT department to recover dues from private hospitals on the sale value of consumables and medical goods like medicaments, prosthetics, implants, stents, etc. provided during treatment to their patients. The ruling is seen as a landmark clarification on the taxability of medical services under the VAT regime.
While dictating the order orally, the court observed, 'Rendering services together with supply of implants, stents, medicine etc, for treatment of indoor patients cannot be given a restricted meaning by excluding the same from 'works contract'. On the basis that the 'works contract' as a concept was originally confined to contracts involving properties alone…'
The court said, 'However, after the 46th amendment to the Constitution, definition of works contract was widened. It is broad based, taking within its fold every possible and conceivable contract involving transfer of property, providing service. Therefore… It can include hospitals, health and medical services involving composite contracts with the provision of service also including supply of goods with medical service. And the definition takes within its fold such services also and therefore, the respondent state was justified in proposing demand for tax…'
