The Gujarat High Court has now declared that private hospitals are liable to pay tax on the sale of medicines, implants, prosthetics, stents, and other consumables provided to indoor (admitted) patients. The court ruled that state VAT (Value Added Tax) authorities have the right to recover taxes on such sales.
Private hospitals may have to pay taxes amounting to ₹1,000 crore due to this verdict
The division bench comprising Justice Bhargav D Karia and Justice D N Patel made it clear in their judgment that hospitals cannot evade tax liability under the guise of providing medical services. As a result of this landmark decision, private hospitals may now have to pay over ₹1,000 crore in taxes to the government (earlier under VAT, now under GST).
Several renowned private hospitals, including Sterling Hospital, Bankers Cardiology, Shalby, CIMS, and Wockhardt, had challenged the imposition of VAT on the supply of medicines, implants, prosthetics, stents, and other consumables to indoor patients. The Gujarat High Court rejected these writ petitions and upheld the state’s stand.
The hospitals had argued that the healthcare services provided to indoor patients constituted an integrated medical service and could not be classified as a ‘sale’ for taxation purposes under a works contract.
However, the Gujarat government countered by stating that, following the 49th Constitutional Amendment, healthcare services provided by private hospitals fall under the definition of a works contract as per Article 366(29A) of the Constitution when read with Section 2(23) of the Gujarat VAT Act, 2003.
Moreover, the authorities clarified that the tax is not imposed on the entire medical service but only on the medical goods used during treatment such as medicines and implants.
The High Court agreed with the state’s arguments and stated that, in light of the 49th Constitutional Amendment, healthcare services involving indoor patients could indeed be classified as works contracts. Therefore, the component of goods transferred during the provision of such services is subject to tax. The court ruled that this tax is appropriate, reasonable, and lawful.
