The Business of “Hospitals”

The Business of “Hospitals”

 Hospital being a public health care facility has always been a borderline case with regard to the question of being an industry. The Management of Safdur Jung Hospital v Kuldip Singh Sethi AIR 1970 SC1407 and The State of Bombay v Hospital Mazdoor Sabha AIR 1960 SC 610 are the cases which justify the contrary point of views. When Safdur Jung denies the status of industry to hospitals, Hospital Mazdoor Sabha guarantees the commercial activity of hospital. However the need to settle the primary function of a hospital has become a necessity in the scenario of Sales Tax since sale of medicine in hospitals has gone way up. Liability to pay Sales tax arise only if the person is “in the business of” buying, selling etc of goods. The term business is defined as carrying on a trade or commerce. Consequently unless it is proved that primary function itself is a business, there can be no liability under sales tax. Supreme Court has resorted to the test of volume, frequency, continuity & regularity of the activity to consider whether sales tax can be imposed [State of TN v Board of Trustees of the Port of Madras 114 STC 520]. Hence the sale of medicines in hospitals can be brought under sales tax purview only if it is shown that hospital are doing “business” and sale of medicines is an incidental/ancillary function to the main activity. Kerala High Court has, in its decisions 55 VST 208 (Ker), 135 STC 224, held that hospitals though a health care facility where individual doctors serve patients has grown into a commercial activity and taken up the character of business. Hence hospitals can be considered as dealers who are liable under Sales tax. However they have not answered as to the character of those hospitals which are state/ central funded or non-profit motive. The Supreme Court decision The Management of Safdur Jung Hospital v Kuldip Singh Sethi AIR 1970 SC1407 still stands ground since they analyse the character of hospitals in wide manner.   

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