GST TIMES

Vol. I ; Issue - IV ; 5 th July, 2020.

Editor’s Note:

Dear Readers,

The 40 th meeting of the GST Council was held in June. There was a general
expectation that a “ big-bang” announcement will be made to provide GST reliefs to
the industry in general and the MSME sector in particular. All the expectations were
belied since the GST Council briefly announced waiver of late fees and other such
administrative relaxations. It would appear that there would be no “ big-bang” relief
under GST and status-quo-ante would be maintained.

The decisions of the Authority for Advance Rulings ( AAR) continue to generate a lot
of interest and comments. During the month of June, the decision of the AAR in
Karnataka in the case of ID Fresh goods that frozen paratha would attract a rate of
18% drew comments from many including comedians. In an effort to clarify GST on
Directors’ remuneration, CBIC came out with a Circular which linked the
applicability of GST to the Section under which tax is being deducted. AAR in
Rajasthan ruled that GST would apply to sale of developed plots- this is going to
cause some more discussion. Taxpayers can expect a clarificatory Circular soon.

Possibly due to the pandemic, there has been no announcement on the date of
implementation of the new system of returns and e-invoicing. Hopefully, these
would be announced soon so that the unrestricted availing of ITC can be minimised
and the menace of availing ITC on fake invoices can be thwarted. On the subject of
GST returns, a detailed announcement has been made on the filing of Nil GST returns
through SMS- you can find a pictorial representation of this elsewhere in this
newsletter.

We do hope you enjoy this newsletter. Please do submit your feedback to

info@gstgarage.com .

Stay safe, everyone!

Mohan R Lavi
Editor
GST TIMES

Page. 1
► Table of Contents:

Summary of Notifications / Circulars / Orders issued during June, 2020 3-6

Highlights of the 40 th GST Council Meeting 7

Analysis of Case Laws & Decisions 8-13

GST Update – Circular on Taxability of Director’s Remuneration 14-16

GST Alert – Waiver of Late Fees and Relief in Interest 17-21

Monthly Article – 3 years of GST 22-23

Monthly Article – AAR on Parotta 23-24

Monthly Article – Tax on Implants 25-33

Page. 2
 Summary of Notifications/ Circulars/ Orders - June, 2020

June -2020
Area Notifications Circulars Orders ROD Orders

Central Tax 14 3 0 1
Central Tax (Rate) 0 0 0 0
Integrated Tax 2 0 0 0
Integrated Tax (Rate) 0 0 0 0
Union Territory Tax 1 0 0 0
Union Territory Tax (Rate) 0 0 0 0
Compensation Cess 0 0 0 0
Compensation Cess (Rate) 0 0 0 0

Total 17 3 0 1

Total 21

▪ Tabulated below is a summary of significant recent updates:

• Central Tax Notifications :

Sl. No. Notification No. Date Essence of the Notification

Seeks to give effect to the provisions of
1. 44/2020 08-06-2020 Rule 67A for furnishing a nil return in
FORM GSTR-3B by SMS w.e.f. 8 th June
2020.
Extension of the date for transition under
2. 45/2020 09-06-2020 GST on account of merger of erstwhile
Union Territories of Daman and Diu &
Dadar and Nagar Haveli to 31 st July 2020.
Seeks to extend period to pass order
3. 46/2020 09-06-2020 under Section 54(7) of CGST Act- in cases
where a notice has been issued for
rejection of refund claim in full or in part,
the time limit for issuance of the order
shall be extended to fifteen days after the
receipt of reply to the notice from the
registered person or the 30 th day of June,
2020, whichever is later.

Page. 3
 Amendment of Notification No.
4. 47/2020 09-06-2020 40/2020 – Central Tax dated 05.05.2020
in respect of extension of validity of e-
way bill generated on or before
24.03.2020 (whose validity has expired
on or after 20th day of March 2020) till
the 30th day of June.
Provision to file FORM GSTR-3B and
5. 48/2020 19-06-2020 FORM GSTR-1 till 30 th September 2020,
through Electronic Verification Code
(EVC).
Seeks to bring into force Sections 118,
6. 49/2020 24-06-2020 125, 129 & 130 of Finance Act, 2020 in
order to bring amendment to Sections 2,
109, 168 & 172 of CGST Act w.e.f.
30.06.2020:
• Constitution of Appellate Tribunal
and Benches thereof.
• Power to issue instructions or
directions.
• Removal of difficulties.
Seventh amendment (2020) to CGST
7. 50/2020 24-06-2020 Rules:
A new category of registered persons
added with composite tax rate of three
per cent of the turnover of taxable
supplies of goods and services in the
State or Union territory.
Seeks to provide relief by lowering of
8. 51/2020 24-06-2020 interest rate for a prescribed time for tax
periods from February, 2020 to July,
2020.
Seeks to provide one-time amnesty by
9. 52/2020 24-06-2020 lowering/waiving of late fees for non-
furnishing of FORM GSTR-3B from July,
2017 to January, 2020 and also seeks to
provide relief by conditional waiver of
late fee for delay in furnishing returns in
FORM GSTR-3B for tax periods of
February, 2020 to July, 2020.

Page. 4
 Seeks to provide relief by waiver of late
10. 53/2020 24-06-2020 fee for delay in furnishing outward
statement in FORM GSTR-1 for tax
periods for months from March, 2020 to
June, 2020 for monthly filers and for
quarters from January, 2020 to June,
2020 for quarterly filers
Seeks to extend due date for furnishing
11. 54/2020 24-06-2020 FORM GSTR-3B for supply made in the
month of August, 2020 for taxpayers
with annual turnover up to Rs. 5 crore.
Seeks to amend notification no. 35/2020-
12. 55/2020 27-06-2020 Central Tax in order to extend due date
of compliance which falls during the
period from "20.03.2020 to 30.08.2020"
till 31.08.2020.
Seeks to amend notification no. 46/2020-
13. 56/2020 27-06-2020 Central Tax in order to further extend
period to pass order under Section 54(7)
of CGST Act till 31.08.2020 or in some
cases upto fifteen days thereafter.
Seeks to amend notification no. 52/2020-
14. 57/2020 30-06-2020 Central Tax in order to provide
conditional waiver of late fees for the
period from July, 2017 to July, 2020.

*Note: All the important notifications relating to deferment in filing returns, interest and
late fees are summarised later in this newsletter.

• Integrated Tax Notifications:

SL No. Notification No. Date Essence of the Notification

Seeks to bring into force Section 134 of

1. 04/2020 24-06-2020 Finance Act, 2020 in order to bring
amendment to Section 25 of IGST Act
w.e.f. 30.06.2020 - Removal of
Difficulties.
Seeks to provide relief by lowering of
2. 05/2020 24-06-2020 interest rate for a prescribed time for
tax periods from February, 2020 to July,
2020.

Page. 5
• Union Territory Tax Notifications:

SL No. Notification No. Date Essence of the Notification

Seeks to provide relief by lowering of
1. 02/2020 24-06-2020 interest rate for a prescribed time for
tax periods from February, 2020 to July,
2020.

• Circulars:

SL No. Circular No. Date Essence of Circular

Clarification on Refund Related Issues-
1. 139/09/2020 10-06-2020 Refund of ITC in case of mis-match of
invoices.
Clarification in respect of levy of GST
2. 140/10/2020 10-06-2020 on Director’s Remuneration. (Analysed
later in this newsletter)
Clarification in respect of various
3. 141/11/2020 10-06-2020 measures announced by the
Government for providing relief to the
taxpayers in view of spread of COVID-
19

• Removal of Difficulties Order:

SL No. Notification No. Date Essence of the Notification

Seeks to extend the time limit for filing
1. 01/2020 25-06-2020 an application for revocation of
cancellation of registration for specified
taxpayers.

Page. 6
 Highlights of the 40th GST Council Meeting
The 40th GST Council met under the
Chairmanship of Union Finance &
Corporate Affairs Minister Smt. Nirmala
Sitharaman through video conferencing on
12 th June 2020. The meeting was also
attended by Union Minister of State for
Finance & Corporate Affairs Shri Anurag
Thakur besides Finance Ministers of States
& UTs and senior officers of the Ministry of
Finance& States/ UTs.
The GST Council made the following
recommendations on Law & Procedures
changes.
1. Measures for Trade facilitation:
a) Reduction in Late Fee for past Returns:
As a measure to clean up pendency in
return filing, late fee for non-furnishing
FORM GSTR-3B for the tax period from
July, 2017 to January, 2020 has been
reduced / waived as under: -
i. 'NIL' late fee if there is no tax liability;
ii. Maximum late fee capped at Rs. 500/-
per return if there is any tax liability.
The reduced rate of late fee would apply for
all the GSTR-3B returns furnished between
01.07.2020 to 30.09.2020.
b) Further relief for small taxpayers for
late filing of returns for February, March
& April 2020 Tax periods:
For small taxpayers (aggregate turnover
upto Rs. 5 crore), for the supplies effected
in the month of February, March and April,
2020, the rate of interest for late furnishing
of return for the said months beyond
specified dates (staggered upto 6th July,
2020) -
- is reduced from 18% per annum to 9%
per annum till 30.09.2020. In other words,
for these months, small taxpayers will not
be charged any interest till the notified
dates for relief (staggered upto 6th July
2020) and thereafter 9% interest will be
charged till 30.09.2020.
c) Relief for small taxpayers for
subsequent tax periods (May, June & July
2020):
In wake of COVID-19 pandemic, for
taxpayers having aggregate turnover upto
Rs. 5 crore, further relief provided by
waiver of late fees and interest if the
returns in FORM GSTR-3B for the supplies
effected in the months of May, June and
July, 2020 are furnished by September,
2020 (staggered dates to be notified).
d) One-time extension in period for
seeking revocation of cancellation of
registration:
To facilitate taxpayers who could not get
their cancelled GST registrations restored
in time, an opportunity is being provided
for filing of application for revocation of
cancellation of registration up to
30.09.2020, in all cases where registrations
have been cancelled till 12.06.2020.
2) Certain clauses of the Finance Act, 2020
amending CGST Act 2017 and IGST Act,
2017 to be brought into force from
30.06.2020.
Page. 7
 Analysis of Case Laws & Decisions

Brand Equities Treaties Ltd v. Union of India: [2020] 116 taxmann.com 415 (Delhi)

• The Four Writ Petitions in the above case • Rule 117 – CGST Rule, 2017:
seek identical relief in the nature of a
writ of Mandamus directing the - Rule 117 of CGST Rules, 2017 prescribes
respondents to permit the petitioners to time-limit (of ninety days from appointed
avail input tax credit of the accumulated day) for transitioning of credit (during
CENVAT credit as of 30th June, 2017 by Transition from Pre-GST Regime to GST
filing declaration Form TRAN-1 beyond Regime), it is directory in nature and
the period provided under the Central would not result in forfeiture of rights, in
Goods and Services Tax Rules, 2017. case credit is not availed within period
prescribed.
• The Petitioners also assailed Rule 117 of
the CGST Rules, 2017 to be arbitrary,
unconstitutional and violative of Article
14 to the extent it imposes a time limit for
carrying forward the CENVAT credit to
the GST regime. However, all the
petitioners have unanimously stated that
if the Court were to give directions to the
respondents to permit them to file the
statutory Form TRAN-1 to avail the
input tax credit, they would be satisfied
and not press for the relief of challenging
the vires of the provisions of the Act.

Page. 8
❖ Relevant Facts:

Writ Petition No. Facts of the case

W.P. No. 8496 / 2019 • The petitioner is in the business of

advertising, brand promotion and public relation
management, as a part of Bennett Coleman Group of
companies [Times Group].

• It was registered under the provisions of Chapter V of the

Finance Act, 1994 for service tax and was discharging its
liability by way of filing service tax returns.

• The service tax return for the period from April, 2017 to June,
2017 was filed on 11th August, 2018 and the same exhibited
an accumulated CENVAT credit

• Petitioner had CENVAT credit reflected in the service tax

return for the period April, 2017 to June, 2017 and was
eligible to carry forward the said CENVAT credit.

• Consultant failed to file an online refund application due to

some technical glitch / error appearing on the screen.

• Petitioner's consultant visited the office of the Assistant

Commissioner of GST to enquire about the error and was
informed that Petitioner was not eligible for the refund under
Section 142 (3) of the Act.

• Petitioner filed writ petition before this Court praying for

refund or carry forward of all the accumulated CENVAT
credit.

• A Writ of Certiorari has been file impugning Rule 117 of

CGST rules to be ultravires and to read down the provisions.

W.P. (C) 11040 / 2019 • Petitioner claims that in terms of the latest service tax return
from April, 2017 to June, 2017, it had accumulated CENVAT

• Petitioner forms part of a bigger conglomerate and the tax

operations are undertaken at group level.

• Petitioner was unable to file the declaration in Form TRAN-1

within the prescribed due date. As a result, it was deprived
of taking forward the accumulated credit in the GST regime.

Page. 9
 Writ Petition No. Facts of the case

W.P. (C) 196/2019 • It submitted form GST TRAN-1 online on 24th November,
2017 in order to avail the transitional credit. Thereafter
receiving a letter from the department seeking verification on
the said claim.

• While collating the documents petitioner realised that certain

amount of credit was mistakenly not carried forward.

• Petitioner made a reference to the respondents highlighting

the Circular issued by Central Board of Indirect Taxes and
Customs wherein a mechanism was introduced to assist the
taxpayers who had faced difficulties owing to technical
glitches. But, there was no response.

• Finally, vide letter dated 9th May, 2018, respondents

informed the petitioner that the credit mistakenly missed in
the initial filing was not populated in TRAN-1 and, thus, the
credit thereof cannot be extended to the petitioner.

W.P.(C) 13203/2019 • Petitioner contends that it had been trying to upload its claim
for carrying forward the credit in form GST TRAN-1 but
could not do so due to error in the system of the respondents.

• Petitioner submits that on account of utter confusion and

chaos from the Respondents that resulted in failure to upload
Form GSTR TRAN-1, it could not upload the claim on the
common portal within time.

Page. 10
❖ Submission of the Parties:
▪ Petitioners:
• The Learned counsels for the petitioners
have strongly relied upon the judgment
in A.B. Pal Electricals v. Union of
India (W.P.(C) 6537/2019.
• It was urged by the Petitioners that since
the GST system at the relevant point of
time, and even presently, is in a nascent
"trial and error" phase, petitioners
should not be made to suffer on account
of inefficiency in the systems of the
respondents by denying them the credit
of the accumulated CENVAT credit on
the due date.
• It was argued that the CENVAT credit
accumulated in the erstwhile regime
represents the property of the petitioner
which is a vested right in their favour.
Such accrued or vested right cannot be
taken away by the respondents on
account of failure to fulfil conditions
which are merely procedural in nature.
• It was submitted that the accumulated
CENVAT credit is the property of the
assessee and a constitutionally protected
right under Article 300A of the
Constitution, which cannot be taken
away by framing Rules without there
being any substantive provision in this
regard under the Act.
• it was further contended that the time
limit specified in Rule 117 of CGST Rules
is procedural in nature, and not a
mandatory provision, and thus period
provided therein cannot be enforced so
as deprive the petitioners from availing
their vested right.
• SCG Contracts India Pvt. Ltd. v. KS
Chamankar Infrastructure Pvt. Ltd.
(2019 SCC Online SC 226).
▪ Respondents:
• Learned senior counsels for the Revenue,
on the other hand, have strongly opposed
the petitions.
• The Respondents argued that, the facts of
each case exhibit a casual approach on
the pert of the Petitioners. Petitioners'
failure to file the declaration Form
TRAN-1 within the due date is not
attributable to any technical glitches
while uploading the forms.
• It is also pointed out that some of the
petitioners attempted to file TRAN-1 for
the first time after the expiry of the last
date for filing TRAN-1, as admitted in the
pleadings. The petitioners were
negligent, and do not deserve any
leniency.
• It was further defended that Rule 117 of
the CGST rules by arguing that under
Sub-section (1) of Section 164 of the CGST
Act, Government is authorised to make
rules for carrying out the provisions of
the Act on recommendation of the
Council.
Page. 11
❖ Decision:
• Purpose of transitory provisions is to
allow a smooth migration from erstwhile
service tax regime to new GST regime and
thus, Insofar as Rule 117 of CGST Rules,
2017 prescribes time-limit (of ninety days
from appointed day) for transitioning of
credit (during Transition from Pre-GST
Regime to GST Regime), it is directory in
nature and would not result in forfeiture
of rights, in case credit is not availed
within period prescribed - This, however,
does not mean that availing of CENVAT
credit can be in perpetuity in terms of
residuary provisions of Limitation Act, a
period of three years from appointed date
would be maximum period for availing of
such credit
• Rule 117 of CGST rules: whereby
mechanism for availing credits has been
prescribed, is procedural and directory,
and cannot affect substantive right of
registered taxpayer to avail of
existing/accrued and vested CENVAT
credit. Procedure could not run contrary to
the substantive right vested under sub-
section (1) of section 140.
• Since all the Petitioners have filed or
attempted to file Form TRAN-1
within the aforesaid period of three
years they shall be entitled to avail
the Input Tax Credit accruing to
them.
• The Court is also of the opinion that
other taxpayers who are similarly
situated should also be entitled to
avail the benefit of this judgment.
❖ Appeal before the SC :
• The question before the Supreme
Court by the Respondents (Revenue)
in the above case was Whether notice
be issued and operation of impugned
order shall remain stayed?
❖ Decision :
• The operation of the impugned
order shall remain stayed.
Page. 12
► Analysis of the cases: Incremental Data

Level Till May, 2020 Till June, 2020 Incremental

Supreme Court 6 6 0

Supreme Court Orders 25 29 4

High Court 1714 1785 71

AAAR 148 185 37

AAR 1063 1606 543

NAA 136 145 9

Commission 2 2 0

Session 10 10 0

Commissioner 6 6 0

Total 3110 3774 664

High Courts and AAR continue to hear the most number of cases.

Page. 13
 GST Update – Circular on Taxability of Directors Remuneration
The much warranted clarity on taxability of
directors remuneration under GST has now
been addressed vide Circular No 140/10/2020
– GST dated June 10, 2020. The Circular
squarely lays to rest the ambiguity created
by the Rajasthan AAR in case of M/s Clay
Craft India Private Limited (Order No RAJ
/ AAR / 2019-20 / 33 Dated 20.02.2020)
preceded by M/s Alcon Consulting
Engineers (India) Private Limited (2019-
VIL-363-AAR)
1. Brief rehash:
• The issue under consideration revolved
around chargeability of GST on
remuneration to directors under in the
following manner:
• To make matters worse, the above
mentioned AAR’s rendered adverse
rulings that not only failed to take into
account the applicant’s fact pattern and
contentions but also substantially lacked
basic considerations of the law.
• In specific, while the ruling in Clay
Craft (supra) qualified director’s
remuneration as a consideration to
supply in the nature of a reverse charge
service, without taking into consideration
the applicant’s contentions, in Alcon
Consulting Engineers (supra) it was held
that the services provided by Directors to
the Company are not covered under
clause (1) of the Schedule III to the
Central Goods and Services Tax Act, 2017
as the Director is not the employee of the
Company.
Contrarily, as per the recent ruling by
Karnataka AAR in the case of M/s Anil
Kumar Agarwal (2020 (5) TMI 221),
where an applicant qualifies as an
employee of the said company (Executive
Director) then the services of the
applicant would tantamount to service
by an employee to the employer which -
are neither treated as supply of goods
nor as supply of services, in terms of
Schedule III of CGST Act 2017.
Putting to rest the aggravating
ambiguity resulting from distinct rulings
on the subject, the Circular brings about
ample clarity which would stagnate the
tax positions to be adopted on the
subject henceforth.
Page. 14
2. Clarifications in the Circular:
The said Circular particularly examines • The definition of ‘independent director’
remuneration to directors under two broad
categories viz. Directors who qualify as
‘employees; of the company and other
directors
❖ Remuneration to Directors who do not
qualify as ‘employees’ :
The circular primarily evaluates the
director’s position in a company basis their proposed to be appointed in the said
duties and functions therein so as to assess company.
their qualification as an ‘employee’
▪ In this regard, the Circular amply
clarifies that whole time directors and
independent directors would not
qualify as ‘employees’ of the company
owing to the following reasons:
• The definition of the term ‘whole time
director’ as per section 2(94) of the
Companies Act, 2013 is an inclusive
definition leaving no scope for
qualification as an ‘employee’;
under section 149(6) of the Companies
Act, 2013 read with Rule 12 of the
Companies (Share Capital and
Debentures) Rules, 2014 categorically
states that the director must not have
been an employee, proprietor or partner
of the said company in any of the three
financial years immediately preceding
the financial year in which he is
• Given the same, any services by the
directors who at the outset fail
eligibility as an ‘employee’ of the
said company would remain outside
the scope of non-taxability under
Clause I of Schedule III to the CGST
Act, 2017.
• Consequently, the remuneration
paid to these directors i.e.,
independent director, whole time
directors or any other directors who
do not qualify as ‘employees’,
would be liable to GST -in the
hands of the company on reverse -
Page. 15
- charge basis prescribed under
Notification 13/2017 – Central Tax (Rate)
dated June 28, 2017.
❖ Remuneration to directors qualifying as
employees of the Company
▪ The circular aptly takes cognizance of the
fact that a director may serve a company
in dual capacity namely:
• As an employee of the company on the
basis of contractual relation of master and
servant with the company; and
• As a director of the company.
• TDS under section 194J of the Income Tax
Act, 1961 where the director renders
services in his professional capacity to the
company.
▪ Given the above, the Circular clarifies
that only those payouts (remuneration) to
directors which are declared as ‘Salaries’
in the books of the company and are
subject to TDS under Section 192 of the
Income Tax Act, 1961 would stand
eligible to constitute as a non- supply
under Clause I to Schedule III of the
CGST Act ie, services by an employee to
the employer in the course of or in
relation to his employment.

▪ In continuation, the circular further ▪ Therefore all other payments to directors

places reliance on the well-established
distinction in chargeability of TDS under
the Income Tax Act, 1961 adopted
towards these independent provisions
i.e.,
in the nature of professional or technical
services, would be liable to GST in the
hands of the company under reverse
charge basis by virtue of Notification
13/2017.

3. In Summary:

Activity Identification Measure GST Implication

Services rendered in the • To be treated as salary by • Activity is deemed to be

course of employment. the Company; provided in course of
• Remuneration is employment;
subjected to TDS under • No supply as per
Section 192 of the Income Schedule III Clause 1
Tax Act, 1961 • No GST implication
Professional Services, Liable to TDS under section • Not in course of
including sitting fees 194J employment as service is
provided in professional
capacity.
• GST applicable on reverse
charge basis as per
Notification 13/2017
Other Independent services, • Liable to GST under
(not in the nature of respective applicable
professional or technical) NA provisions
for instance renting of
immovable property by
director to company

Page. 16
 GST Alert – Waiver of Late Fees and Relief in Interest

► Deferment in filing Returns and relief in late fees:

In yet another anticipated move to afford relief to taxpayers, the Government by a series
of notifications and circulars, has extended due dates and afforded relief by way of
deferments and waivers. The significant developments have been indicated below for
your reference.

1. Waiver in late fees in respect of GSTR 3B - Notification 52/2020 dated June 24, 2020
read with Notification 57/2020 dated June 30, 2020:

- Table: 1

Particulars Period (b) Condition for filing of

GSTR 3B (c)
Taxpayers having an aggregate February 2020, Filed on or before June 24,
turnover of more than rupees 5 March 2020 2020
crores in the preceding &
financial year
InI
April 2020
Taxpayers having an aggregate February 2020 Filed on or before June 30,
turnover of up to rupees 5 2020
crores in the preceding
March 2020 Filed on or before July 3,
financial year, whose principal
2020
place of business is in Category
1* States April 2020 Filed on or before July 6,
2020
May 2020 Filed on or before
September 12, 2020
June 2020 Filed on or before
September 23, 2020
July 2020 Filed on or before
September 27, 2020
August 2020 Filed on or before October
1, 2020#

Page. 17
 Taxpayers having an February 2020 Filed on or before June 30,
aggregate turnover of up to 2020
rupees 5 crores in the
March 2020 Filed on or before July 5,
preceding financial year,
2020
whose principal place of
business is in Category 2** April 2020 Filed on or before July 9,
States 2020
May 2020 Filed on or before
September 15, 2020
June 2020 Filed on or before
September 25, 2020
July 2020 Filed on or before
September 29, 2020
August 2020 Filed on or before October
3, 2020#

#Extended vide Notification 54/2020 dated June 24, 2020

It has been made amply clear vide Circular 141/11/2020-GST dated June 24, 2020, that a
failure in filing the GSTR-3B within the notified due dates in Column (c) would result in
the applicability of late fees from the actual due dates of such return.

- Wherein - State List

Category 1* Category 2**

Chhattisgarh, Madhya Pradesh, Gujarat, Himachal Pradesh, Punjab, Uttarakhand,

Maharashtra, Karnataka, Goa, Kerala, Tamil
Nadu, Telangana or Andhra Pradesh or the
Union territories of Daman and Diu and
Dadra and Nagar Haveli, Puducherry,
Andaman and Nicobar Islands and
Lakshadweep
Haryana, Rajasthan, Uttar Pradesh, Bihar,
Sikkim, Arunachal Pradesh, Nagaland,
Manipur, Mizoram, Tripura, Meghalaya,
Assam, West Bengal, Jharkhand or Odisha or the
Union territories of Jammu and Kashmir,
Ladakh, Chandigarh and Delhi

▪ Extent of Late fees:

Class of Tax Period of Failure But GSTR – 3B Late Condition

Payer Filed within fees
As per Table 1 Within timeframe September 30, Nil Where the tax
indicated in the 2020 liability is Nil
conditions in Table 1
Rs. 500* Others

Page. 18
Taxpayers with Within the prescribed September 30, Nil Where the tax
turnover more due date for tax 2020 liability is Nil
than 5 crores periods May 2020 to
Rs 500* Others
July 2020

Any tax payer Within the prescribed July 1, 2020 - Nil Where the tax
due date for tax September 30, liability is Nil
periods July 2017 to 2020
Rs 500* Others
January 2020
Note* - Rs. 500 = CGST + SGST/ IGST

2. Waiver in late fees in respect of GSTR 1 - Notification No. 53/2020 dated June 24,
2020 read with Circular No. 141/1/2020-GST dated 24th June, 2020

- Table: 2

Tax Period (a) Prescribed Due Date for Waiver of late fees if filed
filing GSTR 1 (b) within (c)
March 2020 April 11, 2020 July 10, 2020

April 2020 May 11, 2020 July 24, 2020

May 2020 June 11, 2020 July 28, 2020

June 2020 July 11, 2020 August 5, 2020

Quarterly tax payments for April 30, 2020 July 17, 2020
the period January to
March, 2020
Quarterly tax payments for July 31, 2020 August 3, 2020
the period April to June,
2020

The said waiver is conditional upon filing of the GSTR-1 within the dude date prescribed
in Column (c), in any other case the late fees would be applicable from the actual due
dates specified in Column (b) of Table 2.

Page. 19
3. Relief in rate of interest in case of GSTR-3B:

A. Taxpayers having aggregate turnover of more than Rs. 5 Crores in preceding financial
year

Tax period Exemption from Concessional rate 18% applicable

interest upto of interest i.e. 9% from
period
February 2020 April 4, 2020 April 5, 2020 to June 25, 2020
June 24, 2020
March 2020 May 5, 2020 May 6, 2020 to June 25, 2020
June 24, 2020
April 2020 June 4, 2020 June 5, 2020 To June 25, 2020
June 24, 2020

B. Taxpayers having aggregate turnover of upto Rs. 5 Crores in preceding financial year for
Category 1* states indicated the abovementioned ‘State List’

Tax period Exemption from Concessional rate 18% applicable

interest upto of interest i.e. 9% from
period
February 2020 June 30, 2020 July 1, 2020 to October 1, 2020
September 30, 2020
March 2020 July 3, 2020 July 4, 2020 to October 1, 2020
September 30, 2020
April 2020 July 6, 2020 July 7, 2020 to October 1, 2020
September 30, 2020
May 2020 September 12, 2020 September 13, 2020 October 1, 2020
to September 30,
2020
June 2020 September 23, 2020 September 24, 2020 October 1, 2020
to September 30,
2020
July 2020 September 27, 2020 September 28, 2020 October 1, 2020
to September 30,
2020

Page. 20
C. Taxpayers having aggregate turnover of upto Rs. 5 Crores in preceding financial year for
Category 2** states

Tax period Exemption from Concessional rate 18% applicable

interest upto of interest i.e. 9% from
period
February 2020 June 30, 2020 July 1, 2020 to October 1, 2020
September 30, 2020
March 2020 July 5, 2020 July 6, 2020 to October 1, 2020
September 30, 2020
April 2020 July 9, 2020 July 10, 2020 to October 1, 2020
September 30, 2020
May 2020 September 15, 2020 September 16, 2020 October 1, 2020
to September 30,
2020
June 2020 September 25, 2020 September 26, 2020 October 1, 2020
to September 30,
2020
July 2020 September 29, 2020 September 30, 2020 October 1, 2020

Page. 21
 Monthly Article - 3 Years of GST
► Three years of GST:
One would expect that three years would be
more than enough time for even the most
complex law to stabilize even in most
complex countries. Sadly, this cannot be said
for GST in India as it completes three years
this week. Where the first year of GST was
marked with technical glitches, the second
year was riddled with a plethora of forms
and extension of the due dates while the
third year was full of eerie decisions of the
Authority for Advance Rulings (AAR).
▪ Dates, dates and dates:
The complexity of the law today is such that
if we ask a supposedly simple question such
as what is the due date for filing monthly
GST returns, we will not get a direct answer
but more questions. Is your turnover greater
than or less than Rs 5 crores? Which state are
you located in? Have you opted for the
composition scheme? After the advent of
Covid, it was decided to extend the due
dates for filing the returns. One would have
expected that since Covid impacts everyone,
all relaxations would apply to all taxpayers.
But the makers of GST notifications can
think of the most complex formulae. They
notified that a window of 15 days would be
given for those whose turnover was in excess
of Rs 5 crores.
Interest would be levied if the return was
filed after the fortnight window was
over. Those with turnover with less than
Rs 5 crores were spared the levy of
interest. For relaxations of late fee for
filing returns, CBIC issued Notification
No 52/2020 which comes close to a work
of art. Specific days have been chosen
after which the late fee would kick in.
Just as the taxpayer absorbed these
details, a foot note to the Notification
offers some more waivers if the returns
are filed before specific dates. The
taxpayer cannot be blamed if he is left
wondering if he should file the return at
all.
Since Covid is not going to go away soon,
CBIC would do well to waive interest
and late fees at least till December for all
types of Tax payers.
▪ AAR:
The decisions of the AAR continue to
surprise. While deciding whether GST is
to be charged on directors remuneration (
on reverse charge basis), Rajasthan AAR
said yes. The Karnataka AAR said no.
The GST Policy wing decided to issue
Circular No 140/10/2020-GST to clarify
their stance. They concluded that if the
directors remuneration is debited under
the head Salaries and TDS deducted
under Section 192 of the Income Tax Act,
GST would not apply. Else, it would.
Payments to Independent Directors
would attract GST as they are not
employees. The AAR in Gujarat ruled
that interest income would need to be
included in calculating the turnover for
GST registration.
Page. 22
It is a matter of concern that CBIC is
expending too much time on routine
matters like specifying due dates and
waiving interest and late fees. Larger and
more important tasks are not being
discussed- the new system of filing of
returns and the e-invoicing facility are cases
in point. GST collections are certainly going
to be way below expectations – State
Governments would be expecting a
discussion on how the numbers are going
to work out for them. The GST Appellate
Tribunal ( GSTAT)- a forum where
taxpayers expect to get some justice- is yet
to make its arangetram.
Monthly Article – AAR on Parotta
▪ GST on Parotta:
The decisions of the Authority for Advance
Rulings (AAR) on GST can range from the
controversial ( Rajasthan AAR on Directors
remuneration) to the ordinary ( most AAR’s
on anti-profiteering). A recent decision of
the Karnataka AAR hits a person where it
hurts the most- his stomach. In the case of
ID Fresh Foods, the AAR ruled that frozen
parotta would attract 18% GST and not 5%
since it does not meet the definition of roti
or khakhra. Social media was abuzz with
jokes about the decision.
A Government official even went to the
extent of defending the decision and stated
that the poor do not eat frozen parotta.
▪ HSN Codes:
The crux of the problem lies in the
Harmonised System of Nomenclature (
HSN) Codes that we decided to needlessly
bring into the GST law from the erstwhile
laws. It is understandable to have a laundry
list of HSN Codes for Customs Laws but
not for a largely domestic law such as GST.
A post-mortem assessment would reveal
that the Government, software vendor and
the taxpayers did not expect
implementation of GST to be so complex. It
is still not too late for the Government to
immediately set up a GST Task Force that
would look into the chinks in the GST
armour and come out with solutions that
need to be implemented in a time-bound
manner. Any delay could lead to the GST
law developing a Covid buzzword- co-
morbidity.
The problem lies in the fact that this
laundry list is extremely lengthy, has
innumerable Chapters and sub-headings
within Chapters- it almost looks like a
work of modern art with a title. Due to
this ready -made garments and ready-
made sarees can have two different codes
and rates and we can have complicated
entries such as oil-cake and other solid
residues, whether or not ground or in the
form of pellets, resulting from the
extraction of vegetable fats or oils, other
than those of heading 2304 or 2305( this
falls under Heading 2306).
In the case of ID Foods, the controversy
was whether parottas would fall under
Heading 1906 “Bread, pastry, cakes, biscuits
and other bakers’ wares, whether or not
containing cocoa; communion wafers, empty
cachets of a kind suitable for pharmaceutical
use, sealing wafers, rice paper and similar
products” or under Heading 2106 that
covers “preparations for use, either directly or
after processing (such as cooking, dissolving
or boiling in water, milk, etc.), for human
consumption, provided that they are not
covered by any -
Page. 23
- other heading of the Nomenclature.” ID
contended that the product merits
classification under Chapter heading 1905,
under the product description of ‘Khakhra,
plain chapatti or roti” quoting
Notification No. 1/2017-Central Tax (Rate)
as amended by Notification No.34/2017-
Central Tax (Rate) . Notification No 34
inserted a new entry No.99A with the
description “Khakhra, plain chapatti or
roti”, without defining the said description.
The AAR was of the opinion that 2106
suited frozen parottas better since it is not
Khakra, Plain chapatti or roti.
Though it is not within the purview of the
AAR, no one questioned why the persons
who drafted the HSN Codes did not think
of including a staple Indian food such a
parotta in the Code but could think of a
not-so-common item such as Khakhra. Did
they intend Parotta when they meant Plain
Roti? Can Parottas be included under “
similar items” mentioned in HSN Code
1906?
Should plain parottas also be taxed at
18%?
CBIC may not want to make an effort to
simplify the HSN Code merely due to the
number of entries therein. They can make
a beginning though by restricting the
HSN Code only to the Chapter headings.
Next, they can attempt a rationalisation of
the Chapter Headings. In the case of
Parottas, “ Ready to eat foods” can be one
Chapter Heading instead of having
different codes for different types of
Parottas.
We can only hope another AAR does not
rule that the variety of Parotta called
Ceylon Parotta has to suffer both Customs
Duty and IGST because it has a foreign
name. They may also be asked the
question- what would be the GST rate if
ID Foods puts Indian Bread on the
outside of the packet and two frozen
parottas inside?
Page. 24
 Monthly Article- Tax implication on implants under the
erstwhile regime
The healthcare sector is one such
indispensable sector which has significantly
evolved with time. While humans have the
inherent power to convert wants into need
and need into wants, the healthcare sector
has continued to remain untamed by the
distinction created for ‘needs and wants’ and
rightly so. Healthcare has been an
incessantly evolving sector with a rise in the
need of intellectual and technological
evolvement, more trained professionals,
better treatment and need for cure. This has
proven to be so in this critical global
pandemic of COVID 19.
Given this very nature of inevitability,
medical/health care services have been
subjectively bestowed with an exempt status
insofar as the indirect tax implications are
concerned thereby earning limelight and
narrow scrutiny surrounding the tax
implications, exemption status it has been
enjoying etc.
In these times, medical treatments may be of
varied natures ranging from oral
medications, infusions, surgical treatments
etc. The broad level intent of a
hospital/practitioner is to restore a patient’s
health to normalcy consequent from an
illness or an abnormal health circumstance.
Pertinently, a general understanding of what
the medical practitioner actually does in
course of reinstating the patients’ health to
normalcy is to render ‘treatment’ by relevant
means i.e., surgical or non-surgical.
For instance, where a person suffers from a
heart ailment, the doctor would conduct a
general examination and accordingly
recommend a solution, which again may be
surgical or non-surgical in an effort to
restore the functioning of the heart to
normalcy.
In either cases, what the doctor actually
does is to render treatment and not sell
goods and other consumables to patients
that may be used in course of such
treatment.
In a recent blow to the basis of these
health care treatments and rendition of
medical support, the Madras High Court
in case of M/s MIOT Hospitals Ltd and
Others (‘Petitioners’) vs The State Of
Tamil Nadu (2020-VIL-238-MAD) held
that - fitting out or implanting of
prosthetics into the physiology or the
body of the patient for 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".
We have analyzed the tax implications of
the said case in the ensuing paras.
1. Order in case of MIOT ruling:
1.1. Facts of the Case:
• The petitioners, MIOT Hospitals, are
corporate bodies and persons running
hospitals interalia providing
Medical/Health services to their
inpatients. In the course of provision of
such services, they have implanted
implants such as Ortho Implants,
Plates, Stents, Valves, Pace Makers,
intra-aortic balloon pump etc,
Page. 25
(collectively referred to as Prosthetics) in
the body of the patients for treatment by
surgery and provided such other ancillary
services such as MRI Scan Films, X-Ray
Films and others in course of the same.
• The petitioners have received several
notices from the department of TNVAT
under the provisions of the Tamil Nadu
Value Added Tax Act, 2006 ( the
‘TNVAT Act’) in respect of the
undischarged VAT on the stents, valves,
medicines, x-ray and other goods used
while treating their in house patients.
• The petitioners however claimed that
they do not charge any amount
separately towards the cost of these
items and charge a consolidated amount
from the patients towards 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.
• In this respect, the petitioners instead of
opting for an adjudication mechanism
filed the instant writ before the High
Court of Madras.
1.2. Question under Consideration:
• Whether there is a provision of "works
contract" by the petitioners within the
meaning of Section 2(43) of the TNVAT Act,
2006 and therefore a "deemed sale" for the
purpose of Section 2(33) of the Act to attract
levy under Section 5 or 6 of the Act in the
course of the provision of medical/health
services to patients admitted in the hospital
as in-patients;
• Whether in the course of provision the
medical service, petitioners hospitals are
liable to pay VAT under the provisions of the
TNVAT on the stents, valves,
medicines, x-ray and other goods used while
treating their in house patients;
1.3. Contentions of the Respondent:
• The petitioners were in receipt of
consideration under a package and the
package included charges from the
stage of registration of the patient till
their discharge inclusive of the cost of
medicines and surgical disposals and
prosthetics used in connection with the
recovery of patient and allied services.
Further, the petitioner had purchased
medicines, surgical disposals, x ray
films, chemicals for test report and the
cost of medicines prescribed. The value
of consumables used are included in
deciding the package rate and thus the
petitioner had indirectly collected
consideration for the sale of medicines
and other surgical disposals;
• Given that medicines and other surgical
disposals fall under Schedule I to the
Act and taxable at every stage, no
exemption could be sought on such sale
notwithstanding the package in which
these services were being rendered;
• Prosthetics such as pace maker stents,
valves, artificial knee, shoulder parts,
hips pins, rods etc. which are implanted
in a patient’s body represents
permanent transfer in property.
Therefore, the consideration attributable
to such implants when recovered from
the patients in any form would
tantamount to sale;
Page. 26
 • When a patient bearing an implant is
discharged, there is an apparent transfer
of property in goods by way of the fixed
implant which tantamounts to sale under
Section 2(33) of the Tamil Nadu Value
Added Tax Act, 2007. As the implants
are bought and sold and are explicitly
exigible to tax under Entry 81 of Part-B of
the Schedule I at of 5%, the same shall be
collected from the petitioner;
• Consumables in the form of X-rays, C.T.,
MRI films for testing purpose also
constitute transfer of property when
these services are provided to the patient
and are therefore liable to be taxed under
entry 51 of Part C of First Schedule of
Tamil Nadu Value Added Tax Act, 2006;
• Therefore, by virtue of Sub Clause (b) of
clause 29(A) of Article 366 of the
Constitution of India, a deemed transfer
of property can be presumed when the
implants used in the patient are billed for
whether in package or separately.
• In the absence of a specific and distinct
declaration of cost of medicines and
consumables, the respondent has no
other way except to arrive at the sale
value of medicines after taking into
account the purchase value and profit.
1.4. Petitioner’s Contentions:
❖ The petitioner, at the outset, primarily
lays its contentions on rulings of similar
lines of four different High Courts as
tabulated below:
Case:
M/s. Tata Main Hospital
Vs
State of Jharkhand and others
2007 (9) TMI 599 - JHARKHAND HIGH
COURT
► Held :
With primary significance on the
principle of ‘dominant intention’ it was
observed that:
• “dominant nature test of contract”
was to provide medical services to the
in-patients and while providing such
medical services, medicines were
administered, surgical items, x-ray
plates and films were used, which
were incidental to and a part of the
medical services rendered to such
patients;
• What is being realized is the charge
for surgical items, x-ray films and
plates etc. used in course of treatment
to those in- patients and, therefore, it
cannot be said that the said items were
sold by the hospital to the indoor
patients;
Page. 27

Case:
M/s. international Hospital Pvt. Ltd.,
Vs
State of UP and others
2014 (2) TMI 765 - ALLAHABAD HIGH
COURT
► Held :
The question before the honorable High
court was whether an element of sale is
involved when a stent or valve is
implanted in the course of a surgical
procedure which is performed in a patient
as an indoor patient in a hospital. In this
regard, it was held as follows:
• There exists no element of sale where a
stent or valve is implanted in a patient
in the course of a surgical procedure;
• The fact that in the bill which is raised
on the patient, the hospital recovers,
apart from the cost of the surgery,
charges towards drugs and other
consumables would not render the
transaction of the implantation of a
stent or valve a 'sale' within the
meaning of Section 2 ( ac) of the Act.
Case:
M/s. Fortis Health Care Ltd & other
Vs
State of Punjab and others
2015 (2) TMI 1014 - PUNJAB HARYANA
HIGH COURT
► Held :
• The dominant purpose of medical
treatment is medical services and
integral to such a service is a medical
procedure that involves administering
medicines and drugs and may involve,
implants, stents etc.
• as integral to a successfully medical
treatment/procedure.
• A perusal of the statutory definition of
"sale" in both the Punjab and Haryana
enactments, reveals that after setting
out that a sale is a transfer of
ownership in goods for consideration it
proceeds to replicate Article 366 (29-A)
of the Constitution of India. A medical
procedure is a pure service with no
part having the attributes or the
elements set out in Article 366 (29-A) of
the Constitution of India or the
definition of sale under the Punjab and
Haryana statutes and, therefore, cannot
be held to involve a "sale".
• The power to impose sales tax/VAT
flows from Entry 54 of List II of
Schedule VII and Article 366(29-A) of
the Constitution, the latter assigning
the status of a deemed sale to
transactions where one or the other
element of sale is missing, but where
the element of sale is altogether
missing and the transaction does not
fall within any of the clauses of Article
366(29-A) of the Constitution of India, a
State shall not be empowered to levy of
value added tax on such a transaction.
• A contract for medical treatment
necessarily involves medicines, supply
of surgical items, stents, implants,
valves, without which a medical
procedure or medical treatment cannot
be completed.
• A deeming fiction, must be rational
and not farcical. The dominant purpose
of a hospital is to provide medical
treatment and if during a medical
procedure it is required to provide
medicines, stents, implants etc., it
cannot by a deeming fiction be held to
be a "sale".
Page. 28
• A deeming fiction, must be rational and
not farcical. The dominant purpose of a
hospital is to provide medical treatment
and if during a medical procedure it is
required to provide medicines, stents,
implants etc., it cannot by a deeming
fiction be held to be a "sale".
• The fact that a hospital may charge
money for individual stents etc., whether
as part of a package or separately is
entirely irrelevant. A contract of medical
service cannot be said to be a contract for
sale of a stent, or valve or of medicines to
be used in a medical/surgical procedure.
The essential element of such a contract
is the procedure of knee replacement, hip
replacement, angioplasty, which as an
intrinsic and integral part involves
placing an implant whether in the knee,
hip or a heart etc.
• A private hospital does not provide
medical services for free. The fact that it
charges money, for drugs, medicines etc.
cannot raise an inference of intent to sell
goods in the shape of medicines, stents,
implants etc.
• No hesitation in holding that medical
procedures/services offered by the
petitioners are a service. The supply of
drugs, medicines, implant, stents, valves
and other implants are integral to a
medical services/procedures and cannot
be severed to infer a sale as defined
under the Punjab or the Haryana Act and
therefore, are not exigible to value added
tax.
Case:
Aswini Hospital Private. Ltd., & others
Vs
Intelligence Officer, Squad No.1, Thrissur
& Others
2019 (3) TMI 438 - KERALA HIGH
COURT
► Held :
To whether medicines supplied, implants
carried out, the consumables used and
surgical tools exclusively used in a
particular procedure, as part of treatment
of patients in a hospital, the price of
which is recovered by way of bills from
the patients are “sale of goods” , the
following was held:
• When the Constitution by a deeming
fiction permitted only certain
transactions to be treated as sale of
goods, the State Legislature cannot
enlarge the scope of the definition in
excess of that available in the deeming
fiction to those transactions not strictly
answering the definition of sale of
goods or extend the fiction to those
other transactions;
• With respect to hospital services, we
cannot but observe that the sale of
drugs, implants and other consumables
are a part of the medical treatment
rendered. There is no identity of the
medicines or consumables or implants,
as it does not lie in the mind or mouth
of the patient to identify the drugs to be
administered in the course of the
treatment.
• Though a patient on his volition could
refuse to take a particular drug, he
cannot demand, as a matter of right,
that a drug be administered to him in
the course of the medical treatment. A
demand of that nature will not be
complied with by either a medical
practitioner or a hospital, the latter of
whom dispenses medicines only in
accordance with the directions of the
attending physician or surgeon
Page. 29
• The cost of the implants, consumables or Therefore, if during the treatment of a
the drugs is irrelevant insofar as deciding patient in a hospital, he or she is given a
what is the dominant nature of the pill, can the sales tax authorities tax the
transaction or service rendered to the transaction as a sale? Doctors, lawyers
patient in a hospital, which, without any
and other professionals render service in
doubt, is the therapeutic treatment
the course of which can it be said that
rendered. The patient has no control or say,
there is a sale of goods when a doctor
has limited control, on the procedures
writes out and hands over a prescription
taken in the course of the treatment, the
or a lawyer drafts a document and
drugs administered and the consumables
delivers it to his/her client? Strictly
used.
speaking with the payment of fees,
consideration does pass from the patient
• The business expediency has no control in
or client to the doctor or lawyer for the
the administration of drugs, use of
documents in both cases.”
consumables or the implants carried out
and neither does the control lie with the
❖ Further, the Apex court also reasonably
hospital, as a corporate or other legal
justifies the aforementioned from a
entity. The supply of drugs use of
dominant intention perspective as
consumables and the implants made are on
follows:
professional medical advice intended at
curing the patient and not deriving profits.
• “43. …The test therefore for composite
contracts other than those mentioned in
❖ It is noteworthy that the aforementioned
Article 366 (29A) continues to be - did
cases including the instant case by the
the parties have in mind or intend
Petitioner are inspired from certain
separate rights arising out of the sale of
references drawn by the Honorable Apex
goods. If there was no such intention
Court in the case of Bharat Sanchar Nigam
there is no sale even if the contract
Limited v Union of India (2006 (3) TMI 1 –
could be disintegrated. The test for
Supreme Court). In the said case, the
deciding whether a contract falls into
Honorable Apex Court illustratively
one category or the other is to as what
observed as follows:
is the substance of the contract. We will,
for the want of a better phrase, call this the
• 42.Of all the different kinds of composite
dominant nature test.”
transactions the drafters of the 46th
Amendment chose three specific situations,
❖ The petitioner further refutes the
a works contract, a hire purchase contract
respondents arguments as follows:
and a catering contract to bring within the
fiction of a deemed sale. Of these three, the
• The ambit of Section 2(43) of the Tamil
first and third involve a kind of service and sale
Nadu Value Added Tax Act, 2006,
at the same time. Apart from these two cases
which defines works contract cannot
where splitting of the service and supply
qualify a live human body as ‘property’
has been Constitutionally permitted in
so as to qualify surgical procedures as
Clauses (b) and (g) of Clause 29A of Art.
“fitting out” and “improvement”;
366, there is no other service which has
been permitted to be so split. For example
the clauses of Art. 366(29A) do not cover
hospital services.

Page. 30
• To treat a surgical procedure as a “works
contract”, the State would necessarily
have to contend that a living human body,
or for that matter even a particular organ,
is property and such a contention is
absurd in its very sense. If at all body
parts are considered to be “property”, the
reference may likely extend to detachable
and regenerative parts organs;
• Health care of medical treatment
provided to human beings cannot fall
within the ambit of movable or
immovable property. The objective behind
a patient seeking an implant or a stent is
to have a better and healthier life and be
cured from the injury or ailment suffered
by the patient;
• The hospital’s objective is to provide
medical treatment and to ensure that the
patient is duly treated and discharged.
That is, there is no profit motive and what
the hospitals merely get is the amount of
reimbursement for the amounts borne by
them in procuring the prosthetics.
• The administration of the medicines and
implants are only incidental to the
rendition of treatment sought for by the
patient from the hospital;
• “Health Care” in the erstwhile regime
though was brought within the purview
of service tax net, yet levy was restricted.
Post July 1, 2012, health care service were
exempted. Even under the GST Regime,
Health Care is under zero rating and
therefore even if tax was charged on the
hospitals, such taxes are refundable.
Given the same, the legislative intent
cannot be to make any portion of the
treatment be taxable.
1.5. Ruling and Observation of the Madras
High Court:
The honorable high court of Madras after
taking into consideration the contentions
of both the parties and also the legislative
intent of the term ‘works contract’
adopted by the said court thereunder,
holds as follows:
• The term works contract ought to be
read in a much broader sense
irrespective of the origin which was
confined to the immovable property,
especially in wake of the 46th
amendment to the Constitution,
wherein the definition of “work
contract” has been widened to include
within its ambit every possible and
conceivable contracts involving
transfer of property while providing
services.
• “Works contract” essentially involves
two fundamental elements namely:
i. transfer of material and
ii. rendering of service, this may be
divisible or indivisible in nature.
However, in any nature this would
continue to be a ‘works’ contract.
• The concept of dominant intention
became irrelevant post the 46 th
amendment to the constitution which
not only enlarged the scope of the term
sale but also ‘work contract’ to include
within its purview all those
transactions that have an element of
sale and service.
• Therefore, the definition of “works
contract“ can include hospital/
health/Medical services involving
composite contracts where there is not
only a provision of service but also
supply of goods along with such
service.
Page. 31
• However, dispensing of medicine to such
patients while they undergo treatment as
an inpatient in the hospital cannot come
within the purview of the definition of
‘works contract’.
• The High Court further held that in the
instant transaction, 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/health service.
Similarly, the cost of x-ray, scan, MRI/CT
Scan for such in-patient, ought to also be
included into the package are taxable as
such activity can be termed as the
processing of moveable property.
• The observations relied upon by the
petitioner in the case of BSNL (supra) is
only made in an illustrative sense and
cannot be squarely applied to the facts of
the instant case.
• The cases relied upon by the Petitioner
though bearing persuasive value do not
have any bearing on this Court and are
therefore not binding.
Our Take on the above topic
❖ Nature and divisibility of Supply:
• In the given case, the question under
consideration is whether Article
366(29A) envisages a scenario to
encompass implants into human bodies
as works contract under Article
366(29A)(b) - a tax on transfer of property
in goods (whether as goods or in some other
form ) involved in the execution of a works
contract
• In this regard, while the Madras High
Court answers in affirmative, there are
several other courts which classify the
instant transaction as a single supply of
service.
• In our view, a transaction classifiable as
works contract consists of an
established element of goods and
service. That is to say, the very nature
of works contract is such that the
person intending to avail the
transaction is aware of what is being
purchased and the inherent nature of
the said transaction.
• Whereas, in case of medical/health care
services, what the patient actually seeks
is medical aid to cure an underlying
abnormality. Simply put, a patient at
the time of visiting a doctor has no
intention of purchasing implants,
consumables or any other article, the
only purpose is to seek remedy and
remedy only.
• In such a case, what the doctors
prescribes in the nature of treatment is
a certain course of action to the best of
their knowledge in which medication,
consumables etc., may be involved and
would be ancillary or incidental to the
treatment recommended by the
practitioner. Thus what the doctor
provides is treatment and not sale of
goods while providing the service.
• Further, it is largely established that a
doctor may adopt various approaches
for their diagnosis. To render treatment
to a patient this is not only prudent and
essential but also inevitable. The usage
of these objects cannot be construed as
sale of goods especially in case of X-ray
scans, MRI scans reports etc., as such
reports are handed over to the patient -
Page. 32
- conventionally irrespective of whether
such patient needs it or not, or whether
they can correctly comprehend it or not.
• Likewise, in case of medication, implants
and other consumables, the patient is
unlikely fully aware of what is being
prescribed or whether the same would
serve the outcome. However, in any case,
the patient most likely adopts the
treatment recommended by the doctor and
in the process utilises various consumables
and other articles as a part of the remedy
prescribed.
• Therefore, what the doctor actual does is
render a service of treatment so as to
reinstate the patient’s health and to
achieve this objective supplements its with
necessary course of action including but
not limited to medication, implants etc
• In wake of the above, it could be
reasonably stated that the ‘treatment’ is a
single indivisible and inseparable supply
of service and not a combination of sale of
goods and services per se.
❖ Domination Intention:
• The Madras High Court has grossly erred
in disregarding the very basic concept of
dominant intention and caused a stir in the
financial undertakings of the medical
practise.
• At this juncture, it would be relevant to
reiterate that the patient is oblivious of
what the future beholds at the time he
enters the hospital to seek medical aid.
The intention of the patient/doctor/
hospital is to restore the health to normalcy
which principally lacks any intent to buy
or sell goods. In the process, the patient
benefits itself from what the procedure has
to offer so as to reinstate their health to
normalcy.
• Therefore, the basic structure of
treatment involving supplementary
articles for curing or treating a patient
ought to be referred as a service and
service alone by virtue of the intention
involved in undertaking such supply.
❖ Plausible Impact:
▪ Erstwhile Regime:
The instant ruling, has unearthed the
pandora’s box on inclusions and
exclusions of supplies as works contract.
The instant case feigns ignorance to the
legislative intent of exempting the
inevitable medical supplies by bringing to
tax essentials that would renew the life of
humans. This will ‘doctor’ the stance
adopted on these transactions hitherto and
‘give life’ to multiple litigations in the
years to come.
▪ GST Regime:
It is our opinion that the definition of the
term ‘works contract’ under the GST
regime is amply clear and extends only to
immovable property. Thus, ideally, the
implants made on patients while
rendering medical assistance would not
qualify as works contract for the purpose
of GST. However, given rulings of the
kind afforded in case of MIOT, it is quite
possible that the articles implanted within
the body would be classified as
immovable on the grounds that it cannot
be simply ‘moved’ out of the human body!
Having said the above, it would be
interesting to observe the spur in
litigations on this subject and await
further clarity on the same.
Page. 33
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