By TIOL News Service

AHEMDABAD, SEPT 22, 2016: THE issue is - Whether a 'medical pharmacy' established by a charitable hospital can be treated as 'dealer' within the purview of Section 2(10) of Gujarat Sales Tax Act, in case such medical store was created only for purpose of supplying medicines to patients in order to achieve its avowed objects of providing medical welfare. NO IS THE ANSWER.

Facts of the case:

The assessee, a charitable institution registered under the Bombay Public Trust Act, is engaged in providing medical research, medical treatment and other facilities and are having their own hospitals where patients were treated at concessional rate or free of cost. The hospital had a medical store in the premise from where the medicines and other pharmaceutical drugs and equipments were sold. The AO held that the hospital may fall within the Exception II of Section 2(10) of the Act, however, insofar as the medical store was concerned, such exclusion would not be applicable for treating the same as 'dealer'. On appeal, the Tribunal decided in favour of assessee and accepted its contention that running a medical store was only a part of its charitable activity and could not be seen as a separate commercial venture.

The High Court had held that,

1. It is noted that Section 2(10) of the VAT Act defines the term 'dealer' as to mean any person who, for the purpose of or consequential to his engagement in or, in connection with incidental to or in the course of his business buys, sales, manufactures, makes supplies or distributes goods, directly or otherwise, whether for cash or deffered payment, or for commission, remuneration or otherwise this definition come in an inclusive manner and but also contains certain exceptions. Section 2(10) of the Gujarat Sales Tax Act defines the term 'dealer' in similar fashion and contains three explanations, second of which reads as: "....A charitable, religious or educational institution, carrying on the activity of manufacturing, buying, selling or supplying goods, in performance of its functions for achieving its avowed objects, shall not be deemed to be a dealer within the meaning of this clause....".

2. For the purpose of this court, on all material counts the definitions in both the Acts are similar. Only minor difference being that in the GST Act in the exception, the words "which are not in the nature of business" are added, which forms part of perimateria Explanation II to section 2(10) of the GST Act. If at all, this explanation is wider than the Exception III of 2(10) of the VAT Act, it may be possible to argue that the later expression of "which are not in the nature of business" is only by way of a clarification and there is no material change between the two definitions. In any case, the assessee must get the benefit of judgement of this Court in case of BhailalAmin General Hospital, wherein it was held that: "Since the assessee being a charitable trust, is doing the activity of purchasing, selling and supplying medicines to patients in order to achieve its avowed objects, it is not engaged in business activity and therefore, the assessee is not a dealer within the meaning of Exception (iii) to section 2(10) of the Act....".

(See 2016-TIOL-2204-HC-AHM-CT)