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The court found that the medical beds, though offering enhanced features, were not indispensable for childbirth and constituted a luxury
The Kerala High Court ruled that charges collected for the use of sophisticated medical beds in maternity hospitals are subject to luxury tax under the Kerala Tax on Luxuries Act, 1976. While confirming the tax liability, the court set aside penalties imposed on the petitioner and directed a reassessment of tax without arbitrary additions.
The court, presided over by Justice Harisankar V. Menon, held that the tax is imposed on the “experience of luxury” associated with the accommodation and amenities provided by the hospital. “Ultimately, what is to be looked into is as to whether the facility provided is a necessary requirement of an average member of the society. There cannot be any dispute that even without the aid of the medical bed provided by the petitioner, an expecting mother can give birth,” the court observed.
The court’s observation came in a case filed by the petitioner, Cradle Calicut Maternity Care Pvt. Ltd, a private healthcare provider specialising in maternity care, operating a hospital with 22 rooms (4 suites and 18 deluxe rooms). The hospital also offering imported “sophisticated medical beds” with advanced features to enhance nursing care for expecting mothers, charging separately for their use. While the petitioner admitted to paying luxury tax on room charges, it contested tax liability on receipts from the use of these medical beds, arguing that the medical beds were essential professional tools and did not qualify as luxuries. The Commercial Taxes Department initiated proceedings under the Act for non-declaration of these receipts for the financial years 2012-13, 2013-14, and 2014-15, resulting in penalties totalling ₹27,51,652. Orders imposing penalties and demanding unpaid taxes were issued, which the petitioner challenged in two writ petitions before the High Court.
The court noted that under Section 4 of the Act, charges exceeding ₹1,000 for accommodations and amenities are taxable unless specifically excluded under Section 4(2)(e), which applies to food, medicine, and professional services. The court found no basis to exempt medical beds under these provisions. The court stated, “Ultimately what is taxed under the statute is the experience of luxury as regards the accommodation/ amenities in the hospital. There cannot be any challenge against an assessment with reference to the afore activity.”
The court analysed the statutory provisions and relevant case law, including the Supreme Court's interpretation of “luxury” in Godfrey Phillips India Ltd. v. State of U.P., which established that such activity which is intended to provide comfort and pleasure beyond the requirements of the constitutive facilities of a hospital, which are essentially in the nature of food, medicine and professional services and a basic accommodation, would satisfy the definition and tests of luxury. The court found that the medical beds, though offering enhanced features, were not indispensable for childbirth, thus, constituting a luxury under the Act.
However, the court noted that the petitioner acted under a bona fide belief about the tax's applicability, and there was no evidence of deliberate tax evasion. Referring to the Supreme Court's judgment in Hindustan Steel Ltd. v. State of Orissa, the court noted that “the petitioner was proceeding on the bona fide belief with reference to its non-liability as against the receipts for the use of the medical beds. The fact that what is being imposed is a penalty shows that unless and until mens rea is established, no penalty can be levied. There cannot be any contumacious conduct on account of the non-inclusion of the afore amounts in the return.” The court also invalidated additional tax assessments based on “probable omissions and suppressions,” deeming them arbitrary and unsupported by facts.
In light of these findings, the court, though upheld the petitioner’s liability to pay luxury tax on the charges collected for medical beds. It directed the assessing authority to issue a fresh assessment order without penalising the petitioner under Section 17A, noting that there was no evidence of fraudulent intent and the hospital’s non-inclusion of the charges in its returns was based on a bona fide belief that such charges were exempt.
Cause Title: M/S Cradle Calicut Maternity Care Pvt. Ltd. v. State of Kerala [WP(C) NO. 28762 OF 2017 & Connected Case]
Appearances: Counsel for Petitioner: Advocate Jose Jacob; Counsel for Respondents: Senior Government Pleader Sayed M Thangal
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