Sophisticated Medical Beds For Expecting Mothers Are Subject To Luxury Tax: Kerala High Court

The court made the observation in a plea filed by Cradle Calicut Maternity Care, a private limited company engaged in providing specialized maternity care. They contended that sophisticated medical beds imported from abroad were used for providing the best maternity care and were outside the scope of the luxury tax.

Justice Harisankar V. Menon stated that admittedly expecting mothers are being permitted the use of amenities and services while being accommodated in the hospital rooms which was not disputed. It said:

“Thus, 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.”

“It is found that the petitioner has the liability to satisfy luxury tax under the Act as against the receipts for the use of medical beds", the court said.

The petitioner has four suite rooms and eighteen deluxe rooms and is registered under the Kerala Tax on Luxuries Act of 1976. The petitioner said that it was providing sophisticated medical beds to the patients/expecting mothers who require special medical care, collecting a separate amount towards the use of this bed. The petitioner was admittedly satisfying luxury tax with regard to the room rent collected. However for charges for the facility of “medical bed”, the petitioner had not declared the receipts under the statute and was also not paying tax, taking the stand that the receipts for the use of the medical bed are outside the purview of imposition of luxury tax under the Act.

The Commercial Taxes Department initiated proceedings under Section 17A of the Act and assessment authority imposed a penalty upon the petitioner for not paying luxury tax for the usage of medical beds. The orders of the assessment authority were challenged before the High Court by the petitioner. 

The Counsel for Petitioner submitted that sophisticated medical beds were provided for expecting mothers who require special care and that they fall outside the scope of the luxury tax. It was argued that medical beds were an essential part of the professional services provided in the hospital and were not liable for taxation.

On the other hand, the respondents submitted that sophisticated medical beds are luxury and they have not been exempted from taxation.

The Court found that as per Section 4 of the Act, luxury tax could be collected from the hospital for charges of accommodation for residence for use of amenities and services at a particular rate, when those charges collected from the patient are in excess of rupees 1000. It noted that exclusion could only be provided under Section 4 (2) (e) for charges for food, charges for medicine and charges for professional services and that medical beds do not get exemption under these three exclusions.

The Court added, “I am of the view that such a challenge cannot be raised in view of the specific exclusion of three items alone under Section 4(2)(e) referred to earlier.I am of the opinion that the petitioner is liable to tax on the charges collected as against the medical beds provided by it”.

Further, the Court observed that the medical bed at the petitioner's hospital also provides specialised facilities. The Court stated that the petitioner was being taxed for the experience of luxury for enjoying the accommodation and amenities in the hospital.

The Court further stated that the petitioner cannot be penalized under Section 17A, since they have not filed any untrue or incorrect returns. The Court stated that they were using medical beds with the bona fide belief that they were not liable to pay luxury tax and there was no mens rea.

“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.”

Accordingly, the Court set aside the order imposing penalty. And, the Court directed the assessing authority to pass a fresh assessment order. 

Case Title: M/S. Cradle Calicut Maternity Care Pvt. Ltd v State of Kerala & Connected Case

Counsel for Petitioner: Advocate Jose Jacob

Counsel for Respondents: Senior Government Pleader Sayed M Thangal

Case Number: WP(C) NO. 28762 OF 2017 & Connected Case

Citation: 2024 LiveLaw (Ker) 760