JUDGMENT P. Puttaraju—These forty-one appeals are directed against the appeal orders concluded by the Joint Commissioner of Commercial Taxes (Appeals-I), Bangalore (hereinafter referred to as 'First Appellate Authority' or for short, 'FAA') dated 18th December, 2009 in Case Nos. VAT.AP. 423 to 463 of 2009-10 for the tax periods of April 2005 to March 2006, April 2006 to March 2007, April 2007 to March 2008 and April 2008 to August 2008 thus encompassing 41 (forty-one) tax periods under the Karnataka Value Added Tax Act, 2003 (hereinafter referred to as the 'Act'). The FAA by his impugned order has modified the protective assessment orders concluded by the Assistant Commissioner of Commercial Taxes (Enforcement-7), South Zone, Bangalore (hereinafter referred to as 'Assessing Authority' or 'AA' for short) under Section 38(5) of the Act dated 2nd June, 2009. The FAA in his impugned order has modified the orders of the lower authority i.e., AA by quantifying the purchase of medicine made by the appellant during each tax period and has also directed to add 70% G.P. to arrive at taxable sales. Aggrieved by these impugned appeal orders of the FAA, the appellant has filed these appeals under Section 63 of the Act. The appellant is represented by Sri B. Venugopal, Advocate. The learned Counsel has appeared on 9th January, 2013 and 22nd February, 2013 to advance his arguments. 2. The relevant facts and grounds of appeal in brief are as under: (i) The appellant is engaged in the medical profession, rendering medical services. The appellant has established clinics all over India to render medical services. The appellant is not a registered dealer, either under the KVAT Act, 2003 or Central Sales Tax Act, 1956. (ii) The services rendered by the appellant is in the nature of consultancy, advice, diagnosis and treatment. For this purpose, the appellant has hired doctors to render medical services. Doctors are called Consultants or Consulting Doctors who in the course of medical treatment, dispense, homeopathic medicine to the patients. (iii) The appellant urges that the medicines dispensed in the course of medical treatment is purchased from the concerned doctors in their name, store and dispense medicine to their respective patients during the course of medical treatment. Doctors are called Consultants or Consulting Doctors who in the course of medical treatment, dispense, homeopathic medicine to the patients. (iii) The appellant urges that the medicines dispensed in the course of medical treatment is purchased from the concerned doctors in their name, store and dispense medicine to their respective patients during the course of medical treatment. (iv) The AA who is also inspecting authority inspected the business place of the appellant on 10th February, 2009 and thereupon issued show-cause notice dated 26th March, 2009 proposing to tax, the value of medicines which have been dispensed by the doctors to the patients in the course of medical treatment. Thus the AA treats the dispensation of medicines as sale of goods. In doing so, the AA has adopted the formula of 30% towards consultancy and 70% towards the value of medicines. The appellant assails that the arbitrary formula adopted by the AA of 30% : 70% is illogical and no reasoning is given to arrive at such conclusion. (v) The AA after hearing the appellant has confirmed the tax proposed by the protective assessment order dated 2nd June, 2009 under Section 38(5) of the Act. Aggrieved by the said order of the AA, the appellant filed an appeal before the FAA who has modified the protective assessment orders of the AA to re-compute the sale value of the medicine by adding 70% of the margin to the cost of medicines purchased and to compute the taxable turnover. Hence, the present appeals are preferred. (vi) The appellant urges that the activity carried out by it is only medical services and substantial expenditure is towards establishment and promotional expenses to effectively render the medical services. (vii) It is submitted that the medicines are not at all purchased in the name of the appellant-clinic for which the reliance is placed on audited financial statements to substantiate the fact that the purchase cost of medicine is not reflected in such audited financial statements. (viii) The medicines dispensed by the doctors are in the course of the treatment and medicines dispensed during the course of the treatment are unique to the patient, based on individual prescription of the doctor and the patient does not even know the name or potency of the medicine. (ix) It has been urged that the appellant noway sells medicines by a pharmacy. (ix) It has been urged that the appellant noway sells medicines by a pharmacy. (x) The appellant Counsel submits that the FAA erred in confirming the demand of output tax payable on taxable turnover of the medicine dispensed during the course of medical treatment by adding 70% margin to the cost of medicine purchased and avers that how the FAA has come to the conclusion that 70% margin has to be adopted is not known and it is arbitrary fiction. The learned Counsel further submits that there is no provision under the Act and Rules made thereunder, to arrive at the taxable turnover by adding margin of profit on the purchase value of the goods, for levying output tax. The very fact that such type of bifurcation amounts to artificial bifurcation of a composite transaction involving goods and services, to impose tax only on the goods. The appellant highlights the definition of works contract under Section 2(37) of the Act which defines works contract in an elaborate manner. The appellant emphasises the fact that the activity carried out by the appellant does not fall under the definition of works contract. Thereby, the appellant puts forth the plea that the transactions effected by it are a composite in nature which includes both goods and services. (xi) The appellant urges that Article 366 has been amended by inserting clause (29-A) which has six sub-clauses. The activity carried out by the appellant does not fall under any of sub-clauses namely Article 366(29-A) from sub-clauses (a) to (f). These amendments have been carried out and allow the Legislature to bifurcate the substantial composite contacts into divisible contracts by legal fiction and thereby the sale can be isolated and be subjected to tax. The three types of activities which are eligible for vivisection are sub-clause (b), sub-clause (c) and sub-clause (f) dealing with works contract, hire purchase contract and catering contract. (xii) The appellant on the above grounds submits that the transaction carried out by it is neither a catering contract nor a hire purchase contract. It is a composite contract involving both goods and services. If at all, the composite contract has to be bifurcated then the transactions are to be proved as works contract which is not so in the case of the appellant. It is a composite contract involving both goods and services. If at all, the composite contract has to be bifurcated then the transactions are to be proved as works contract which is not so in the case of the appellant. The main reason for the same is that the impugned transaction namely dispensing of medicine during the course of medical treatment does not find any place in the transactions envisaged in clause (29-A) of the Article 366, in order to subject the same for levy of tax under deeming fiction of sale. In support of the same, the appellant cites the decision rendered by the Hon'ble Supreme Court in the case of Bharat Sanchar Nigam Ltd. and Another Vs. Union of India (UOI) and Others, AIR 2006 SC 1383 . The appellant highlights particularly paragraph Nos. 42, 43 and 48 of the said judgment to drive home his point. The appellant brings to the notice of this Bench that the Hon'ble Apex Court has decided that only in case of sub-clause (b) and sub-clause (f) the splitting of the agreement is permissible. The fact why this service does not involve a sale for the purposes of Entry 54 of List II is for the reason ultimately attributable to the principles enunciated in Gannon Dunkerley first case. Therefore, the service rendered by the appellant being simply services which are not enumerated under the said Article cannot be discernable. 3. On the above grounds, the appellant respectfully submits that the impugned order of the FAA is not correct, in dividing a composite, indivisible medical transaction, in which the value of goods and services is not discernable. This would result in taxation of services, in the guise of taxation of goods in the composite contract and urges that the impugned order is bad in law and liable to be set aside. 4. Further, the appellant submits that liability of tax if any in the present case can only be on the individual doctors and not on the appellant since the medicines are purchased in the name of the doctors and each of the doctors own the medicines which are dispensed by them on their diagnosis and against their own prescriptions. 4. Further, the appellant submits that liability of tax if any in the present case can only be on the individual doctors and not on the appellant since the medicines are purchased in the name of the doctors and each of the doctors own the medicines which are dispensed by them on their diagnosis and against their own prescriptions. Only to facilitate the transaction of purchase of medicines from the vendors, the appellant pays the vendor for and on behalf of the doctors which does not mean that the appellant has effected purchase of medicines. The amount what is being paid to the vendors or suppliers of the medicines are ultimately deducted from the consultation charges apportioned from the appellant to the individual doctors. On this ground also, the prayer is made to set aside the impugned order of the FAA and that of the AA and further submits that if the levy of tax has to be done, then the individual doctors are to be subjected to tax. 5. The appellant has submitted two spiral bind books namely Book No. 1 containing pages from 1 to 87 and Book No. 2 containing pages from 1 to 49. The Book No. 2 consists of photocopies of the four judgments, 46th Amendment to the Constitution and also the circular issued by the Commissioner of Commercial Taxes, Maharashtra. The Book No. 1 consists of 16 parts starting from consultancy agreement with doctors, list of doctors, patient registration from etc., and ending with TDS (Form 16-A) for tax deducted at source towards consultancy fee, audit accounts of the appellant for the financial years 2005-06, 2006-07, 2007-08 and analysis of consultation fee receipts. Based on these documents, primarily Book No. 1 the appellant factually demonstrates that the percentage of income receipts from the various branches located in Karnataka, total selling and distribution cost, administrative cost, percentage of share clinic wise and direct cost with respect to the revenue realised. The direct cost pertaining to the material which also involves medicines is oddly at 1.76%. The learned Counsel for the appellant highlighted this fact during his arguments and urged that with the direct cost of medicine is around 1% which is not at all reflected in the audited annual financial statements as such. Then it cannot be considered as sale of medicine exigible to tax under the Act. The learned Counsel for the appellant highlighted this fact during his arguments and urged that with the direct cost of medicine is around 1% which is not at all reflected in the audited annual financial statements as such. Then it cannot be considered as sale of medicine exigible to tax under the Act. To sum up the appellant relies on five factors: (i) The nature of contract i.e. composite contract. (ii) Article 366(29-A). (iii) Dominant nature test approved by the Hon'ble Apex Court in BSNL's case. (iv) Non-permissibility to divide the composite contract as transactions of sale and transactions of service as against the principles enunciated in BSNL's case and also as per Article 366(29-A). (v) The professional dispensing of medicine by the doctors who have effected purchases in their name cannot be considered as a sale for the purpose of the Act. 6. On these grounds, the appellant prays to quash the impugned orders of the FAA as well as that of AA since the transactions dealt by the appellant is not at all "sale" for the purposes of the Act. 7. The learned State Representative in response to the assailment of learned Counsel for the appellant urged that the appellant is engaged in business activity and to be treated as sale only. The State Representative relies mainly on the fact that the payment is done by the appellant towards the purchase of medicine, even though the purchases are effected from the doctors individually but later such amount are deducted from the consultancy fees of the doctors. On this ground, it is urged that there is an element of sale and thereby defends the impugned order of the FAA. 8. Heard the learned Counsel for the appellant and State Representative. The common question of law and facts are involved in these appeals and hence clubbed together and disposed of by this common judgment. 9. Perused the lower Court records. The documents submitted by the learned Counsel for the appellant in two spiral books as well as the synopsis of the case are verified. The points arise for our consideration are: (1) Whether the impugned order of the FAA treating the transactions effected by the appellant so far as dispensation of medicine is a transaction of sale is correct? (2) Whether the appellant has rendered purely services as urged in his ground and as per the facts of the case? The points arise for our consideration are: (1) Whether the impugned order of the FAA treating the transactions effected by the appellant so far as dispensation of medicine is a transaction of sale is correct? (2) Whether the appellant has rendered purely services as urged in his ground and as per the facts of the case? (3) What order? 10. Our findings to the above points are as under: Point No. 1: In the negative. Point No. 2: In the affirmative. Point No. 3: As per the final order for the following: REASONS 11. Point No. 1.--Incorporate hospitals like Apollo, Fortis etc., the pharmacy unit is separate and get registered under the Act. In such cases, the patients who visit the hospitals are of two types: (i) Out-patients (OP) - consulting/diagnosis/prescription for a specified period for remedial cure. (ii) Inpatients (IP) - admitted to hospitals, kept inpatients wards which involves admission, consultation, diagnosis and treatment till the patient gets cured. In case of inpatients, the doctors or physicians prescribe the medicines and it is the responsibility of the patients or the patients care-taker to procure the medicines. In such cases, the patients obtain or procure medicines either from the pharmacy unit of the hospital or from the outside as the case may be. The corporate hospitals take registration separately for the pharmacy unit for selling of medicine for the fact that medical consultants or experts do not dispense medicines in the course of their treatment but rather prescribe medicines allowing the choice to the patient to procure medicine from any pharmacy unit that of the hospital or outside the hospital. Whether it is inpatient or outpatient normal procedure adopted by the medical consultants or experts involves (a) Consultation; (b) Physicians examination; (c) Diagnosis and finally dispensation of medicines by the doctors only or choice given to the patients to procure the medicine. In case when the medical consultants or experts dispense the medicines in the course of treatment after examination and prescription, the transaction is one of composite in nature. This means to say the activity is a mixed one involving service and dispensing medicine and such transaction can be termed as composite contract involving the patients and the doctor. What is important here is that the patient is not concerned from where actually the doctors or consultants are procuring medicines but more concerned about the diagnosis, treatment and cure. This means to say the activity is a mixed one involving service and dispensing medicine and such transaction can be termed as composite contract involving the patients and the doctor. What is important here is that the patient is not concerned from where actually the doctors or consultants are procuring medicines but more concerned about the diagnosis, treatment and cure. Even when the medical experts or consultants prescribe and dispense the medicine in the course of treatment on his own without giving any choice for the patients to procure medicines. The patient is more particular about the efficiency of the medical treatment rendered rather than the medicines dispensation. This means the patient at the point of medical treatment is more particular about the knowledge and expertise of the doctor rather the medicine. The patient wants or desires to have the best way of treatment to have a remedial cure and not bothered about the source of medicine or the nature of medicine. This type of activity is an integrated activity involving the application of medical expertise and dispensing of medicine which means that it is a composite transaction of goods and services. The question which arises is which is the dominant one i.e., whether the medical expertise is dominant or the portion of medicine dispensed is dominant? The cost of medicine is not more than 1.76% of the cost of the medical treatment package which involves medical consultancy, diagnosis, using various equipments and then prescribing the medicine for each patient as per the pathological report of the patient. In doing so, the medical expert or the doctor dispenses the medicine to the patient which is very minuscule to the total cost. These documents are available on the FAA's records from page Nos. 103 to 295. The same are classified as Annexure-1 to Annexure-16. It is seen from these documents that the doctors prepares the consultation note and finally dispenses the medicine which is purchased by him. These documents are available on the FAA's records from page Nos. 103 to 295. The same are classified as Annexure-1 to Annexure-16. It is seen from these documents that the doctors prepares the consultation note and finally dispenses the medicine which is purchased by him. The consultancy agreement with the doctors, the patient registration form, illustrative case history of the patient, illustration of medical prescription issued indent by the doctor for the procurement of medicine, packing slip, bill payment to the vendor and the homeopathic medicine dispensed by the doctor and the analysis of various cost heads of the clinic reveals that it is the medical expert or consultant who procures the medicine for the purpose of treatment of the patients. The patients are charged for the treatment as a package which also includes the medicines cost. This being the case, the transactions are composite in nature and cannot be disintegrated as two components one of services which is the most dominant one and the other being the cost of medicine which is abysmally low. As held in BSNL's case, the dominant nature being rendering of medical services, the transaction cannot be split into service and goods components. The concept of aspects theory which had found a force in State of Uttar Pradesh and Another etc. etc. Vs. Union of India (UOI) and Another, AIR 2003 SC 1147 , has expressly being overruled by a three-Judges Bench in Bharat Sanchar Nigam Limited, wherein the doctrine of aspects theory has been overruled. This has been affirmed by the Hon'ble Apex Court in Imagic Creative Pvt. Ltd. Vs. The Commissioner of Commercial Taxes and Others, (2008) 56 BLJR 1038 . Further to this, the transactions in question does not fit under any of the sub-clauses of Article 366(29-A). By applying the dominant nature test as well as the transaction nature it is decided that the dispensing of medicine by the doctors during the course of integrated package treatment cannot be considered as sale for the purpose of the Act. Therefore, both FAA and AA have erred in deciding that the dispensing of medicines by the doctors/medical experts or consultants is sale. Hence the Point No. 1 is answered in the negative. 12. Therefore, both FAA and AA have erred in deciding that the dispensing of medicines by the doctors/medical experts or consultants is sale. Hence the Point No. 1 is answered in the negative. 12. Point No. 2.--The appellant has produced all necessary documents before the AA as well as the FAA to demonstrate that the transactions dealt by the appellant is in the nature of medical services rather than involving sale of medicine. The FAA even though has taken cognizance of the fact that the cost of medicine is less than 1.76% which is the material cost, still has segregated the purchase value of medicine effected by the individual doctors/medical consultants and has directed the AA to arrive at taxable sales by adding 70% G.P. The Hon'ble Apex Court has decided that only in case of sub-clauses (b) and (f) of Article 366(29-A), the splitting of the agreement is permissible. The fact why this service does not involve a sale for the purposes of Entry 54 of List II is for the reason ultimately attributable to the principles enunciated in Gannon Dunkerly first case. So, if there is an instrument of contract which may be composite in form of any manner other than the exceptions envisaged in Article 366(29-A), unless the transactions in truth represents two distinct and separate contracts and is discernable as such, then the State could not have the power to separate the agreement to sell from the agreement to render service and impose tax on the sale component only. The test therefore for composite contract other than those mentioned in Article 366(29-A) continues to be; did the parties have in mind or intent separate rights arising out the sale of goods? If there was no such intention, then there is no sale even if the contract could be disintegrated. The test for deciding whether a contract falls into one category or the other is to what is the substance of the contract. This substance is known as the dominant nature test. The documentary evidence adduced by the appellant distinguishes the transactions carried on by it when compared to other sales transactions. Therefore, if during the treatment of the patient in a hospital, if the patient is given pill can the tax authority can tax the transactions as a sale? This substance is known as the dominant nature test. The documentary evidence adduced by the appellant distinguishes the transactions carried on by it when compared to other sales transactions. Therefore, if during the treatment of the patient in a hospital, if the patient is given pill can the tax authority can tax the transactions as a sale? Doctors, Lawyers and other professionals render services in the course of which can it be said that there is a sale of goods when a doctor writes out and hands over a prescription or a lawyer drafts a document and delivers it to his/her client? Strictly speaking with the payment of fees, consideration passes from the patient or client to the doctor or lawyer. In both the cases, the same cannot be considered as sale as envisaged under Article 366(29-A) of the Constitution of India. On this basis, whether a transaction can be termed as sale is purely based on matter of contract and intention. Therefore relying on paragraphs 42, 43 and 48 of the BSNL's case, only works contract and catering contract involve both service and sale at the same time, only with respect of these two cases, splitting of service and supply of goods is permissible. Therefore, the service rendered by the appellant being simply services which are not enumerated under the said Article cannot be discernable. As discussed under Point No. 1, the transactions being of services and the patient is not particular about the medicines being dispensed but rather interested in diagnosis and treatment for the remedial cure. Such being the case, one very minor aspect of the composite contract cannot be taken out to treat the transaction of dispensing medicine as sale. Going further even doctors/medical consultants when they dispense medicines in the course of treatment cannot be considered as sale in the instant case since it is done as professional service and medicine component is too marginal. For example when a mother takes her kid who has suffered injuries and cuts, to a doctor then the doctor stitches the cut by suturing of the cut followed by administering Anti-Tetanus injection and also giving Analgesic prick, dispensing Antibiotic pills also for 3 or 5 days and then charges say Rs. 250/- or Rs. 300/- as fee, then it is not permissible to bifurcate the value of goods i.e., medicine value and value of doctor's services. 250/- or Rs. 300/- as fee, then it is not permissible to bifurcate the value of goods i.e., medicine value and value of doctor's services. This is purely a professional service where the dominant nature is that of service which involves the knowledge and expertise of the doctor rather than what actually he dispenses. Therefore, the decision taken by the FAA in his impugned order is incorrect. The AA has not at all analysed the nature of activity carried out by the appellant but has focused mainly on one single aspect of dispensation of medicine by the doctors/medical experts. There is no finding whatsoever how the transaction could be treated as sale when the transaction involves nearly 98.24% service factor. The fact that in order to facilitate the procurement or purchase of medicines, the payment is done by the appellant does not alter the situation of composite contract. In fact the said amount finally deducted from the amounts to be disbursed to the doctors/medical experts. The cost of medicines to the total cost is less than 1.76% as discussed above. All these facts were present before the FAA and the AA but still both have failed to appreciate these facts while passing the impugned appeal order and reassessment orders. In view of the above facts as the appellant has demonstrated by adducing all the necessary documents to prove that the activity is medical service, Point No. 2 is answered in the affirmative. Point No. 3.--As Point No. 1 is answered in the negative and Point No. 2 is answered in the affirmative, the impugned orders of the FAA as well as the AA are liable to be set aside and accordingly the same are set aside. In the result, the appeals are to be allowed. Hence, we proceed to pass the following order.-- ORDER (1) All the forty-one appeals are allowed. (2) The impugned orders of the FAA and AA are set aside. The tax levied by AA as directed by the FAA is cancelled. Consequently penalty and interest levied if any is also cancelled. (3) Keep the original judgment in STA No. 338 of 2010 and copies of the same in STA Nos. 339 to 378 of 2010. (4) The Registrar to comply Regulation 53(b) of Chapter IX of the Karnataka Appellate Tribunal Regulations, 1979 to send the copies of the judgment. Consequently penalty and interest levied if any is also cancelled. (3) Keep the original judgment in STA No. 338 of 2010 and copies of the same in STA Nos. 339 to 378 of 2010. (4) The Registrar to comply Regulation 53(b) of Chapter IX of the Karnataka Appellate Tribunal Regulations, 1979 to send the copies of the judgment. (5) The office is directed to send back the lower Court records.