The dominant nature test and substance of the contract are crucial in determining whether a transaction constitutes a sale of goods or the rendering of services.

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.

(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