CESTAT: Service Tax is Not Applicable to Clinical Establishments that provide Health Care Services

CESTAT: Service Tax is Not Applicable to Clinical Establishments that provide Health Care Services

The Customs, Excise and Service Tax Appellate Tribunal, Delhi Bench (in short CESTAT) observed that clinical establishment providing health care services are exempted from service tax.

The division member bench comprising of Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member) observed that health care services are provided by the clinical establishments by engaging consultant doctors in terms of the arrangement. For such services, amount is collected from the patients. The same is shared by the clinical establishment with the doctors. There is no legal justification to tax the share of clinical establishment on the ground that they have supported the commerce or business of doctors by providing infrastructure.

The appellant/assessee- M/s. Maharaja Agrasen Hospital Charitable Trust has been running a hospital since the year 1988. It claims to have a facility of 410 beds, doctors with specialization in different fields. According to the appellant, it engages doctors as consultants, resident doctors, senior resident doctors and doctors on internship basis and whenever medical services are provided to a patient, the appellant raises a bill towards room charges, medicines, diagnostics charges for radiology and laboratories and doctor fees. The doctors so engaged are paid their share of fees.

However, two show cause notices, were issued to the appellant, on the premise that the appellant was providing "business support service" to doctors by providing facilities and administrative support to them.

The Notice stated, "An intelligence was gathered by the officers of Anti Evasion Branch of Service Tax Commissionerate, Delhi that the Hospital is engaged in providing "Business Support Service", "Business Auxiliary Services" and "Renting of Immovable Property Services" and is not paying service tax properly. However, the appointment order of doctors clearly indicates that considerable amount is being retained by the hospital. Which appears to be taxable under the category of Business Support Services."

The Commissioner also confirmed the service tax demand for "renting of immovable property" services.

The assessee filed the appeal to contest the confirmation of demand under the heading "business support service," as service tax for renting immovable property had already been deposited.

There was an agreement entered into by the hospital and the doctors. On perusal of the aforesaid agreement, it indicated that patients were billed according to the charges stipulated in the charge list and out of the total fees (after the deduction of Tax Deducted at Source) settled at the time of appointment, seventy-eight per cent was paid to the doctors and the remaining twenty-two per cent was retained by the Hospital.

The Commissioner found that the amount retained by the Hospital was towards the services rendered by the Hospital to the doctors for providing all the necessary facilities which were necessary and without which the doctors could not perform their activities and therefore, the said service were classifiable under Section 65 (104) (c) as "support services of business and commerce" and taxable under Section 65 (105) (zzzq) of the Finance Act 1994.

The Appellate Tribunal relied on the judgment passed by the Tribunal in Ganga Ram Hospital case (2017) wherein the Tribunal, after a consideration of the conditions prescribed in the agreement held that the arrangement was for joint benefit of both the parties with shared obligations, responsibilities, and benefits and, therefore, no service was provided by the hospital to the doctors.

The Appellate Tribunal noted that with effect from 1 May, 2011, health care services were exempted from service tax under Notification No. 30/2011 ST: MANU/DSTX/0055/2011. After introduction of negative list tax regime, Notification No. 25/2011-ST: MANU/DSTX/0065/2012 exempted levy of service tax on health care services rendered by clinical establishments.

The tribunal has held that the Commissioner was not justified in confirming the demand for service tax under the heading "business support services."