The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai, has set aside the service tax demand of ₹34.83 lakh, holding that amounts received under collaborative healthcare arrangements with other hospitals constituted revenue sharing for integrated clinical management and not consideration for taxable services such as manpower recruitment or supply agency service.
The dispute arose from a show cause notice dated October 19, 2012, alleging that the appellant had rendered taxable services by deputing doctors and staff, imparting training, and providing managerial and technical assistance to Indira Gandhi Eye Hospital and Research Centre and M.P. Birla Netralaya under the MOUs to set up and run an eye hospital jointly. The Department treated the amounts received in the appellant’s accounts as “royalty income” or “management fee” as consideration for Manpower Recruitment later and these demands were confirmed by the adjudicating authority vide order dated September 30, 2013, later upheld by the Commissioner by order dated August 7, 2014. Aggrieved appellant approached CESTAT, Chennai.
The Bench, comprising Mr. P. Dinesha and Mr. Vasa Seshagiri Rao, observed that the MOU arrangements reflected a principal-to-principal basis in which the appellant provided clinical supervision, training, and deputation of staff to ensure uniform standards of eye care, while the partner hospitals contributed the infrastructure and financial resources. Furthermore, the tribunal held that the amount described as “royalty” or “management fee” was not a payment for consultancy services, but was intended to meet operational costs. There was no evidence of any separate commercial consultancy or profit-oriented service.
The Tribunal held that reimbursement of salaries of deputed doctors and staff, which remained on the appellant’s payroll, and were reimbursed on an actual cost basis, does not amount to manpower recruitment or supply service. Similarly, training imparted as part of collaborative healthcare delivery by charitable clinical establishments could not be classified as commercial training or coaching. Relying on the CBEC Circular No. 109/03/2009-ST dated February 23, 2009, the Tribunal observed that revenue-sharing arrangements on a principal-to-principal basis do not constitute taxable services.
Applying the dominant nature test under Section 65A of the Finance Act, 1994, the Bench concluded that the activity was essentially integrated healthcare delivery, which was not liable to service tax during the relevant period. Accordingly, the impugned Order-in-Appeal dated August 7, 2014, was set aside, and the demand for service tax, interest, and penalties was quashed with consequential relief to the appellant.
Appearances:
For the Appellant – Advocate Joseph Prabhakar.
For the Respondent – Authorised Representative Anoop Singh
