The Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), Chandigarh, ruled that the revenue-sharing arrangements between the health service centre (appellant) and the diagnostic service providers (DSPs) are not subject to service tax under the ‘Business Support Services’ (BSS) as defined under Section 65(104c) read with Section 65(105)(zzzq) of the Finance Act, 1994.
Pointing out that ‘Healthcare Services’ are fully exempted from the tax w.e.f. April 25, 2011 vide Notification No. 30/2011-ST, the CESTAT held that the service, if any, rendered by the appellant is not ‘BSS’ and rather qualifies as ‘Healthcare Service’, which is exempted from the ambit of service tax. The Tribunal, therefore, quashed the demand and penalty.
From perusal of the agreements between the parties, the CESTAT found that the contracts between the appellant and various DSPs are on a principal-to-principal basis and are in the nature of sharing-revenue. As per the contracts, the appellant is required to provide infrastructure and DSPs are required to install their equipment; and the revenue earned from the patients is shared between the appellant and the DSPs and no taxable service is being provided by the appellant to DSPs.
The Division Bench comprising S.S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member) observed that it is the appellant who established the Hospital and provided healthcare services to the patients, and DSPs are, in fact, a part of the appellant as a joint venture who are providing diagnostic services to the patients; it is the patient, who is ultimate recipient and beneficiary of medical services in the appellant’s Hospital.
In fact, the Hospital provides healthcare services to the patients, and whenever any diagnostic service is required, the appellant and DSPs jointly provide the same to the patients. The revenue flows from the patients to the appellant, which is shared by the appellant with DSPs as per the contract, added the Bench.
The Bench referred to the Circular No. 109/03/2009-ST dated February 23, 2009, to observe that the transactions between two contracted parties on a principal-to-principal basis are not to be treated as service. Though the circular was issued in the context of the levy of service tax on movie theatres, the same applies to the present as well, because the appellant and the DSPs are dealing with each other on a principal-to-principal basis.
The Bench also explained that merely providing a building along with some basic amenities like electricity, water, sewage, etc., cannot be qualified as a ‘support service’ for running a business. These facilities are provided to the DSPs to enable them to provide the services to the appellant, and without these facilities, DSPs would not be in a position to provide the service to the appellant.
Briefly, the appellant, registered with the service tax department under ‘Health Services’ and ‘Renting of Immovable Property’, entered into agreements with various Diagnostic Service Providers (DSPs) for providing the pathology lab and other diagnostic services in the hospital. Further, as per the agreements, the appellant provides basic amenities to DSPs for functioning and installation of their equipment in the appellant’s premises. When DSPs render services to patients within and outside the hospital premises, the appellant raises the invoice on patients and shares the receipts with DSPs in an agreed percentage, and the amount is paid to DSPs after deducting the administrative and upkeep charges. Additionally, the DSPs also share the revenue earned by rendering services outside the hospital premises to patients referred by the appellant in an agreed percentage.
Now, the Department opined that the appellant is providing Business Support Services (BSS) to DSPs, and therefore, is liable to pay the service tax under BSS. Two show-cause notices were issued proposing the demand of service tax of Rs. 24.96 lacs and Rs. 17.65 lacs, along with interest and penalty, holding that the infrastructural support services to DSPs are not excluded from the ambit of ‘Service’ defined under Section 65B(44) of the Finance Act. After following the due process, the Adjudicating Authority, vide OIO, provided the benefit of cum-tax and confirmed the demand for service tax. On appeal, the Commissioner (Appeals) upheld the OIO.
Case Relied On:
OP Jindal Institute of Cancer & Research vs. CCE – 2024 (10) TMI 824 CESTAT Chandigarh
Appearances:
Advocates Krati Singh, Samiksha Uniyal, and Yashaswi Singh, for the Appellant/ Taxpayer
AR, Goverdhan Dass Bansal, for the Respondent/ Revenue
