Clinical Establishments providing Health Care Services not liable to pay Service Tax: CESTAT

New Delhi: Through a recent order, the Delhi Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has stated that clinical establishments that provide healthcare services are exempted from paying service tax.

The CESTAT bench expressed this opinion while setting aside an order of the Commissioner of Service Tax, Delhi III, which had issued show-cause notice to Maharaja Agrasen Hospital Charitable Trust confirming the demand of service tax under “business auxiliary service” and “renting of immovable property service” with penalty and interest.

However, setting aside the order of the Commissioner, the two-member bench of CESTAT comprising Justice Dilip Gupta (President) and P.V. Subha Rao (Technical Member) opined that clinical establishments provide healthcare services by engaging consultant doctors and for the services, an amount is collected from the patients.

Noting that the clinical establishments share the amount with the doctors, the CESTAT bench opined that there is no legal justification to tax the share of clinical establishments on the ground that they have supported the commerce or business of doctors by providing infrastructure.

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The matter concerns the appellant hospital that has been running since 1988. 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.

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. Apart from this, the Commissioner also confirmed the service tax demand for "renting of immovable property" services.

The appellant hospital filed the appeal before the CESTAT bench only to contest the confirmation of demand under the head of “business support service”, as according to the appellant, service tax for renting of immovable property has already been deposited.

Meanwhile, the hospital and the doctors entered into an agreement. As per the agreement, patients will be billed in strict compliance of charges stipulated in the charge list and out of the total fees (after the deduction of TDS) 78% (or the amount decided at the time of appointment) of the total fees collected from the patient will be given to the doctors and the remaining 22% will be retained by the hospital.

Referring to the concerned agreement, the CESTAT bench noted, "A perusal of the aforesaid agreement indicates that patients will be billed according to the charges stipulated in the charge list and out of the total fees (after the deduction of TDS) settled at the time of appointment, 78% would be paid to the doctors and the remaining 22% will be retained by the Hospital."

However, the Commissioner had found that the amount retained by the Hospital is towards the services rendered by the Hospital to the doctors for providing all the necessary facilities which are necessary and without which the doctors cannot perform their activities and therefore, the said service would be 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.

While considering the matter, the CESTAT bench referred to the observations made by the Tribunal in Ganga Ram Hospital. In those previous order, 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.

Referring to the previous orders of the Tribunal, the CESTAT bench held, "Thus, in view of the aforesaid decisions of the Tribunal, it has to be held that the Commissioner was not justified in confirming the demand of service tax under the head “business support services”."

"The order dated March 31, 2016 passed by the Commissioner, therefore, cannot be sustained and is set aside. The appeal is, accordingly, allowed," read the order.

To read the order, click on the link below:

https://medicaldialogues.in/pdf_upload/cestat-order-198471.pdf

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