2017 (12) TMI 509 - AT - Service Tax

Hospitals Not Liable for Service Tax on Collection Charges; Revenue's Appeal Dismissed

The Tribunal ruled that hospitals were not liable to pay service tax under Business Support Service for 'collection charges/facilitation fee' retained ... Business Support Service - infrastructural support services - profession versus business - health care services exemption under negative listBusiness Support Service - infrastructural support services - Whether the portion of charges retained by hospitals as 'collection charges/facilitation fee' is taxable as consideration for providing infrastructural support services under Business Support Service. - HELD THAT: - On examining the contractual arrangements and the statutory scope of Business Support Service, the Tribunal found no clear contractual attribution of the retained amounts as consideration specifically for infrastructural support. The agreements reflected a reciprocal, revenue sharing arrangement in which hospitals engaged consultant doctors to provide health care to patients, with shared obligations and benefits. The Tribunal held that treating the retained share as separate consideration for infrastructural support was an inference not manifested from the contracts or the revenue model, and therefore there was no identifiable taxable activity of providing BSS in the facts of these cases.The retained collection/facilitation charges do not constitute consideration for infrastructural support and are not taxable as Business Support Service.Profession versus business - Whether consultant doctors engaged by the hospitals are 'business or commerce' entities such that services provided to them could attract Business Support Service. - HELD THAT: - Applying authorities distinguishing a profession from a commercial business, the Tribunal observed that doctors practise by personal skill and intelligence and, unless their activity partakes of commercial character, they are professionals and not business entities for the purposes of the BSS entry. Since the tax entry applies to services provided 'in relation to business or commerce,' the premise that doctors were business entities was not accepted. Consequently, the hospitals could not be said to be providing infrastructural support 'in relation to business or commerce' of the doctors so as to attract BSS.The consultant doctors are professionals and not business entities for the purposes of the Business Support Service entry; BSS cannot be invoked on that basis.Health care services exemption under negative list - Whether, under the negative list regime and prior notifications exempting health care services, the hospitals' receipts can be partially taxed as Business Support Service despite exemption of clinical establishments' health care services. - HELD THAT: - The Tribunal examined the notifications defining 'clinical establishment' and 'health care services' and held that clinical establishments providing health care services are exempt. It concluded that permitting taxation of a portion of the consideration for the same transactions as BSS would defeat the exemption's object. Given that the hospitals provided health care services by engaging consultant doctors and collected full amounts from patients which were shared under the agreed model, there was no legal basis to tax the hospitals' share as BSS in spite of the exemption.The exemption for health care services precludes taxing the hospitals' retained share as Business Support Service; attempts to do so are not tenable.Appeal against Commissioner order - Whether Revenue's appeal against Commissioner (Service Tax) order holding no service by hospital to consultants is maintainable in face of the Tribunal's findings. - HELD THAT: - A departmental appeal against the Commissioner's order was considered in the light of the Tribunal's analysis on contractual character, professional nature of doctors, and the exemption for health care services. Finding no merit in the Revenue's contentions and in agreement with the Commissioner's classification of the services as health care, the Tribunal dismissed the Revenue appeal.Revenue's appeal is dismissed; the Commissioner's order holding no taxable service by the hospital to consultants is upheld.Final Conclusion: The impugned orders holding hospitals liable to service tax as Business Support Service are set aside; the retained collection/facilitation charges are not taxable as infrastructural support, consultant doctors are professionals not business entities for this purpose, the exemption for clinical establishments' health care services precludes such taxation, and the Revenue's appeal is dismissed. Issues Involved:1. Taxability of 'collection charges/facilitation fee' under Business Support Service.2. Nature of agreements between hospitals and doctors.3. Applicability of service tax on health care services post-negative list regime.4. Validity of extended period demand and penalties.5. Appeal by Revenue against the order of the Commissioner of Service Tax.Detailed Analysis:1. Taxability of 'collection charges/facilitation fee' under Business Support Service:The Revenue contended that the 'collection charges/facilitation fee' retained by the hospitals from the fees collected from patients should be subject to service tax under the category of Business Support Service (BSS). The original authorities concluded that the hospitals provided infrastructural support services to the doctors, thereby making them liable for service tax under BSS.2. Nature of agreements between hospitals and doctors:The appellants argued that the agreements with doctors were based on a revenue-sharing model, where doctors received a percentage of the revenue collected from patients. The agreements did not specify any distinct infrastructural support services provided to the doctors. The hospitals managed patient entry, follow-up, and other health care services, indicating a mutual benefit arrangement rather than a service provider-recipient relationship.3. Applicability of service tax on health care services post-negative list regime:Health care services were exempt from service tax post-01.07.2012 under Notification No. 25/2012 ST. The appellants contended that taxing the 'collection charges/facilitation fee' would defeat the purpose of the exemption provided to health care services. The Tribunal agreed, stating that the retained amount by hospitals was for health care services provided to patients, not for any separate infrastructural support to doctors.4. Validity of extended period demand and penalties:The appellants argued that the demand for the extended period was unsustainable due to the absence of fraud, willful misstatements, or suppression of facts. The demand was based on documents examined during audits, indicating transparency in the appellants' operations. Consequently, the Tribunal found no basis for extended period demand and penalties.5. Appeal by Revenue against the order of the Commissioner of Service Tax:The Revenue's appeal challenged the Commissioner of Service Tax's order, which had dropped the demand against a hospital on similar grounds. The Tribunal upheld the Commissioner's decision, emphasizing that the hospitals were providing health care services, not BSS, to the doctors. The Tribunal dismissed the Revenue's appeal, reiterating that taxing the hospitals under BSS was factually and legally unsustainable.Conclusion:The Tribunal concluded that the hospitals were not liable to pay service tax under BSS for the 'collection charges/facilitation fee' retained from patient fees. The agreements with doctors were revenue-sharing arrangements for mutual benefit, not indicative of infrastructural support services. The exemption for health care services post-01.07.2012 was upheld, and the extended period demand and penalties were found unjustifiable. The Revenue's appeal against the Commissioner's order was dismissed, and all appeals were disposed of accordingly.