Hospitals not liable for service tax on amounts retained from patient payments to consulting doctors

The Tribunal held that hospitals were not liable to pay service tax under the category of "Support Services for Business or Commerce" (BSS) on amounts retained from patient payments to consulting doctors. The Tribunal emphasized the lack of consideration received by hospitals from doctors, concluding that the arrangement was not taxable under BSS. The appeals by hospitals were allowed, and the Revenue's appeals were dismissed, with reference to a previous decision establishing the non-leviability of service tax in similar circumstances.

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Issues Involved:
1. Leviability of service tax under the category of "Support Services for Business or Commerce" (BSS) on the difference between the amount charged by hospitals to patients and the amount paid to consulting doctors.

Detailed Analysis:

Issue 1: Leviability of Service Tax under BSS
Background:
The appellants, who run hospitals, provide healthcare services through In-Patient Department (IPD) and Out-Patient Department (OPD). They engage resident doctors and consulting doctors. The hospitals charge patients directly and pay a portion of this amount to the consulting doctors as professional fees. The department contended that the retained amount by the hospitals should be categorized as taxable under BSS.

Appellants' Argument:
The appellants argued that the issue is no longer res integra, citing the Tribunal's decision in Sir Ganga Ram Hospital Vs. CCE, Delhi-I, which had attained finality. They asserted that the entire amount billed to patients is their income, and the payments to doctors are expenses. They also contended that there is no evidence showing the specific nature of support services provided to doctors that would fall under BSS.

Revenue's Argument:
Revenue argued that the relationship between hospitals and doctors is a business relationship, not a master-servant relationship. They categorized the transactions into three parts: between doctor and patient, hospital and patient, and hospital and doctor. They contended that the services should be categorized as BSS and not healthcare services.

Tribunal's Findings:
The Tribunal noted that prior to July 2012, the value of taxable services was determined under Section 67 of the Finance Act, 1994, which required consideration for the service. After July 2012, Section 65B(44) defined "service" to include activities carried out for consideration. In these cases, no consideration was received by the hospitals from the doctors, thus no service tax was payable.

The Tribunal found no privity of contract between doctors and patients, and the billed amount paid by patients was the hospitals' income. The hospitals paid doctors as per contractual terms, deducting tax at source under the Income Tax Act. The department failed to provide evidence of specific support services provided by hospitals to doctors.

Judgment:
The Tribunal held that the retained amount by hospitals could not be considered as consideration for providing infrastructure support to doctors. The Tribunal relied on its previous decision in Sir Ganga Ram Hospital, which found that the arrangement between hospitals and doctors was mutually beneficial and did not constitute BSS. The Tribunal also cited several judgments distinguishing professional activities from business activities.

Conclusion:
The Tribunal concluded that the hospitals are not liable to pay service tax under the category of BSS. The appeals filed by the appellants-hospitals were allowed, and the appeals by the Revenue were dismissed. The Tribunal emphasized that the decision in Sir Ganga Ram Hospital had attained finality and should be applied to the present cases.

Order:
The appeals by the hospitals were allowed, and the Revenue's appeals were dismissed. The order was pronounced in the open court on 29/05/2019.

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