2019 (6) TMI 71 - AT - Service Tax

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

M/s National Health & Education Society, Breach Candy Hospitals Trust, LilavatiKirtilal Mehta Medical Trust, Jaslok Hospital & Research Centre, People’s Medical Relief Society, Shushrusha Citizens Co-op Hospital Ltd., Saifee Hospital Trust, HurkisondasNurrotumdas Hospital & Research Centre, Kamalnayan Bajaj Hospital, Bombay Hospital Trust Versus Commissioner of Service Tax-III Mumbai, Pune, I, CCE Pune II

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 ... Levy of Service Tax - hospital services to doctors - providing consulting rooms required by the panel/non-panel doctors for treating their (doctor’s) patients in the OPD. - Support Services for Business or Commerce (BSS) - difference of amount charged by the appellants-hospitals to the patients towards doctors consultation and the charges paid by them to the visiting/consulting doctors - HELD THAT:- As per the provisions governing the service tax statute, prior to July’ 2012, the value of taxable services was determined under Section 67 of the Finance Act, 1994. The statutory provisions prevalent at the material time provided that the value of any taxable service shall be the gross amount charged by the service provider for such service provided or to be provided by him. - After 1st July’ 2012, the term “service” has been defined in Section 65B (44) of the Act to mean inter alia, that any activity carried out by a person for another for consideration. In the present cases, admittedly the appellants-hospitals did not charge the doctors at all. There is no payment by the doctors to the hospital and therefore, no consideration is received by the hospitals from the consultant doctors. Thus, in absence of any consideration being received, no service tax is required to be paid by the hospitals. On perusal of the contracts, it is found that there is no privity of contract between the doctors and the patients and the patients are under no obligation to pay any amount to the doctors. The billed amount paid by the patients is reflected as the income of the hospitals alone in the books of accounts and the doctors are paid for the amount as per the contractual norms, on which the hospitals deduct the tax at source under the income tax statute. Further, also the department has not brought on any evidence to show the nature of support services provided by the hospitals to the doctors - Hence, is absence of any specific allegation and discussions with any supporting evidence regarding the type of support services provided and the amount received on such account by the hospitals, service tax demand cannot be fastened on the hospitals under the taxable category of BSS/Support Services. In order to arrive at a definitive conclusion on the taxability of service, the main ingredients which need to be necessarily present, as per this statute, are the service, service provider, service receiver and the consideration for the service - In the instant case, the alleged service provider is undoubtedly the hospitals/ institutions; the service rendered is to the patients; remuneration is received by the hospitals/institutions and is paid by the patients. Understandably, the services rendered by the hospitals/institutions are at best medical services to the patients and by no stretch of imagination ‘Business Support Services’. It is immaterial that the hospitals are paying a portion of the remuneration received to the doctors for the services rendered by them to the hospitals. Counsels for the appellants submitted that wherever the Hospitals are providing infrastructural services per se to the doctors, i.e. without any reference to the patients admitted to the Hospitals, they are paying applicable service tax. Under the circumstances, it cannot be alleged that the hospitals are providing ‘Business Supports Services’ to the doctors. Therefore, the argument taken on the basis of discussions between a ‘Profession’ and ‘Business’ are not relevant to the present facts of the case. The Appellant hospitals/institutions are not liable to pay service tax under the category of ‘Business Support Services’ - appeal allowed - decided in favor of appellant. 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 BSSBackground: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.