Hospital wins appeal for medicine cost deduction in health services under N/N. 12/2003-ST despite invoicing issues

The CESTAT Allahabad allowed the appellant hospital's appeal regarding deduction of medicine costs for health services under N/N. 12/2003-ST. The Commissioner (Appeals) had denied the exemption benefit, relying on a larger bench decision requiring separate invoices for consumed goods. However, the HC Madhya Pradesh had set aside that precedent, ruling that exemption cannot be denied merely because medicine values weren't separately invoiced or sold independently. The tribunal held that since medicines were admittedly consumed in providing health services, the hospital was entitled to the deduction benefit. The original order was restored.

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Issues Involved:
1. Eligibility for deduction of cost of medicines u/s Notification No. 12/2003-ST.
2. Interpretation of "sale" in the context of Notification No. 12/2003-ST.
3. Applicability of larger bench decision in M/s Aggarwal Colour Advance Photo System case.
4. Determination of service tax liability.

Summary:

1. Eligibility for Deduction of Cost of Medicines u/s Notification No. 12/2003-ST:
The Commissioner (Appeals) denied the deduction of the cost of medicines from the taxable value, citing the absence of documentary proof of sale and referencing the larger bench decision in M/s Aggarwal Colour Advance Photo System. It was held that the medicines consumed in providing health services do not qualify for the deduction as they were not sold separately.

2. Interpretation of "Sale" in the Context of Notification No. 12/2003-ST:
The Tribunal referred to the Madhya Pradesh High Court's decision, which clarified that the benefit of the exemption under Notification No. 12/2003-ST cannot be denied solely because the value of goods consumed in providing taxable services is not separately indicated in the invoice. The term "sold" in the Notification should include "deemed sale" as per Article 366(29A)(b) of the Constitution.

3. Applicability of Larger Bench Decision in M/s Aggarwal Colour Advance Photo System Case:
The Tribunal noted that the larger bench decision relied upon by the Commissioner (Appeals) had been set aside by the Madhya Pradesh High Court. Therefore, the reliance on this decision for denying the exemption was not upheld.

4. Determination of Service Tax Liability:
The Adjudicating Authority had allowed the deduction of the cost of medicines from the gross taxable receipt, considering the medicines as excludible from the total amount received for providing health services. The Tribunal restored the Order-in-Original passed by the Deputy Commissioner, which allowed the deduction of the cost of medicines and recalculated the taxable receipt accordingly.

Conclusion:
The Tribunal set aside the impugned order and restored the Order-in-Original, allowing the deduction of the cost of medicines from the taxable value and reducing the service tax liability. The appeal was allowed.

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