Healthcare exemption covers hospital retention from mediclaim claim processing, not commission under Business Auxiliary Service.

A hospital's retention from an in-house medical store for processing cashless mediclaim claims was treated as part of exempt healthcare services, not taxable commission under Business Auxiliary Service. The broad definitions of "clinical establishment" and "health care service" in Notification No. 25/2012-ST were applied to hold that medicines supplied to in-patients formed an integral component of treatment. The retained amount arose from settlement of mediclaim claims in the course of healthcare delivery, rather than from promoting the medical store's business. Applying the reasoning in Sir Ganga Ram Hospital, the service tax demand was held unsustainable.

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Issues: Whether the amount retained by the hospital from the medical store in relation to processing of cashless mediclaim claims was taxable as commission under Business Auxiliary Service or was covered within exempt healthcare services rendered by a clinical establishment.

Analysis: The hospital was engaged in providing healthcare services and the in-house medical store functioned as part of the treatment arrangement for admitted patients. The definitions of "clinical establishment" and "health care service" in Notification No. 25/2012-ST were construed broadly, and the medicines supplied to in-patients were treated as an inbuilt and integral component of the treatment process. The retained amount was found to arise from the hospital's role in processing and settling mediclaim claims and not as commission for promoting the business of the medical store. The reasoning in Sir Ganga Ram Hospital was applied to hold that taxing the hospital's share would defeat the exemption granted to healthcare services.

Conclusion: The amount retained by the hospital was held to fall within exempt healthcare services and not within Business Auxiliary Service; the service tax demand was unsustainable.

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