2025 (12) TMI 880 - AT - Service Tax

Revenue-sharing with doctors held exempt health care services, not taxable business support services; service tax demand time-barred

CESTAT Chandigarh allowed the appeals, holding that services rendered by the hospital to doctors/consultants under a revenue-sharing arrangement are ... Classification of services - Business Support Services or Healthcare services - services provided to the doctors/consultants working in their hospital - onus on the department to prove as to whether any taxable services have been provided - invocation of extended period of limitation - HELD THAT:- The issue involved in the present appeals is no longer res integra as has been decided by the Tribunal in various cases wherein it has been consistently held that the services rendered by the hospitals do not fall under the category of ‘Business Support Services’ rather the said services fall under the category of ‘Health Care Services’ which are exempt from the payment of service tax. The issue relating to revenue sharing arrangement between the Appellants and the Doctors, has been considered by this Tribunal in the case of Om Savitri Jindal Charitable Society [2021 (3) TMI 1485 - CESTAT CHANDIGARH], wherein the Tribunal has held that there is no legal justification to tax the share of clinical establishment on the ground that they have supported the commerce or business of doctors by providing infrastructure. Invocation of extended period of limitation - HELD THAT:- The issue involved in the present case was relating to interpretation of statutory provision, therefore, the extended period cannot be invoked as the issue was pan India and the Tribunal/Courts in various decisions have held that the services provided by the Hospitals are not ‘Business Support Services’ rather these services are ‘Health Care Services’ which are not subject to service tax. Further, it is found that the department has not been able to establish any of the ingredients which are required for invoking the extended period of limitation. Further, it is also found that when the demand for extended period fails, the demand for normal period will also go as held by the Hon’ble Calcutta High Court in the case of Infinity Infotech Parks Ltd [2014 (12) TMI 36 - CALCUTTA HIGH COURT] wherein the Hon’ble High Court has held 'When a notice is issued in support of transactions spread over a period of time and it is found that the extended period of invocation has been invoked, the notice cannot be treated as within limitation for some of the same transaction, once it is found that the extended period of limitation is not invocable.' The impugned order is not sustainable in law and is liable to be set aside - appeal allowed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether the consideration retained by a hospital under revenue-sharing arrangements with independent doctors/consultants for treating OPD/IPD patients is liable to service tax under 'Business Support Services' or constitutes exempt 'Health Care Services'. 1.2 Whether the extended period of limitation could be validly invoked for demand of service tax on such activities, and if not, whether any demand for the normal period can survive when the show cause notice is founded on the extended period. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Taxability of hospital's retained share as 'Business Support Services' or exempt 'Health Care Services' (a) Legal framework (as discussed by the Tribunal) 2.1 The Tribunal referred to the statutory entry for 'Business Support Services' which covers services 'provided in relation to business or commerce', and to the distinction between 'business' and 'profession' as recognized in judicial precedents. 2.2 The Tribunal relied on the exemption for 'health care services' provided by 'clinical establishments' under the service tax law, particularly as analysed in earlier decisions. It adopted the definitions of 'clinical establishment' and 'health care services' as set out in Notification No. 25/2012-ST, namely: 2.2.1 'Clinical establishment' includes any hospital, nursing home, clinic, sanatorium or other institution offering services or facilities requiring diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy, or an entity established to carry out diagnostic or investigative services of diseases. 2.2.2 'Health care services' means any service by way of diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognized system of medicine, including transportation of patients to and from a clinical establishment, with specified exclusions for certain cosmetic or plastic surgery. (b) Interpretation and reasoning 2.3 The Tribunal noted that the hospital was providing health services to patients on its own and through independent doctors/consultants engaged on a revenue-sharing basis. Under these arrangements, fees were collected from patients by the hospital and a percentage was shared with the doctors/consultants, with the hospital retaining the balance. 2.4 Following its earlier decision in a substantially identical matter, the Tribunal endorsed the reasoning that such revenue-sharing arrangements represent a joint, mutually beneficial arrangement between the hospital and doctors, with shared obligations, responsibilities, and benefits. 2.5 The Tribunal observed that the agreements/arrangements were primarily for providing medical consultation, procedures, and surgeries to patients, and did not specifically identify or quantify any distinct 'infrastructural support' or business support element rendered by the hospital to the doctors. 2.6 It was held that the inference drawn by the Revenue-that the hospital's retained portion of patient charges constituted consideration for infrastructural or business support to doctors-was not supported by the terms of the arrangements and was only an assumption. 2.7 The Tribunal emphasized that hospitals are engaged in providing health care services and may do so either through employed doctors or through contractual arrangements with independent consultants. In both cases, the essential activity is the provision of health care services to patients by the clinical establishment. 2.8 The Tribunal adopted the reasoning that, in such arrangements, the hospital avails the professional services of doctors for providing health care to patients, collects charges from patients for such health care services, and shares those charges with the doctors. The amount retained by the hospital is still part of the consideration for the exempt health care services rendered to patients, not a separate consideration for providing business support to the doctors. 2.9 Referring to judicial analysis distinguishing 'business' from 'profession', the Tribunal held that doctors are engaged in a profession and not in 'business or commerce'; accordingly, services provided to them cannot be regarded as 'Business Support Services' 'in relation to business or commerce'. 2.10 The Tribunal further held that, under the exemption regime, clinical establishments providing health care services are exempt from service tax. To treat a part of the consideration received from patients for such health care services as taxable 'Business Support Services' would effectively defeat the legislative intent and scope of the exemption granted to health care services. 2.11 The Tribunal found no legal or factual basis to treat the hospital's share of the patient charges as consideration for any taxable business support to the doctors, either prior to or after the introduction of the negative list, when health care services by clinical establishments were exempt. (c) Conclusions 2.12 The Tribunal concluded that the services rendered by the hospital under the revenue-sharing arrangements with doctors/consultants are 'Health Care Services' provided by a 'clinical establishment' and are exempt from service tax. 2.13 The Tribunal held that no taxable 'Business Support Services' are involved in such arrangements and that the hospital's retained portion of the charges collected from patients cannot be subjected to service tax under the category of 'Business Support Services'. 2.14 Consequently, the demand of service tax, interest and penalties confirmed under the impugned order on this ground was held to be unsustainable. Issue 2: Validity of invoking the extended period of limitation and effect on demand for normal period (a) Legal framework (as discussed by the Tribunal) 3.1 The Tribunal proceeded on the well-settled legal requirement that invocation of the extended period of limitation for service tax demands requires proof of elements such as fraud, suppression of facts or wilful misstatement with intent to evade tax. 3.2 The Tribunal relied on the ratio of a High Court decision (as endorsed by the Supreme Court in Alcobex Metals) holding that when a show cause notice is issued invoking the extended period and such invocation fails, the notice cannot be treated as within limitation even for the normal period in respect of the same transactions. (b) Interpretation and reasoning 3.3 The Tribunal observed that the dispute in the present case pertained to the interpretation and classification of services rendered by hospitals under revenue-sharing arrangements with doctors, an issue that had arisen pan India and had been the subject of several decisions of the Tribunal and Courts in favour of hospitals. 3.4 In these circumstances, the Tribunal held that there was no basis to allege fraud, suppression of facts or wilful misstatement by the hospital so as to justify the invocation of the extended period of limitation. 3.5 The Tribunal specifically recorded that the department had not established any of the statutory ingredients required for invoking the extended period of limitation. 3.6 Referring to the High Court decision in Infinity Infotech Parks Ltd., the Tribunal held that where a show cause notice is issued covering a period only by resort to the extended limitation and the extended period is found to be not invocable, the notice cannot survive even for the normal period embedded within the same notice. 3.7 The Tribunal noted that the principle laid down is that once the very foundation of the notice-invocation of the extended period-fails, the demand for the normal period based on the same notice and same set of transactions is also rendered invalid. (c) Conclusions 3.8 The Tribunal held that the extended period of limitation was not invocable in the facts of the case, as the dispute turned on interpretation and there was no suppression or intent to evade. 3.9 Applying the binding precedents, the Tribunal further held that once the invocation of the extended period fails, the demand for the normal period founded on the same show cause notices also cannot be sustained. 3.10 On this independent ground as well, the entire service tax demand, including interest and penalties, was held to be unsustainable. 3.11 Both appeals were allowed and the impugned order was set aside in toto.