2026 (1) TMI 1523 - AT - Service Tax

Classification of Health Care versus Cosmetic Surgery services remanded for procedure-specific analysis; tax liability to be recalculated.

Classification of services focuses on whether procedures are healthcare services or cosmetic and plastic surgery; the adjudicator failed to analyse each ... Classification of goods - services as Health care services vis-à-vis Cosmetic and Plastic Surgery - Benefit of Mega Exemption Notification in relation to clinical establishment and authorised medical practitioner - Best judgement assessment - Reliance on provisional or kachcha records - Extended period of limitation and suppression/misstatement - Entitlement to cum-tax benefit - Notification No.25/2012-ST - HELD THAT:- There is no doubt that the appellant is a ‘clinical establishment’ as it provides services or facilities requiring diagnosis, treatment/care for illness, injury, deformity and abnormality. Secondly, the appellant is an ‘authorised medical practitioner’ and the treatments are administered by doctors, who are registered with the Medical Council of India. It is apparent that there is a fine line of distinction in between an activity to be covered either as a cosmetic and plastic surgery or as a Healthcare service. The Commissioner has not examined the true nature of each of the services rendered by the appellant. It is necessary to set out the details of the diagnosis or procedure as well as the post treatment care which may be provided to the patient. The definition of healthcare service although specifically excludes hair transplant or cosmetic or plastic surgery but still covers the same when undertaken to restore or reconstruct anatomy or functions of body affected due to congenital defects, developmental abnormalities, injury or trauma. Perusal of the impugned order shows that the Commissioner has mainly taken an overall view that these procedures result in physical enhancement and beauty without analysing the respective services. We, therefore, find it appropriate to remand the matter to the adjudicating authority to give reasoned findings on each of the services rendered by the appellant. The appellant was, therefore, directed to show cause as to why service tax be not recovered from them under proviso to Section 73(1) read with Section 66/66B and Section 68 of the Act. We, therefore, hold against the appellant on this submission. The grievance of the appellant for invocation of best judgement assessment under Section 72 needs to be rejected as the pursuant to the enquiry, details/data was sought from M/s. Urenok Software, who owned the software Zenoti, but they refused to furnish and the option available with the Department was to resort to best judgement under Section 72 of the Act. Denial of cum-tax benefit u/s 67(2) - HELD THAT:- We do not find merits in the submissions of the Revenue for the simple reason that the appellant had filed all the ST-3 Returns and maintained the audited accounts. The Department had resorted to best judgement assessment under Section 72, and therefore, in view of the decision of the Tribunal in G.D. Goenka Pvt. Ltd. Vs. Principal Commissioner, CGST [2023 (8) TMI 995 - CESTAT NEW DELHI] the error, if any, was on the part of the officer, who was responsible for the assessment. Further, there is no doubt that the issue is one of interpretation as to whether the service rendered by the appellant would fall under the health care service and would therefore, be entitled to exemption or they would be covered under the cosmetic and plastic surgery leviable to service tax. It is a settled principle of law that where the issue is one of interpretation, the element of suppression or misstatement cannot be attributed on the assessee and therefore, the extended period cannot be invoked. Thus, the Adjudicating Authority is required to recalculate the duty liability, accordingly. For the reasons stated above, the impugned order is hereby set aside. The appeal is allowed by way of remand. Issues: (i) Whether the services rendered by the appellant fall within 'cosmetic and plastic surgery' (taxable) or 'healthcare services' (exempt under Notification No.25/2012-ST); (ii) Whether the adjudicating authority could rely on Kachcha registers and apply best-judgement assessment under Section 72; (iii) Whether the adjudicating authority exceeded the scope of the show cause notice by confirming tax beyond the proposed amount; (iv) Whether the appellant is entitled to cum-tax benefit under Section 67(2); (v) Whether the extended period of limitation can be invoked.Issue (i): Whether the services rendered by the appellant are taxable as cosmetic and plastic surgery or exempt as healthcare services under Notification No.25/2012-ST.Analysis: The Tribunal examined statutory definitions (Section 65(105)(zzzzk); Section 65B(44); Notification No.25/2012-ST, para 2(t)) and prior decisions distinguishing cosmetic/plastic procedures from healthcare interventions (e.g., bariatric surgery, treatments for recognised illnesses). The Bench found that the adjudicating authority did not undertake service-by-service analysis recording diagnosis/procedure and post-treatment care and instead took an overall view of physical enhancement.Conclusion: The matter is remitted to the adjudicating authority to record specific findings for each listed service on whether it is taxable cosmetic/plastic surgery or an exempt healthcare service.Issue (ii): Whether reliance on the appellant's Kachcha registers and applying best-judgement assessment under Section 72 was justified.Analysis: The Tribunal noted Kachcha registers reflect tentative appointments/estimates and actual income is reflected in audited balance-sheets and bank records. The Department resorted to best-judgement after software owner refused data, but assessment based on Kachcha registers was not supported.Conclusion: No reliance can be placed on Kachcha registers for assessment; best-judgement assessment invoked due to unavailability of software data may be justified procedurally but assessments must exclude Kachcha register figures and be recalculated by the adjudicating authority.Issue (iii): Whether the adjudicating authority confirmed tax beyond the amount proposed in the show cause notice.Analysis: The SCN proposed Rs.2,61,94,416; the adjudicating authority confirmed Rs.2,62,91,823, thereby confirming an amount not proposed in the SCN.Conclusion: The excess amount (Rs.97,407) confirmed beyond the SCN is unsustainable and must be deducted on reassessment.Issue (iv): Whether the appellant is entitled to cum-tax benefit under Section 67(2).Analysis: Authorities and precedent were considered distinguishing cases where gross receipts must be treated as inclusive of tax; the Tribunal found the context and facts warranted reassessment on valuation and allowed the appellant to claim cum-tax benefit pending recalculation.Conclusion: The appellant is entitled to avail cum-tax benefit; the adjudicating authority shall recalculate liability accordingly.Issue (v): Whether the extended period of limitation can be invoked against the appellant.Analysis: The Tribunal observed the appellant filed ST-3 returns and maintained audited accounts; the controversy is interpretative as to classification of services. In view of precedent, extended period for suppression cannot be invoked where issue is one of interpretation and no deliberate suppression is shown.Conclusion: The extended period of limitation cannot be invoked.Final Conclusion: The impugned order is set aside and the appeal is allowed by way of remand to the adjudicating authority to determine, with reasoned findings and recalculation, (a) classification of each service as taxable or exempt, (b) deduction of the amount confirmed beyond the SCN, (c) exclusion of Kachcha registers from assessment, (d) application of cum-tax benefit, and (e) non-invocation of the extended period of limitation.