2026 (2) TMI 334 - AT - Service Tax

Revenue-sharing arrangements in business support services deemed principal-to-principal and not taxable, appeal allowed with relief

Revenuesharing arrangements between the appellant and digital service providers were held not to attract service tax when characterised as ... Revenue-sharing arrangement on principal-to-principal basis - business support services (BSS) - infrastructural support services - healthcare services exempt from service tax - finality of departmental orders and prohibition on taking contrary stand - Circular No. 109/03/2009-ST (principal-to-principal transactions not treated as service) - HELD THAT:- We find that the issue involved in the present appeal, relating to revenue sharing arrangements between the Appellant and the DSPs, is no longer res integra as the Tribunal as well as the departmental Appellate Authority, for the earlier and the subsequent periods, have decided the issue in favour the Appellant vide the Orders as cited in table (in para 4 above) by holding that revenue sharing arrangements are not subject to service tax under the BSS. Further, we note that the department has not filed any appeal against the above-mentioned Orders, therefore, the said Orders have attained finality and therefore, the department cannot take contrary view on the same issue for the same assessee as held in the case of CCE, Pune-II vs. S S Engineers [2023 (7) TMI 717 - SC ORDER]. Further, we find that this Tribunal in the case of OP Jindal Institute of Cancer & Research [2024 (10) TMI 824 - CESTAT CHANDIGARH], has considered the identical issue along with the agreements entered into by the Appellant with the DSPs and has held that revenue sharing arrangements between the Appellant and the DSPs are not subject to service tax. Since, the issue is covered by the decision of this Tribunal in the above cited case, therefore, by following the ratio of above cited decision, we are of the considered view that the impugned order is not sustainable in law and is liable to be set aside and we do so by allowing the appeal of the Appellant with consequential relief, if any, as per law. Issues: Whether revenue-sharing arrangements between the hospital and diagnostic service providers (DSPs) amount to taxable 'support services of business or commerce' attracting service tax under the Business Support Service (BSS) category, or whether such arrangements are principal-to-principal revenue-sharing (and/or healthcare services) not exigible to service tax for the relevant period.Analysis: The Tribunal examined the contractual terms evidencing revenue-sharing between the parties, which show collection of receipts by the hospital and periodic sharing with DSPs in agreed proportions, with no stipulation for payment of service charges by DSPs. The contracts permit DSPs to install and operate their equipment and provide diagnostic expertise; billing is effected by the hospital and revenue is accounted in the hospital's books before sharing. Circular No. 109/03/2009-ST recognizing that principal-to-principal revenue-sharing arrangements do not constitute service was applied. The Tribunal also considered the definitions of 'support services of business or commerce' and 'infrastructural support services' under Sections 65(104c) and 65(105)(zzzq) of the Finance Act, 1994, and distinguished mere provision of basic amenities or infrastructure from provision of a taxable support service. Prior decisions of the Tribunal and departmental Appellate Authority for earlier and subsequent periods in the appellant's and related units' cases were relied upon; those orders were final as the department had not appealed, precluding a contrary departmental stand. The Tribunal also addressed limitation, noting no suppression with intent and that revenues were recorded in public documents, precluding invocation of the extended period.Conclusion: The revenue-sharing arrangements are principal-to-principal commercial arrangements (not a taxable service) and, in any event, the services involved qualify as healthcare services exempt from service tax; accordingly the impugned demand under BSS is set aside and the appellant's appeal is allowed.