CESTAT Delhi Quashes Most Service Tax Demands on Hospital, Upholds Levy on Overseas Patient Referral Commissions
Pranav B Prem
The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) Principal Bench, New Delhi, comprising Ms. Binu Tamta (Judicial Member) and Mr. Sanjiv Srivastava (Technical Member), has substantially set aside service tax demands against Indraprastha Medical Corporation Ltd., a multi-speciality hospital, while upholding the levy on commission payments made to overseas agents for referring foreign patients.
The dispute arose from a show cause notice alleging that the hospital had failed to discharge service tax on three categories of activities — Business Auxiliary Services (BAS) for payments to foreign healthcare facilitators, Business Support Services (BSS) for revenue arrangements with visiting consultants, and Renting of Immovable Property Services for leasing parking space adjacent to the hospital.
Business Support Services (BSS)
The revenue contended that when patients consulted visiting doctors, the entire consultation fee was collected by the hospital and later shared with the doctors, with the hospital retaining a portion. It was argued that the retained amount constituted consideration for providing support services to the doctors, taxable under BSS.
The hospital argued that the arrangement was for joint provision of healthcare services, which are exempt from service tax under Notification No. 25/2012-ST, and that the doctors did not operate as independent service recipients.
Relying on its earlier decisions in Sir Ganga Ram Hospital v. C.S.T., Delhi and Fortis Healthcare Ltd. v. C.C.E., Ludhiana, the Tribunal held that such fee-sharing arrangements do not constitute taxable business support services, since the underlying healthcare services are exempt. Taxing the retained portion would effectively nullify the statutory exemption. The demand under this category was accordingly set aside.
Renting of Immovable Property Services
The department sought to levy service tax on rent collected for parking spaces appurtenant to the hospital. The hospital countered that the Finance Act, 1994 specifically excludes land used for parking purposes from the definition of “immovable property” for service tax purposes. Agreeing with the hospital, the Tribunal observed that the statutory definition is explicit, and that the adjudicating authority’s contrary reading ignored the clear language of the law. Citing the Supreme Court’s principle that tax statutes must be strictly construed, the bench quashed the demand on parking rentals.
Business Auxiliary Services (BAS) – Reverse Charge Mechanism
The hospital had engaged overseas agents to refer and facilitate foreign patients for treatment. The agents were paid commissions in foreign currency. The department classified these activities as BAS under Section 65(19) of the Finance Act, 1994, taxable on a reverse charge basis after the insertion of Section 66A from April 18, 2006.
The hospital argued that these services were part of overall healthcare services and thus fell outside the taxable net. The Tribunal rejected this contention, holding that the referral and promotion of medical services to prospective patients abroad was a distinct activity squarely falling within BAS. Since the recipients of the promotional service were the hospital itself, the liability under reverse charge applied for the post-18 April 2006 period.
The Tribunal set aside the demands and penalties relating to BSS and parking rentals, but upheld the demand of service tax on commissions paid to overseas agents for referring foreign patients for the period after April 18, 2006. The corresponding interest and penalties on this portion were also sustained.
Appearance
Counsel For Appellant: Vishal Kumar, Advocate
Counsel For Respondent: Shashank Yadav, Authorised Representative
Cause Title: M/S. Indraprastha Medical Corporation Ltd V. Commissioner Of Service Tax
Case No: Service Tax Appeal No. 51855 Of 2014
Coram: Ms. Binu Tamta [Judicial Member], Mr. Sanjiv Srivastava [Technical Member]
