Pranav B Prem

The Hyderabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that cleaning, sanitation and housekeeping services provided to Government hospitals are exempt from service tax, and accordingly set aside a service tax demand of ₹3.40 crore along with interest and penalties imposed by the department. The Bench comprising Angad Prasad (Judicial Member) and A.K. Jyotishi (Technical Member) ruled that such services squarely fall within the ambit of public health and sanitation conservancy, which are specifically exempted under Notification No. 25/2012-Service Tax dated 20 June 2012, commonly known as the Mega Exemption Notification.

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The appeals arose from an Order-in-Original passed by the Commissioner of Central Tax, Guntur, confirming service tax demand for the period from 1 July 2012 to 31 March 2016. The assessee, M/s Srinivasa Outsourcing Services Pvt. Ltd., was engaged in providing cleaning, sanitation, housekeeping and manpower supply services to various Government hospitals in Andhra Pradesh, including a Government Mental Care Hospital, either directly or through the Andhra Pradesh Health and Medical Housing & Infrastructure Development Corporation.

The department alleged that the services provided by the assessee were taxable services under Section 65B(51) of the Finance Act, 1994, denied the benefit of exemption under the Mega Exemption Notification, and confirmed a service tax demand of ₹3,40,56,246 along with interest. Penalties were also imposed on the company as well as on its director under Sections 77 and 78 of the Finance Act.

The appellants contended that the services were rendered exclusively to Government hospitals run by the State Government and were intrinsically connected to public health and sanitation, which are functions ordinarily entrusted to municipalities. It was argued that Entry No. 25(a) of Notification No. 25/2012-ST clearly exempts services provided to Government by way of activities relating to public health, sanitation conservancy and solid waste management. The appellants further submitted that the dispute was purely interpretational and, therefore, the extended period of limitation could not be invoked.

Reliance was placed on consistent judicial precedents, including decisions of the Ahmedabad Bench of the Tribunal in D.G. Nakrani and M.J. Solanki, both of which were subsequently upheld by the Supreme Court.

After examining the contracts, scope of work and statutory provisions, the Tribunal noted that the services involved cleaning of hospital buildings and premises, maintenance of toilets, bathrooms, drainage and sewerage systems, as well as disposal of normal waste and bio-medical waste. It held that these activities are integral to sanitation conservancy and public health.

The Tribunal observed that Government hospitals are institutions run by the State Government and that services provided to such hospitals are services provided “to Government” within the meaning of the exemption notification. It held that the Commissioner had misread and misapplied the Mega Exemption Notification while denying the benefit. The Bench also noted that amendments made to the notification in 2014 further clarified that activities such as public health and sanitation are independently exempt.

On the issue of limitation, the Tribunal held that the dispute involved interpretation of an exemption notification and there was no evidence of fraud, suppression or wilful misstatement. Relying on the Supreme Court’s decision in Principal Commissioner of Customs v. Felox Technologies India Pvt. Ltd., it held that the extended period of limitation was not invocable in such cases.

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Consequently, the Tribunal held that since the service tax demand itself was unsustainable on merits, the penalties imposed on both the company and its director were also liable to be set aside. Allowing both appeals, the CESTAT quashed the entire service tax demand, interest and penalties, holding that cleaning and sanitation services provided to Government hospitals are exempt from service tax.

Cause Title: M/s Srinivasa Out Sourcing Services Pvt Ltd. Versus Commissioner of Central Tax Guntur

Case No: Service Tax Appeal No. 30932 of 2018

Coram: Angad Prasad (Judicial Member) and A.K. Jyotishi (Technical Member)