Revenue-Sharing With Diagnostic Labs Not ‘Business Support Service’: CESTAT Chandigarh Quashes Service Tax Demand
Pranav B Prem
The Chandigarh Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that revenue-sharing arrangements between a hospital and diagnostic service providers (DSPs) do not amount to the provision of “Business Support Service” (BSS) under the Finance Act, 1994. Allowing the appeal filed by NC Jindal Institute of Medical Care & Research, the Tribunal set aside the service tax demand, interest and penalties that had been imposed for the period 2008–09 to 2013–14. The Bench comprising Justice S.S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member) noted that providing space and basic amenities such as water, electricity, and sewage does not amount to offering infrastructural support for running another person’s business, and that the diagnostic services formed an integral part of the hospital’s healthcare services.
The appeal concerned agreements entered into by the appellant, a hospital registered under “Health Services” and “Renting of Immovable Property,” with diagnostic laboratories such as Lal Pathlabs, Mangalam Lab, 360 Degrees Healthcare Pvt. Ltd., and Clearview Healthcare Pvt. Ltd. Under these agreements, DSPs installed and operated their own diagnostic equipment within the hospital premises, while the hospital billed patients and later shared the revenue with the DSPs in agreed ratios. The Department treated the retention by the hospital as consideration for providing BSS and issued two show-cause notices demanding service tax for the relevant period, invoking the extended period of limitation.
Before the Tribunal, the appellant argued that identical issues had already been decided in its favour for earlier and subsequent years both by the Tribunal and the Commissioner (Appeals), and that those decisions had attained finality since the Department had not preferred any further appeal. The Tribunal accepted this contention, reiterating that the Department cannot adopt contradictory positions for the same assessee on the same issue. The appellant further submitted that the agreements reflected a principal-to-principal relationship based on revenue sharing for jointly rendering diagnostic services to patients. Relying on Circular No. 109/03/2009-ST, the appellant emphasised that revenue-sharing arrangements on such a footing do not constitute the provision of taxable services.
The Tribunal examined the agreements in detail, noting clauses that clearly demonstrated the contractual revenue-sharing model. The hospital collected revenue for diagnostic services performed within its premises and paid the DSPs their share after deducting upkeep and administrative expenses. The Tribunal observed that “there is absolutely no stipulation of payment of any service charges by the DSPs to the appellant and the contract is purely for sharing of revenue.” It further found that diagnostic services were issued under the hospital’s name, billed through the hospital’s systems, and constituted part of its overall healthcare offerings. This demonstrated that, if any service was being provided, it was the DSPs who were providing services to the hospital, not the other way around.
The Tribunal also held that the mere provision of basic amenities cannot be equated with “support services of business or commerce” under Section 65(104c). Such facilities were provided only to enable DSPs to assist the hospital in delivering healthcare services, which themselves were exempt from service tax first under Notification No. 30/2011-ST and later under the negative list regime from 1 July 2012. The Bench emphasised that the essence of the arrangement was collaborative healthcare delivery rather than one party supporting the business of the other.
On limitation, the Tribunal found no justification for invoking the extended period. The hospital had fully recorded the revenue-sharing receipts in its balance sheet, a public document, and the issue was one of interpretation that had been continuously debated across the industry. The Tribunal held that there was no suppression or intent to evade tax and, therefore, the substantial portion of the demand was time-barred.
Ultimately, the Tribunal concluded that the services, if any, rendered by the hospital were not BSS but formed part of exempt healthcare services. Holding that the impugned order was unsustainable, the CESTAT allowed the appeal and set aside the entire service tax demand, along with interest and penalties.
Appearance
Appearance for Appellant/Assessee: Ms. Krati Singh with Ms. Samiksha Uniyal and Ms. Yashaswi Singh
Appearance for Respondent/Revenue: Mr. Goverdhan Dass Bansal
Cause Title: NC Jindal Institute of Medical Care & Research v. Commissioner of Central Excise, GST, Rohtak
Case No: Service Tax Appeal No. 60680 of 2017
Coram: Justice S.S. Garg (Judicial Member), P. Anjani Kumar (Technical Member)
