Service Charge Collected By Medical Store In Hospital Covered Under “Health Care Services”, Exempted From Service Tax: CESTAT

The Bench of Binu Tamta (Judicial Member) has observed that “medical aid to the patients who are admitted in the hospital, most of the time requires urgent care and treatment without any loss of time and that is the reason for having a medical store within the vicinity of the hospital. Therefore, the in-house patients are largely dependent on the medicine shop in the hospital. Hence the allegation raised by the revenue that this amount is actually the commission which the hospital is charging from the medicine store is not correct…..”

Section 2(j) of the Notification No. 25/2012 defines “Clinical Establishment” as any hospital, nursing home, clinic, sanatorium, or similar institution that provides diagnosis, treatment, or care for illness, injury, deformity, abnormality, or pregnancy in recognized Indian medical systems, or a place for diagnostic or investigative services of diseases.

Section 2(t) of the Notification No. 25/2012 defines “Health Care Service” as any diagnosis, treatment, or care for illness, injury, deformity, abnormality, or pregnancy in recognized Indian medical systems. It includes patient transportation to and from clinical establishments but excludes transplants and cosmetic or plastic surgery, except for surgeries to restore or reconstruct anatomy due to congenital defects, developmental abnormalities, injury, or trauma.

After introduction of negative list regime, w.e.f. 1.7.2012, the health care services are exempt from service tax under Notification No.25/2012-ST. The “health care service” provided by a “clinical establishment” is exempted from service tax as per Section 2(i) of the Mega Exemption Notification.

Section 194H of Income Tax Act, 1961 is for income tax deducted on any income by way of commission or brokerage by any person responsible for paying a resident.

The assessee/appellant is engaged in providing the taxable service namely, Health Club & Fitness Service, Renting of Immovable Property Service and Health Care Service. The Department ascertained that the assessee had collected amount from in-house medical store under Section 194H of Income Tax Act, 1961, which pertains to commission or brokerage and had not paid any service tax. A show cause notice was issued, alleging non-payment of service tax of Rs. 9,23,665 on commission received from the medical store for the period 2015-2016 to June 2017.

On adjudication, the demand under the SCN was confirmed. Being aggrieved the assessee filed an appeal before the Commissioner (Appeals), who rejected the appeal and confirmed the demand of service tax under the category of “Business Auxiliary Service” while rendering “health care service”. The assessee has challenged the order passed by the Commissioner (Appeals) before the Tribunal.

The assessee contended that the assessee is running a hospital and providing various medical services to the patient. Predominantly service of the assessee is medical and health care service. Therefore, processing charges received towards Mediclaim is the ancillary service and classifiable under medical service itself and exempted from service tax.

The Revenue submitted that the amount retained from in-house medical store covered as services under the heading of “Business Auxiliary Service” and hence, liable to Service Tax.

The Tribunal looked into the definition of “clinical establishment” under Section 2(j) and “health care service” under Section 2 (t) of the Notification No. 25/2012 and observed that the assessee who is running the hospital is squarely covered by the definition of “clinical establishment”, which at the outset says the clinical establishment means hospital and is rendering the healthcare services as defined therein.

Hence, the Tribunal opined that “Medical aid to the patients who are admitted in the hospital, most of the time requires urgent care and treatment without any loss of time and that is the reason for having a medical store within the vicinity of the hospital. Therefore, the in-house patients are largely dependent on the medicine shop in the hospital. In this scenario the hospital which is providing the multifarious services under the health care services owes greater responsibility that the medicines which is the most important input in any treatment are available to the patients urgently on time and simultaneously the payment thereof to the medicine shop is also made, for which the hospital is required to assimilate the claim in respect of all the services rendered to the patients and forward them to the insurance company. Hence the allegation raised by the revenue that this amount is actually the commission which the hospital is charging from the medicine store is not correct…..”

The Tribunal pointed out that for understanding the concept of the term “treatment” , it is necessary to keep in mind that the drug therapy is an important and integral part of treatment. The medicines are used to treat or cure illness along with that the intended use of the medicines is in the diagnosis, mitigation or prevention of disease.

The attempt of the Revenue to categorise the amount retained by the assessee/appellant as services under the heading of “Business Auxiliary Service” would amount to narrowing down the definition of “health care service” with a view to bring within the tax net, which is contrary to the intention of the legislature to exempt the “heath care service”, added the bench.

In view of the above, the Tribunal allowed the appeal.

Counsel for Appellant/ Assessee: Priyanka Goel

Counsel for Respondent/ Department: Rohit Issar

Case Title: M/s. Life Care Hospital Ltd. v. Commissioner of CGST and Central Excise

Case Number: Service Tax Appeal No.55276 of 2023

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