CESTAT Chennai Quashes Service Tax Demand on Aravindh Eye Hospital's Collaborative Healthcare Arrangements

Revenue Sharing Agreements with Charitable Institutions Not Taxable as Business Services, Tribunal Rules

In a significant ruling, the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), Chennai, has set aside the service tax demand of Rs. 34,83,008 against M/s. Aravindh Eye Hospital. The demand was initially imposed by the Commissioner of GST and Central Excise, Madurai, under various service categories, including Management or Business Consultancy Services, Manpower Recruitment or Supply Agency Services, and Commercial Training Services.

The case revolved around the hospital's collaborative agreements with other charitable institutions, such as the Indira Gandhi Eye Hospital and MP Birla Netralaya, for providing healthcare services. The tribunal, comprising Mr. P. Dinesha (Judicial Member) and Mr. Vasa Seshagiri Rao (Technical Member), concluded that these agreements were fundamentally revenue-sharing arrangements aimed at integrated clinical management rather than taxable service provisions.

During the proceedings, Aravindh Eye Hospital argued that the payments labeled as "royalty" and "management fees" were actually part of a revenue-sharing model within their joint ventures. The hospital also contended that the reimbursement of salaries for deputed staff was made on an actual cost basis, without any commercial markup, and that training provided to staff was part of integrated healthcare services.

CESTAT accepted these arguments, emphasizing that the core of these agreements was healthcare delivery, exempt from service tax. The tribunal also noted that the collaborative arrangements were on a principal-to-principal basis, aligning with the principles laid out in CBEC Circular No. 109/03/2009-ST dated 23.02.2009, which exempts revenue-sharing models from service tax.

The tribunal's decision to quash the demand also considered the classification of services under Section 65A of the Finance Act, 1994. It concluded that the dominant nature of the service was clinical healthcare management, which should be exempt from service tax. Consequently, the tribunal set aside the demand, interest, and penalties previously imposed on Aravindh Eye Hospital.

This ruling underscores the importance of understanding the substance of collaborative healthcare arrangements and their classification under service tax laws. The tribunal's decision not only provides relief to Aravindh Eye Hospital but also sets a precedent for similar cases involving revenue-sharing agreements in the healthcare sector.

Bottom Line:

Service tax demand on activities related to collaborative healthcare arrangements quashed. Revenue sharing agreements between hospitals and charitable institutions are not taxable as Management or Business Consultancy Services, Manpower Recruitment or Supply Agency Services, or Commercial Training services.

Statutory provision(s): Finance Act, 1994 Sections 65(105), 65A, 77, 78

M/s. Aravindh Eye Hospital v. Commissioner of GST and Central Excise, (CESTAT)(Chennai)(Regional Bench) : Law Finder Doc Id # 2818056