NC Jindal Institute Wins Service Tax Exemption Case Against Central Excise Department

Customs Excise and Service Tax Appellate Tribunal (CESTAT) rules in favor of NC Jindal Institute, declaring revenue sharing with diagnostic service providers exempt from service tax under Business Support Services.

In a landmark judgment, the Customs Excise and Service Tax Appellate Tribunal (CESTAT), Chandigarh Regional Bench, has ruled in favor of NC Jindal Institute of Medical Care & Research, exempting them from paying service tax on revenue-sharing arrangements with diagnostic service providers (DSPs). The case, NC Jindal Institute of Medical Care & Research v. Commissioner of Central Excise, Goods & Service Tax, revolved around whether the hospital's arrangements with DSPs constituted 'Business Support Service' (BSS) liable for service tax under Section 65(104c) of the Finance Act, 1994.

The Tribunal's judgment, delivered by Mr. S. S. Garg and Mr. P. Anjani Kumar, held that such arrangements are not subject to service tax as they qualify as healthcare services, which are exempt. The Tribunal noted that the agreements between the hospital and the DSPs were entered on a principal-to-principal basis for sharing revenue generated from diagnostic services provided within the hospital premises.

CESTAT's decision emphasized that healthcare services, including those provided in collaboration with DSPs, are not liable for service tax, aligning with Circular No. 109/03/2009-ST dated 23.02.2009, which clarifies that principal-to-principal revenue-sharing agreements do not attract service tax.

The Tribunal also dismissed the extended period of limitation invoked by the department for the tax demand from 2008-09 to 2011, noting that the appellant had not suppressed any facts and that the revenue was duly recorded in public documents like balance sheets. The Tribunal underscored the appellant's bona fide belief in the non-applicability of service tax to healthcare services, thereby nullifying the demand for interest and penalty.

This judgment sets a precedent for similar cases, reinforcing that revenue-sharing arrangements between hospitals and DSPs are not taxable under BSS, thereby providing clarity and relief to the healthcare sector regarding service tax liabilities.

Bottom Line:

Service Tax - Revenue sharing arrangement between hospitals and diagnostic service providers (DSPs) - Revenue sharing agreements entered into on a principal-to-principal basis are not subject to service tax under 'Business Support Service' (BSS). Healthcare services provided by hospitals, in collaboration with DSPs, are exempt from service tax.

Statutory provision(s): Section 65(104c) of the Finance Act, 1994, Circular No. 109/03/2009-ST dated 23.02.2009, Section 65B(44) of the Finance Act.

NC Jindal Institute of Medical Care & Research v. Commissioner of Central Excise, Goods & Service Tax, (CESTAT)(Chandigarh)(Regional Bench) : Law Finder Doc Id # 2817551