2015 (11) TMI 977 - AT - Service Tax

Demand of service tax - Insurance Auxiliary Service - Business Auxiliary Service - Held that - during the period prior to 01/05/2006, service provided to a policy holder, insurer including reinsurer was only liable to service tax and the amount received by the appellant is for the service provided to the hospitals. Therefore during the relevant appellant was not liable to pay tax at all. We find this submission to be valid since the service provided to insurer or policy holder was only liable to tax prior to 01/05/2006. - Decided in favor of assessee. Whether amounts received as healthcare receipts/self-funded schemes are liable to tax as BAS - Held that - This is a self-funded scheme and implementation lies with Special Purpose Trust named Yeshasvini Trust of which the appellant is also a part. This is a contributory scheme wherein the beneficiaries contribute a small amount of money every year and beneficiaries were offered cashless treatment in over 135 hospitals in Karnataka. - The service provided by the appellants to corporate clients as submitted is a service limited to the healthcare of the employees of corporate clients. It cannot be said that this service is provided on behalf of a corporate client to the employees. Therefore we agree with the submission that this service is not covered by BAS. - Decided in favor of assessee. Levy of penalty - As regards insurance auxiliary service, the appellants have paid the entire amount with interest and an excess amount of more than ₹ 4.5 lakhs has also been paid before the issuance of show-cause notice. Since they have registered and have been paying the tax and have paid the entire amount before the issue of show-cause notice, according to provisions of Section 73 of Finance Act, 1994, penalty under Section 76 is not imposable. As regards the other two demands amounting to ₹ 16,29,562/-, we have already held that on merits, the demand is not sustainable. Under the circumstances, penalties under Sections 76 or 78 of Finance Act, 1994 is not imposable on the appellant. - Decided in favour of assessee.

Summary

Issues:
1. Liability for payment of service tax under Insurance Auxiliary Service and Business Auxiliary Service.
2. Interpretation of service tax liability on amounts received under discounts, healthcare receipts, and self-funded schemes.
3. Applicability of penalties under Sections 76, 77, and 78 of the Finance Act, 1994.

Issue 1: Liability for Payment of Service Tax under Insurance Auxiliary Service and Business Auxiliary Service:
The case involved M/s. Family Health Plan Ltd. (FHPL) registered for service tax under Insurance Auxiliary Service. Investigations revealed FHPL was providing Business Auxiliary Service (BAS) to customers without paying tax on amounts received. The demand for service tax of &8377; 2,15,63,970/- with interest was confirmed for the period from August 2002 to March 2006. FHPL claimed an excess payment of &8377; 4.5 lakhs on Insurance Auxiliary Service. The contention was that service provided to hospitals did not fall under Insurance Auxiliary Service as defined before May 2006. The Tribunal agreed, stating only services to policy holders or insurers were taxable pre-May 2006. Regarding BAS on healthcare receipts and self-funded schemes, the Tribunal found the services provided did not qualify as taxable under BAS, leading to allowing the appeal.

Issue 2: Interpretation of Service Tax Liability on Amounts Received under Discounts, Healthcare Receipts, and Self-Funded Schemes:
FHPL acted as a third-party administrator for insurance companies and hospitals, facilitating bill settlements. The Department argued amounts received from hospitals were taxable under discounts. FHPL's services included managing healthcare for corporate clients and implementing a self-funded scheme for farmers. The Tribunal analyzed whether these services fell under BAS, ultimately ruling that the services provided did not meet the criteria for taxable services under the Business Auxiliary Service definition, leading to allowing the appeal.

Issue 3: Applicability of Penalties under Sections 76, 77, and 78 of the Finance Act, 1994:
FHPL had paid the entire amount for Insurance Auxiliary Service and an excess amount before the show-cause notice, exempting them from penalties under Section 76. As the demands for BAS were found unsustainable, penalties under Sections 76, 77, and 78 were deemed inapplicable. The Revenue appealed for revising penalties, but since no penalties were imposed, the appeal was rejected. Consequently, the Tribunal allowed the appellant's appeal and rejected the Revenue's appeal.

This detailed analysis of the judgment highlights the key legal issues, interpretations, and outcomes of the case involving service tax liabilities and penalties under the Finance Act, 1994.