2017 (5) TMI 672 - HC - Service Tax

Health and fitness services - In the order impugned in the writ petition, the 2nd respondent has not disputed the claim of the petitioner that they have registered themselves under Section 12AA of the Income Tax Act as a charitable institution. But what the 2nd respondent did was to go by the definition of the expression charitable institution found in the definition part of the notification dated 20.06.2012 - distinction between fitness centres or unisex saloons - Held that - the petitioner satisfies both the limbs indicated in sub-clause (a) and (b) of Clause (i) of para-2(k). The petitioner is allegedly indulging in public awareness and the petitioner is also indulging in the spreading of public health by way of care and counselling. Therefore, even on the basis of the findings recorded in para-30.2 it is not possible to conclude that the activities carried on by the petitioner would not fall within para-2(k) of the exemption notification. An important aspect to be taken note of is that under Serial No.2 of the exemption notification health care services by a clinical establishment is exempted from payment of service tax. Any institution, which provides services by way of diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy comes within the definition of health care services. That the petitioner renders such services is not in doubt even from the findings recorded by the 2nd respondent herein - Where the 2nd respondent appears to have gone wrong is that the 2nd respondent has taken the services provided by the petitioner for the wellbeing of an individual, as something out of the purview of the diagnosis or treatment. The 2nd respondent has fallen into an error in thinking so, due to a fundamental misconception that is normally prevalent in society. While Allopathic system of medicine is only for diagnosis and treatment of illness, many of the indigenous system of medicines, seek to prevent rather than prescribe. An exemption notification, which is understood by the respondents to confer a benefit upon the clinical establishments, cannot be made inapplicable to a holistic health care institution such as the petitioner herein, as the same would tantamount to killing our indigenous system of health and well being - A system of medicine which focused mainly on healthy living and not merely a prolonged existence cannot be denied the benefit of the exemption notification on the basis of a misconception that a clinical establishment is one that would treat people after they fall ill and not one which will prevent people from falling ill. There is a very clear distinction between fitness centres or unisex saloons, which provide different types of services to the customers. Their focus is mostly on beauty rather than on maintenance of health. The 2nd respondent appears to have fallen into an error in mixing up both - the case of the petitioner would fall clearly within the purview of the exemption notification, the 2nd respondent has made a distinction, which did not exist except in his mind and in the paper. Petition allowed - decided in favor of petitioner.

Issues Involved:
1. Jurisdiction and statutory alternative remedy.
2. Classification of services provided by the petitioner.
3. Applicability of exemption notification No.25/2012.
4. Definition and scope of "charitable activities" and "clinical establishment".
5. Misconception regarding indigenous systems of medicine.

Detailed Analysis:

1. Jurisdiction and Statutory Alternative Remedy:
The petitioner, a public charitable institution registered under Section 12AA of the Income Tax Act, 1961, challenged an Order in Original dated 31.05.2016 demanding service tax and imposing penalties. Despite having a statutory alternative remedy of appeal to the CESTAT under Section 86(1) of the Finance Act, 1994, the petitioner filed a writ petition on the grounds that the impugned order lacked jurisdiction and was contrary to the statutory scheme. The court acknowledged that a writ petition could be entertained without directing the party to avail the statutory alternative remedy in cases of violation of natural justice or lack of jurisdiction.

2. Classification of Services Provided by the Petitioner:
The impugned Order in Original concluded that the services provided by the petitioner, such as various baths, massages, yoga, and meditation, fell under the category of health and fitness services, thereby making them liable for service tax. The petitioner argued that they were providing nature cure treatment and spreading awareness of health through naturopathy, food therapy, water therapy, and yoga, thus classifying their services as charitable activities exempt from service tax.

3. Applicability of Exemption Notification No.25/2012:
The court examined the scope and ambit of exemption notification No.25/2012, which exempts certain taxable services, including health care services by a clinical establishment and services by an entity registered under Section 12AA of the Income Tax Act by way of charitable activities. The 2nd respondent did not dispute the petitioner's registration under Section 12AA but questioned whether their activities fell within the definition of charitable activities as per the exemption notification.

4. Definition and Scope of "Charitable Activities" and "Clinical Establishment":
The exemption notification defines "charitable activities" to include activities related to public health, advancement of religion or spirituality, advancement of educational programs, preservation of environment, and other objects of general public utility up to a certain value. The court found that the petitioner's activities of public awareness and care and counseling fell within this definition. Additionally, the term "clinical establishment" includes hospitals, clinics, and other institutions offering services for diagnosis, treatment, or care for illness in any recognized system of medicine. The court noted that even profit-driven multi-specialty hospitals are exempt under this notification, and thus, the petitioner's holistic health care services should also qualify.

5. Misconception Regarding Indigenous Systems of Medicine:
The court highlighted a fundamental misconception by the 2nd respondent, who viewed the petitioner's services for individual well-being as outside the purview of diagnosis or treatment. The court emphasized the importance of indigenous systems of medicine, which focus on prevention and healthy living rather than merely treating illness. The court referenced historical and contemporary significance of such systems, underscoring their legitimacy and the need for their recognition under the exemption notification.

Conclusion:
The court concluded that the petitioner's activities clearly fell within the purview of the exemption notification, and the 2nd respondent's distinction between clinical establishments and holistic health care institutions was unfounded. The writ petition was allowed, and the impugned order was set aside, recognizing the petitioner's services as exempt from service tax under the relevant notification. Pending miscellaneous petitions were closed, and no order as to costs was made.

Order:
The writ petition is allowed, the impugned order is set aside, and the petitioner's services are recognized as exempt from service tax under exemption notification No.25/2012. Pending miscellaneous petitions, if any, are closed with no order as to costs.

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