2017 (12) TMI 509 - AT - Service Tax

Business Support Services - collection charges/facilitation fee - sharing of infrastructure with the doctors - Doctors are provided space in the hospitals with required facilities to attend to the patients coming to the hospitals, run by the appellants. These doctors engaged on contract basis are paid professional fee in terms of the contracts. - Held that - there is no taxable activity identifiable in the present arrangement for tax liability of the appellant hospitals - After introduction of negative list tax regime, Notification No. 25/2011-ST exempted levy of service tax on health care services rendered by clinical establishments - For such services, amount is collected from the patients. The same is shared by the clinical establishment with the doctors. There is no legal justification to tax the share of clinical establishment on the ground that they have supported the commerce or business of doctors by providing infrastructure. We find that such assertion is neither factually nor legally sustainable The service provided by the respondent hospital would merit classification under Health Care Services extended to the patients. Accordingly, the demand proceedings against the respondent hospital was dropped - Appeals are disposed-of.

Issues Involved:
1. Taxability of "collection charges/facilitation fee" under Business Support Service.
2. Nature of agreements between hospitals and doctors.
3. Applicability of service tax on health care services post-negative list regime.
4. Validity of extended period demand and penalties.
5. Appeal by Revenue against the order of the Commissioner of Service Tax.

Detailed Analysis:

1. Taxability of "collection charges/facilitation fee" under Business Support Service:
The Revenue contended that the "collection charges/facilitation fee" retained by the hospitals from the fees collected from patients should be subject to service tax under the category of Business Support Service (BSS). The original authorities concluded that the hospitals provided infrastructural support services to the doctors, thereby making them liable for service tax under BSS.

2. Nature of agreements between hospitals and doctors:
The appellants argued that the agreements with doctors were based on a revenue-sharing model, where doctors received a percentage of the revenue collected from patients. The agreements did not specify any distinct infrastructural support services provided to the doctors. The hospitals managed patient entry, follow-up, and other health care services, indicating a mutual benefit arrangement rather than a service provider-recipient relationship.

3. Applicability of service tax on health care services post-negative list regime:
Health care services were exempt from service tax post-01.07.2012 under Notification No. 25/2012 ST. The appellants contended that taxing the "collection charges/facilitation fee" would defeat the purpose of the exemption provided to health care services. The Tribunal agreed, stating that the retained amount by hospitals was for health care services provided to patients, not for any separate infrastructural support to doctors.

4. Validity of extended period demand and penalties:
The appellants argued that the demand for the extended period was unsustainable due to the absence of fraud, willful misstatements, or suppression of facts. The demand was based on documents examined during audits, indicating transparency in the appellants' operations. Consequently, the Tribunal found no basis for extended period demand and penalties.

5. Appeal by Revenue against the order of the Commissioner of Service Tax:
The Revenue's appeal challenged the Commissioner of Service Tax's order, which had dropped the demand against a hospital on similar grounds. The Tribunal upheld the Commissioner's decision, emphasizing that the hospitals were providing health care services, not BSS, to the doctors. The Tribunal dismissed the Revenue's appeal, reiterating that taxing the hospitals under BSS was factually and legally unsustainable.

Conclusion:
The Tribunal concluded that the hospitals were not liable to pay service tax under BSS for the "collection charges/facilitation fee" retained from patient fees. The agreements with doctors were revenue-sharing arrangements for mutual benefit, not indicative of infrastructural support services. The exemption for health care services post-01.07.2012 was upheld, and the extended period demand and penalties were found unjustifiable. The Revenue's appeal against the Commissioner's order was dismissed, and all appeals were disposed of accordingly.

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