2018 (1) TMI 168 - AT - Service Tax

Demand of service tax - Health Services which was in force for a limited period from 1.7.2010 to 30.4.2011 - The expenses incurred for treatment was paid directly by the insurance company namely Star Health and Allied Insurance Co. Ltd. The appellants paid service tax under the said category of services after making some deductions. - Held that - similar issue decided in the case of M/s. Arvinth Hospitals Versus The Additional Commissioner Central Excise, The Joint Commissioner Central Excise 2016 (11) TMI 238 - MADRAS HIGH COURT , where it was held that unless and until the Scheme has been examined in full, the respondent cannot come to a conclusion that the nature of transaction done by the petitioner would fall within the definition of Section 65(105)(zzzzo) of the Finance Act. Therefore, this Court is of the view that such an exercise is required to be done before coming to the conclusion as to what is the nature of service rendered and whether it is an Insurance Policy or it is a Welfare Scheme - the services rendered by the appellant would fall under taxable category of health service, has to be given reconsideration - matter remanded to the adjudicating authority who will reconsider the issue whether the services are taxable or not. Extended period of Limitation - Held that - As the main issue is remanded to the adjudicating authority, we leave this issue open with a direction to the adjudicating authority to decide the issue of limitation also in the denovo adjudication. Penalty - Held that - the issue being an interpretational one, also since the services were taxable for a limited period and as there was considerable confusion as to whether the services rendered under a scheme floated by the Government would fall within the category of Health Services for levy of service tax, we find that the appellant has put forward reasonable cause for not discharging service tax on the entire value raised in the Bill. It is a fit case to invoke section 80 of the Finance Act - penalty set aside. Appeal allowed by way of remand.

Summary

Issues Involved:
1. Demand of service tax under the category of Health Services.
2. Limitation period for issuing the show cause notice.
3. Merits of the case regarding the nature of services provided under the Kalaignar Kapeetu Thittam scheme.
4. Applicability of VAT on medicines and the mutual exclusivity of VAT and service tax.
5. Imposition of penalties under sections 77 and 78 of the Finance Act, 1994.

Detailed Analysis:

1. Demand of Service Tax under Health Services:
The appellants, a private hospital, were demanded to pay service tax under the category of Health Services for the period from 1.7.2010 to 30.4.2011. They provided treatment under the Kalaignar Kapeetu Thittam health insurance scheme, with expenses paid by Star Health and Allied Insurance Co. Ltd. The department alleged that the appellants did not discharge service tax on the entire taxable value, leading to a demand of ?1,49,86,899/- along with interest and penalties.

2. Limitation Period:
The appellants argued that the show cause notice dated 15.6.2015 for the period from 1.7.2010 to 31.3.2011 was barred by limitation. They contended that there was no suppression of facts or intent to evade tax, citing confusion in interpreting the definition of Health Services and the taxable portion of the consideration. They relied on Master Circular No.1053/02/2017-CX, stating that the extended period for invoking the demand requires an active intent to evade payment, which was absent in their case.

3. Merits of the Case:
The appellants argued that the Kalaignar Kapeetu Thittam was a welfare scheme for the poor and downtrodden, not falling under the definition of health services. They emphasized that the payment for services was routed through an insurance company but essentially came from the Tamil Nadu Government. They cited the case of M/s. Arvinth Hospitals Vs. Additional Commissioner of Central Excise, where the Hon’ble High Court of Madras remanded the matter to determine whether such services were taxable.

4. Applicability of VAT and Mutual Exclusivity:
The appellants contended that they discharged VAT on medicines supplied during inpatient treatment and that VAT and service tax are mutually exclusive. They cited the case of Sanjos Parish Hospital Vs. Commercial Tax Officer and Imagic Creative Pvt. Ltd., arguing that the demand for service tax on amounts already subjected to VAT was incorrect.

5. Imposition of Penalties:
The appellants argued that penalties under sections 77 and 78 were unwarranted as they had a reasonable cause for not discharging service tax on the entire value. The Tribunal agreed, invoking section 80 of the Finance Act, 1994, and set aside the penalties, noting that the issue was interpretational and the appellants had paid the service tax collected from the insurance company.

Conclusion:
The Tribunal set aside the impugned order and remanded the matter to the adjudicating authority to reconsider the issues on merits and limitation, in line with the Hon’ble High Court’s decision in M/s. Arvinth Hospitals. The penalties imposed were also set aside under section 80 of the Finance Act, 1994. The adjudicating authority was directed to provide a reasonable opportunity of hearing to both sides.