2024 (10) TMI 824 - AT - Service Tax

Levy of service tax with interest and penalty - Business Support Services - sharing of Revenue - providing infrastructural support services to DSPs - It is alleged that the revenue retained by the appellant is against the BSS rendered by the appellant to Diagnostic Service Providers (DSPs) - extended period of limitation - HELD THAT - Perusal of the agreements between the parties clearly shows that the contracts between the appellant and various DSPs are on principal-to-principal basis and are in the nature of sharing-revenue. As per the contracts, the appellant is required to provide infrastructure and DSPs are required to install their equipments; and the revenue earned from the patients is shared between the appellant and the DSPs and no taxable service is being provided by the appellant to DSPs. Here, it is pertinent to extract the relevant clauses of such agreements with regard to sharing of revenue - there is absolutely no stipulation of payment of any service charges by the DSPs to the appellant and the contract is purely for sharing of revenue. Circular No. 109/03/2009-ST dated 23.02.2009 relied upon by the appellant also recognizes that the transactions between two contracted parties on principal-to-principal basis are not to be treated as service. Though the circular was issued in context of levy of service tax on movie theaters, but the context is applicable in the present case also, because in the present case, the appellant and the DSPs are dealing with each other on principal-to-principal basis. Mere providing of a building alongwith some basic amenities like electricity, water, sewage etc cannot be qualified as support service for running a business. These facilities are provided to the DSPs to enable them to provide the services to the appellant; and without these facilities, DSPs would not be in the position to provide the service to the appellant - Healthcare services are fully exempted from the tax w.e.f. 25.04.2011 vide Notification No. 30/2011-ST dated 25.04.2011. This notification was rescinded w.e.f. 01.07.2012, but healthcare services are not liable to service tax in the negative list regime also. Thus, in the present case the service, if any, rendered by the appellant are not BSS and rather qualifies as Healthcare Service which is exempted from service tax. Extended period of limitation - HELD THAT - The appellant has not suppressed any material facts with intent to evade payment of tax and the entire earning of the appellant from the revenue-sharing modal was recorded in the balance-sheet, which is a public document. Moreover, the appellant was under a bona fide belief that healthcare services are not liable to service tax and the issue involved is that of interpretation; hence, extended period of limitation cannot be invoked. Therefore, substantial demand raised for the period 2008-09 to September 2011 is barred by limitation. Since the demand itself is not sustainable, therefore, the question of interest and penalty also does not arise. The impugned order is not sustainable in law and is therefore, set aside - appeal allowed.

Issues Involved:

1. Whether the appellant is liable to pay service tax under the category of "Support Service of Business or Commerce" for providing infrastructure and other facilities to Diagnostic Service Providers (DSPs).
2. Whether the revenue-sharing model between the appellant and DSPs constitutes a service provision.
3. Applicability of extended period of limitation for service tax demand.
4. Legitimacy of interest and penalty imposed on the appellant.

Issue-wise Detailed Analysis:

1. Liability under "Support Service of Business or Commerce":

The core issue is whether the appellant's provision of infrastructure and facilities to DSPs qualifies as a "Support Service of Business or Commerce" under Section 65(104c) of the Finance Act, 1994. The appellant contended that the agreements with DSPs were based on a revenue-sharing model on a principal-to-principal basis, not constituting a service provision. The appellant provided basic amenities like space, water, and electricity, allowing DSPs to operate their equipment and provide diagnostic services. The Tribunal found that these arrangements did not constitute a taxable service under the "Support Service of Business or Commerce" category, as the appellant did not provide any service to DSPs but rather engaged in a revenue-sharing partnership.

2. Revenue-Sharing Model:

The appellant argued that the revenue-sharing arrangement with DSPs did not involve the provision of any service. The agreements stipulated shared revenue from diagnostic services provided by DSPs, with no service charges paid by DSPs to the appellant. The Tribunal agreed, noting that the contracts were purely for revenue sharing, with the appellant providing infrastructure and DSPs installing their equipment. The revenue was collected by the appellant, who then shared it with DSPs, indicating a principal-to-principal relationship rather than a service-provider relationship.

3. Extended Period of Limitation:

The appellant challenged the invocation of the extended period of limitation, arguing that there was no suppression of material facts. The Tribunal noted that the appellant's earnings from the revenue-sharing model were recorded in the balance sheets, which were public documents, and the department was aware of these facts. The Tribunal found that the appellant was under a bona fide belief that healthcare services were not liable to service tax, and the issue involved was interpretational. Therefore, the extended period of limitation was not applicable, rendering the substantial demand for the period 2008-09 to September 2011 time-barred.

4. Interest and Penalty:

Given that the demand for service tax was found unsustainable, the Tribunal held that the question of interest and penalty did not arise. The appellant's belief that healthcare services were exempt from service tax and the absence of any intent to evade tax supported the Tribunal's decision to set aside the penalties.

Conclusion:

The Tribunal concluded that the appellant was not liable to pay service tax under the "Support Service of Business or Commerce" category, as the arrangements with DSPs were on a principal-to-principal basis. The invocation of the extended period of limitation was unjustified, and the demand for interest and penalties was not warranted. Consequently, the appeal was allowed, and the impugned order was set aside, providing relief to the appellant.

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