Mediclaim Processing Charges Part of ‘Healthcare Services’ and Not Liable to Service Tax: CESTAT [Read Order]

The Principal Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Delhi recently held that Processing Charges incurred in course of provision of services by medical service providers are encompassed within the ambit of ‘Healthcare Services’ and thereby exempted from Service Tax.

The instant Service Tax Appeal was filed by M/s Life Care Hospital Ltd., a well known hospital in Vijay Nagar, the newly developed center of Indore city.

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The case was registered against the Order-in-Appeal passed by the Commissioner of CGST and Central Excise, Indore, confirming demand of Service Tax under the category of ‘Business Auxiliary Service’.

Scrutiny by the CGST Commissioner was initiated on the basis of findings from Form 26AS which revealed that the Appellant Hospital collected amounts from their in-house Medical Store - Life Care Medicos in the form of ‘Commission’ or ‘Brokerage’ under Section 194H of the Income Tax Act, 1961.

The Appellant further denied to pay Service Tax on these amounts citing that they are exempted as per statutory provisions.

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Subsequent to the Revenue Department’s intimations via letters inquiring the failure to pay Service Tax, Appellant was served with a Show-Cause Notice (SCN) on 08.09.2020 claiming that the Appellant has failed to pay Service Tax of Rs.9,23,665/- on the Commission received from Life Care Medicos between 2015-2016, up until June 2017.

The demand under the SCN was confirmed and the Appeal filed by Life Care Hospital against the Demand was dismissed by the CGST Commissioner (Appeals).

The Counsel for the Appellant, Priyanka Goel submitted before CESTAT that the process of lodging the mediclaim of the patient is an ancillary service, routine to medical service and thus exempt from Service Tax.

It was clarified by the Appellant that, as part of Medical Services, the Appellant is required to process charges levied for hospital room charges, Doctor fees, nursing care charges and medicine charges among others.

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After mediclaims are approved and processed by the Insurance company, the Appellant Hospital transfers the charges levied on medicine, back to the in-house Medical Store Life Care Medicos after deduction of nominal service charges.

Counsel for the Appellant advanced their submissions on the basis of definitions of “Clinical Establishment” and “health care service” under Notification No. 25/2012-Service Tax issued by the Ministry of Revenue, along with CESTAT’s decision in Sir Ganga Ram Hospital Vs. Commissioner of Central Excise, Delhi-I (2017).

The Appellant claimed that the service charges retained by them was in lieu of the considerable time spent by the Hospital staff in processing the extensive mediclaims for patients who avail cashless medical insurance facility, which also includes the purchase of required medicines from Life Care Medicos and the subsequent reimbursement by virtue of claimed insurance schemes.

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The Principal Bench of the Customs, Excise and Service Tax Appellate Tribunal, Delhi presided over by Binu Tamta, Judicial Member held that the Revenue Authorities have fallaciously declared the aforementioned series of services between Life Care Hospital and Life Care Medicos as “business auxiliary services” when it has been extensively established that they are services essential to the treatment of patients.

Concludingly, CESTAT dropped the demand proceedings against the Appellant and set aside the Order while allowing the present appeal.

To Read the full text of the Order CLICK HERE 

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