No Service Tax on Retention Fee charged by Hospitals: CESTAT Delhi [Read Order]

Hospital Tax

In a significant ruling, the Delhi CESTAT held that service tax cannot be levied on retention fee of hospitals under ‘Business Support Service’.

In the instant case, the appellant-Hospital is engaged in rendering healthcare services to patients through doctors/medical practitioners appointed on contractual basis. As part of this, professional fee was paid to doctors by applying a pre-determined ratio on the amount received by the appellants from patients. A certain sum was retained by the appellant as retention fees/collection charges/facilitation fees.

The department said that the retention fee is subject to service tax under the head “Business Support Service” since the doctors have availed infrastructural support services from the appellant hospital.

The Tribunal rejected the contention of the department that the doctors are in business or commerce and are provided with infrastructural support.

“Doctors are engaged in medical profession. As examined by Hon’ble Gujarat High Court in Dr KK Shah (supra), though in an income-tax case, we note that there is a discernable difference between “business” and “profession”.”

Further, analyzing the provisions of the negative list, the bench said that a clinical establishment providing health care services are exempted from service tax.

“The view of the Revenue that in spite of such exemption available to health care services, a part of the consideration received for such health care services from the patients shall be taxed as business support service/taxable service is not tenable. In effect this will defeat the exemption provided to the health care services by clinical establishments. Admittedly, the health care services are provided by the clinical establishments by engaging consultant doctors in terms of the arrangement as discussed above. 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,” the bench added.

Subscribe Taxscan Premium to view the Judgment
taxscan-loader