Gauhati HC Sets Aside ₹10.13 Cr Service Tax Demand on Hospital:Rules Healthcare Services Exempt  Under Notification [Read Order]

In a recent ruling, the Gauhati High Court set aside a ₹10.13 crore service tax demand raised against Green Valley Diagnostics & Hospitals Pvt. Ltd., Dibrugarh, holding that healthcare services rendered by a clinical establishment are exempt under Notification No. 25/2012‑Service Tax dated 20 June 2012.

The Court observed that the tax authorities had relied only on income‑tax data without examining the nature of the services provided, and ruled that such reliance cannot establish service‑tax liability for exempt medical services.

The petitioner, a Dibrugarh‑based hospital incorporated in 2002, had been providing diagnostic and medical services exclusively. Despite being exempt from service tax, the hospital had voluntarily registered under the Finance Act, 1994.

In September 2020, the Commissioner of Central GST issued a show‑cause notice alleging suppression of taxable value between 2014‑15 and 2017‑18, based on third‑party data from the Income Tax Department, and demanded ₹10,13,56,425 in service tax along with interest and penalties.

Senior Advocate Dr. Ashok Saraf, appearing for the petitioner, argued that the demand was unsustainable since the hospital’s services were fully exempt under the 2012 notification. He contended that receipts reflected in Form 26AS represented payments from corporate employers and insurance companies for patient treatment transactions squarely covered by the exemption.

The petitioner also challenged the invocation of the extended limitation period under Section 73(1) of the Finance Act, 1994, asserting the absence of fraud or suppression.

On the other hand the Counsel for the GST Department argued that the hospital should not be permitted to invoke writ jurisdiction directly. Since the GST law is a complete code with detailed appellate remedies, the petitioner ought to have first availed the statutory appeal process.

They stated that the hospital suppressed taxable receipts, failed to file mandatory returns, and bypassed statutory remedies, making the writ petition unsustainable and the demand legally valid.

Justice Soumitra Saikia observed that the authorities had ignored clear evidence showing the petitioner’s business as “health care services” in its tax audit reports and filings with the Ministry of Corporate Affairs.

The Court held that the Commissioner’s reliance solely on income‑tax data, without analyzing the nature of services, was contrary to law. It reiterated that under Clause 2(i) and 2(t) of Notification No. 25/2012, services by a clinical establishment for diagnosis or treatment are exempt from service tax.

The court observed that “The said action of the Principal Commissioner of Central Goods & Service Tax in treating the entire receipts of the Petitioner as ‘taxable service' is therefore absolutely illegal, without jurisdiction, not tenable in law and therefore the impugned Order-in-Original dated 25.03.2022 passed by the Principal Commissioner of Central Goods & Service Tax is liable to be set aside and quashed.”

The High Court quashed the Order‑in‑Original dated 25.03.2022, which had confirmed the ₹10.13 crore demand, equal penalty, and interest. it declared the demand unsustainable, illegal, and without jurisdiction, since the petitioner’s receipts were from exempt healthcare services.

By doing so, the Court allowed the writ petition and Pending I.A.s are also dismissed and the interim order if any stands merged.

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