OP Jindal Institute’s Revenue-Sharing with Labs Not Taxable as Business Support Service: CESTAT Sets Aside Order [Read Order]

In a recent ruling The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chandigarh, has ruled that the OP Jindal Institute’s revenue-sharing agreements with diagnostic labs were principal-to-principal arrangements and formed part of exempt healthcare services, not taxable Business Support Services, and set aside the impugned order that had confirmed a service tax demand of nearly ₹34.7 lakh.

The appeal arises from an order of the Commissioner (Appeals), dated November 28, 2017, which rejected the appeal of the Appellant by confirming the demand of service tax under ‘Business Support Service’ along with interest and penalty.

The appellant, OP Jindal Institute of Cancer & Research, argued that its agreements with Diagnostic Service Providers (DSP) were revenue-sharing contracts on a principal-to-principal basis. Patients were billed directly by the hospital, and receipts were shared with DSPs in agreed proportions.

It is also argued that no service fee was charged to DSPs, and Healthcare services are exempt from service tax and relied on earlier tribunal rulings in its favor for previous years, as well as a 2009 circular clarifying that revenue-sharing contracts are not service arrangements.

On the other hand, the respondent argued that the appellant was not simply sharing revenue but providing infrastructural and administrative support to diagnostic labs by giving them space, electricity, and facilities.

The portion of revenue retained by the hospital was treated as consideration for these support services, which they classified as taxable Business Support Services (BSS) under the Finance Act. Also, they maintained that the hospital was acting as a service provider to DSPs.

The Tribunal observed that Revenue-sharing contracts are not taxable services under BSS. These contracts were on a principal-to-principal basis, with no service fee charged. Also added that Diagnostic services provided jointly by the hospital and labs were considered part of healthcare services, which are exempt from service tax under the Finance Act and relevant notifications.

It is also noted that the hospital billed patients directly, and revenue was shared with labs. This showed that services were provided to patients, not to DSPs. If anything, DSPs were providing services to the hospital, not the other way around. Also clarified that revenue-sharing contracts are not service arrangements

The bench of S.S Garg ( judicial member ), P Anjani Kumar (Technical Member), concluded that the order by the Commissioner (Appeals) confirming the demand of about ₹34.7 lakh was unsustainable in law, and therefore set aside.

Accordingly, appeal was granted with consequential relief.

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