Revenue Sharing with Diagnostic Labs Not Taxable as BSS: CESTAT Sets aside Service Tax Demand on Hospital [Read Order]

2025 TAXSCAN (CESTAT) 1399The Chandigarh Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) ruled that service tax cannot be levied under ‘Business Support Services’ (BSS) on the portion of revenue retained by a hospital from diagnostic service providers (DSPs), it is an arrangement as a joint venture for healthcare rather than a service provision.

NC Jindal Institute of Medical Care & Research (appellant) is a hospital registered under ‘Health Services’ and ‘Renting of Immovable Property’. The hospital entered into agreements with various diagnostic entities, such as Lal Pathlabs, to provide pathology and diagnostic services within the hospital premises.

Know the complete aspects of tax implications of succession, Click here

Under these agreements, the appellant provided infrastructure (space, water, electricity), while the DSPs installed and operated their own equipment. The hospital billed patients directly for these services and shared the receipts with the DSPs based on an agreed percentage, after deducting administrative and upkeep charges.

The Revenue Department alleged that by providing infrastructural and administrative support, the appellant was providing ‘Business Support Services’ to the DSPs. Two show cause notices were issued demanding a total service tax of approximately ₹42.6 lakh for the period 2008 to 2014. The Commissioner (Appeals) upheld the demand. The appellant approached the CESTAT.

The bench comprising S. S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member) observed that the issue was already settled in the appellant's favor for previous and subsequent periods, and the department had not challenged those earlier orders.

The tribunal noted that the relationship between the hospital and the DSPs was on a principal-to-principal basis. It found that the hospital was the one providing healthcare services to patients, and the DSPs acted as an integral part of this joint venture.

The tribunal observed that there were no business support services since the patients were the ultimate beneficiaries and the hospital issued the bills under its own name.

The tribunal concluded that no taxable service was being provided by the hospital to the DSPs. The tribunal observed that "healthcare services" have been exempt from service tax since 2011 and remained outside the tax ambit even under the subsequent negative list regime.

The tribunal ruled that the demand was not sustainable in law, set aside the order, and allowed the appeal with consequential relief. The appeal of the appellant was allowed.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates