Revenue Sharing with Doctors and Diagnostic Partners Not Taxable as BSS: CESTAT Sets Aside Service Tax Demand [Read Order]

The Chandigarh Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) held that revenue sharing arrangements between hospital entities and Diagnostic Service Providers (DSPs) or Doctors/Consultants did not amount to taxable Business Support Services (BSS) and set aside the Service Tax demand.

Om Savitri Jindal Charitable Society (appellant) registered under 'Health Service' and 'Renting of Immovable Property Service', had agreements with DSPs like Lal Pathlabs Pvt Ltd for providing diagnostic services in the hospital.

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The appellant provided basic amenities like space, water, and electricity, and in turn, shared the receipts from patients with the DSPs after deducting administrative and up-keep charges.

The appellant hired Doctors/Consultants as employees or on a retainership basis for healthcare services. The appellant raised the patient invoices for consultancy, surgery, etc., and shared the receipts with the doctors as per the contract terms.

The Revenue authorities alleged that the amounts retained by the appellant represented charges for infrastructural and administrative support services, which were taxable under BSS. The department confirmed a demand of ₹26,56,018 and ₹21,99,635 along with interest and penalty.

The two-member bench, comprising S. S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member) observed that the appellant arrangements with DSPs and arrangements with Doctors/Consultants were based on a revenue sharing model on a principal-to-principal basis.

The tribunal observed that the contracts clearly showed a sharing of revenue, with no stipulation of payment of any service charges by the DSPs or Doctors to the hospitals. The tribunal noted that transactions between contracted parties on a principal-to-principal basis were not to be treated as service.

The bench held that the service was provided by the DSPs to the appellant as the Hospital provided healthcare services and the diagnostic services were an integral part of this. The tribunal observed that the mere provision of a building and basic amenities did not qualify as 'support service' for running a business and these facilities merely enabled the DSPs to provide services to the hospital.

The tribunal held that doctors were engaged in a medical profession, which is fundamentally distinct from "business or commerce". The tribunal noted that arrangement was mutually beneficial for providing healthcare, and the retained amount by the hospital was for such health care service, not for providing BSS.

The bench held that the department had already accepted the tribunal's previous orders in similar cases involving the same appellants for earlier and subsequent periods, which held that revenue sharing arrangements were not subject to service tax.

The tribunal observed that the department was legally barred from taking a contrary stand on the same issue for the same assessee. The tribunal held that orders confirming the demand were legally unsustainable. The demand for Service Tax was quashed. The appeal filed by the appellant was allowed.

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