Revenue-Sharing with Diagnostic Partners Not Taxable as ‘Business Support Services’; CESTAT Quashes Rs. 1.47 Crore Service Tax Against Hospital

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chandigarh has set aside a service tax demand of Rs. 1.47 crore raised on a leading hospital chain, holding that revenue-sharing arrangements with in-house diagnostic service providers do not amount to provision of “Support Services of Business or Commerce” and are therefore not taxable. The Bench of Justice S.S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member) has categorically rejected the department’s stand and held that the agreements between the hospital and the DSPs were pure revenue-sharing arrangements on a principal-to-principal basis. There was no element of service provision by the hospital to the DSPs; rather, the DSPs were providing diagnostic services as part of the hospital’s overall healthcare delivery system. The entire billing was done in the hospital’s name and the diagnostic reports were issued under the hospital’s banner, indicating that patients were the ultimate recipients of healthcare services. The DSPs were effectively service providers to the hospital, not the other way around. The case arose from an Order-in-Original dated February 24, 2015 passed by the Commissioner of Central Excise, Chandigarh-II, which had confirmed service tax demand of ₹1,47,12,837 under Section 73 of the Finance Act, 1994, along with interest under Section 75 and penalties under Sections 77 and 78. The hospital was engaged in providing healthcare services, which were either exempt or non-taxable during the relevant period. To provide comprehensive diagnostic facilities to patients, the hospital had entered into agreements with specialised diagnostic service providers (DSPs) for services such as CT scans, MRI, radiology and dental care. These DSPs operated within the hospital premises and shared revenue with the hospital as per agreed ratios. The department alleged that by providing infrastructure, space and administrative support to these DSPs, the hospital was rendering “Support Services of Business or Commerce” and was therefore liable to pay service tax on the amounts retained. The central question before the Tribunal was whether the hospital’s arrangements with the DSPs constituted taxable support services, or whether they were merely revenue-sharing agreements on a principal-to-principal basis as part of integrated healthcare services. The Tribunal observed that merely allowing space, electricity, water and basic infrastructure to enable diagnostic services cannot be equated with “support services” for running a business. It noted that diagnostic services are an integral part of healthcare and are inseparable from the hospital’s core function of treating patients. The Tribunal also emphasised that healthcare services were exempt from service tax under Notification No. 30/2011-ST and continued to remain non-taxable under the negative list regime after July 1, 2012. Since the dominant nature of the activity was healthcare, the demand under business support services was unsustainable. The Tribunal had consistently held that revenue-sharing models between hospitals and diagnostic partners do not attract service tax. The Tribunal also referred to CBEC Circular No. 109/03/2009-ST dated 23.02.2009, which clarifies that transactions between parties on a principal-to-principal basis are not to be treated as taxable services. On the issue of limitation, the Tribunal held that the dispute involved interpretation of law and was a pan-India issue on which courts had taken consistent views in favour of assessees. The hospital had maintained proper records and reflected the income in its balance sheets, which are public documents. There was no suppression of facts or intent to evade tax, and therefore invocation of the extended period was unjustified. The Tribunal also noted the Supreme Court’s position that mere non-filing or non-disclosure does not automatically amount to suppression warranting extended limitation. The Tribunal held that “The impugned order is not sustainable in law and is liable to be set aside.” The tribunal allowed the appeal with consequential relief, and the entire service tax demand, interest and penalties were quashed. Case Details Case Title: Fortis Healthcare Ltd vs Commissioner of Central Excise and Service Tax Case No.: Service Tax Appeal No. 51987 of 2015 Date: 06/01/2026 Counsel For Appellant: Yuvraj Singh, Advocate Counsel For Respondent: Anurag Kumar Click Here To Read Order Read More: Mere Stock Shortage Not Proof of Clandestine Removal: CESTAT

Revenue-Sharing with Diagnostic Partners Not Taxable as ‘Business Support Services’; CESTAT Quashes Rs. 1.47 Crore Service Tax Against Hospital

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