HomeIndirect TaxesCESTAT Strikes Down Most Service Tax Demands on Hospital Services, Upholds Levy...

CESTAT Strikes Down Most Service Tax Demands on Hospital Services, Upholds Levy on Overseas Patient Referral Commissions

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT) Principal Bench, New Delhi, has set aside substantial portions of service tax demands against a multi-speciality hospital while upholding tax liability on commission payments made to overseas agents for referring foreign patients.

The case stemmed from an investigation alleging that the hospital had failed to discharge service tax on three counts — Business Auxiliary Services (BAS) for payments to foreign health care facilitators, Business Support Services (BSS)for facilities provided to visiting consultants, and Renting of Immovable Property Services for leasing parking space.

The bench, comprising Ms. Binu Tamta (Judicial Member) and Mr. Sanjiv Srivastava (Technical Member) ruled:

1. Business Support Services (BSS)
CESTAT rejected the tax demand on revenue retained by the hospital from patient fees shared with visiting doctors. Relying on earlier rulings in Sir Ganga Ram Hospital and Fortis Healthcare, the bench held that such arrangements are a joint provision of healthcare services, not taxable business support to the doctors. Since healthcare services provided by clinical establishments enjoy service tax exemption, taxing the retained portion would undermine that benefit.

2. Renting of Immovable Property Services
The tribunal also set aside the demand for service tax on rent received for leasing parking space appurtenant to the hospital. It ruled that land used for parking purposes is explicitly excluded from the definition of “immovable property” under the Finance Act, 1994, and the adjudicating authority’s contrary interpretation ignored the clear statutory wording. The bench emphasized the Supreme Court’s principle that tax statutes must be interpreted strictly according to their plain meaning.

3. Business Auxiliary Services (BAS) – Reverse Charge Mechanism
However, CESTAT upheld the demand for service tax on commissions paid to overseas agents who referred foreign patients to the hospital. The bench ruled that such referral and promotional activities fell squarely within the definition of BAS and were taxable under the reverse charge mechanism after the introduction of Section 66A on April 18, 2006. The hospital’s argument that “service” in this context excluded healthcare services was dismissed as contrary to legislative intent.

The CESTAT quashed Demands and penalties relating to BSS and parking rentals. Demand for service tax on overseas commission payments — upheld for the post-18 April 2006 period. Corresponding interest and penalties on the upheld demand remain payable.

Case Details

Case Title: M/S. Indraprastha Medical Corporation Ltd Versus Commissioner Of Service Tax

Case No.: Service Tax Appeal No. 51855 Of 2014

Date:  12.08.2025

Counsel For Appellant: Vishal Kumar, Advocate

Counsel For Respondent: Shashank Yadav, Authorised Representative

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