Service Tax Exemption On Cleaning, Sanitation Services Provided to Govt. Hospitals; CESTAT Quashes Rs. 340 Crore Demand

The Hyderabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has ruled that cleaning, sanitation, and housekeeping services provided to Government hospitals are exempt from service tax, setting aside a service tax demand of over Rs. 340 crore along with interest and penalties imposed by the department. The bench of Angad Prasad (Judicial Member) and A.K. Jyotishi (Technical Member) that cleaning and sanitation services squarely fall within the ambit of public health and sanitation conservancy, which are specifically exempted under Notification No. 25/2012-Service Tax dated 20 June 2012, commonly referred to as the Mega Exemption Notification. The appeals arose from an Order-in-Original passed by the Commissioner of Central Tax, Guntur, confirming service tax demand for the period 1 July 2012 to 31 March 2016. The assessee was engaged in providing cleaning, sanitation, housekeeping, and manpower supply services to various Government hospitals in Andhra Pradesh, including a Government Mental Care Hospital, under contracts awarded directly or through a state government infrastructure corporation. The department alleged that these services were taxable services under Section 65B(51) of the Finance Act, 1994, denied the benefit of exemption, and confirmed a demand of ₹3.40 crore, along with interest and penalties. A separate penalty was also imposed on the company’s director under Section 78 of the Finance Act. The appellants contended that the services were provided exclusively to Government hospitals run by the State Government, and were intrinsically connected to public health and sanitation, which are functions ordinarily entrusted to municipalities. It was argued that government hospitals fall within the definition of “Government” under the Finance Act as well as the General Clauses Act. Entry No. 25(a) of Notification No. 25/2012-ST clearly exempts services provided to the Government by way of activities relating to public health, sanitation conservancy, and solid waste management. The issue was purely interpretational, and therefore the extended period of limitation could not be invoked. The appellants also relied on consistent judicial precedents, including decisions of the Ahmedabad Bench of the Tribunal in D.G. Nakrani and M.J. Solanki, both of which were subsequently upheld by the Supreme Court. After examining the contracts, scope of work, and statutory provisions, the CESTAT observed that the services involved included cleaning of hospital buildings and premises; maintenance of toilets, bathrooms, drainage, and sewerage systems; and isposal of normal waste and bio-medical waste. The Tribunal held that these activities are integral to sanitation conservancy and public health, and therefore qualify for exemption under Serial No. 25 of the Mega Exemption Notification. The Bench noted that government hospitals are institutions run by the State Government, and services provided to them are services provided “to Government”. The Commissioner had misread and misapplied the exemption notification while denying the benefit. Amendments to the notification in 2014 further clarified that activities such as public health and sanitation are independently exempt. The Tribunal ruled that the dispute involved interpretation of an exemption notification, and there was no evidence of fraud, suppression, or wilful misstatement. Relying on Supreme Court jurisprudence, including Principal Commissioner of Customs v. Felox Technologies India Pvt. Ltd., the Bench held that the extended period of limitation was not invocable in such cases. Consequently, since the demand itself was unsustainable on merits, all penalties imposed on both the company and its director were also set aside. Allowing both appeals, the CESTAT set aside the entire service tax demand, interest, and penalties. The tribunal held that cleaning and sanitation services provided to Government hospitals are exempt from service tax and reaffirmed that interpretational disputes cannot justify invocation of extended limitation. Case Details Case Title: M/s Srinivasa Out Sourcing Services Pvt Ltd. Versus Commissioner of Central Tax Guntur Case No.: Service Tax Appeal No. 30932 of 2018 Date: 27.01.2026 Counsel For Appellant: L. Venkateswara Rao, Advocate Counsel For Respondent: V. Srikanth Rao, Authorized Representative Click Here To Read Order Read More: Foreign Tax Information Reference Can’t Extend Limitation: Delhi HC Holds Search Assessments Time-Barred U/s 153B

Service Tax Exemption On Cleaning, Sanitation Services Provided to Govt. Hospitals; CESTAT Quashes Rs. 340 Crore Demand

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