Tentative Appointment Registers Can’t Form Basis of Tax Assessment: CESTAT Quashes Rs. 262 Crore Service Tax Demand on Dermatology Services

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), New Delhi, has categorically held that tentative appointment registers (kachcha registers) cannot form the basis of tax assessment, and consequently set aside a Rs. 262-crore service tax demand raised against a Delhi-based clinical establishment operating under the brand name Medlinks. The Bench of Binu Tamta (Judicial Member) and Rajeev Tandon (Technical Member), observed that while cosmetic and plastic surgery is taxable, procedures undertaken for diagnosis, treatment, or care of illness, deformity, or abnormality fall within the definition of healthcare services—even if such procedures incidentally improve appearance. M/s Trichoderm is registered with the Service Tax Department for providing Cosmetic and Plastic Surgery Services and operates dermatology and trichology clinics offering a wide range of medical treatments, including acne and alopecia treatment, vitiligo surgery, cyst removal, burn scar treatment, laser procedures, hair transplant, and other dermato-surgical services. While the appellant discharged service tax on procedures undertaken purely for aesthetic enhancement, it claimed exemption on other treatments as “healthcare services” under Entry No. 2 of Notification No. 25/2012-ST, which exempts healthcare services provided by a clinical establishment or authorised medical practitioner. Following search proceedings, the Department alleged that the appellant maintained records in two formats— a kachcha register recording tentative appointments with estimated costs, and accounting data maintained through the Zenoti software, access to which could not be obtained from the software owner. In the absence of detailed electronic data, the Department invoked Section 72 (best judgment assessment) of the Finance Act, 1994 and issued a show cause notice dated 8 November 2019, proposing recovery of ₹2.61 crore in service tax for the period 2014–2017. The Principal Commissioner eventually confirmed a demand of ₹2.62 crore, along with interest and penalties. A key issue before the Tribunal was whether the services rendered by Trichoderm were taxable cosmetic and plastic surgery services or exempt healthcare services. The Tribunal noted that the adjudicating authority adopted a blanket approach, branding all procedures as cosmetic merely because they resulted in physical enhancement, without examining the medical necessity, diagnosis, or post-treatment care involved in each service. Relying on earlier decisions including Mohak Hi-Tech Specialty Hospital, Sreyas Holistic Remedies, and Berkowits Hair & Skin Clinic, the Tribunal held that a fine distinction must be drawn service-by-service, and directed the adjudicating authority to record specific findings for each treatment. In a crucial finding, the Tribunal rejected the Department’s reliance on kachcha appointment registers, holding that such tentative records—maintained to note enquiries, proposed treatments, and estimated costs—do not reflect actual services rendered or consideration received. The Tribunal observed that in clinical establishments, it is common for patients to seek consultations or appointments without eventually undergoing treatment. Actual income, the Bench held, is reliably reflected only in audited balance sheets, bank statements, and statutory records, not in provisional registers. Accordingly, the Tribunal ruled that no tax assessment can be sustained solely on the basis of tentative appointment records. The Tribunal further held that the extended period of limitation under Section 73 of the Finance Act was wrongly invoked. The Tribunal held that interpretational disputes cannot justify allegations of wilful suppression, and therefore the extended period could not be applied. The Tribunal allowed the appellant’s claim for cum-tax benefit under Section 67(2), holding that where service tax is not collected separately from customers, the gross amount received must be treated as inclusive of tax. The tribunal struck down ₹97,407 of the confirmed demand on the ground that it exceeded the amount proposed in the show cause notice, holding that confirmation beyond the SCN is legally impermissible. Setting aside the impugned order, CESTAT remanded the matter with clear directions to conduct service-wise classification of treatments, exclude reliance on kachcha registers, grant cum-tax benefit, disallow demand beyond the SCN, and refrain from invoking the extended limitation period. The appeal was allowed by way of remand, providing significant relief to the appellant. Case Details Case Title: M/s. Trichoderm Versus Principal Commissioner, Central Excise, Respondent Service Tax and Central Tax Commissionerate, Delhi South Case No.: Service Tax Appeal No.50829 of 2021 with Service Tax Miscellaneous Application No.50658 of 2024 Date: 30.01.2026 Counsel For Appellant: A.K. Batra Counsel For Respondent: S.K. Meena Click Here To Read Order Read More: No Change in Tariff Values for Gold, Silver, Edible Oils: CBIC

Tentative Appointment Registers Can’t Form Basis of Tax Assessment: CESTAT Quashes Rs. 262 Crore Service Tax Demand on Dermatology Services

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