CASE STUDY

Prepared by: CA Neetu Sukhwani &
Aashish Bohra
 

 
Introduction:
 
M/S RAJDADISA HOSPITAL (hereinafter referred to as appellant) are engaged in providing health care services to the people at large. The appellant for providing medical services to their patients under one roof availed the services of various specialized doctors. The appellants have also entered into agreements with the doctors wherein the doctors shall serve the patients visiting the appellant hospital with the help of amenities available with the hospital. The agreements also provide revenue sharing plan according to which the consultants will receive monthly remuneration with a clause of retention of a certain percentage of the consultation fees, surgeries etc. The department has raised the service tax liability on the basis of agreement between doctors and appellant by classifying such services as business support service. Also, the revenue contended that the appellant was engaged in providing infrastructural services to the doctors and hence liable to pay service tax under BSS. 
 

M/S RAJDADISA HOSPITAL V/s DEPUTY COMMISSIONER, CENTRAL EXCISE & S.T. DIVISION, JODHPUR
[ORDER IN APPEAL NO. – 192 (VC) ST/JPR-II/2013 Dt. 26/06/2013]
 

Relevant Legal Provisions:-
 
Sec 65(104)(c) of Finance Act, 1994
 
“Support services of business or commerce”means services provided in relation to business or commerce and includes evaluation of Prospective customers, telemarketing, processing of purchase orders and fulfillment services, information and tracking of delivery schedules, Managing distribution and logistics, customer relationship management services, accounting and processing of transactions, operational Assistance for marketing, formulation of customer service and pricing policies, infrastructural support services and other transaction processing.

Explanation.—for the purposes of this clause, the expression “infrastructural support services” includes providing office along with office utilities, Lounge, reception with competent personnel to handle messages, secretarial services, internet and telecom facilities, pantry and security.

Sec 66(105) (zzzq) of Finance Act 1994,

"taxable service" means any service provided or to be provided to any person, by any other person, in relation to support services of business or commerce, in any manner;

Sec 69 of Finance Act,1994

Registration
(1) Every person liable to pay the service tax under this chapter or the rules made there under shall, within such time and in such manner and in such form as may be prescribed, make an application for registration to the Superintendent of Central Excise.

(2) The person or class of persons notified under sub-section (2) of section 69, shall furnish to the Superintendent of Central Excise, a return in such form and in such manner and at such frequency as may be prescribed.
 
 Sec 70 of Finance Act, 1994
 
Furnishing of Returns
(1) Every person liable to pay the service tax shall himself assess the tax due on the services provided by him and shall furnish to the Superintendent of Central Excise, a return in such form and in such manner and at such frequency and with such late fee not exceeding two thousand rupees for delayed furnishing of return, as may be prescribed.

(2) The person or class of persons notified under sub-section (2) of section 69, shall furnish to the Superintendent of Central Excise, a return in such form and in such manner and at such frequency as may be prescribed.

Sec 73 of Finance act, 1994

Recovery of Service tax not levied or paid or short levied or short paid or erroneously refunded –

(1) Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the Central Excise Officer may, within ‘eighteen months’ from the relevant date, serve notice on the person chargeable with the service tax which has not been levied or paid or which has been short-levied or short-paid or the person to whom such tax refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice :
Provided that where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of —
(a) fraud; or
(b) collusion; or
(c) wilful mis-statement; or
(d) suppression of facts; or
(e) contravention of any of the provisions of this Chapter or of the rules made there under with intent to evade payment of service tax, by the person chargeable with the service tax or his agent, the provisions of this sub-section shall have effect, as if, for the words “eighteen months”, the words “five years” had been substituted.


Brief Facts:-
 
1. M/S RAJDADISA HOSPITAL (hereinafter referred to as appellant) are engaged in providing health care services to the people at large. The appellant for providing medical services to their patients under one roof avail the services of various specialized doctors. The appellants have also entered into agreements with the doctors wherein the doctors shall serve the patients visiting the appellant hospital with the help of amenities available with the hospital. The agreements also provide revenue sharing plan according to which the consultants will receive monthly remuneration with a clause of retention of a certain percentage of the consultation fees, surgeries etc.

2. The Department issued show cause notice no. P-13/Rajdadisa Hosp./AE/04/2012/9544, dated 11.07.2012 proposing to levy service tax under the category of “Business Support Services” for the period from 2007-08 to 2011-12 amounting to Rs. 1,82,636/- for the amount retained by the appellant on account of providing infrastructural facilities to the doctors as per the agreements entered by the appellant with the doctors along with interest under section 75 of the Finance Act, 1994. The show cause notice also proposed to impose penalties under Section 76, 77 and Section 78 of the Finance Act, 1994.

3. The Appellant replied to the above show cause notice vide letter having reference no. PJ/SCN/R-67/12-13/1757 wherein following was mainly contended by the appellant which has been summarized briefly:

·         That they are basically providing the services to their patients and In order to provide these services and facilitate them under one roof, they are availing the services of various specialized doctors. Thus, it cannot be said that they are providing any business support services to the doctors, rather they are providing the health services and in order to provide the same, they are availing the services of doctors.

·         That the dominant nature in their case was to provide medical services to their patients and not to provide infrastructural services to the doctors and when no service tax is levied on medical services, service tax under ‘Business Support Services’ should also not be levied on them.

·         That only services provided to the ‘business entities’ are taxable under ‘Business Support Services’ and as doctors are not the business entities, services provided to them are not taxable.

Reliance was also placed on clarification given vide TRU letter D.O.F. NO. 334/4/2006-TRU dated 28.02.2006.

·         The government’s intention is not to tax services related to health facilities as these were neither taxable under positive list scenario nor taxable under the negative list regime introduced w.e.f. 01.07.2012.

·         That stay has been granted on similar issue by hon’ble Delhi Tribunal in the case of Sir Ganga Ram Hospital vs Commissioner of C.Ex., Delhi-I [2012 (25) S.T.R. 173 (Tri.-Del.)].

·         That when the main activity is exempted from tax, allied and incidental activities cannot be brought within the purview of tax in view of decision given in the case of CST vs Sai Publications [(2002) 4 SCC 57].

·         That extended period of limitation should not be invoked and penalty should not be imposed as the appellant were acting under bonafide belief by decision given by Tribunal and clarification issued in this regard which were supported by a number of case laws.

4. Thereafter, an adjoiner to the above reply was also submitted vide letter dated 05.10.2012 wherein the contentions made by the appellant are summarized as follows:

·         That the demand is not sustainable as no services are provided to business entity but if for the sake of argument only it is accepted that such demand is proper then too the appellant is eligible for the benefit of small service provider exemption as enshrined in the notification no. 6/2005-ST dated 01.03.2005. As the receipts of the appellant per year are lower than Rs. 10 lacs, the appellant is below the taxable limit prescribed in the notification.

·         That the appellant is making payments to the doctors and so they cannot be held as liable to pay service tax when it is alleged that the appellants are service providers. Further, service tax on such services is not required to be paid under reverse charge mechanism.

·         That the appellant is a charitable trust which is established and run for the benefit of people at large and not for earning profit and so demand raised should be quashed in view of decisions given in the following cases:

Breach Candy Swimming Bath Trust vs Commr. Of C.Ex., Mumbai-I [2007 (5) S.T.R. 146 (Tri.-Mumbai)]

Commissioner of C.Ex., Siliguri vs Mahabir International [2008 (9) S.T.R. 162 (Tri.-Kolkata)]

Great Lakes Institute of Management Ltd. vs Commr. Of S.T., Chennai [2008 (10) S.T.R. 202 (Tri.-Chennai)]

5. The learned Adjudicating Officer did not accept all the submissions made by the appellant, however, allowed the benefit of small service provider exemption and passed the order in original no. 39/ST/2012, dated 05.12.2012 confirming demand for the financial year 2011-12 amounting to Rs. 2,282/- to be recovered along with interest under section 75 of the Finance Act, 1994. Further penalty of Rs. 10, 000/- has also been imposed under section 77(2) and penalty of Rs. 2,282 under section 78 of the Finance Act, 1994.

6. Thereafter, feeling aggrieved by the said order in original, the appellant filed the appeal to the Commissioner (Appeals).
 
Appellant’s Contention: The appellant made following submissions to the Commissioner (Appeals):-
 
1. The appellant submit that the Order-In-Original passed by the learned adjudicating authority to the extent it confirms demand for the financial year 2011-12 along with interest and penalty is erroneous and is liable to be set aside.

2. The appellant submit that the impugned order has referred to the Black’s Law Dictionary that defines the word “business” as “Employment, occupation, profession, or commercial activity engaged in for gain or livelihood. Activity or enterprise for gain, benefit, advantage or livelihood. That which habitually busies or occupies or engages the time, attention, labour, and effort of persons as a principal serious concern or interest or for livelihood of profit.” On referring the above definition, it has been held by the impugned order that the services provided by the appellant to the doctors are squarely covered under support services of business or commerce.

In this regard, it is submitted that the appellant are not providing any services to the doctors, rather they are providing the health care services to the public at large and in course of providing these services, they are availing the services of the doctors. Further, they are not receiving any payments from the doctors as the normal service providers do, rather they are making payments to the doctors for the services provided by them. Thus, in fact they are not a service provider at all. Even if it is accepted for the sake of argument also, that they are service providers, then too, they do not fall under the category of “Business Support Services” as they are not providing any services to support the “Business” of the doctors. Under this category, the services outsourced by the “business entities” only are taxable. On the other hand, as per allegation of the impugned order, the appellant are providing the business support services to doctors, who are not business entities. In other words, since the doctors are professionals, not the business entities, any support services, if any provided to them, cannot be taxable under the category of “Business Support Services”. This contention of the appellant as submitted in the reply to show cause notice was supported by the clarification issued vide D.O.F.NO.334/4/2006-TRU dated 28.02.2006 wherein it is clarified that the intention of the government was to capture the cases where the services are outsourced by the Business entities which were using the same in or in relation to business or commerce. This contention is contradicted by the impugned order by holding the above referred allegation that any effort which is being done to earn the livelihood or profit or interest will be covered under the term “Business” as per Black Law’s dictionary. In other words, it has equated the term “profession” with the term “business”. On the other hand, there is vital difference between the two terms. The term “Business” in normal parlance is any activity involving the purchase and sale of goods which can be started even by an illiterate person. However, “profession” requires a specialized study, training and knowledge and the activities of persons carrying out the professional activities are subject to the guidelines or codes of conduct laid down by concerned professional bodies. However, there is no such prescribed code of ethics for the business. Thus, both of these terms are totally different and are used in different contexts. As such, it is not viable to treat them equivalent as there is no provision in the service tax law to treat them at par. Even the hon’ble High court has affirmed this view in the case of Commissioner of Income Tax, Gujarat v. Dr. K.K. Shah, (Income Tax Reporter Vol. 135 Page 146). In this case, it was held by the hon’ble High Court that when doctors practice their profession the activity cannot be considered as “business”. Though this decision pertain to income tax, but since the service tax law is silent on this issue and also no decisions are available therein, we can definitely appreciate the above decision which simply explains the term “Business” and the fact that it has been done while deciding an income tax case may be ignored. Even in common parlance also, the term “business” and “profession” are distinct in view of submissions made here above. As such, both cannot be considered as one. Such a misinterpretation of law by treating the “profession” as included in the term “business” is not sustainable and is liable to be set aside. The appeal should therefore be allowed.

3. The appellant submit that the impugned order has denied the applicability of the decision given in the case of Bharat Sanchar Nigam Limited vs Union of India [2006 (2) STR 161 (SC)] cited by them on the ground that the said case is distinguishable from the facts and circumstances of the present case.

In this respect, the appellant submit that simply rejecting the application of the cited case is by stating that it cannot be applied in the facts and circumstances of the present case is not justifiable. The appellant submit that the analogy drawn from the case is to be examined and not the simply the facts. This case was relied upon to explain the concept of dominant nature of a transaction. It was submitted that as the main activity of the appellant is to provide medical services which is not leviable to service tax then the ancillary and allied activities should not be brought into the ambit of service tax net. But the said case was literally interpreted and was held to be inapplicable and irrelevant in the present circumstances. Such an interpretation is totally against the spirit and such a practice should not be followed. Therefore, the appellant have rightly cited the above case and the same has relevance.

The appellant further submit that the reliance placed by them on the decision given in the case of Sir Ganga Ram Hospital vs Commissioner of C.Ex., Delhi-I [2012 (25) S.T.R. 173 (Tri.-Del.) has not been considered while deciding the case on the grounds that the said decision has not attained finality. In this respect, the appellant submit that even though the cited case has not attained finality and is at the stay stage only but it cannot be said to have no value. In this regard, it is worthwhile to mention that the stay is granted only if the following two conditions are satisfied:-

·         The merits of the case are strongly in favour of the appellant; and
·         The insistence on pre-deposit will cause financial hardship on the appellant.

The analysis of this stay order makes it clear that there was no financial hardship involved in the cited case, the stay application was allowed on merits. Thus, the merits of the case were considered while granting the stay. As such, merely because the decision submitted by the appellant is a stay order is not a ground to deny its application as even the stay order involves the interpretation taken by higher authority (hon’ble Tribunal) which is equally binding on the lower formations. This contention becomes strong particularly when there is no final judgment available on the issue. In the instant case, no final judgment is available on the issue. However, only decision cited by the appellants in their reply to show cause notice, i.e. the judgment of Sir Ganga Ram Hospital is the only available decision. As such, its applicability cannot be denied solely on the grounds that it is a stay decision. Since while granting the stay, hon’ble Tribunal has observed that the merits are in favour of the appellant-hospital, then the stay has been granted. Therefore, being a judgment of higher authority and considering the fact that no other decision is available on the issue, the benefit of this decision should have to be extended to the appellant which is not done by simply alleging that it is a stay order. Such an approach is a total disobey of view taken by hon’ble Tribunal and is liable to be set aside.

4. The appellant also submit that it has been held that case laws cited by the appellant in the adjoiner are clearly distinguishable from the facts of the present case as they concerned disputes regarding ‘Commercial Concern’ while the word ‘Commercial Concern’ has been replaced with the word ‘person’.

In this respect, the appellant submit that the fact that the word ‘commercial concern’ is replaced with the word ‘person’; has no implication in the instant case; as the definition of ‘taxable service’ of BSS uses the words “in relation to support services of business or commerce”. It is worthwhile to mention here that prior to this amendment, there were two criteria for taxability of a service:–

·         The service should fall in the definition of a service; and
·         The service should be provided by a “commercial concern”.

Later on, the word, commercial concern was replaced by the word “any person”. The effect of this amendment was that if the taxable services were provided by any person, even if it was not a commercial concern, then too, service tax was leviable.

However, the definition of “taxable service” as given in respect of “Business Support Service” reads as follows:-

“Taxable Service” means any service provided or to be provided to any person, by any other person, in relation to support services of business or commerce, in any manner;

Thus, as per above definition, the Business Support Services provided by “ANY PERSON” will be taxable only if it is “in relation to business or commerce”. In other words, though the service provider can be any person, however, the services should be in relation to business or commerce or it should be a commercial activity. Therefore, the decisions cited by appellant hold good in the instant case. In the judgment of COMMISSIONER OF C. EX., SILIGURI Versus MAHABIR INTERNATIONAL [2008 (9) S.T.R. 162 (Tri. - Kolkata)] as cited by the appellant in their adjoiner to reply to show cause notice, it was held that the Yoga Shibir conducted by a charitable trust is not a commercial activity. Thus, when the activity is not commercial, it cannot come under the definition of taxable service which specifically says that the service provider can be any person, but the services should be in relation to business or commerce or the services should be in nature of commercial activity. Thus, simply by going to the facts of the case, the applicability of a decision cannot be denied. Rather its analogy is to be drawn and considered while interpreting any decision. Therefore, the contention of the impugned order rejecting the applicability of the decisions cited by the appellant is not sustainable and is liable to be quashed.

5. The appellant further submit that the impugned order has extended the benefit of small service providers’ exemption under notification no. 6/2005-ST dated 1.3.2005. Consequently, out of a demand of Rs. 182636/- as proposed in the impugned show cause notice, only a demand of Rs. 2282/- has been confirmed in the impugned order in original. In this regard, it is reiterated that no Business support services are being provided by the appellant to the doctors. Their view is also supported by the view taken by the hon’ble Tribunal in the case of SirGanga Ram Hospital. The view taken by hon’ble Tribunal becomes strong particularly in the case like the present case where 98.75% demand has been dropped. Therefore, the balance demand could also be dropped by considering the genuineness of the case quantum of amount of demand so confirmed. However, this has not been done and the demand has been confirmed by ignoring most of the submission of the appellant. Such an order is not sustainable and is liable to be set aside.

6. It is further submitted that the impugned order has imposed the penalty of Rs. 2282/- under section 78 and penalty if Rs. 10000/- under section 77(2) of the Finance Act, 1994. In this regard, it is submitted that the imposition of penalties has been done without discussing the reasons thereof. The impugned order has simply confirmed the penalties without giving any reason of its imposition. On the other hand, there was no reason of imposing any penalty. However, the appellant had submitted in the reply to show cause notice that their case do not fall under the definition of Business Support services. They had submitted that in the cases where issue pertains to interpretation of legal provisions, no penalty is warranted. Judgment of hon’ble Supreme Court in the case of Uniflex Cables Ltd v/s Commissioner of Central Excise, Surat-II [2011-TIOL-85-SC-CX] was cited to support this contention. It was also submitted that they were under bonafide belief that no service tax is payable by them in the light of TRU letter dated 28.2.2006 and decision in the case of M/s Sai Publication. This bonafide belief is further strengthened by the decision in the case of Ganga Ram Hospital. All of these cases and TRU letter were discussed in depth in the reply to show cause notice. Also, it was submitted that it has been held by hon’ble Supreme Court that where the act of assessee is based upon bonafide belief, no penalty is imposable. Decision of hon’ble Supreme court in the case of COMMISSIONER OF CENTRAL EXCISE, TRICHY Versus GRASIM INDUSTRIES LTD. [2005 (183) E.L.T. 123 (S.C.)] was cited in support of this contention. However, none of these decisions have been discussed and the penalties have been confirmed without specifying any reasons. Such a non speaking order is not sustainable and is liable to be quashed.

In continuation to above, it is worth mentioning here that the penalty under section 78 is imposable only if there is presence of any factor like fraud, collusion, willful mis-statement with an intent to evade payment of service tax. While confirming the penalty under section 78, the reason was to be given as to why the penalty has been imposed and which of the above referred ingredients was present in the case of appellant. But no reason and has been specified and the impugned order has simply imposed the penalty under section 78 without even discussing the decisions cited by the appellant in this regard. The appellant had cited the following decisions in their reply to show cause notice:-

Commissioner of Central Excise v/s ESS Engineers [2011 (23) S.T.R. 3 (P & H)]:-

“The High Court observed that the Tribunal had held that short payment was mainly due to the appellant’s understanding that they were not liable to pay service tax on fabrication and dismantling charges. As regards penalty under Section 78 is concerned, the same is imposable in a case where service tax has not been levied or paid or has been short levied or short paid or erroneously refunded, by reason of fraud; or collusion; or willful misstatement; or suppression of facts; or contravention of any of the provisions of this Chapter or of the rule made thereunder with intent to evade payment of service tax. It was noted that the fact of non-payment of service tax was discovered during the course of audit.

The High Court held that the submission of Revenue that appellant was guilty of mis-declaration was not acceptable as the Tribunal had given a finding of fact that assessee did no have requisite mens rea to evade payment of service tax. The assessee had duly paid the service tax with interest and also made full and true disclosure in the return. The finding of fact of Tribunal was not shown to be perverse in any manner. Hence no question of law arises.”

Reliance was also placed on the following cases:-

·         2009 (238) ELT 3 (SC) – Rajasthan Spinning & Weaving Mills
·         2009 (238) ELT 209 (P&H) – J. R. Fabrics
·         2009 (238) ELT 226 (Mad) – Thirumala Alloys Castings
·         2008 (228) ELT 31 (Del) – K. P. Pouches

It was also submitted that for imposing penalty, presence of mens-rea is a mandatory requirement and in the absence of which imposition of penalty is unjustified, as enshrined by the Hon'ble Supreme Court in the case of Hindustan Steel Ltd v/s. State of Orissa - [1978 (2) ELT (J-159)] and number of subsequent judgments from various judicial fora based thereupon. It was submitted that none of the acts were backed up with any ulterior motive or malafide intention to evade duty and therefore, imposition of penalty is incorrect and uncalled for based on settled position on the issue.  It was further submitted that the Hon’ble Punjab & Haryana High Court, following the ratio of Apex Court judgment in Hindustan Steel Ltd. (supra), has held that mens-rea is a mandatory requirement for imposition of penalty, in support of which reliance was placed on the ratio of following judgments:

·         2010 (258) ELT 465 (SC) – Sanjiv Fabrics
·         2007 (207)  ELT 27 (P &H) – UT Ltd
·         (5) STR 251 (P & H) – Kamal Kapoor

However, none of the above decisions were discussed and distinguished while passing the impugned order. Thus, the impugned order passed without stating reasons for imposition of penalty is not sustainable and is liable to be set aside.

7. It is further submitted that the impugned order has imposed the penalty of Rs. 10000/- under section 77(2) of the Finance Act, 1994. In this regard, it is worth mentioning that there are three sections for penalty in the chapter V of the Finance Act, 1994:-

Section 76– The penalty is imposable under this section if there is any non  levy/ payment or short levy/payment of service tax.

Section 78– The penalty is imposable under this section if there is any non-levy/payment or short levy/payment of service tax by reason of fraud, collusion, willful misstatement with an intent to evade the payment of service tax. The quantum of penalty under this section can be highest upto the demand of service tax.

Section 77– The penalty under this section is imposable for meager procedural lapses on part of assessees. The lapses on account of payment of service tax have been dealt in the above two penal provisions. However, the lapses like non taking or delay in taking the registration, non furnishing or delayed furnishing of information, non filing or delayed filing of prescribed service tax returns, etc.

The analysis of all the above sections prescribing penal provisions makes it ample clear that the severe most penal section is section 78 of the Finance Act, 1994. This section covers the severe most defaults carried on with the malafide intention. This section provides for the harshest penalty which can extend to the amount of service tax demanded. However, the section 77 is the most liberal penal provision which concerns only the technical lapses having no impact on the government exchequer. There is no hamper on revenue that could have been collected by the government by these defaults. On comparing both of these sections, it is ample clear that the section 78 provides for the harshest penalty and covers the most severe cases and section 77 covers only the procedural lapses. Further the highest quantum of penalty upto the demand of service tax can be imposed only under section 78 as it is for the most severe offences. But the impugned order has imposed the penalty of Rs. 10000/- under section 77 while the demand and penalty are restricted to Rs. 2282/- only. Such a huge amount of penalty for technical lapses is not sustainable looking to the intention of law makers framing the penal provisions. Even otherwise also, the quantum of penalty cannot exceed the amount of service tax. Thus, the imposition of penalty under section 77 to the extent of Rs. 10000/- which is around three times more than the demand of service tax is a total miscarriage of law. Such an approach is not justified and is liable to be quashed. The impugned order deserves to be set aside.

8. The appellant further submit that the impugned order has not at all considered most of the submissions of the appellant except that the benefit of small service provider’s exemption should be available to them. Further, the appellant have cited a number of cases in support of their contention but the learned adjudicating authority has simply stated that the said cases are clearly distinguishable from the facts of the present case without even discussing and placing the reasons for inapplicability of the same. The appellant hereunder list out the submissions that have not been considered while passing the impugned order –

They submitted that the impugned show cause notice is alleging that they are providing the business support services to the doctors. This allegation is not sustainable as they are basically providing the services to the patients at large. Even if the allegation of the impugned show cause notice is accepted for the sake of argument only, then too it is not sustainable as under “Business Support Services” only the services provided to the “business entities” are taxable. On the other hand, the doctors are not the business entities, as such, services provided to them are not taxable. Aligning with their contention, it was submitted that while introducing the “Business Support Services”, the intention of the government was to levy the service tax only on those persons which provide the services to “BUSINESS ENTITIES”. The recipients other than the business entities were not intended to be burdened with the incidence of service tax. This intention of the government gets clarified by the TRU letter issued by Joint Secretary (TRU) to Chief Commissioners and Commissioners of Central Excise and Service Tax. The said clarification was given at the time of introduction of Business support services vide D.O.F.NO.334/4/2006-TRU dated 28.02.2006, the relevant part of which is reproduced as follows:-

“3.13 BUSINESS SUPPORT SERVICES: Business entities outsource a number of services for use in business or commerce. These services include transaction processing, routine administration or accountancy, customer relationship management and tele-marketing. There are also business entities which provide infrastructural support such as providing instant offices along with secretarial assistance known as “Business Centre Services”. It is proposed to tax all such outsourced services. If these services are provided on behalf of a person, they are already taxed under Business Auxiliary Service. Definition of support services of business or commerce gives indicative list of outsourced services.”

The analysis of above makes it clear that the intention of the government was to capture the cases where the services are outsourced by the Business entities which were using the same in or in relation to business or commerce. The area of these services was to be confined only to the services outsourced by the business entities as clarified by the above referred TRU letter. On the other hand, in the instant case, as per allegation of the impugned show cause notice, the service recipients are doctors which are not the business entities; therefore, no service tax can be levied in the instant case in the light of above clarification by TRU.

They reiterated that the intention of the government is to bring the services provided to the business entities and this fact further gets clarified by the definition of business support services. This definition is given in Section 65(104c) of the Finance Act, 1994 which reads as follows:-

“support services of business or commerce” means services provided in relation to business or commerce and includes evaluation of prospective customers, telemarketing, processing of purchase orders and fulfillment services, information and tracking of delivery schedules, managing distribution and logistics, customer relationship management services, accounting and processing of transactions, operational assistance for marketing, formulation of customer service and pricing policies, infrastructural support services and other transaction processing.
Explanation. —For the purposes of this clause, the expression “infrastructural support services” includes providing office along with office utilities, lounge, and reception with competent personnel to handle messages, secretarial services, Internet and telecom facilities, pantry and security.

The analysis of this definition makes it clear that the definition starts with the phrase - “support services of business or commerce” means services provided in relation to business or commerce”. Thus, this further clarifies the intention of the government that the levy under “Business Support Services” is to be confined to those services which are provided in or in relation to business or commerce. Providing the services in or in relation to business or commerce means the services should be received by a business entity which further utilizes the same in relation to business or commerce. In the instant case, the alleged services are received by the doctors which are not the business entity and therefore are not utilizing the same in relation to business or commerce.  As such, the taxability criteria laid down in the definition of business support services is not satisfied and therefore no service tax can be levied on the said services. Thus, the impugned show cause notice should be dropped.

It was also submitted that the government’s intention is not to tax the services related to health facilities. These services were not taxable under the service tax by way of positive list and these have specifically being exempted in the negative list regime also which has been introduced w.e.f. 1.7.2012. The services provided by the "Clinical Establishment" has been exempt vide serial no. 2 of mega exemption notification no. 25/2012-ST dated 20.6.2012. This serial no. is reproduced as follows:-

2.  Health care services by a clinical establishment, an authorised medical practitioner or para-medics;

The word ‘clinical establishment’ is defined at clause no. (j) of the definitions given at the end of this notification. This clause reads as follows:-

(j) "clinical establishment" means a hospital, nursing home, clinic, sanatorium or any other institution by, whatever name called, that offers services or facilities requiring diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognized system of medicines in India, or a place established as an independent entity or a part of an establishment to carry out diagnostic or investigative services of diseases;

Thus, the services provided by a hospital are specifically been exempt under negative list regime. This also clarifies the intention of the government that the service tax should not be levied on the services provided by the hospitals.

They submitted that on the basis of submissions made in the forgoing paras, it is ample clear that the intention of the government is not to levy the service tax in the cases the services are provided to non-business entities. This intention is clarified by the above referred TRU letter and the definition of business support services. Contrary to the intention of the government, the impugned show cause notice is being issued to levy the service tax even in the case where the services are provided to the doctors which are non-business entities. Such a notice issued in contradiction to the intention of the government is not sustainable in the light of following decisions:-

BALWANT SINGH Versus JAGDISH SINGH [2010 (262) E.L.T. 50 (S.C.)]:-

Interpretation of statutes - Legislative intention - Provisions of statute including every word to be given full effect keeping legislative intent in mind to ensure achieving projected object - No provision treatable as enacted purposelessly - Court not to give interpretation to provisions to render them ineffective or odious. [para 14]

COMMISSIONER OF CENTRAL EXCISE, LUDHIANA Versus RALSON INDIA LTD. [2006 (202) E.L.T. 759 (P & H)]

Interpretation of statute - Question whether a statutory provision is mandatory or directory depends upon intent of Legislature, and not language in which the intent is couched - Literal construction which makes a particular provision manifestly absurd or leads to anomalous results, to be avoided. [para 9]

The analysis of above decisions of hon’ble Supreme Court and High Court makes it clear that the intention of the law makers is to be kept in mind while interpreting any provision. If any interpretation defeats the intention of the law makers, it should be avoided. In their case also, the interpretation taken by the impugned show cause notice is defeating the intention of law makers that the service tax should not be levied on the support services provided to the non-business entities.

It was further submitted that the impugned show cause notice is alleging that they are liable to pay service tax on the business support services provided to the doctors. This allegation is not sustainable on the basis of submissions made here above. However, even if this allegation is accepted for the sake of argument also, then too, the demand is not viable as providing infrastructural facilities to the doctors is merely an activity incidental to the main activity of the hospital which is serving the patients at large. When the main activity is exempted, allied activities cannot be charged to tax and the attempt to bring the hospital into purview of service tax in the guise of existence of allied activities therein is not sustainable. It has been decided in the case of CST VS SAI PUBLICATIONS (2002) 4 SCC 57 that where the main activity is exempted from tax, allied activities cannot be brought under the net of tax. In this case, some devotees of Saibaba of Shridi had formed a Trust namely Sai Publication Fund. It was formed to spread the message of Saibaba. It also published the books, booklets, pamphlets, photos, stickers, etc. which were sold against a consideration. The issue to be decided in the case was that whether the income received against sale of these publications can be covered under the sales tax when the main activity of running trust was exempted. In this case, it was decided that the tax cannot be levied on ancillary activities when the main activity was exempted. It was further held that the intent of the Act is to be seen. When the main activity is exempted, one cannot levy the tax in the guise of allied activities. Though this decision pertains to sales tax, yet its ratio is clearly applicable in the instant case. Here, the main activity of providing the health care services to the patients by the hospital being run by a trust is exempted. But the department is seeking to bring the same into the service tax net on the grounds that allied services are being provided and thus, the exemption is not available. In the case of Sai Trust, the allied activities were held to be not taxable as the main activity was exempted. While deciding the case, the dominance of main activity was preferred rather than the ancillary activities. Going by the same analogy, it is simply contested that where the dominating activity of hospital – providing health care services are exempted, service tax cannot be levied in the guise of fact that ancillary activities are being provided. Since the intent of service tax law is to exempt the health care services provided by the hospital, it cannot be denied merely because of fact that certain other allied services are being provided for efficiently achieving the main object of serving the patients.

They submitted that the impugned show cause notice is being issued by invoking the extended period of limitation under proviso to section 73(1) of the Finance Act, 1994. This proviso is invokable only if the fraud, collusion or wilful misstatement is present in the case. It was held in the case of Rainbow Industries v/s. CCE [1994 (74) ELT 3 (SC)] that for invoking the extended period, two ingredients are essential – (i) Wilful suppression, mis-declaration, etc. and (ii) Intention to evade payment of duty. In absence of both of these extended period cannot be invoked. This is also held in the case of Chemphar Drug & Limits reported in (2002-TIOL-266-SC- CX) - [1989 (40) E.L.T. 276 (S.C.)] that extended period of limitation can only be invoked in case of fraud, collusion, suppression or willful misstatement. In absence of these essential ingredients, extended period cannot be invoked. Verdicts of hon’ble Supreme Court held as under:-

“Demand – Central Excise – Limitation –Invoking extended period of five years – something positive other than mere inaction or failure on part of the manufacturer or producer or conscious or deliberate withholding of information when the manufacturer knew otherwise, is required before it is saddled with any liability, before the period of six months.”

Thus, in the light of above decision, extended period cannot be invoked blindly in every case. Similar decision is given in the following cases:-

Pushpam Pharmaceuticals Company Vs. CCE, Mumbai reported in ( 2002-TIOL-235-SC- CX )-

“Central Excise – Demand – Suppression of facts – Words and phrases – Where facts are known to both the parties the omission by one to do what he might have done and not he must have done, does not render it suppression – Suppression of facts must be deliberate to escape from payment of duty.”

M/s Idea Cellular Ltd Vs CCE, Rohtak [2009-TIOL-387-CESTAT-DEL]-

Binding nature of Board Circulars -As per Supreme Court's judgment in case of CCE , Bolpur Vs. Ratan Melting & Wire Industries reported ( 2008-TIOL-194-SC- CX -CB ) , the Board's instructions are binding on the Departmental officers unless contrary view has been expressed by Supreme Court or any High Court. In this case neither any such judgment of Hon'ble Supreme Court or High Court has been produced, nor the Department has shown as to how the Board's instructions, which are its own instructions, are contrary to statutory provisions.

Something positive, rather than mere inaction or failure on the part of an assessee has to be proved before invoking extended limitation period :The Supreme Court in cases of CCE Vs. Chemphar Drug & Limits reported in ( 2002-TIOL-266-SC- CX ) and Pushpam Pharmaceuticals Company Vs. CCE , Mumbai reported in ( 2002-TIOL-235-SC- CX ) has held that something positive, rather than mere inaction or failure on the part of an assessee has to be proved before invoking extended limitation period under proviso to Section 11A (1) of the Central Excise Act, 1944 and that since the expression - 'Suppression of facts' has been used in the company of strong words such as fraud, collusion in wilful default, it cannot be interpreted as mere omission - the act constituting 'suppression' must be deliberate. In this case neither the circumstances indicate 'suppression of facts', misstatement, fraud etc. nor any evidence in this regard has been produced. Therefore neither the demand beyond the normal limitation period of one year is sustainable nor penalty under Rule 15 (4) of Cenvat Credit Rules, 2004 read with Section 78 of the Finance Act, 1994 is attracted. :DELHICESTAT;

In the above cases, it was held that mere inaction would not be a valid ground for invoking the extended period of limitation. Further, in the case of PADMINI PRODUCTS vs. CCE reported at 1989 (43) ELT 195 (Supreme Court) it was held that mere negligence or failure to pay duty on part of manufacturer is not sufficient to invoke the extended The extended period was held to be wrongly invoked in this case.

All the above cited decisions makes it clear that for invoking the extended period of limitation, something positive is required to be proved. Though the demand pertaining the extended period has been dropped, but this has been done by extending the benefit of exemption notification no. 6/2005. However, the above decisions were supposed to be discussed otherwise also as the ingredients that are essential for invoking the extended period are the same as required for imposing the penalty under section 78. Thus, even if the demand pertaining to the extended period remains quashed, then too, the above decisions were supposed to be discussed for determining the imposition of penalty under section 78. This has not been done. Thus, the impugned order still remains the non speaking on these grounds also.

It was submitted in the adjoiner to reply to show cause notice that the service tax is an indirect tax which is paid by the provider of service (i.e. the receiver of the consideration). Taking an example – person providing the Business Auxiliary services, i.e. an agent gets his commission from his principal and thereafter the agent is liable to pay the service tax thereupon. Here the person receiving the payment is the “agent” who is liable to pay the service tax thereupon. Similarly in the case of person providing the Business Support Services, say one person is providing the services in relation to accounting and processing transactions of the business entity. These services will fall under the definition of Business Support Services. Here the business entity to whom the accounting services are provided is the recipient of services and will pay the consideration to the person providing these services. The service provider who is receiving this consideration will pay the service tax thereupon. These examples are clear evident of the fact that the service provider is the receiver of the consideration and he is liable to pay the service tax on this amount so received. In fact this is the fundamental of service tax law where the receiver of the amount is liable to pay the service tax on the receipts. Where this fundamental is not to be followed, the law has provided the exceptions in form of reverse charge mechanism where the person making the payment of consideration is required to pay the service tax thereupon. These cases are prescribed in erstwhile rule 2(1) of the Service Tax Rules, 1994 which include GTA where the person paying the freight is required to pay the service tax, person making payment for taxable services to service provider situated in foreign country, insurance company making paying commission to the insurance agents, for sponsorship services the person making payment for the same, etc. Thus, the rule 2(1) applicable during the period in show cause notice prescribes seven such cases including the above where the person making payment is liable to pay the service tax thereupon. In all the other cases, the person receiving the payment is liable to pay the service tax thereupon as per fundamentals of service tax law. In the instant case, even if it is accepted that the alleged services are taxable in hands of the hospital, then too service tax is not payable as the hospital is not receiving anything from the doctors. Rather it is making the payments to the doctors, thus, as per fundamentals of service tax law, service tax cannot be demanded from us. Further, this case is also not specified in exceptions given in rule 2(1) of the Service Tax Rules, 1994. As such, the service tax cannot be demanded from us as we are not receiving any amount from the doctors. Therefore, the contention of the impugned show cause notice is not tenable and is liable to be quashed.

All the above mentioned submissions were given by the appellant in the reply to show cause notice and in the adjoiner to reply to show cause notice. But these have not been discussed and distinguished while passing the impugned order. Such an order is a non speaking and non reasoned order which is not viable in the eyes of law.

Aligning with above, the appellant submit that in view of the fact that the submissions made by the appellant as listed out in forgoing paras have not been considered while passing the impugned order, the impugned order has turned out to be a non speaking order which is not tenable in the eyes of law and is not sustainable as such. Thus, the order has proved to be a non speaking and non-reasoned order which is not sustainable in the light of following decisions:-

·         Commissioner of Central Excise, Bangalore versus Srikumar Agencies [2008 (232) E.L.T. 577 (S.C.)]

·         CC Vs Essar Oil Limited [2010-TIOL-560-HC-AHM-CUS]

·         State of Himachal Pradesh Vs Sardara Singh [2008-TIOL-160-SC-NDPS]
 
Respondents Contention:- Department contended that assessee has provided the infrastructural facility to the doctors through an agreement. They classified such arrangement as the business support services and raised the service tax demand. They pleaded that the order in original should be upheld.
 
Reasoning of Judgment by Commissioner (Appeals):- The commissioner (appeals) viewed that the appellant is being run by a trust namely H.H.RAJDADIJI SMT BADAN KANWAR MEDICAL TRUST for providing the health care services to the people at large. The appellant were collecting fee plus other charges such as testing charges etc. from patients coming to the hospital for treatment. The patients are billed by the Hospital; at the backend Doctors provide the consultation. The payment to the Doctors for their services is in such a manner that the appellant retains certain amount of the consultation fee so collected and the balance amount is paid to the Doctors as per their agreement. This consideration in the form of retention being kept by the appellant with them is under dispute of being chargeable to Service Tax under the category of "Business Support Services" defined under Section 65(105)(zzzq) of the Finance Act, 1994. Here it is observed that the said business entity under question i.e. 'Doctors' is not paying any amount to the appellant, which, a service recipient is required to pay, and instead the appellant is paying amount as per agreement to the Doctors. As such the fact of providing service to the Doctors is deviated and the appellant is receiving services from the Doctors.

The learned Commissioner Appeals examined the appellant's contention that the medical profession service is not an activity equated to Business and cannot be covered under Business Support Service which brings the business activities in its ambit. Also the adjudicating authority has relied upon only on the definition of word "business" provided in Black's Law Dictionary. But, clarification issued vide D.O.F.N0.334/4/2006-TRU dated 28.02.2006 provides that the intention of the government was to capture the cases where the services were outsourced by the Business entities which were using the same in or in relation to business or commerce. The doctors are professionals and they have not undertaken any support services from the appellant as such their providing of service to the appellant can't be taxable under the category of "Business Support Services".

It was further observed that the judgement of High Court pronounced in the case of Commissioner of Income Tax, Gujarat Vs Dr. K.K. Shah (Income Tax Reporter Vol. 135 Page 146) is also important. In this judgement, hon’ble court held that when doctors practice their profession, the activity cannot be considered as business.

Applying the ratio of the clarification and decisions of the High Court, it was held that the appellant is not providing any service to the Doctors, and that the Doctor’s act of providing consultation to patients do not fall in the ambit of business. Since the case is not maintainable on merit, no interest and penalty is imposable.
 
Order of Commissioner(Appeals), Jaipur: -

The Commissioner (appeals) ordered that as the appellant is not providing any services to the doctors,  there was no question of service tax, penalty and interest.

Decision:- The appeal was allowed.

Conclusion:- The substance of this case is that the activity of providing access to the diagnostic facilities and all other indoor/outdoor facilities to doctors by a hospital cannot be held to be covered under the category of BSS as these are not infrastructural services provided by the hospital to the doctors. This view was formed on the sole reason that the services of a doctor cannot be equated with “business” and rather it is a ‘profession’. Moreover, the BSS is a service that is taxable service provided in relation to business or commerce. Furthermore, doctors are not ‘business entity’ and the BSS services are taxable only if provided to a ‘business entity’. Lastly, as the doctors provide medical services that are for the benefit of public at large there cannot be levy of service tax as the medical and health services are specifically exempted from the levy of service tax.
 
 
 

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