The Delhi Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that service charges taken by hospitals from medical shops are covered by health care services, no service tax payable.
The bench of Binu Tamta (Judicial Member) has observed that Medical aid to the patients who are admitted in the hospital, most of the time requires urgent care and treatment without any loss of time and that is the reason for having a medical store within the vicinity of the hospital. The moment a patient is admitted, with the immediate diagnosis is required to be normalised by commencing the treatment with the medicines and thereafter their continuous stay in the hospital requires constant administering of the medicines. Therefore, the in-house patients are largely dependent on the medicine shop in the hospital.
The bench noted that the hospital which is providing the multifarious services under the health care services owes greater responsibility that the medicines which is the most important input in any treatment are available to the patients urgently on time and simultaneously the payment to the medicine shop is also made, for which the hospital is required to assimilate the claim in respect of all the services rendered to the patients and forward them to the insurance company.
The CESTAT added that as the hospital has still to satisfy the insurance company on all counts and pursue the clearance of the claim. On receipt of the reimbursed amount the responsibility of the hospital is to ensure that respective payments are made to the doctors, lab assistants, for food, medicines etc. In order to have smooth functioning for disbursing the amounts, the staff of the hospital has to be utilised and involved for which they are deducting some amount. Hence the allegation raised by the department that the amount is actually the commission which the hospital is charging from the medicine store is not correct.
The appellant is running a hospital and providing various medical services to the patient. Predominantly service of the appellant is medical and health care service. Therefore, processing charges received towards Mediclaim is the ancillary service and classifiable under medical service itself and exempted from service tax.
The appellant is providing medical/health care service and process of lodging the medi-claim of the patient is part and parcel of such medical service. Hence, processing charges received towards Mediclaim is also exempted from service tax.
The appellant prepares the claim of the patient in respect of medical treatment which consists of hospital room charges, Doctor fees, nursing care charges, medicine charges, etc. since the claim also consists of medicine charges in respect of the medicine provided by M/s. Life Care Medicos to the patient, therefore, while filing the medi-claim, the medicine charges are also claimed in the Mediclaim filed with the respective insurance company.
After receipt of the medi-claim amount the appellant transfers the charges of medicine received from the insurance company to M/s. Life Care Medicos after deducting their nominal service charges. Therefore, the amount received from M/s. Life Care Medicos is nothing but service charges related to preparation and collecting the mediclaim of patients including claim of medicine charges of M/s. Life Care Medicos.
The issue raised was whether the service charges taken by the appellant from the medical shop is covered under the ‘health care services’, which are exempted as claimed by the appellant or as per the revenue the same is actually collected as ‘Commission’ and falls under the category of ‘Business Auxiliary Service’.
The appellant is running the hospital and is rendering health care services. The nature of the services involved is relating to the in-house patients, who have cashless medical insurance facilities. The appellant having provided the medical treatment, processes the medical claim of the patient through the insurance company. The medi-claim includes hospital room charges, doctor fees, nursing care charges and also the medicine charges.
Once the claim is settled and the amount is reimbursed by the insurance company including the value of medicines supplied by the Medical store for the treatment of the patient, the appellant retains some part from the reimbursed amount on account of ‘service charges’ and after deducting the said amount the remaining amount due to the medical store is paid. The claim of the appellant is that for preparing the Mediclaim considerable time of the staff is consumed for which they are taking the service charges from the medical store from whom the medicines were received.
The term “clinical establishment” is defined under Section 2(j)of the Notification No. 25/2012. Section 2(j) states that hospital, nursing home, clinic, sanatorium or any other institution by whatever name called, that offer services or facilities requiring diagnosis or treatment of 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.
The term “health care service” as defined under Section 2 (t). The “Section 2(t) states that any service by way of diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognized systems of medicines in India and includes services by way of transportation of the patient to and from a clinical establishment, but does not include their transplant or cosmetic or plastic surgery, except when undertaken to restore or to reconstruct anatomy or functions of both affected due to congenital defects, developmental abnormalities, injury or trauma.
The two definitions of “clinical establishment” and “healthcare service” clearly shows that they have been worded very broadly so as to include the various services, which are connected with the healthcare service and are inbuilt in it. The appellant who is running the hospital is squarely covered by the definition of “clinical establishment”, which at the outset says the clinical establishment means hospital and is rendering the healthcare services as defined therein.
The definition of “healthcare service” when it uses the term diagnosis or treatment or care for illness, etc. by any recognised system of medicines, denotes that the provision for medicines to the patients is directly connected to the health care services. In other words, the provision for medicines is inbuilt in health care service and the treatment.
The tribunal while allowing the appeal held that the medicines are used to treat or cure illness along with that the intended use of the medicines is in the diagnosis, mitigation or prevention of disease. According to the Britanica, medication is a substance used in treating a disease or relieving pain. Keeping that in view, the attempt of the Revenue to categorise the amount retained by the appellant as services under the heading of “Business Auxiliary Service” would amount to narrowing down the definition of “health care service” with a view to bring within the tax net, which is contrary to the intention of the legislature to exempt the “heath care service”.
Case Title: M/s.Life Care Hospital Ltd. Versus Commissioner of CGST and Central Excise
Case No.: Service Tax Appeal No.55276 of 2023
Date: 05.09.2024
Counsel For Appellant: Priyanka Goel
Counsel For Respondent: Rohit Issar
