Log in Register

Login to your account

Username *
Password *
Remember Me

Create an account

Fields marked with an asterisk (*) are required.
Name *
Username *
Password *
Verify password *
Email *
Verify email *
Menu

By Vinay Jain, Chartered Accountant, & Sachin Mishra, Advocate, Lakshmikumaran & Sridharan

1. Whether maintenance of software via internet provided by entities located outside India was taxable under the head ‘Management, Maintenance or Repair Services’ prior to 1-3-2008? Whether international connectivity services provided by entities located outside India to roaming subscribers falls under the head “Business Support Service”? Whether Appellant is liable to pay penalty if the Appellant has paid service tax along with interest prior to issuance of show cause notice?

Facts & Pleadings: M/s. Vodafone Cellular Ltd. (herein after referred to as “the Appellants”) have recieved maintenance of software via internet, international connectivity services to roaming subscribers and downloading of content viz., cartoons, music, videos, games, ringtones, graphics, GPRS download etc., from entities located outside India.

According to the department the said three services received by the Appellant from the entities located outside India are taxable under the heads “Management, Maintenance and Repair of Software”, “Business Support Services” and “Development & Supply of Content for Telecommunication, Advertising and Online Information Services”, respectively.

The Appellants have argued that “Management, Maintenance and Repair of Software” services falling under Section 65(105)(zzg) through internet become taxable only w.e.f. 1-3-2008 in terms of proviso added to Rule 3 (ii) of the Taxation of Services (Provided from outside India and received in India) Rules, 2006. In the present case, the department has made a demand for a period prior to 1-3-2008 and hence the same is not sustainable in law. Further, with regard to demand under “Business Support Services”, the Appellants have submitted that the international roaming services have been provided to the customers of Appellants and the same fall under the head “Telecommunication Service”. The said services have not been provided by any India Telecom Authority and hence, the same are not taxable under the head “Telecommunication Service”. Further, with regards to “Development & Supply of Content for Telecommunication, Advertising and Online Information Services”, the Appellants have paid service tax along with interest prior to issuance of show cause notice and the Appellants are entitled for credit of the same and hence, penalty cannot be imposed.

Judgment: The Honourable CESTAT agreeing with the contentions of the Appellants has held that the maintenance of software received by the Appellants is not taxable under the head “Management, Maintenance and Repair of Software” prior to 1-3-2008 in view of the proviso to Rule 3 (ii) of the Import of Services Rules, 2006. The Hon’ble CESTAT has further held that the international roaming services to the customers of the Appellants falls under the category of “Telecommunication Services” and the same is not taxable as has been held in Vodafone Essar Mobile vs. CST, Delhi vide Final Order No. 55606/2017. Further, the Hon’ble Tribunal has set aside the imposition of penalty for the service tax demand under the head “Development & Supply of Content for Telecommunication, Advertising and Online Information Services” on the ground that the Appellants have paid service tax along with interest prior to issuance of show cause notice and the situation being revenue neutral.

Vodafone Cellular Ltd. vs. CCE Pune-II, CESTAT Mumbai, decided on 30-11-2017 in the Final Order No. A/91120/17

Vodafone Cellular Ltd.

2. Whether the arrangement of revenue sharing between doctors and hospitals is liable to service tax under the category of Business Support Service (BSS) for the period prior to negative list and as a taxable service for the period post negative list?

Facts & pleadings: The Hon’ble CESTAT has taken up 7 appeals involving common disputes together. The Appellants are renowned hospitals providing various categories of healthcare services to patients. To provide medical care to their patients, the Appellants have appointed professionals/doctors/consultants on a contractual basis. These doctors are given designated space in the hospital premises in the form of chambers having an examination table for the purpose of examining the patients of the Appellants. The Appellants retain a pre-determined amount from the fees received from the patients as its share in lieu of the revenue sharing arrangement.

According to the department, the ‘collection charges’/‘facilitation fee’ retained by the Appellants were subject to service tax, (i) under the category of Business Support Service (BSS) for the period prior to negative list; and (ii) as a taxable service for the period post negative list, on the basis that the collection charges/facilitation fee formed consideration in lieu of the infrastructural support provided by the Appellants to the doctors to enable the doctors to carry out their “Business”.

The Appellants submitted that the amount booked under “collection charges/facilitation fee” of doctors is not liable to service tax under “Business Support Service” as the doctors are neither “business entities” nor engaged in a business or commerce. The Appellants relied upon the decision of Hon’ble Gujarat High Court in Dr. K. K. Shah 135 ITR 146 (Guj.) in this regard. Further, the Appellants submitted that the agreements between the doctors and the appellants are mainly on revenue sharing basis and not a case of one party providing service to another. For the post negative list, the Appellants submitted that the “Health Care Services” are exempted from service tax. The activities of the appellant, even if it is considered as services to doctors, is not limited to provision of space or infrastructure but also includes various other services like blood bank, emergency units, operations theatres, which are essentially for diagnosis and treatment of patients. These are typically health care services which are clearly exempt.

Judgment: The Hon’ble CESTAT while rejecting the claims of the Revenue has held that the arrangement of the Appellants cannot be considered as “Business Support Service” on the ground that both the Appellants as well as doctors are acting on a revenue sharing model. Accordingly, the Appellants are actually availing the professional services of the doctors for providing health care service and not vice-a-versa. There cannot be a business support in such arrangements as it is mutually beneficial to both the parties. Hon’ble Tribunal further went on to held that for “Business Support Services”, the service recipient has to be engaged in business or commerce. Since, the doctors are engaged medical profession and not business or commerce, the said activity cannot be made liable to service tax under the aforesaid category. Further, the Hon’ble CESTAT has stated that post negative list regime w.e.f. 1-7-2012, the clinical establishment providing health care services are exempt from service tax. Thus, the health care services provided by the Appellants i.e., clinical establishment by engaging consultant doctors in terms of an arrangement to share the revenue cannot be liable to service tax.

M/s. Ganga Ram Hospital vs. CCE, Delhi, CESTAT, New Delhi, decided on 6-12-2017 in the Appeal No. ST/1844/2010

M/s Ganga Ram Hospital

Note: The Whole decisions can be downloaded from the CTC website www.ctconline.org under Knowledge Centre.

Go to top