2025 (5) TMI 1833 - HC - Service Tax

Levy of service tax on a medical professional providing healthcare services - exemption from service tax as per Mega Exemption Notification No. 25/2012-ST - Jurisdiction under section 73 of the Finance Act 1994 (Service Tax Act) to issue a show cause notice - demand along with interest and penalty - exercising extra-ordinary jurisdiction under Article 227 of the Constitution of India - HELD THAT - It is also not in dispute that the respondent has not carried out any further inquiry on the basis of information received from the income tax department in Form 26AS to verify as to whether the petitioner was providing medical services or not which is exempt under Notification No. 25/2012. Considering such facts we are of the opinion that respondent could not have assumed the jurisdiction under the provisions of the Service Tax Act for levy of service tax for the year 2016-2017. The impugned show cause notice and orders are therefore quashed and set aside. Rule is made absolute to the aforesaid extent.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the respondent had jurisdiction under section 73 of the Finance Act, 1994 (Service Tax Act) to issue a show cause notice and levy service tax on the petitioner, a medical professional providing healthcare services.

- Whether the services rendered by the petitioner qualify for exemption under Notification No. 25/2012-ST dated 20.06.2012, which exempts healthcare services from service tax.

- Whether the respondent's reliance on information from the Income Tax Department (Form 26AS) and the petitioner's failure to file a timely reply justify the demand of service tax.

- Whether the petitioner's remedy under the Service Tax Act and the availability of alternative remedies affect the exercise of writ jurisdiction under Articles 226 and 227 of the Constitution of India.

2. ISSUE-WISE DETAILED ANALYSIS

Jurisdiction to levy service tax on healthcare services:

The relevant legal framework involves section 73 of the Finance Act, 1994, which empowers the tax authorities to demand and recover service tax where it is found payable but not paid. However, the applicability of service tax depends on whether the service falls within taxable categories or is exempted under the Mega Exemption Notification No. 25/2012-ST dated 20.06.2012.

The Court noted that the petitioner is a practicing doctor running a clinic and providing healthcare services. Such services are explicitly exempted under Entry No. 2 of Notification No. 25/2012-ST. The respondent issued a show cause notice demanding service tax for the period 2016-2017, relying on the provision of section 73 but without conducting any substantive inquiry into whether the petitioner's services fell within the exemption.

The Court emphasized that the exemption notification is a statutory instrument that excludes healthcare services from the levy of service tax, thus the respondent's assumption of jurisdiction to demand tax was without basis. The respondent failed to verify the nature of services before issuing the demand.

Reliance on Form 26AS and failure to file reply:

The respondent's case was premised on information from the Income Tax Department's Form 26AS, which showed tax deducted at source (TDS) on payments made to the petitioner, indicating receipt of income. The respondent argued that in absence of any reply from the petitioner to the show cause notice, the demand was justified.

The Court rejected this reasoning, holding that mere reflection of income in Form 26AS or TDS does not establish liability for service tax, especially when the services rendered are exempt by law. The Court observed that the petitioner did attend a personal hearing and submitted a reply along with documentary evidence (renewal slip from the Council of Homeopathic System of Medicine and a letter from the Gram Panchayat confirming the petitioner's status as a doctor), though the reply was submitted after the impugned order.

The Court found that the respondent did not conduct any further inquiry to verify the nature of services and relied solely on the absence of a timely reply and the Form 26AS data to raise the demand. This was held to be insufficient and unjustified.

Availability of alternative remedies and exercise of writ jurisdiction:

The respondent contended that the petitioner has an alternative efficacious remedy to challenge the order before the appellate authority under the Service Tax Act, and therefore, the writ petition under Articles 226 and 227 should not be entertained.

The Court acknowledged the existence of alternative remedies but noted that since the impugned order was without jurisdiction and the petitioner's services are exempt, the writ jurisdiction was appropriately invoked to quash the order. The Court exercised its extraordinary jurisdiction to prevent illegitimate demand and harassment.

3. SIGNIFICANT HOLDINGS

- "It is not in dispute that the medical services offered by the petitioner is exempted as per Exemption Notification No. 25/2012 dated 20.06.2012 and therefore, the show cause notice as well as the order-in-original are without jurisdiction."

- "The respondent has not carried out any further inquiry on the basis of information received from the income tax department in Form 26AS to verify as to whether the petitioner was providing medical services or not which is exempt under Notification No. 25/2012."

- "Considering such facts, we are of the opinion that respondent could not have assumed the jurisdiction under the provisions of the Service Tax Act for levy of service tax for the year 2016-2017. The impugned show cause notice and orders are therefore, quashed and set aside."

Core principles established include that exemption notifications under the Service Tax Act must be respected and that tax authorities cannot assume jurisdiction without verifying the nature of services rendered. Reliance solely on income tax data or non-filing of replies does not justify a demand when exemption is clearly applicable. The Court affirmed the availability and proper exercise of writ jurisdiction to quash orders passed without jurisdiction.

Final determinations were that the impugned show cause notice and order demanding service tax from the petitioner, a medical professional rendering exempt healthcare services, were without jurisdiction and therefore quashed and set aside. No costs were imposed.