2025 (7) TMI 1007 - SC - Service Tax

Classification of services - Healthcare Services or not - services of enrolment collection processing and storage of umbilical cord blood stem cells provided by the appellant during the period from 01.07.2012 to 16.02.2014 - extended period of limitation - Imposition of penalties - HELD THAT - It is a settled principle of law that for the department to invoke the extended period of limitation there must be an active and deliberate act on the part of the assessee to evade payment of tax. Mere non-payment of tax without any element of intent or suppression is not sufficient to attract the extended limitation period. Therefore in the absence of fraud collusion wilful misstatement or suppression of facts with an intent to evade payment of service tax the invocation of the extended period of limitation under Section 73 of the Finance Act 1994 is wholly unwarranted. Mere non-payment of service tax by itself does not justify the invocation of the extended limitation period. Accordingly the show cause notice issued by the department is clearly time-barred. On this ground alone the impugned order deserves to be set aside. In the present case since it is rendered a finding that stem cell banking services constitute a healthcare service which was specifically so stated by the notification dated 17.02.2014 the said notification must necessarily be held to be illustrative and clarificatory to that extent. This clarification/specific exemption coupled with our finding that stem cell banking services fall within the ambit of Healthcare Services must necessarily inure to the benefit of the appellant. This is not to say that the notification dated 17.02.2014 is retrospective in operation - It is a well-settled principle of law that unless a notification or circular explicitly provides for retrospective operation it must be construed as prospective. Admittedly the said notification does not contain any express provision indicating retrospective effect. Therefore it can only be applied prospectively. However for the reasons stated in the preceding paragraphs while we concur with the decision of the Madras High Court to the extent that Notification No. 4/2014-ST cannot be considered to be retrospective it is opined that the said amendment is indeed clarificatory. Whether the services rendered by the appellant relating to enrolment collection processing and storage of umbilical cord blood stem cells fall within the definition of Healthcare Services so as to qualify for exemption from service tax during the disputed period? - HELD THAT - The Andhra Pradesh High Court in M. Satyanarayana Raju Charitable Trust v. UOI 2017 (5) TMI 672 - ANDHRA PRADESH HIGH COURT interpreted Healthcare Services to include preventive services. Being a beneficial exemption the provision must be liberally construed - Thus it is evident that the appellant s services fall within the ambit of Healthcare Services as defined under the exemption notification. These services are preventive and curative in nature and encompass diagnosis treatment and care. Imposition of penalties - HELD THAT - It is evident that the appellant neither suppressed nor concealed any material facts from the Department. On the contrary they were in constant communications with the Department seeking clarifications on whether their services were exempt from the levy of service tax. The show cause notice issued by the Department is time-barred. Therefore the imposition of penalties is not warranted. The impugned order is set aside in its entirety. Accordingly these appeals stand allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court in this matter are:

(a) Whether the services of enrolment, collection, processing, and storage of umbilical cord blood stem cells provided by the appellant during the period from 01.07.2012 to 16.02.2014 fall within the ambit of "Healthcare Services" as defined under the relevant service tax exemption notifications, thereby qualifying for exemption from service tax.

(b) Whether the show cause notice issued by the Department on 28.07.2017 demanding service tax for the aforesaid period is barred by limitation, particularly in light of the extended period of limitation invoked under Section 73 of the Finance Act, 1994.

(c) Whether the penalties imposed under Sections 77 and 78 of the Finance Act, 1994 are justified, considering the appellant's bona fide belief in the exemption and their conduct during the investigation.

2. ISSUE-WISE DETAILED ANALYSIS

(a) Whether the appellant's services fall within the ambit of "Healthcare Services" and are exempt from service tax for the period 01.07.2012 to 16.02.2014

Relevant legal framework and precedents:

The exemption from service tax is governed by Notification No. 25/2012-ST dated 20.06.2012, which exempts "Healthcare Services by a clinical establishment, an authorized medical practitioner or para-medics" under Serial No. 2. Clause 2(t) of this notification defines "health care services" broadly as "any service by way of diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognised system of medicines in India."

Subsequently, Notification No. 4/2014-ST dated 17.02.2014 inserted Entry 2A, specifically exempting "services provided by cord blood banks by way of preservation of stem cells or any other service in relation to such preservation."

Judicial precedents such as the Andhra Pradesh High Court's decision in M. Satyanarayana Raju Charitable Trust v. UOI emphasized a liberal and beneficial interpretation of healthcare services, including preventive services. The Supreme Court in CCE, Bombay-I & Anr. vs. Parle Exports Pvt. Ltd. held that exemption notifications have statutory force and must be interpreted in their ordinary parlance and context, with a liberal approach favoring the assessee, avoiding absurd results.

The Ministry of Health and Family Welfare's Office Memorandum dated 22.05.2013 clarified that services rendered by stem cell banks are part of healthcare services and qualify for exemption.

Court's interpretation and reasoning:

The Court found that the appellant qualifies as a clinical establishment under the notification and that their core activities-collection, processing, testing, cryopreservation, and storage of umbilical cord blood stem cells-are preventive and curative healthcare services. The appellant's services support diagnosis, treatment, and care, including post-transplant monitoring and clinical trials, which are integral to healthcare.

The Court rejected the Department's narrow interpretation that these services do not constitute healthcare services because they are not used for regular illnesses. Instead, the Court held that the term "any service" in the exemption notification must be read expansively, covering the appellant's activities.

The Court noted that the insertion of Entry 2A by Notification No. 4/2014-ST does not curtail the scope of Entry 2 but rather clarifies and specifically exempts cord blood banking services. Therefore, the appellant's services fall within the ambit of "Healthcare Services" for the disputed period.

Key evidence and findings:

The appellant submitted extensive documentary evidence, including brochures, laboratory protocols, clinical trial data, expert opinions, and regulatory approvals under the Drugs and Cosmetics Act. The Ministry's Office Memorandum further supported the appellant's claim.

Treatment of competing arguments:

The Department contended that the exemption for cord blood banking services was introduced only by the 2014 notification and was not applicable for the disputed period. The Court disagreed, holding that the 2014 notification is clarificatory and illustrative, not restrictive, and the appellant's services were covered under the broader healthcare exemption from 01.07.2012.

Conclusion:

The Court concluded that the appellant's services fall within the definition of "Healthcare Services" and are exempt from service tax for the period 01.07.2012 to 16.02.2014.

(b) Whether the show cause notice issued on 28.07.2017 is barred by limitation

Relevant legal framework and precedents:

Section 73(1) of the Finance Act, 1994 mandates that a show cause notice for service tax demand must ordinarily be issued within one year from the relevant date. The proviso allows an extended period of up to five years only if the non-payment or short payment is due to fraud, collusion, wilful misstatement, suppression of facts, or contravention of the Act or Rules with intent to evade tax.

Precedents such as Padmini Products v. CCE, CCE v. Chemphar Drugs and Liniments, Pushpam Pharmaceuticals Co. v. CCE, and CCE v. Punjab Laminates (P) Ltd. establish that invocation of the extended period requires positive evidence of deliberate evasion or suppression, not mere non-payment or bona fide dispute.

Court's interpretation and reasoning:

The Court observed that the Department was aware of the appellant's activities as early as 2013, evidenced by communications seeking documents. The appellant had acted bona fide, responding to queries, making representations seeking clarification, and depositing Rs. 40,00,000 under protest. No evidence of fraud, collusion, wilful misstatement, or suppression with intent to evade was found.

The Court held that mere non-payment of service tax, absent any element of intent or suppression, does not justify invoking the extended limitation period. The show cause notice issued after more than five years from the relevant period was therefore time-barred.

Key evidence and findings:

Communications between the Department and appellant, the appellant's proactive deposit and representations, and absence of any allegation or proof of fraudulent intent.

Treatment of competing arguments:

The Department argued that the extended period was justified due to the appellant's failure to pay service tax. The Court rejected this, emphasizing settled legal principles requiring positive evidence of evasion for extended limitation.

Conclusion:

The show cause notice dated 28.07.2017 is barred by limitation and thus invalid.

(c) Whether the penalties imposed under Sections 77 and 78 of the Finance Act, 1994 are justified

Relevant legal framework and precedents:

Penalties under Section 78 are imposed for misstatement, suppression, or contravention with intent to evade tax. Section 80 protects bona fide taxpayers acting under reasonable belief. Judicial precedents emphasize that penal provisions are deterrent and not to be imposed for bona fide errors or disputes.

Court's interpretation and reasoning:

The Court found no evidence of suppression or concealment by the appellant. The appellant's conduct was consistent with a bona fide belief in exemption, supported by regulatory registrations and Ministry clarifications. The appellant cooperated fully with the Department.

Given the show cause notice was time-barred and no intent to evade was demonstrated, imposition of penalties was unwarranted.

Key evidence and findings:

Correspondence seeking clarifications, deposit of tax under protest, and absence of any adverse findings on appellant's bona fides.

Treatment of competing arguments:

The Department justified penalties on grounds of non-registration, non-payment, and procedural lapses. The Court held that such procedural defaults, in the absence of intent to evade, do not warrant penalties.

Conclusion:

Penalties imposed under Sections 77 and 78 are quashed.

3. SIGNIFICANT HOLDINGS

"The use of the phrase 'any service' in the exemption notification gives an expansive scope to the term 'health care services'. The appellant's activities of enrolment, collection, processing, and storage of umbilical cord blood stem cells are preventive and curative in nature and fall within the ambit of 'Healthcare Services' as defined under Notification No. 25/2012-ST."

"The insertion of Entry 2A by Notification No. 4/2014-ST dated 17.02.2014 is clarificatory and illustrative of the exemption already available under Entry 2. It does not curtail the scope of the earlier exemption notification."

"In the absence of any evidence of fraud, collusion, wilful misstatement, or suppression of facts with intent to evade payment of service tax, the extended period of limitation under Section 73 of the Finance Act, 1994 cannot be invoked. Mere non-payment or bona fide dispute does not justify invoking the extended limitation period."

"Penal provisions under the Finance Act are meant to deter deliberate contraventions and are not to be imposed on bona fide taxpayers acting under reasonable belief and in good faith."

"The show cause notice issued on 28.07.2017 is barred by limitation and the penalties imposed are unwarranted. The deposit of Rs. 40,00,000/- made by the appellant shall be refunded."