2025 (7) TMI 1709 - AT - Service Tax

Failure to discharge Service Tax liability - appellant is a clinical establishment - business support service - manpower recruitment or supply agency service - renting of immovable property service - Works contract service - levy of penalty. Business support service - manpower recruitment or supply agency service - HELD THAT - It is found that the fact of arrangement between the appellant and NNC was that of a joint venture which is clear from the agreement entered into between the parties. The parties wanted to collaborate and run the business activities connected with the hospital services and the appellant shared the responsibility by providing infrastructure and medical/non-medical staff to NNC. Charges were collected from the patients which have been shared for such infrastructure only. In these circumstances it cannot be said that the appellant has provided any service to NNC - the appellant has received the reimbursement only as per the joint venture agreement entered into which does not fall within the ambit of business support service or manpower recruitment or supply agency service - no Service Tax is payable by the appellant under the categories of business support service or manpower recruitment or supply agency service . Renting of immovable property service - HELD THAT - The appellant had M/s. Coffee Day Express and M/s. Fresh and Honest Caf Ltd. to supply food and beverages to visitors at the hospital premises against payment of 20% of monthly sale proceeds. Food and beverages were to be supplied to the appellant s employees its contractual employees and doctors working in the hospital at lower rates and no part of the sale proceeds received from them were to be shared with the appellant. As it is a case of revenue sharing it cannot be said that the appellant have rented out their premises to M/s. Coffee Day Express and M/s. Fresh and Honest Caf Ltd. - It is also an admitted fact that where the vendors supplied food and beverages to the staff of the appellant at a concessional rate the appellant has not recovered any amount from their employees or doctors on account of the concession given by the service providers namely M/s. Coffee Day Express and M/s. Fresh and Honest Caf Ltd. The appellant did not receive any amount towards the said concession. In these circumstances no demand can be raised against the appellant - the demand of Service Tax under the category of renting of immovable property service is not sustainable. Works contract service - HELD THAT - The appellant has admitted and paid part of the demand along with interest before issuance of the Show Cause Notice. Due to some calculation error an amount of Rs.31, 999/- is recoverable from the appellant. During the course of arguments it was pointed out by the Ld. Counsel for the appellant that although it can be verified from the records that the said amount pertains to sale of materials but to buy peace the appellant did not want to litigate further and therefore the said demand has been conceded by the appellant. Accordingly the same is payable by the appellant along with interest within a period of thirty days from the date of receipt of this Order. Levy of penalty - HELD THAT - No penalty is imposable on the appellant. Accordingly the penalties imposed on the appellant are set aside. Appeal disposed off.

Summary

ISSUES:

Whether demands of Service Tax under the categories of "business support service" and "manpower recruitment or supply agency service" are sustainable against a clinical establishment providing healthcare services through a joint venture with a charitable organization.Whether the appellant is liable to pay Service Tax under the category of "renting of immovable property service" for revenue-sharing arrangements with food and beverage vendors operating on hospital premises.Whether the appellant is liable to pay Service Tax under the category of "works contract service" on additions, repairs, and maintenance of buildings, including disputed transactions related to purchase of goods.Whether penalties under Sections 77 and 78 of the Finance Act, 1994, are imposable in light of bona fide mistakes and payments made before issuance of Show Cause Notices.Whether limitation provisions under Section 73(3) of the Finance Act, 1994, apply to preclude issuance of Show Cause Notices for amounts already paid with interest and without penalty.

RULINGS / HOLDINGS:

The demands of Service Tax under "business support service" and "manpower recruitment or supply agency service" are not sustainable because the appellant and the charitable organization formed a joint venture; the appellant did not render any service to the non-profit organization but shared infrastructure and staff as part of the joint venture. The reimbursement received does not fall within the ambit of taxable service categories.The demand of Service Tax under "renting of immovable property service" is not sustainable as the arrangements with food and beverage vendors were revenue-sharing and did not create a landlord-tenant relationship. The appellant did not receive consideration for concessional supplies to its employees and doctors; hence, no service tax liability arises.The appellant is liable to pay Service Tax of Rs.31,999/- under "works contract service" due to a computational discrepancy on reverse charge basis, which the appellant has conceded to pay along with interest to avoid further litigation.No penalty is imposable under Sections 77 and 78 of the Finance Act, 1994, as the appellant acted under bona fide belief and made payments with interest before issuance of Show Cause Notices; there was no suppression of facts or intention to evade tax.Section 73(3) of the Finance Act, 1994, precludes issuance of Show Cause Notices and imposition of penalty for amounts of service tax paid with interest under intimation to the Department prior to such notices.

RATIONALE:

The Court applied the definition of "business support service" under Clause (104c) of Section 65 of the Finance Act, 1994, which requires services to be "in relation to business or commerce." Since the joint venture was a non-profit entity registered under the West Bengal Societies Registration Act, 1961 and Income Tax Act Section 12A, it was held that no business or commerce was carried out by the joint venture, excluding applicability of "business support service."The exemption Notification No. 25/2012-ST, Serial No. 2, exempts "health care services by a clinical establishment," and the clinical establishment's provision of healthcare services through the joint venture does not negate this exemption. The organizational structure does not affect the exemption's applicability.The Court relied on precedents holding that joint ventures between hospitals and charitable or non-profit entities, where infrastructure and staff are shared and revenue is shared, do not constitute taxable services under "renting of immovable property service" or "business auxiliary service."Regarding "renting of immovable property service," the Court distinguished revenue-sharing arrangements from lease or rental agreements, emphasizing the absence of a landlord-tenant relationship and that no fixed rent was charged.On works contract service, the Court acknowledged the appellant's partial admission and payment, and accepted the concession to pay the disputed amount to avoid protracted litigation, without penalty.Penalty provisions under Sections 77 and 78 require intent or suppression for imposition; bona fide mistakes and prior payments with interest negate such intent, supported by Section 73(3) and Explanation 2 thereto, which protect taxpayers who pay due tax with interest before show cause notices.