Staff Reimbursement, Training, And Hospital Management In Joint Venture Not Taxable Under Service Tax: CESTAT Chennai
The Chennai Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has stated that staff reimbursement, training, and hospital management in a joint venture are not taxable under the service tax. P. Dinesha (Judicial Member) and Vasa Seshagiri Rao (Technical Member) stated that the receipts characterised as “royalty”/“management fee” are integrally connected...
The Chennai Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has stated that staff reimbursement, training, and hospital management in a joint venture are not taxable under the service tax.
P. Dinesha (Judicial Member) and Vasa Seshagiri Rao (Technical Member) stated that the receipts characterised as “royalty”/“management fee” are integrally connected with the provision of healthcare services and do not constitute a separate taxable Management or Business Consultancy Service. The payments are in substance revenue sharing for collaborative clinical management, and there is no element of service among the joint venture partners.
In the case at hand, it was found that the assessee/appellants have received certain amounts on provision of services rendered under the categories of Manpower recruitment or supply agency service, Commercial training or coaching service and management or Business Consultant service and have not paid service tax for the amounts received in respect of the above services.
A Show Cause Notice was issued to the assessee. The Joint Commissioner of Central Excise, Madurai Commissionerate, confirmed the demand with interest and imposed penalties under various provisions of the Finance Act, 1994.
The assessee argued that they had entered into joint venture agreements with the hospitals and the revenue earned by them is their share of Revenue. It was also submitted that they have shown the revenue under Royalty receipts by mistake, but it is earned by the joint venture with their partners, and it cannot be termed as a service. The assessee provides the know-how, deputes their staff and advises on the infrastructure and the funds.
The revenue contends that the assessee is not running the hospital, but providing services to them and that the services can be trisected into management/consultancy services to other hospitals, supply/secondment of manpower, and commercial training/ coaching of doctors/staff, which are taxable under the service tax law for the said period as per the details obtained from the assessee.
The Tribunal further opined that reimbursement of salaries in respect of staff deputed by the assessee Hospital to Hospital, where reimbursement is made on an actual cost basis, and the employees continue to be on the payroll of the assessee Hospital, does not constitute a taxable Manpower Recruitment or Supply Agency Service.
The charges of training of medical and non-medical personal cannot be treated as Commercial coaching centres as the assessee and the MOU Hospitals are functioning under Trusts, and providing free eye care for a certain percentage of the patients, and therefore such an arrangement cannot be held to be on Commercial terms and has to be held as part of integrated clinical delivery, stated the bench.
The Tribunal held that the major service is business support services, manpower supply and training of staff in that order. Therefore, the management of the hospital is a dominant service in this case and has to be classified accordingly.
Therefore, it is a service related to healthcare clinical management. It is exempt from Service Tax as there is no element of service, and it is like a hospital managing its own hospital, added the bench.
In view of the above, the Tribunal allowed the appeal.
Case Title: M/s. Aravindh Eye Hospital v. Commissioner of GST and Central Excise
Case Number: Service Tax Appeal No. 42460 of 2014
Counsel for Appellant/ Assessee: Joseph Prabhakar
Counsel for Respondent/ Department: Anoop Singh