Summary
Enrolment, collection, processing and storage of umbilical cord blood stem cells by a registered cord blood bank are 'health care services' by a clinical establishment exempt under Entry 2 of Notification No. 25/2012-ST, even for the period before Entry 2A (Notification No. 4/2014-ST) specifically exempted cord blood banks; the 2014 notification is clarificatory though not retrospective. The service tax demand for 01.07.2012 to 16.02.2014 was also time-barred, as the extended period under Section 73 of the Finance Act, 1994 could not be invoked absent fraud, suppression or intent to evade, and the penalties were set aside.
Issues
- Whether the show cause notice dated 28.07.2017 demanding service tax for 01.07.2012 to 16.02.2014 was barred by limitation, the extended period under the proviso to Section 73(1) of the Finance Act, 1994 having been invoked.
- Whether the services of enrolment, collection, processing and storage of umbilical cord blood stem cells rendered by a cord blood bank fall within 'health care services' by a clinical establishment under Entry 2 and clause 2(t) of Notification No. 25/2012-ST.
- Whether Entry 2A inserted by Notification No. 4/2014-ST, exempting services of cord blood banks, is clarificatory or confers exemption only prospectively from 17.02.2014.
- Whether penalties under Sections 77 and 78 of the Finance Act, 1994 and interest were sustainable.
Provisions considered
- Section 73(1) and its proviso, Finance Act, 1994A show cause notice must ordinarily issue within one year of the relevant date; the five-year extended period applies only where non-payment is due to fraud, collusion, wilful misstatement, suppression of facts or contravention with intent to evade. The department knew the nature of the assessee's operations from its own letter of 02.12.2013, the assessee held a bona fide belief in exemption, responded promptly and deposited Rs. 40 lakh under protest, and there was no allegation or evidence of fraud or suppression, so the extended period was unavailable and the notice was time-barred. (¶¶ 9, 9.1, 9.2, 9.3, 9.4)
- Entry 2 and clauses 2(j) and 2(t), Notification No. 25/2012-ST dated 20.06.2012 (Finance Act, 1994)Entry 2 exempts health care services by a clinical establishment, and clause 2(t) defines them as any service by way of diagnosis, treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognised system of medicine. 'Any service' is expansive, and the ordinary meanings of diagnosis, treatment and care include preventive health care. The assessee was admittedly a clinical establishment under clause 2(j), and its cord blood collection, testing, cryopreservation and release for transplantation were preventive and curative components of health care. (¶¶ 6, 11, 11.1, 11.2, 11.3, 11.4, 11.5, 12)
- Entry 2A, Notification No. 4/2014-ST dated 17.02.2014 (Finance Act, 1994)The specific exemption for services of cord blood banks by way of preservation of stem cells does not curtail the scope of Entry 2; it is illustrative and clarificatory of the earlier notification for pending claims, ongoing assessments and disputes sub judice, though not retrospective so as to reopen assessments where tax was paid without demur. Life Cell International (Madras High Court) was overruled in principle to the limited extent it held the amendment not clarificatory. (¶¶ 10, 10.1, 10.2, 11.5)
- Sections 75, 77(1)(a), 77(1)(d), 77(2) and 78, Finance Act, 1994Interest and penalties confirmed by the adjudicating authority were set aside: the assessee neither suppressed nor concealed facts, repeatedly sought clarification from the Ministry, deposited Rs. 40 lakh during investigation and acted under a bona fide belief in exemption; penal provisions deter deliberate contravention and do not penalise bona fide taxpayers, and the notice was in any event time-barred. (¶¶ 6, 13, 13.1, 13.2)
Held
- To invoke the extended period of limitation under the proviso to Section 73(1) of the Finance Act, 1994 there must be an active and deliberate act by the assessee to evade tax; mere non-payment without intent or suppression does not suffice. Where the department was aware of the assessee's activities from 2013, the assessee held a bona fide belief that its services were exempt, responded to every communication and deposited money under protest, the notice issued in 2017 for the period 2012-14 was time-barred and the demand fell on that ground alone. (¶¶ 9, 9.1, 9.2, 9.3, 9.4)
- Services of enrolment, collection, processing, testing, cryopreservation and release of umbilical cord blood stem cells by a registered cord blood bank, a clinical establishment, are 'health care services' within clause 2(t) of Notification No. 25/2012-ST: the phrase 'any service by way of diagnosis or treatment or care' is expansive and includes preventive health care with curative application, and the beneficial exemption must be liberally construed; the Health Ministry's Office Memorandum of 22.05.2013 recognising stem cell banking as health care supports this reading. (¶¶ 11.1, 11.2, 11.3, 11.4, 11.6, 11.7, 11.8, 12)
- Entry 2A inserted by Notification No. 4/2014-ST is clarificatory of the exemption already available under Entry 2 and inures to the benefit of pending claims, ongoing assessments and sub judice disputes, but it is not retrospective and cannot reopen assessments where service tax was paid without demur; the absence of express mention of cord blood services in the earlier notification does not alter their essential health care character. (¶¶ 10, 10.1, 10.2, 11.5)
- Penalties and interest are unwarranted where the assessee did not suppress material facts, continuously engaged with the authorities seeking clarification, deposited an amount during investigation and acted on a bona fide belief in exemption; penal provisions are meant to deter deliberate contravention, not to punish bona fide taxpayers. (¶¶ 13, 13.1, 13.2)
Result
Appeals allowed; CESTAT's common order dated 02.08.2024 confirming the service tax demand of Rs. 2,07,29,576 with interest and penalties and rejecting the refund claim set aside in its entirety; deposit of Rs. 40,00,000 to be refunded within four weeks of receipt of the judgment; no costs.