The High Court of Karnataka has recently upheld three writ petitions filed by Healthcare Global Enterprises Ltd (HCG), confirming that the healthcare services provided by HCG through another hospital are exempt from Goods and Services Tax (GST).
In the ruling, the Single Judge Bench, led by Justice S.R. Krishna Kumar, emphasised that the revenue-sharing model between HCG and the associated hospital does not alter the exempt status of the essential medical services offered to patients.
HCG, a public limited company dedicated to delivering healthcare services, entered into a Medical Services Agreement on July 10, 2017, with M/s. Suchirayu Health Care Solutions Limited (SHCS). Under this agreement, HCG provided medical services to patients at SHCS’s hospital in Hubli, utilising a team of doctors, specialists, and paramedics.
In the agreement, a revenue-sharing model is mentioned where HCG was entitled to 75% of the gross revenue generated from the patients. The department issued SCNs for the financial years (2017-18 to 2021-22), claiming that services furnished via HCG comprise “Support Services” under SAC 9985 and were obligated to pay GST at 18%, instead of being exempt healthcare services.
The applicant’s counsel claimed that the services rendered came under the exemption furnished under Notification No. 12/2017-CGST (Rate) dated June 28, 2017, particularly Entry No. 74 of Heading 9993. He placed reliance on CBIC Circular No. 32/06/2018 dated February 12, 2018, which specifies that healthcare services furnished by clinical establishments, authorised medical practitioners, or para-medics are not subject to charge.
The senior counsel said that charging taxes on these services shall contradict the legislative intent of keeping essential healthcare affordable and mentioned the Supreme Court’s decision in Commissioner of Central Excise v. Acer India Ltd. to claim that a tax cannot be charged indirectly on a service that is exempt from direct taxation.
On the other hand, the respondents claimed that since the applicant obtained 75% of the gross revenue, the service was a supply of manpower or business support services to SHCS, taxable as a business-to-business transaction. They claimed that the writ petitions were premature and that the applicant must claim other remedies.
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The court, after consideration, said that both HCG and SHCS were absolute clinical establishments registered under the Clinical Establishments Act. Justice Krishna Kumar observed that the “Medical Services Agreement” specified that the substance of the transaction was the provision of diagnosis, treatment, and medical care to patients. The Court ruled that the categorisation of services should comply with their substance. Therefore, categorising such healthcare services as support services only because of a revenue-sharing arrangement was untenable.
The Court placed reliance on the Supreme Court’s judgment in Government of Kerala v. Mother Superior Adoration Convent. It outlined that beneficial exemptions in tax laws should be interpreted liberally to deliver full effect to their object. It was ruled that levying tax on the applicant would increase the cost of medical treatment for patients, as the tax burden would be passed on, which would contradict the objective of the exemption.
The court did not accept the claim of the department that the writ petitions were premature and stated that when an SCN is issued without jurisdiction or contrary to law, the availability of other remedies does not bar the writ jurisdiction of the HC under Articles 226 and 227 of the Constitution.
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The Court concluded that the services furnished via HCG through SHCS were not subject to GST under the above-said notification and circular. Therefore, the impugned SCNs issued for the FY 2017-18 through 2021-22 were cancelled.
| Case Title | Karnataka HC’s Order in The Case of Healthcare Global Enterprises Ltd vs Assistant Commissioner of Commercial Taxes |
| Case No. | WP No. 22236/2023 |
| For Petitioner | Sri. G. Shivadass, Senior Advocate |
| For Respondent | SMT. Jyoti.m.maradi, HCGP |
| Karnataka High Court | Read Order |
