Facts of the Case

M/s Healthcare Global Enterprises Ltd. (HCG), a clinical establishment engaged in providing healthcare services, entered into a Medical Services Agreement with Suchirayu Health Care Solutions Ltd. (SHCS). Under the agreement, HCG provided doctors, specialists, technicians and para-medical staff for treating patients in SHCS hospital.

Patients were billed by SHCS, and HCG received 75% of the gross revenue collected from patients as consideration for the healthcare services rendered.

The GST Department conducted inspection proceedings and subsequently issued Form GST DRC-01A and Show Cause Notices under Section 73(1) of the CGST/KGST Act for various financial years alleging that HCG was providing taxable business support services classifiable under SAC 9985 and was liable to pay GST along with interest and penalty.

HCG challenged the Show Cause Notices before the Karnataka High Court.

Issues Involved

  1. Whether healthcare services provided by one clinical establishment through another hospital continue to remain exempt under Notification No. 12/2017-CT (Rate).
  2. Whether revenue-sharing between two hospitals changes the character of healthcare services into taxable business support services.
  3. Whether the Department was justified in classifying such services under SAC 9985 and issuing GST demand notices.
  4. Whether the High Court could entertain the writ petitions against Show Cause Notices despite availability of an alternate remedy.

Petitioner's Arguments

The petitioner submitted that:

  • It is a registered clinical establishment providing healthcare services directly to patients.
  • Notification No. 12/2017-CT (Rate) grants unconditional exemption to healthcare services provided by clinical establishments.
  • The Medical Services Agreement only governs the manner of sharing revenue and does not alter the nature of services rendered.
  • Doctors, specialists and para-medical personnel directly treated patients, and therefore the services squarely fall within "healthcare services."
  • CBIC Circular No. 32/06/2018 specifically clarifies that services provided by doctors, consultants and technicians through hospitals remain exempt from GST.
  • Merely because consideration flows through another hospital, exempt healthcare services cannot be converted into taxable business support services.
  • Taxing the petitioner would indirectly impose GST on healthcare services which the Government has consciously exempted.

Respondent's Arguments

The Department contended that:

  • HCG received 75% of the gross revenue from SHCS under a contractual arrangement.
  • The services were rendered to SHCS and not directly to patients.
  • Such activities were in the nature of business support services falling under SAC 9985.
  • GST at 18%, along with interest and penalty, was therefore payable.
  • Since only Show Cause Notices had been issued, the writ petitions were premature and liable to be dismissed because alternate statutory remedies were available.

Court Order / Findings

The Karnataka High Court allowed all the writ petitions and held that:

  • HCG is a clinical establishment within the meaning of Notification No. 12/2017-CT (Rate).
  • The Medical Services Agreement clearly establishes that HCG's doctors and medical personnel provide diagnosis, treatment and medical care directly to patients.
  • The healthcare services rendered remain healthcare services even though they are provided through another hospital.
  • Revenue-sharing arrangements do not alter the essential character of exempt healthcare services.
  • CBIC Circular No. 32/06/2018 clearly clarifies that healthcare services rendered by doctors, consultants and technicians through hospitals remain exempt from GST.
  • The Department wrongly attempted to classify exempt healthcare services as business support services under SAC 9985.
  • GST cannot be imposed indirectly where it cannot be levied directly.
  • Since the Show Cause Notices were issued without jurisdiction and contrary to the exemption notification and CBIC Circular, the High Court exercised its writ jurisdiction and quashed all the notices.

Accordingly, all the impugned Show Cause Notices and Form GST DRC-01 proceedings were quashed.

Important Clarification

The judgment reiterates that:

  • Healthcare services provided by one clinical establishment through another hospital continue to enjoy GST exemption.
  • Revenue-sharing between hospitals does not change the nature of healthcare services.
  • Exemption under Notification No. 12/2017-CT (Rate) must receive a beneficial interpretation.
  • CBIC Circular No. 32/06/2018 reinforces that healthcare services rendered through doctors, consultants and technicians remain exempt.
  • Healthcare services cannot be artificially classified as business support services merely because of contractual arrangements between hospitals.
  • The Department cannot indirectly levy GST on exempt healthcare services by changing their classification.

Sections / Notifications / Circulars Involved

  • Section 73(1) of the CGST Act, 2017
  • Section 73(1) of the KGST Act, 2017
  • Articles 226 & 227 of the Constitution of India
  • Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017
  • Heading 9993 – Healthcare Services
  • CBIC Circular No. 32/06/2018-GST dated 12.02.2018
  • SAC 9985 (Business Support Services) – Issue raised by Department

Link to Download the Order-https://mytaxexpert.co.in/uploads/1784629516_1795compressed.pdf

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