Service tax charge by hospitals

This query is : Resolved

VIVEK BARANWAL (Querist)
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13 December 2010

We are employer (business entity:- Company)
One of Our paneled Hospital is charging service tax on us on all tests , consultancy fee, OT charges etc (excluding medicine and
consumables) provided to our employees.

Kindly advise whether service tax charged by hospital is correct or not as Sec 65(105) (zzzzo) propose payment in relation to Health check up and preventive care.

Please also advise whether we can avail cenvat credit of the same or not

Suresh Ramaswamy

Suresh Ramaswamy (Expert)
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16 December 2010 Clause (zzzzo) in Section 65(105) of the Act so as to define taxable service as “service provided or to be provided by any hospital, nursing home or multi-specialty clinic to an employee of any business entity, in relation to health check-up or preventive care, where the payment for such check-up or preventive care is made by such business entity directly to such hospital, nursing home or multi-specialty clinic”
Thus, the ingredients of this taxable service are:
• Service provider should be any hospital, nursing home or multi-specialty clinic.
• Service should be provided to an employee of any business entity, in relation to health check-up or preventive care; and
• The payment for such check-up or preventive care is made by such business entity directly to such hospital, nursing home or multi-specialty clinic.
The tax on the above mentioned health services would be payable only if and to the extent the payment for such medical check up is made directly by the business entity to the hospital or medical establishment. Any additional amount paid by the individual (i.e. the employee or the insured, as the case may be) to the hospital would not be subjected to service tax. This is to ensure that an individual is not required to pay a tax for which he cannot take credit.

As noted above, the service provider must be any hospital or nursing home or multi-speciality clinic. As these terms are not defined in the Act, their ordinary popular meanings must be taken.

Normally whenever a patient registers with a hospital / clinic certain charges are paid by the patient. These include doctor's Fees. the doctors' recommend various tests to be conducted and admission for operation, etc. Hence the doctors' fees(termed by you as consultancy charges) and OT charges,if any, paid by the employer is subject to Service Tax. What is not subject to tax are the fooding provided by tghe hospital and such other expenses only.

As stated above, the business entity can avail of the Cenvat Credit on the payments so made to hospitals / nursing homes.