Heath Service is input service for General Insurance Service?
IN Finance Bill 2010, certain new services were proposed to be included to the taxable services. One among such new services is the service rendered by any hospital, nursing home or multi speciality clinic to a person covered by health insurance scheme for any health check-up or treatment, where the payment for such health check-up or treatment is made by the insurance company directly to such hospital, nursing home or multi-specialty clinic (Ref Section 65(105)(zzzzo))
Actually, insurance companies are already covered under General Insurance Service and they pay service tax on the insurance charges collected from the clients. To give an illustration,
If an Insurance company charges @ Rs 10,000 from 100 persons, total amount collected would be Rs 10,00,000/- (the insurance company pays service tax on this amount of Rs 10,00,000/- under general insurance service)
Now they settle one claim from the above 100 persons and pay the hospital, say Rs 1 ,00,000 /- for treatment. The hospital has to pay service tax on this Rs 1,00,000/-
Once the entire amount of Rs 10,00,000/- collected is subjected to tax under General Insurance Service, collecting service tax again on Rs 1,00,000/- under Health Service amounts to double taxation.
The benign Board has realised this already and vide para 2.2 (Annexure A) of the JS TRU letter dated 26.2.2010, it has been clarified that:
Under general insurance service, an insurance company is a service provider to its clients. Under the proposed new service, tax is also being imposed on the medical charges paid by the insurance companies to the hospitals on behalf of a business entity for its employees. As such, the insurance company would be the service receiver and the tax paid by the hospital would be available to the insurance companies as credit
But, the point is how the Health Service provided by a hospital can be treated as input service for the output service, i.e, General Insurance Service? Will the definition of CENVAT Credit Rules support this clarification? Are the health services provided by the hospitals used for providing output service, i.e, General Insurance Service? Will the field formations allow the credit? Obviously they will not, as the JS TRU letter itself has a word of caution in para 9:
9. It may be noted that this D.O. letter does not set out the changes in an exhaustive fashion. It gives a broad view of the changes made in the service tax law and procedure in Budget 2010. It should not be used for interpreting any provisions in the case of any ambiguity. The wordings used in the statutory provisions and the notifications alone have legal standing. Therefore, they must be read carefully for interpretation, tax compliance and tax administration purposes.
When the whole exercise is revenue neutral, why does the department create extra work for itself as well as for the Hospitals? Now they have to register the hospitals, scrutiny their returns/ records, audit the accounts etc which consumes number of man-hours on both sides. Why can't this tax be just done away with so that the hospitals can focus on treatment of patients than participating in a mere paper work which by no means bring extra penny to the Government?