The Supreme Court held that stem cell banking services qualify as “Healthcare Services” under Notification No. 25/2012-ST, exempting them from service tax. The Court ruled that the extended limitation period under Section 73 of the Finance Act, 1994, was unwarranted as there was no suppression or intent to evade tax. The subsequent Notification No. 4/2014-ST, though prospective, was deemed clarificatory. Penalties were set aside due to the appellant’s bona fide belief and lack of deliberate contravention. The impugned order was quashed, and the refund of the deposited amount was ordered
Facts Of The Case:
The appellant, M/s. Stemcyte India Therapeutics Pvt. Ltd., engaged in the collection, processing, and storage of umbilical cord blood stem cells, claimed exemption from service tax under “Healthcare Services” as per Notification No. 25/2012-ST for the period from 01.07.2012 to 16.02.2014. The Ministry of Health and Family Welfare, via an Office Memorandum dated 22.05.2013, clarified that stem cell banking services were part of healthcare and eligible for exemption. However, the authorities demanded service tax, alleging the services were taxable until the specific exemption under Notification No. 4/2014-ST (introducing Entry 2A) came into effect on 17.02.2014. The appellant deposited Rs. 40 lakhs under protest and sought a refund, which was denied. The CESTAT upheld the tax demand, penalties, and interest, prompting the appellant to appeal before the Supreme Court. The Court examined whether the services constituted “Healthcare Services” under the 2012 notification and whether the extended limitation period for issuing the show-cause notice was justified. It held that the services were indeed healthcare-related, the notice was time-barred due to lack of suppression or intent to evade tax, and the 2014 notification was clarificatory. Consequently, the demand and penalties were set aside, and the refund was ordered.
Procedural History:
The case originated when the Commissioner of Central Excise and Service Tax, Ahmedabad, issued a show-cause notice dated 28.07.2017, demanding service tax from the appellant for the period 01.07.2012 to 16.02.2014, along with interest and penalties. The appellant contested this before the Commissioner, who confirmed the demand via Order-in-Original dated 18.05.2018. The appellant then appealed to the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), which dismissed the appeals and upheld the demand through a common order dated 02.08.2024. Aggrieved by the CESTAT’s decision, the appellant filed civil appeals before the Supreme Court, arguing that its services qualified as exempt “Healthcare Services” under Notification No. 25/2012-ST and that the extended limitation period for issuing the show-cause notice was invalid. The Supreme Court, after examining the submissions, set aside the CESTAT’s order, ruling in favor of the appellant on both substantive and procedural grounds.
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Court Observation:
The Supreme Court made several key observations in its judgment. Firstly, it held that stem cell banking services, including collection, processing, and storage of umbilical cord blood, constitute “Healthcare Services” under Notification No. 25/2012-ST, as they involve preventive and curative healthcare measures. The Court emphasized that the broad definition of “healthcare services” under Clause 2(t) of the notification encompasses such activities. Secondly, the Court ruled that the show-cause notice issued in 2017 for the period 2012-2014 was time-barred, as the department failed to establish fraud, suppression, or intent to evade tax under Section 73 of the Finance Act, 1994. Thirdly, while acknowledging that Notification No. 4/2014-ST (which explicitly exempted stem cell banking) was prospective, the Court held it to be clarificatory of the existing exemption under the 2012 notification. Additionally, the Court observed that the appellant had acted in good faith, as evidenced by its representations to authorities and voluntary deposit of Rs. 40 lakhs during investigations. Consequently, the imposition of penalties was deemed unjustified. The judgment reinforced that exemption notifications should be interpreted liberally when beneficial to public health objectives.
Final Decision & Judgement:
The Supreme Court allowed the appeals and set aside the CESTAT’s order, ruling in favor of M/s. Stemcyte India Therapeutics Pvt. Ltd. It held that the appellant’s stem cell banking services qualified as exempt “Healthcare Services” under Notification No. 25/2012-ST for the disputed period (01.07.2012 to 16.02.2014). The Court declared the show-cause notice time-barred, as the department failed to prove suppression or intent to evade tax under Section 73 of the Finance Act, 1994. While recognizing Notification No. 4/2014-ST as prospective, the Court deemed it clarificatory of the 2012 exemption. The imposition of penalties was quashed, as the appellant had acted bona fide and cooperated with authorities. The Court directed the refund of the Rs. 40 lakhs deposited by the appellant within four weeks. The judgment reinforced a liberal interpretation of beneficial exemptions in healthcare and barred retrospective tax demands without evidence of mala fide intent. No costs were awarded, and all connected applications were disposed of accordingly.
Case Details:
Case Title:M/s. Stemcyte India Therapeutics Pvt. Ltd. vs. Commissioner of Central Excise and Service Tax, Ahmedabad-III Citation:2025 INSC 841 Appeal No.:Civil Appeal Nos. 3816-3817 of 2025 Date of Judgment:July 14, 2025 Bench: Justice J.B. Pardiwala & Justice R. Mahadevan
Download The Judgement Here