Supreme Court: While considering an appeal against Customs, Excise and Service Tax Appellate Tribunal (CESTAT) verdict holding that services of enrolment, collection, processing, and storage of umbilical cord blood stem cells, provided by the appellant, do not fall within the scope of “Healthcare Services”; the Division Bench of J.B. Pardiwala and R. Mahadevan*, JJ., found that the appellant’s services fell within the ambit of “Healthcare Services” as defined under the exemption Notification No.25/2012—Service Tax dated 20-06-2012. It was held that these services are preventive and curative in nature and encompass diagnosis, treatment, and care.
Background and Legal Trajectory:
Stemcyte India Therapeutics Ltd. (the appellant) engaged in the collection, processing, testing, and storage of umbilical cord blood units and their therapeutic application and is a member of the Association of Stem Cell Banks of India.
On 27-12-2011, the Ministry of Health and Family Welfare, Government of India, issued notification No. GSR 899(E) notifying the Drugs and Cosmetics (3rd Amendment) Rules, 2011. Under these rules, cord blood banks were required to obtain registration. Part XIID of the Rules set out detailed requirements relating to the collection, processing, testing, and release of umbilical cord blood-derived stem cells. Subsequently, the Ministry of Finance, Government of India, issued Notification No.25/2012—Service Tax dated 20-06-2012, which provided a consolidated list of services exempt from service tax. Under Serial No. 2 of the said notification, “Healthcare Services” were exempted. This notification superseded the earlier Notification No. 12/2012—Service Tax dated 17-03-2012. Accordingly, with effect from 01-07-2012, the negative list regime of service tax was introduced, rendering all services taxable unless specifically included in the negative list or expressly exempted otherwise.
On 21-09-2012, the Association of Stem Cell Banks of India submitted a representation to the Ministry of Health and Family Welfare, seeking clarification on whether the services rendered by stem cell banks qualified as “Healthcare Services”. In response, the Ministry, after consultation with the National AIDS Control Organization, issued an Office Memorandum dated 22-05-2013, clarifying that the services rendered by stem cell banks are part of “Healthcare Services” and may be considered for exemption from service tax.
On 24-10-2013, the appellant obtained Service Tax Registration under the category “healthcare services by clinical establishment, health check-up / diagnosis, etc.” from the Central Board of Excise and Customs. The Ministry of Finance issued Notification No. 4/2014-ST dated 17-02-2014, inserting Entry 2A, which exempted from service tax the services provided by cord blood banks by way of preservation of stem cells or any other services in relation to such preservation.
Subsequently, the Commissioner issued summons and letters to the appellant demanding service tax for the period from 01-07-2012 to 16-02-2014. In response, the appellant submitted replies along with the necessary documents and deposited a sum of Rs. 40,00,000, stating that the payment was made under protest, as the services provided by it, were exempt as per Notification dated 20-6-2012. The appellant’s refund claim was also rejected by the Commissioner. Aggrieved, the appellant filed an appeal before CESTAT. Thereafter, the Commissioner, CGST & Central Excise, Gandhinagar issued a show cause notice demanding service tax of Rs. 2,07,29,576 along with interest for services rendered between 01-07-2012 and 16-02-2014 and proposed imposition of penalties under sections 77(1)(a), 77(1)(d), 77(2) and 78 of the Finance Act, 1994. The Commissioner passed Order-in-Original dated 18-05-2018, confirming the demand and penalties. Aggrieved, the appellant filed a statutory appeal before the CESTAT.
By a common order dated 02-08-2024, the CESTAT confirmed the demand of service tax, interest and penalties imposed, and the rejection of refund claim made by the appellant, which led to the instant appeal before the Supreme Court.
Court’s Assessment:
Perusing the facts of the case and materials on record, the Court pointed out that the primary dispute relates to the period between 01-07-2012 and 16-02-2014 and whether the appellant’s services during this period fell within the ambit of “Healthcare Services” and are therefore, eligible for exemption from payment of service tax.
The Court noted that show cause notice demanding service tax of Rs. 2,07,29,576 along with interest for services during the afore-stated period was issued only on 28-7-2017. Under section 73(1) of the Finance Act, 1994, a show cause notice must ordinarily be issued within one year from the relevant date. The proviso to section 73(1) allows an extended period of up to five years only where the nonpayment or short payment of service tax is due to fraud, collusion, wilful misstatement, suppression of facts etc., with an intent to evade payment of service tax.
Perusing a 2013 communication issued by the Deputy Commissioner of Central Excise, Ahmedabad-III; the Court pointed out that department was already aware of the nature of the appellant’s operations as early as in 2013. Despite such awareness, the department issued the show cause notice after an inordinate delay, well beyond the ordinary period of limitation, and sought to justify it by invoking the extended period.
The Court stated that the services rendered by the appellant were not exempt from service tax until Notification dated 20-06-2012 was issued. The records revealed that the appellant was under a bona fide belief that the activity of enrolment, collection, processing, and storage of umbilical cord blood stem cells fell within the scope of exempted “Healthcare Services” and therefore, was not liable to service tax. Furthermore, there was nothing on record to suggest that the appellant suppressed any material facts. On the contrary, they responded promptly to departmental communications and even deposited a sum of Rs. 40,00,000/- during the investigation. There was no allegation or evidence of fraud, collusion, wilful misstatement, or contravention of statutory provisions with intent to evade tax. “It is a settled principle of law that, for the department to invoke the extended period of limitation, there must be an active and deliberate act on the part of the assessee to evade payment of tax. Mere non-payment of tax, without any element of intent or suppression, is not sufficient to attract the extended limitation period”.
Therefore, in the absence of fraud, collusion, wilful misstatement, or suppression of facts with an intent to evade payment of service tax, the invocation of the extended period of limitation under Section 73 of the Finance Act, 1994 was wholly unwarranted. Therefore, show cause notice issued by the department was clearly time-barred.
Coming onto the second leg of appellant’s contention regarding the period between 01-07-2012 to 17-02-2014, for the purpose of exemption from the levy of service tax. The services provided by cord blood banks, including preservation of stem cells or any other services related to such preservation, are exempt from service tax. The Court considered whether Notification dated 17-02-2014 was clarificatory as contended by the appellant and therefore, ought to be applied retrospectively with effect from 01-07-2012
The Court found that that stem cell banking services constitute a healthcare service, which was specifically so stated by the notification dated 17-02-2014, the said notification must necessarily be held to be illustrative and clarificatory to that extent. However, the said notification cannot be applied to cases where assessments have already been made, and service tax has been paid without demur. However, in respect of pending claims, ongoing assessments, and existing disputes that are sub judice, it can be said that the notification dated 17-02-2014 is a clarification to the earlier notification dated 01-07-2012. It is a well-settled principle of law that unless a notification or circular explicitly provides for retrospective operation, it must be construed as prospective. Admittedly, the notification dated 17-2-2014 does not contain any express provision indicating retrospective effect. Therefore, it can only be applied prospectively.
The Court further deemed it fit to overrule Madras High Court’s decision in Life Cell International (P) Ltd. v. Union of India1, in principle to the extent it held that amendment introduced by Notification No. 4/2014-ST dated 17-2-2014 could not be construed as clarificatory.
Vis-a-vis whether the services rendered by the by the appellant — relating to enrolment, collection, processing, and storage of umbilical cord blood stem cells — fall within the definition of “Healthcare Services”, so as to qualify for exemption from service tax during the disputed period; the Court pointed out that Notification dated 20-6-2012 provided a consolidated list of services exempt from service tax.
Perusing the relevant provision about ‘healthcare services’, the Court pointed out that Clause 2(t) of the said Notification defines “health care services” broadly covering diagnosis, treatment, or care for illness, injury, deformity, abnormality, or pregnancy in any recognised system of medicines in India. use of the phrase “any service” gives an expansive scope to the term. Though the terms “diagnosis”, “treatment”, and “care” are not specifically defined under the Finance Act, 1994, their ordinary meanings include acts like identifying illness causes, curing diseases or injuries, and ensuring well-being or preventive healthcare.
The appellant is a clinical establishment under 20-6-2012 Notification, which was not disputed by the Department. The appellant’s core activities — collection and preservation of umbilical cord blood (UCB) stem cells — are preventive in nature, with potential curative applications for life-threatening diseases. The processing, testing, cryopreservation, and eventual release for transplantation constitute integral components of healthcare aimed at future diagnosis, treatment, and care. Stem cell transplantation depends on extensive matching and testing conducted by the appellant. Doctors, who have utilised their services have certified the critical role played by the appellant in treating blood-related disorders. Further, the appellant has been actively involved in post-transplant monitoring, clinical trials (including those for spinal cord injuries), and collaborations with international medical experts. Their services also support research on conditions like autism and cerebral palsy. Recognition under the Drugs and Cosmetics Act (post-amendment dated 17-12-2012) reinforced their status as a legitimate healthcare provider.
The Court explained that the insertion of Entry 2A did not curtail the scope of Serial No.2 under Notification No. 25/2012-ST. The absence of express inclusion of cord blood services in earlier notifications does not alter their essential healthcare nature. Therefore, the appellant’s services are well within the ambit of “Healthcare Services”. Furthermore, the Ministry of Health and Family Welfare, through an Office Memorandum dated 22-05-2013 clarified in consultation with the National AIDS control Organization that stem cell banking is a part of “health care services” and qualifies for exemption.
The Court found that the appellant acted under a bona fide belief that their activities were covered under Entry 2 of the Exemption Notification dated 20-06-2012. The records substantiate that the appellant had addressed multiple representations. Their consistent engagement with the authorities further reinforced their bona fide conduct.
“Penal provisions are meant to deter deliberate contravention of statutory provisions and are not intended to penalize bona fide taxpayers”.
Therefore, the Court held that imposition of penalties and interest imposed on the appellant was arbitrary, unjust, and unsustainable in law. Thus, the impugned orders were set aside and the Court directed that the deposit of Rs. 40,00,000 made by the appellant shall be refunded to them.
[Stemcyte India Therapeutics Ltd. v. Commissioner of Central Excise and Service Tax, 2025 SCC OnLine SC 1412, decided on 14-7-2025]
*Judgment by Justice R. Mahadevan
Advocates who appeared in this case :
For Appellant(s): Krishnamohan K., AOR Ms. Dania Nayyar, Adv. Ms. Meetika Baghel, Adv.
For Respondent(s): Mr. V.C. Bharti, Adv.
1. (2016) 6 VST-OL 50
