Download SURGEONS - UNDER SERVICE TAX

SURGEONS AND SERVICE TAX
By CA. Srikantha Rao T
& CA. Roopa Nayak M
In this article we look at the newly introduced category of plastic surgery services with a
discussion on the taxability plus issues as well as relevant circulars. Also dealt with is a
discussion on receipt of taxable service from abroad and taxation of the same. The other
services in health and fitness which could intersect this service.
Service tax has been imposed on cosmetic surgery and plastic surgery services by the
Finance (No. 2) Act, 2009 with effect from 1st September, 2009 vide Notification No
26/2009-ST dated 19.8.2009.Earlier the intention of the Government seemed to be to
treat the medical profession as service in public domain and hence medical profession
was kept out of the purview of service tax. This can be seen from the fact that CBEC had
earlier clarified vide Circular B. No. 11/1/2002 TRU dated 01.08.2002 that cosmetic
surgery or plastic surgery to improve appearance would not be liable to service tax
under the category of beauty treatment services. The introduction of this service
category seems to be an attempt by the Government to gradually bring in a wide range
of services that are provided by the medical fraternity into the tax net.
Definitions
What is Taxable service?
The taxable service is defined under Section 65(105)(zzzzk), as any service provided or
to be provided to any person, by any other person in relation to cosmetic or plastic
surgery.
The commonly known aesthetic/cosmetic surgeries which are illustrated in circular
334/13/2009-TRU dated 6.7.2009 are abdominoplasty, eyelid surgery, mammoplasty,
buttock augumentation and lift, reshaping of nose, ear surgery, face lift, removal of fat
from the body, brow lift, cheek augumentation, facial implants, lip augumentation,
forehead lift, cosmetic dental surgery, orthodontics, aesthetic dentistry, laser skin
surfacing just to name a few.
Any surgery undertaken to restore or reconstruct anatomy or functions of body affected
due to congenital defects, development abnormalities, degenerative diseases, injury or
trauma being surgery due to medical reasons could be excluded.
The phrases 'cosmetic surgery or plastic surgery' has not been defined in the Finance
Act, 1994 (as amended by the Finance Act 2009). Generally, such surgical procedures
are undertaken to preserve or enhance physical appearance or beauty, the services
which were hitherto excluded from beauty treatment services under section [65(105)
(zq)].
According to Cambridge Advanced Learner's Dictionary, the term 'cosmetic surgery' has
been defined as 'any medical operation which is intended to improve a person's
appearance rather than their health'. According to the Webster’s Unabridged Dictionary
‘plastic surgery’ is defined as ‘the branch of surgery dealing with the repair or
replacement of malformed, injured, or lost organs or tissues of the body, chiefly by the
transplant of living tissues’. The word ‘surgery’ can be understood to mean ‘the art,
practice or work of treating diseases, injuries, or deformities by manual or operative
procedures, the branch of medicine concerned with such treatment, treatment as an
operation performed by a surgeon’.
Whether non-invasive surgery is liable to service tax?
The word “non invasive” means, not entering or penetrating the body or not disturbing
the body tissue. Now, whether non invasive procedures undertaken can be construed
as surgery is something to be looked at. The definition of cosmetic or plastic surgery
service does not make a specific mention as to invasive or non-invasive surgery. The
Tribunal however in New Look Cosmetic Laser Center Vs CCE Vadodara (2009 (14)
STR 27 (Tri-Ahmd)) has held that even laser treatment which involves non invasive
procedures (no cut or incision being involved), can be regarded as cosmetic surgery and
therefore not liable to service tax. Here, the issue concerned was removal of body and
facial hairs by laser treatment and whether the same could be construed as being liable
to service tax under beauty treatment services.
This matter has now been specifically addressed by circular F.No. 334/13/2009 TRU
dated 06.07.09 where even non invasive surgery has been held to be included within the
scope of taxable service category of cosmetic or plastic surgery services.
Whether services in relation to plastic surgery are covered?
The services in relation to plastic surgery are also covered. The purpose of this could be
to tax beauticians who as per Circular No.B11/1/2002-TRU dated 1.8.2002 were
excluded from service tax liability when plastic surgery / cosmetics surgery to improve
the appearance was performed by them. But generally, plastic surgery is performed by
surgeons and can more appropriately be classified as medical services and now such
services are taxed under this head.
Whether therapeutic massages are liable under this service category?
No. The therapeutic massage provided by qualified professionals cannot be liable under
this category in our view. Earlier, CBEC had through Circular No. B 11/1/2002 dated
1.8.2002 clarified that therapeutic massages i.e. massages provided by qualified
professionals under medical supervision for curing diseases like arthritis, chronic low
back pain and sciatica etc could not be taxed under the category of health club and
fitness centre service. Therapeutic massage basically means a massage provided by
qualified professionals under medical supervision for curing diseases. These services
would have to be distinguished from the cosmetic or plastic surgery services that now
find an entry under the heading cosmetic or plastic surgery services. Therefore,
therapeutic massages as of date are not classifiable under any taxable service category
and hence would not be liable to service tax.
Whether consultancy services are liable to service tax?
The taxable service has been defined to cover any service provided or to be provided to
any person in relation to cosmetic surgery or plastic surgery. The term “in relation to” can
be understood to be a term used in the expansive sense and having broad meaning and
pre-supposing another subject matter if one were to go by the decision of the Supreme
Court in Doypack Systems (P) Ltd Vs UOI (1988 (36) ELT 201 (SC)). If we see this word
in the context in which it has been used in the said definition, one can also hold the view
that even consultancy services in relation to cosmetic or plastic surgery would be liable
to service tax. But one can also probably look at the intention of the law makers in
bringing about this levy. This would probably have to be decided by the courts. But if one
goes through the circular F. No. 334/13/2009 TRU dated 06.07.09, the taxability seems
to be with regard to cosmetic surgery and plastic surgery alone as the circular explicitly
states thus – “The service now proposed to be taxed is cosmetic surgery and plastic
surgery undertaken to preserve or enhance physical appearance or beauty.” Therefore,
if one were to go by this, then consultancy services in relation to such surgeries would
be outside service tax net.
What is the position when we have a composite service?
Generally, the services would be one of pure advice or one involving surgery. In case
the service is of such a nature that both are involved, the substance of the transaction
would have to be seen. Where the service is mainly of a nature involving surgery, the
entire amount may be subjected to service tax to be on the safer side of law unless such
surgery is reconstructive surgery. The same test as to substance may be used where
some materials are used in surgery. Generally, the value of such materials may be low
in relation to the total amount charged for the surgery. In our view, the essence of the
surgery would be more in the nature of service and therefore the entire amount charged
may be subjected to service tax unless there is a clear intent to treat the materials as
having been sold during the course of providing service. Where such intent exists,
deduction may be claimed for such materials sold u/n 12/2003 ST dated 20.06.03.
Category for import and export of service
This heading falls under the second category i.e. performance based category for finding
out whether the taxable service is exported out of India or received in India from abroad.
Thus where the taxable service is provided from outside India and partly or fully
performed in India and received by a person in India, the same would be taxed in the
hands of the service receiver. The service recipient would be able to claim credit of the
service tax paid on such service received where the same qualifies as an input service
as laid down in Cenvat Credit Rules 2004.
In order to hold the taxable service as having being exported from India, the services
should be performed outside India partly or fully. This is in addition to the other basic
conditions of the export of services having to be satisfied i.e. receipt of consideration
being in convertible foreign exchange and taxable services to be provided from India and
used outside India.
Practical approach:
In this article we have examined a few of the important issues which a practitioner could
face while advising the clients. For queries, upload on pdicai.org. Author can be reached
on e-mail: at pdicai.org or [email protected] or [email protected].