Are Skin & Hair Care Treatments Taxable As Cosmetic Surgery? CESTAT Delhi Seeks Fresh Examination

The Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), on 30 January, asked the lower authorities to re-examine whether skin and hair care treatments provided by a clinical establishment qualify as “Cosmetic and Plastic Surgery Services” and are therefore liable to service tax.

A Bench comprising Judicial Member Binu Tamta and Technical Member Rajeev Tandon was examining an appeal filed by Trichoderm, a Delhi-based clinical establishment operating under the brand name 'Medlinks'.

The dispute concerned service tax demands raised on various treatments offered by the clinic, including procedures for acne, burn scars, facial asymmetry, lipodystrophy, cyst removal, as well as treatments involving medical consumables, injectables and laser therapy. Trichoderm claimed exemption on the ground that these services qualified as 'healthcare services'.

The Department, however, treated the services as 'cosmetic and plastic surgery services', which are specifically excluded from exemption under the Mega Service Tax Exemption Notification, except where undertaken to restore or reconstruct anatomy or bodily functions affected by congenital defects, developmental abnormalities, injury or trauma.

On this basis, a service tax demand of about Rs. 2.6 crore, along with interest and penalty, was raised for the Financial Year 2016–17.

While examining the nature of services, the Tribunal noted that the clinic rendered treatments not only for aesthetic enhancement, but also to patients who had suffered injuries due to accidents. The Bench observed that classification of services would depend on their purpose and medical necessity, and not merely on how they were described.

On the legal framework, the Tribunal examined Section 65(105)(zzzzk) of the Finance Act, which governs taxation of healthcare services. In this context, the Tribunal observed:

“9......the services should be provided by clinical establishment, the service provider should be an authorised medical practitioner or paramedics and the services should be in the nature of healthcare service as defined. There is no doubt that the appellant is a 'clinical establishment' as it provides services or facilities requiring diagnosis, treatment/care for illness, injury, deformity and abnormality. Secondly, the appellant is an 'authorised medical practitioner' and the treatments are administered by doctors, who are registered with the Medical Council of India.”

The Tribunal also found fault with the manner in which the demand was quantified. It noted that the adjudicating authority had confirmed an amount exceeding what was proposed in the show cause notice. On this issue, the Tribunal observed:

“21. The SCN proposed service tax amounting to Rs.2,61,94,416/- however, the Adjudicating Authority has confirmed the demand beyond the said amount, which is Rs.2,62,91,823/-. On the face of it, we agree with the submission of the learned Chartered Accountant that the amount not proposed in the show cause notice is not sustainable as the same is beyond the scope of the show cause notice.”

The Bench further noted that the Department had relied on estimated figures to raise the demand, without accounting for industry practice where patients may enquire about treatments or book appointments but do not necessarily undergo the procedures.

Finding that the authorities had failed to undertake a proper service-wise examination, the Tribunal set aside the service tax demand of about Rs. 2.9 crore on the following grounds:

• each service must be examined separately to determine whether it is a cosmetic or plastic surgery procedure undertaken purely for appearance, or a healthcare service rendered to cure, diagnose or restore bodily function due to disease, injury, deformity or congenital defect;
• the demand had been raised without proper documentation to support the service tax liability; and
• the extended period of limitation could not be invoked where the dispute involved an interpretational issue.

Accordingly, the Tribunal allowed the appeal and remanded the matter to the adjudicating authority for fresh hearings.

For Appellant: Chartered Accountants A.K. Batra, Sakshi Khanna

For Respondent: Mr. S.K. Meena (Authorised Representative)