The Hon’ble Supreme Court in the case of M/s Stemcyte India Therapeutics Pvt. Ltd. v. Commissioner of Central Excise and Service Tax, Ahmedabad-III [CIVIL APPEAL NOS. 3816–3817 OF 2025 dated July 14, 2025] held that stem cell banking services fall within the ambit of “healthcare services” and are exempt from service tax, and that the extended period of limitation under Section 73 of the Finance Act, 1994 was wrongly invoked, as there was no fraud or suppression.
Facts:
M/s. Stemcyte India Therapeutics Pvt. Ltd. (“the Appellant”) was engaged in the business of stem cell banking services and held a registration under the category of “healthcare services by clinical establishments” as per the Finance Act, 1994. As per Entry 2 of Notification No. 25/2012-ST dated June 20, 2012, healthcare services by clinical establishments were exempt from service tax. Later, Notification No. 4/2014-ST dated February 17, 2014, inserted Entry 2A to specifically exempt services provided by cord blood banks relating to preservation of stem cells. During investigation, the Appellant deposited ₹40 lakhs under protest. A show cause notice dated July 28, 2017, was issued alleging that for the period from July 1, 2012 to February 16, 2014, the Appellant’s activities were taxable and not covered under exemption, and service tax of ₹2,07,29,576 was demanded under the extended period of limitation.
The Appellant challenged the demand on two main grounds:
- the show cause notice was time-barred under Section 73 of the Finance Act, 1994, as the Department was aware of their operations since 2013 and there was no suppression or fraud, and
- their services constituted “healthcare services” even prior to Notification No. 4/2014-ST and were therefore exempt from the outset.
The CESTAT rejected these arguments and confirmed the demand with interest and penalties. Aggrieved, the Appellant approached the Hon’ble Supreme Court.
Issue:
Whether the services relating to enrolment, collection, processing, and storage of umbilical cord stem cells provided by the Appellant during the period 01.07.2012 to 16.02.2014 qualified as “healthcare services” and were exempt from service tax; and whether the invocation of extended limitation under Section 73 was valid?
Held:
The Hon’ble Supreme Court in CIVIL APPEAL NOS. 3816–3817 OF 2025 held as under:
On Period of Limitation:
- Noted that, the Department had already called for information from the Appellant in December 2013 and was aware of their operations, and yet issued the show cause notice in July 2017.
- Held that, there was no evidence of fraud, suppression, or wilful misstatement to justify the invocation of the extended limitation under the proviso to Section 73(1) of the Finance Act, 1994. Mere non-payment of tax, absent intention to evade tax, does not justify extended limitation.
On Merit of Exemption:
- Observed that, the Appellant was registered as a clinical establishment and their services were preventive in nature, having potential diagnostic and therapeutic value. The definition of “healthcare services” in Notification No. 25/2012-ST includes services by way of diagnosis, treatment, or care.
- Held that, the clarification introduced by Notification No. 4/2014-ST (Entry 2A) was merely illustrative and clarificatory, and should be applied to pending proceedings, even if not retrospectively applicable across the board.
- Held that, the imposition of interest and penalties was not sustainable, as the Appellant had acted under a bona fide belief and had made full disclosures and allowed the appeal, directing refund of ₹40 lakhs within four weeks, and quashed the impugned order.
Our Comments:
The Supreme Court’s ruling in the present case reaffirms that stem cell banking services, being preventive and potentially therapeutic, are squarely covered within the ambit of “healthcare services” under Notification No. 25/2012-ST. The Court treated Notification No. 4/2014-ST as clarificatory and applicable to pending assessments and disputes, even though not issued retrospectively. Reliance is placed on CCE v. Punjab Laminates (2006) 7 SCC 431, where the Apex Court held that the extended period under Section 73 of Finance Act, 1994, could not be invoked when facts were disclosed and the assessee acted under bona fide belief. Similarly, in Pahwa Chemicals (2005), it was held that mere non-declaration, without deliberate suppression, cannot invite extended limitation. The appellant’s conduct in this case, including active correspondence and voluntary deposit during investigation, clearly negated any allegation of wilful misstatement. Therefore, the invocation of extended limitation and imposition of penalties was rightly set aside.
The Court also did not accept the reasoning of the Madras High Court in Life Cell International (P) Ltd. [2016 (6) VST-OL 50], which had held that Notification No. 4/2014-ST was not clarificatory but prospective in nature. The Apex Court departed from this view by relying on the definition of “healthcare services” and the Ministry of Health & Family Welfare’s Office Memorandum dated 22.05.2013, which had already acknowledged stem cell banking as part of healthcare. The legal position is settled that a clarificatory amendment only elucidates existing law and can apply to pending matters. In light of this, Notification No. 4/2014-ST merely clarified what was already intended under Entry 2 of Notification No. 25/2012-ST and must apply accordingly to the disputed period of 01.07.2012 to 16.02.2014.
Under the GST regime, “healthcare services” are exempt under Entry No. 74 of Notification No. 12/2017-Central Tax (Rate) dated, July 28, 2017. The term is similarly defined in Clause (zg) of the notification and Circular No. 32/06/2018-GST dated February 12, 2018, which clarifies that diagnostic or treatment services by clinical establishments are exempt. Although no specific entry for stem cell banking exists under the GST law, the underlying principle remains unchanged: if the service involves diagnosis, prevention, or treatment of illness by a clinical establishment, it qualifies as healthcare.
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