Supreme Court Holds Stem Cell Banking Services Are Healthcare Services; Sets Aside Time‑Barred Service‑Tax Demand

A bench of Justices J.B. Pardiwala and R. Mahadevan heard appeals by Stemcyte India Therapeutics challenging a common CESTAT order that upheld demands of service tax, interest and penalties for services relating to enrolment, collection, processing and storage of umbilical cord blood stem cells for the period 01.07.2012 to 16.02.2014. The appeals raised the question whether those activities fell within the exemption for “healthcare services” under Notification No.25/2012‑ST and whether the department could invoke an extended period of limitation.

The Court allowed the appeals, set aside the impugned orders and directed refund of the deposit of Rs.40,00,000/‑. It held that the show cause notice issued in July 2017 was time‑barred because there was no evidence of fraud, collusion, wilful misstatement or suppression of facts with intent to evade tax; and it further held that stem cell banking services fell within the ambit of “healthcare services” for the purposes of Notification No.25/2012‑ST. The Court emphasised settled principles on limitation and invoked authorities to the effect that an extended limitation period could be invoked only where there was a “positive” act to evade tax. The Court, in its reasoning, observed: “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.” The judgment also recorded that “the show cause notice issued by the department is clearly time‑barred.”

Background

Stemcyte India Therapeutics, a joint venture engaged in collection, processing, testing and storage of umbilical cord blood units, obtained service‑tax registration under the category “healthcare services by clinical establishment” and sought exemption under Notification No.25/2012‑ST (the negative‑list regime effective 01.07.2012) which exempted “health care services by a clinical establishment, an authorized medical practitioner or para‑medics.” The Ministry of Health and Family Welfare, after consultation with the National AIDS Control Organization, issued an Office Memorandum dated 22.05.2013 stating that “the services rendered by the Stem Cell Banks are part of healthcare services and hence they may be considered for service tax exemption.”

The department issued queries, conducted a search and later issued a show cause notice on 28.07.2017 demanding Rs.2,07,29,576/‑ with interest and proposed penalties for the disputed period. The Commissioner confirmed the demand and imposed substantial penalties; the CESTAT dismissed the appellant’s appeals. Thereafter the appellant moved this Court.

The Supreme Court examined (i) whether the extended period under Section 73 could be invoked and (ii) whether the appellant’s activities fell within the definition of “health care services” under clause 2(t) of Notification No.25/2012‑ST. On limitation the Court relied on precedents which required active suppression or intent to evade before the extended five‑year period could be applied, found no such positive act and held the show cause notice time‑barred. On classification the Court interpreted the phrase “any service by way of diagnosis or treatment or care” broadly, noted regulatory recognition under the Drugs and Cosmetics rules and accepted the Ministry’s Office Memorandum; it held that the subsequent Notification No.4/2014‑ST inserting Entry 2A (exempting cord blood bank services) operated as a clarification for pending disputes and therefore inured to the appellant’s benefit. The Court set aside the impugned orders, allowed the appeals and directed the refund of Rs.40,00,000/‑ within four weeks, and declined to sustain penalties.

Case Details: Case No.: CIVIL APPEAL NOS. 3816-3817 OF 2025 Case Title: M/s. Stemcyte India Therapeutics Pvt. Ltd. v. Commissioner of Central Excise and Service Tax, Ahmedabad‑III Appearances: For the Petitioner(s): Senior counsel for the appellant (designation/name not specified in the reported judgment) For the Respondent(s): Additional Solicitor General / departmental counsel (designation/name not specified in the reported judgment)