Cord Blood Stem Cell Banking Forms Integral Part of Healthcare Services — Supreme Court Strikes Down ₹2 Crore Service Tax Demand, Orders Refund

“No Suppression, No Fraud, No Tax Liability” — Supreme Court Declares Extended Limitation Invalid, Rules in Favour of Stem Cell Bank on Healthcare Exemption. In a momentous decision Supreme Court of India bringing much-needed clarity to the taxation of preventive healthcare services. The Court emphatically held that the services of umbilical cord blood stem cell banking fall squarely within the definition of “Healthcare Services” under Notification No. 25/2012-ST and are thus exempt from service tax. The ruling quashed the ₹2 crore tax demand, annulled penalties, and directed refund of ₹40 lakh deposited under protest by the appellant company.

The judgment was pronounced by a Bench comprising Justice J.B. Pardiwala and Justice R. Mahadevan, setting aside the orders of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Ahmedabad, and delivering a decisive interpretation of tax exemption for preventive healthcare services.

The case revolved around the period from July 1, 2012, to February 16, 2014, when Stemcyte India provided services involving enrolment, collection, processing, and storage of umbilical cord blood stem cells. The authorities had fastened liability of ₹2.07 crores service tax on the appellant along with interest and hefty penalties by treating these services as taxable. The primary question before the Supreme Court was whether such services were exempt from tax as “Healthcare Services” and whether the extended limitation period invoked by the department was justified.

Tracing the factual background, the Court recorded that the appellant, a joint venture of international and Indian healthcare entities, had obtained all statutory licences under the Drugs and Cosmetics Act and was duly registered as a healthcare service provider. Relying upon an Office Memorandum dated May 22, 2013, issued by the Ministry of Health and Family Welfare, the appellant had consistently claimed exemption from service tax, asserting that stem cell preservation constituted a preventive healthcare service. The Ministry had categorically observed, “services rendered by the Stem Cell Banks are part of healthcare services and hence they may be considered for service tax exemption.”

Rejecting the findings of the lower tribunals, the Supreme Court categorically held that the services provided by the appellant formed an integral part of healthcare. The Court observed, “The services of enrolment, collection, processing, and storage of umbilical cord blood stem cells are preventive in nature with potential therapeutic application in life-threatening diseases. They qualify as healthcare services within the meaning of Notification No. 25/2012-ST.”

On the central issue of limitation, the Court rejected the department’s plea that the appellant had suppressed information to evade tax. The Bench observed, “There is nothing on record to suggest that the appellant suppressed any material facts. The department was aware of the nature of services as early as 2013, yet issued the show cause notice after an inordinate delay in 2017.”

Referring to the settled principles laid down in landmark judgments such as Padmini Products v. CCE and Chemphar Drugs and Liniments v. CCE, the Court reiterated, “Something positive other than mere inaction or failure is required to invoke the extended period of limitation. Mere non-payment of tax, without any deliberate suppression or fraud, cannot justify invocation of the extended period.”

The Court held that the show cause notice was time-barred and thus all consequential demands were rendered invalid. “Accordingly, the show cause notice issued by the department is clearly time-barred. On this ground alone, the impugned order deserves to be set aside,” the Court declared.

The Court further addressed the introduction of Entry 2A in Notification No. 4/2014-ST, which exempted services by cord blood banks from February 17, 2014. Dismissing the Revenue’s contention that the exemption was prospective, the Supreme Court explained, “The insertion of Entry 2A is clarificatory in nature. It illustrates what was always exempted as healthcare service. While it does not apply retrospectively, it affirms that such services were never intended to be taxable under the scheme of the Finance Act.”

Critically, the Court noted that Entry 2 of the 2012 notification employed broad terminology by exempting “any service by way of diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy.” Interpreting this provision, the Court said, “The phrase ‘any service’ provides an expansive coverage. The inclusion of preventive healthcare services, such as stem cell banking, naturally falls within this definition. Narrow interpretation would defeat the beneficial purpose of public health exemptions.”

Rejecting the Tribunal’s restrictive approach, the Court observed, “Healthcare is not confined merely to treatment after the onset of illness but includes preventive, diagnostic, and therapeutic services aimed at improving quality of life and longevity.”

Dealing with the issue of penalties, the Court ruled, “There is no suppression, fraud, or wilful misstatement by the appellant. The appellant acted under a bona fide belief, maintained transparency, and proactively engaged with the department. The imposition of penalties is wholly unjustified and arbitrary.”

The Court concluded its analysis by directing the refund of ₹40 lakh deposited under protest by the appellant during investigation, stating, “The deposit of ₹40,00,000 made by the appellant shall be refunded within a period of four weeks.”

Summing up, the Supreme Court categorically declared, “The services of cord blood stem cell banking form part of healthcare services under the Finance Act. The demand raised beyond limitation is not sustainable, and the penalties imposed are unsustainable in law.”

This judgment significantly bolsters the tax position of healthcare service providers, especially those in the field of advanced medical technology. It upholds the doctrine that beneficial exemptions, particularly in healthcare, must be interpreted in a broad and purposive manner, aligning with public interest and legislative intent.

The case is a definitive affirmation of taxpayers’ rights against arbitrary and time-barred demands, especially in sectors that involve technological and regulatory complexities.

Date of Decision: 14 July 2025