A) ABSTRACT / HEADNOTE 

The Supreme Court of India allowed the appeals of M/s Stemcyte India Therapeutics Pvt. Ltd., holding that the services of enrolment, collection, processing, testing, cryopreservation, release, and storage of umbilical cord blood stem cells are squarely covered within “healthcare services” for the purpose of Notification No. 25/2012‑ST dated 20.06.2012, and therefore were exempt from service tax during 01.07.2012–16.02.2014. The Court read Entry 2 of the 2012 Notification with its broad definition in clause 2(t) and found these activities to be preventive and potentially curative components of diagnosis, treatment and care delivered by a clinical establishment, a status that the Department itself had recognized through registration. While Notification No. 4/2014‑ST dated 17.02.2014 inserted Entry 2A expressly mentioning cord blood banks, the Court characterized that insertion as clarificatory in nature though prospective in operation, and emphasized that it did not curtail the earlier, wider ambit of Entry 2. The Court further held the Department’s show‑cause notice dated 28.07.2017 to be time‑barred because the extended limitation under Section 73(1) proviso, Finance Act, 1994 requires fraud, collusion, wilful misstatement or suppression with intent to evade, none of which was present on record; instead, the assessee’s conduct reflected bona fide belief, prompt cooperation, and even a deposit of ₹40,00,000 under protest. Consequentially, the demand, interest and penalties were set aside and the deposit directed to be refunded.

Keywords: healthcare services; stem cell banking; cord blood banks; service tax exemption; Finance Act, 1994; Section 73 limitation; clarificatory notification; clinical establishment; Drugs and Cosmetics Rules; refund of deposit.

B) CASE DETAILS

C) INTRODUCTION AND BACKGROUND OF JUDGEMENT 

The dispute arose in the backdrop of the negative list regime inaugurated on 01.07.2012, under which all services were taxable unless included in the negative list or expressly exempted by notification. Notification No. 25/2012‑ST dated 20.06.2012 granted exemption to “healthcare services by a clinical establishment, an authorized medical practitioner or para‑medics”, with clause 2(t) giving the term “healthcare services” a broad, inclusive sweep across diagnosis, treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognised system of medicine in India. The appellant, a clinical establishment engaged since 2008 in collection, processing, testing and storage of umbilical cord blood units and their therapeutic application, operated under Part XII‑D of the Drugs and Cosmetics (3rd Amendment) Rules, 2011 which prescribed detailed conditions for stem cell banks, and later within a framework where stem cell and cell‑based products were classified as “drugs” by the 2018 amendment. The Association of Stem Cell Banks sought clarity; on 22.05.2013, the Ministry of Health and Family Welfare issued an Office Memorandum recommending that services rendered by stem cell banks are part of healthcare services and may be considered for service tax exemption. Despite the appellant obtaining service tax registration in 2013 under the healthcare services category and cooperating with the Department during inquiries, including a search on 06.01.2014 and a deposit of ₹40,00,000 under protest, the Commissioner issued a show‑cause notice dated 28.07.2017 for the period 01.07.2012 to 16.02.2014, culminating in Order‑in‑Original dated 18.05.2018 confirming a demand of ₹2,07,29,576, interest, and penalties under Sections 77 and 78. The CESTAT affirmed. On appeal, the Supreme Court framed the crux as whether these cord‑blood banking services fell within “healthcare services” under the 2012 Notification for the disputed period and, correlatively, whether the extended limitation under Section 73 could be invoked in the absence of fraud or suppression.

D) FACTS OF THE CASE

The appellant is a joint venture of Stemcyte Inc. (USA), Apollo Hospitals Enterprises Ltd., and Cadila Pharmaceuticals Ltd., formed in 2008 and engaged in enrolment of parents, collection of cord blood at birth, processing and testing of the unit, cryogenic storage, clinical matching and release for transplantation, and associated medical coordination. Regulatory architecture was strengthened by GSR 899(E) dated 27.12.2011 introducing Part XII‑D into the Drugs and Cosmetics Rules, mandating registration and laying down standards for collection, testing, processing and release of cord‑blood‑derived stem cells. On 20.06.2012, Notification No. 25/2012‑ST included Entry 2 exempting healthcare services. On representations from the industry, the Ministry of Health & Family Welfare issued an Office Memorandum dated 22.05.2013 clarifying that services of stem cell banks are a part of healthcare services and may be considered for service tax exemption. The appellant obtained service tax registration on 24.10.2013 under the category “healthcare services by clinical establishment, health check‑up/diagnosis, etc.” Departmental scrutiny followed: document call on 02.12.2013, search on 06.01.2014, and further summons/letters, during which the appellant deposited ₹40,00,000 under protest. Meanwhile, Notification No. 4/2014‑ST dated 17.02.2014 inserted Entry 2A to explicitly exempt services provided by cord blood banks by way of preservation of stem cells or any service in relation to such preservation. The Commissioner later issued a show‑cause notice dated 28.07.2017 demanding ₹2,07,29,576 plus interest for 01.07.2012–16.02.2014, proposing penalties under Sections 77(1)(a), 77(1)(d), 77(2) and 78. A refund application dated 26.03.2015 for the ₹40 lakh deposit was rejected on the ground of pending investigation. The Order‑in‑Original dated 18.05.2018 confirmed the demand and penalties; CESTAT’s order dated 02.08.2024 sustained the Commissioner’s view. The Supreme Court, seised of Civil Appeal No(s). 3816‑3817/2025, examined whether the disputed services were healthcare services under Entry 2 during the period and whether extended limitation was lawfully invoked.

E) LEGAL ISSUES RAISED 

In a single paragraph, the following issues were framed and argued as questions. First, whether services of enrolment, collection, processing, testing, cryopreservation, and storage of umbilical cord blood stem cells provided by a clinical establishment fall within “healthcare services” under Entry 2 read with clause 2(t) of Notification No. 25/2012‑ST for 01.07.2012–16.02.2014. Second, whether the insertion of Entry 2A by Notification No. 4/2014‑ST on 17.02.2014 is clarificatory of the pre‑existing exemption and, if so, with what temporal effect for pending disputes. Third, whether the Department could validly invoke the extended period under the proviso to Section 73(1), Finance Act, 1994, absent fraud, collusion, wilful misstatement, suppression of facts, or contravention with intent to evade. Fourth, whether interest and penalties under Sections 75 and 77/78 were sustainable in light of the assessee’s bona fide belief, cooperation, registration, and the Ministry of Health’s 2013 clarification.

F) PETITIONER/ APPELLANT’S ARGUMENTS

The counsels for the appellant submitted, in substance, that Entry 2 of Notification No. 25/2012‑ST deploys the expression “any service”, and clause 2(t) defines “healthcare services” expansively to include services “by way of diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy” in any recognised system, which must be liberally construed in light of the beneficial purpose; reliance was placed on K.P. Mohammed Salim v. CIT and Lucknow Development Authority v. M.K. Gupta to underscore the width of the word “any”. They emphasized that the appellant is a clinical establishment and its activities—collection, testing, processing, matching, cryopreservation and release for transplant—are preventive and curative healthcare, integral to future diagnosis and treatment, often in life‑threatening hematologic conditions; the Department’s attempt to segregate regular illness from grave illness was said to be erroneous. They further argued that the later insertion of Entry 2A by Notification No. 4/2014‑ST was merely clarificatory of what was already covered and could not curtail Entry 2; the 2013 Office Memorandum of the Ministry of Health recommending service‑tax exemption for stem cell banks as part of healthcare services fortified the appellant’s bona fides. On limitation, they submitted that extended period cannot be invoked without positive acts of suppression or intent to evade; the record showed timely compliance, registration, cooperation, and even ₹40 lakh deposit during investigation, negating any element of mens rea; penalties under Section 78 were thus unwarranted and Section 80 protected bona fide conduct.

G) RESPONDENT’S ARGUMENTS

The learned Additional Solicitor General contended that the appellant’s activities do not fit within “healthcare services by clinical establishments” contemplated by Entry 2 read with clause 2(t) of Notification No. 25/2012‑ST, arguing that enrolment, collection, processing and storage of umbilical cord stem cells are not services by way of diagnosis, treatment or care and that the express exemption for cord blood banks came only with Entry 2A on 17.02.2014, making the pre‑2014 period taxable; consequently, service‑tax registration lapses, valuation omissions and non‑payment attracted Sections 77(1)(a), 77(1)(d), 77(2) and 78. The Department stressed mutual trust in self‑assessment and asserted contraventions of Section 68 of the Finance Act, 1994 read with Rule 6 of the Service Tax Rules, 1994. In its view, neither the 2013 Office Memorandum nor regulatory oversight under the Drugs and Cosmetics framework could expand the tax exemption beyond what the 2012 Notification textually covered; Entry 2A was said to be a fresh carve‑out beginning 17.02.2014.

H) RELATED LEGAL PROVISIONS 

This paragraph lists the operative provisions and notifications relevant to the Court’s analysis. One, Section 73(1) and its proviso, Finance Act, 1994 governing limitation, ordinary one year and extended up to five years upon fraud, collusion, wilful misstatement, suppression, or contravention with intent to evade. Two, Section 75, Finance Act, 1994 for interest; Sections 77(1)(a), 77(1)(d), 77(2) for penalties on registration, e‑payment and return lapses; Section 78 for penalty on suppression with intent. Three, Notification No. 25/2012‑ST with Entry 2 and clause 2(t) defining “healthcare services”; Notification No. 4/2014‑ST inserting Entry 2A for cord blood banks. Four, Service Tax Rules, 1994 including Rule 6 on payment. Five, the Drugs and Cosmetics Act and Part XII‑D of the 2011 Third Amendment Rules regulating stem cell banks, and the 2018 Amendment classifying stem cell and cell‑based products as “drugs”. Six, the Office Memorandum dated 22.05.2013 of the Ministry of Health & Family Welfare recommending exemption of stem cell bank services as part of healthcare services.

I) JUDGEMENT

The Court first rejected the Department’s limitation stance. The show‑cause notice dated 28.07.2017 covered 01.07.2012–16.02.2014 and was issued beyond the ordinary period; to rely on the extended period under Section 73(1) proviso, the Department had to establish fraud, collusion, wilful misstatement, suppression of facts or contravention with intent to evade. The record instead disclosed early departmental awareness (02.12.2013 letter), cooperation by the assessee, prompt submissions, and a deposit of ₹40 lakh, with no allegation of active or deliberate evasion; hence, extended limitation was wholly unwarranted and the notice time‑barred. On merits, the Court held that the appellant’s activities squarely fall within “healthcare services” contemplated by Entry 2 of Notification No. 25/2012‑ST, read with the broad language of clause 2(t). It emphasized that these services are preventive in nature with curative potential and constitute integral steps in diagnosis, treatment and care, including processing, testing, cryopreservation and release for transplantation, as well as post‑transplant monitoring and involvement in clinical trials. The Court attached weight to the regulatory recognition under the Drugs and Cosmetics regime and the 2013 Office Memorandum of the Ministry of Health treating stem cell banking as part of healthcare services. While Entry 2A (17.02.2014) is prospective, it is clarificatory of the wider healthcare exemption and does not cut down Entry 2; the contrary view in Life Cell International on the character of the 2014 insertion was overruled in principle. Consequently, demands, interest and penalties failed both on limitation and on merits, and the appellant was entitled to refund of ₹40,00,000 deposited during investigation.

a. RATIO DECIDENDI

The binding principle is twofold. First, healthcare services under Entry 2 read with clause 2(t) of Notification No. 25/2012‑ST are to be construed liberally in line with their beneficial purpose; activities of a clinical establishment that are preventive and curative in character, and that objectively contribute to diagnosis, treatment and care, are within the exemption, even if the service is ex‑ante (such as prospective storage of biological material for potential therapeutic use). The Court grounded this interpretive approach in the ordinary and legal meanings of diagnosis, treatment and care, and the regulatory status of stem cell banking under the Drugs and Cosmetics framework, as well as in the Ministry of Health’s 2013 Office Memorandum that stem cell banking forms part of healthcare services. The Court expressly found that the appellant qualifies as a clinical establishment and that its collection, processing, testing, storage and transplantation support are integral healthcare components, not mere warehousing. Second, on limitation, the Court reaffirmed that mere non‑payment is not enough to invoke the extended period under Section 73(1) proviso; there must be something positive in the nature of fraud, collusion, wilful misstatement, suppression, or contravention with intent to evade, a test drawn from a long line of precedents and applied to the facts showing departmental knowledge, cooperation by the assessee, and absence of mens rea. Accordingly, the SCN was time‑barred and the demand/penalties unsustainable.

b. OBITER DICTA 

The Court clarified, obiter, the temporal operation of Notification No. 4/2014‑ST (Entry 2A). It observed that, unless expressly provided, a notification is prospective; nonetheless, where a later notification illustrates or clarifies the scope of an earlier beneficial exemption, such clarification can be taken into account in pending matters to understand the earlier position, without converting the later notification into a retrospective levy/exemption tool. In articulating this, the Court reconciled two points: it concurred with the Madras High Court in Life Cell International insofar as retrospectivity was denied, but overruled in principle the notion that Entry 2A was not clarificatory; the Supreme Court treated Entry 2A as an illustrative clarification of Entry 2 to the extent it concerned cord blood banks. This nuanced articulation, while not necessary for disposing of limitation (which already defeated the SCN), reinforces that the absence of an earlier express mention of a healthcare modality does not negate its healthcare character when the underlying definition is expansive and the service intrinsically relates to diagnosis/treatment/care. The dicta also underscores institutional comity: the Court noted and reproduced the 2013 Ministry of Health Office Memorandum recommending exemption for stem cell banks as healthcare services, signifying that sectoral regulators’ views on the nature of medical services can be relevant aids in interpreting tax exemptions touching health.

c. GUIDELINES

The judgment yields operative guidance for future cases, articulated here as a unified paragraph. One, when applying Entry 2 and clause 2(t) of Notification No. 25/2012‑ST, authorities must assess the real‑world medical function of the impugned service: if the service meaningfully contributes to diagnosis, treatment or care or to preventive healthcare within a recognised system of medicine, it ordinarily qualifies as healthcare services, even if the therapeutic use is contingent on future clinical needs. Two, the status of the provider as a clinical establishment and sectoral regulation under health statutes (e.g., Drugs and Cosmetics Rules, Part XII‑D) are strong indicators of healthcare character. Three, later notifications expressly mentioning a modality (e.g., Entry 2A for cord blood banks) should be treated as clarificatory illustrations where they logically fit within the earlier definition, though their operation remains prospective for closed assessments; in pending disputes, they may inform interpretation. Four, invocation of the extended limitation under Section 73(1) proviso demands strict proof of fraud/suppression/intent to evade; departmental knowledge, taxpayer cooperation, and bona fide belief militate against extended limitation and penalties under Sections 77/78. Five, beneficial exemptions in the healthcare domain warrant a liberal construction consistent with the public‑health object, avoiding narrow readings that artificially exclude preventive or enabling medical services. Six, administrative clarifications from health authorities, like the 2013 MoHFW O.M., are relevant aids and should be duly considered during adjudication.

J) CONCLUSION & COMMENTS

This decision provides coherent tax‑health interface jurisprudence. On tax, it robustly restates that the extended period is exceptional and penal in character, triggered only by demonstrable culpable conduct; where the record shows openness, registration, cooperation, departmental knowledge, and bona fides, Section 73(1) proviso will not rescue a stale demand. On healthcare exemption, the Court recognizes that modern clinical pathways include upstream services like biological material collection, processing and storage; when these are performed by a regulated clinical establishment and interlock with transplantation/therapy, they are healthcare services under the 2012 exemption. The Court’s treatment of Entry 2A (2014) as clarificatory but prospective balances textual fidelity with purposive coherence: it avoids retroactive expansion while acknowledging that the essential nature of cord‑blood banking already fit the broad healthcare definition. The limited overruling of Life Cell International aligns High Court reasoning with the Supreme Court’s purposive approach and prevents exemption fragmentation by modality. Practically, tax authorities should re‑examine pending disputes involving preventive or enabling medical services through this lens, and industry participants should maintain rigorous regulatory compliance and transparent records to substantiate their clinical role. Finally, the direction to refund ₹40,00,000 underscores that penalties and interest cannot stand where the demand collapses on both limitation and merits.

K) REFERENCES

a. Important Cases Referred

i. K.P. Mohammed Salim v. Commissioner of Income‑tax, [2008] 6 SCR 949 : (2008) 11 SCC 573 
ii. Lucknow Development Authority v. M.K. Gupta, [1993] Supp. 3 SCR 615 : (1994) 1 SCC 243
iii. Padmini Products v. CCE, (1989) 4 SCC 275
iv. CCE v. Chemphar Drugs and Liniments, (1989) 2 SCC 127 
v. Pushpam Pharmaceuticals Co. v. CCE, (1995) Supp. 3 SCC 462 
vi. CCE v. Punjab Laminates (P) Ltd., (2006) 7 SCC 431 
vii. CCE, Bombay‑I & Anr. v. Parle Exports Pvt. Ltd., (1989) 1 SCC 345 
viii. Life Cell International (P) Ltd. v. Union of India, (2016) 6 VST‑OL 50 
ix. M. Satyanarayana Raju Charitable Trust v. UOI, 2017 SCC OnLine Hyd 168 

b. Important Statutes Referred

i. Finance Act, 1994 — Section 73(1) & proviso; Sections 75, 77(1)(a), 77(1)(d), 77(2), 78 (limitation, interest, penalties)
ii. Notification No. 25/2012‑ST (20.06.2012) 
iii. Notification No. 4/2014‑ST (17.02.2014)
iv. Service Tax Rules, 1994 
v. Drugs and Cosmetics (3rd Amendment) Rules, 2011
vi. Drugs and Cosmetics (Amendment) Rules, 2018 
vii. Office Memorandum, MoHFW dated 22.05.2013