Court Recognizes Stem Cell Banking as Integral to Healthcare, Clarifies Tax Exemption Scope

On Monday, 14 July 2025, the court held that the services of stem cell banking, comprising collection, processing, and preservation of umbilical cord blood, are covered in the purview of “healthcare services” and thus are exempted from service tax. This important ruling was in the case of X Cord Blood Bank Pvt. Ltd. v. Commissioner of Central Excise, wherein the appellant objected to service tax demands made between 01 July 2012 and 17 February 2014.

Facts

In X Cord Blood Bank Pvt. Ltd. v. Commissioner of Central Excise, the appellant had a clinical establishment undertaking the collection and preservation of umbilical cord blood (UCB) stem cells. These stem cells carry the potential of prevention and cure in curing many life threatening illness such as blood cancers and neurological diseases.

Following Notification No. 4/2014-ST of 17 February 2014 specifically exempting services of cord blood banks, the appellant had contended that these services were exempted under Notification No. 25/2012-ST as “healthcare services” and the 2014 notification was clarificatory only of the earlier position. The Department, however, asserted that the exemption was only applicable prospectively from 17 February 2014 and demanded service tax for the prior period. A Show Cause Notice was issued, followed by imposition of tax and penalties.

Arguments

Appellant’s Arguments:

• The appellant argued that stem cell banking was always part of “healthcare services” under Entry 2 of Notification No. 25/2012-ST dated 20.06.2012.

• They asserted that the 2014 amendment (Notification No. 4/2014-ST) was clarificatory, and hence, should retrospectively extend to all outstanding matters.

• They submitted scientific and clinical evidence setting out that their services were not just storage-based but integral to therapeutic uses, encompassing testing, matching, and clinical coordination.

• The appellant further referred to representations made to government authorities and an Office Memorandum dated 22 May 2013 issued by the Ministry of Health & Family Welfare, sustaining their classification as healthcare providers.

Respondent’s Arguments:

• It was argued by the Department that services offered by cord blood banks were specifically exempted only subsequent to 17 February 2014.

• They based their argument on the Madras High Court decision in Life Cell International (P) Ltd. v. Union of India, that had pronounced the 2014 notification was not clarificatory but future-looking.

• They went ahead and argued that the appellant had already paid the service tax before the 2014 notification, inferring acceptance of liability.

Judgment

After hearing both sides, the court held:

1. Nature of Services: The services of the appellant were preventive and curative in nature and clearly fell within the definition of “healthcare services” as per Clause 2(t) of Notification No. 25/2012-ST. Their status as a clinical establishment under Clause 2(j) was not disputed.
2. Clarificatory Scope of 2014 Notification: While agreeing with the Madras High Court that the 2014 notification was not retrospective in strict sense (i.e., cannot reopen already decided cases or refunded taxes paid), the court ruled that it was clarificatory in the case of continuing disputes, as is the case here.
3.  Exemption Eligibility: As the appellant’s services were inherently of a healthcare nature, they were exempted under the 2012 notification itself, and the 2014 notification only clarified the same.
4. Penalty and Limitation: The Show Cause Notice was found to be time-barred. The court also quashed the penalties, stating that the appellant had not suppressed facts and had made earnest attempts to clarify their tax liability. They had even deposited ₹40,00,000 under protest during the inquiry, further indicating good faith.
5. Refund: The deposited amount was ordered to be refunded within four weeks.

Impact and Analysis

This is the first time a tribunal has overruled the principle laid down by the Madras High Court in Life Cell International but only to the extent of its finding on whether the 2014 notification was clarificatory. While the court upheld that retrospectivity cannot be implied without express language, it nuanced the interpretation by stating that pending or sub judice matters can benefit from such clarificatory notifications.

The ruling also highlights the expansive and dynamic meaning of “healthcare services” reaffirming the policy that preventive and diagnostic healthcare is as fundamental a part of healthcare as curative care. It finds strength in the Andhra Pradesh High Court ruling in M. Satyanarayana Raju Charitable Trust v. UOI, where holistic and preventive health care approaches were brought into focus in exemption consideration.

The court has also reaffirmed the legal status of exemption notifications, equating them with statutory provisions and emphasizing liberal interpretation for beneficial provisions, consistent with rulings in CCE v. Parle Exports Pvt. Ltd. and Hindustan Aluminium Corpn. Ltd. v. State of U.P.

Analysis

The court has reaffirmed the principle that beneficial exemption notifications must be interpreted liberally, particularly in sectors involving public welfare such as healthcare. This is in accordance with the dicta established by the doctrine enshrined in CCE v. Parle Exports Pvt. Ltd. (1989) 1 SCC 345, wherein the Supreme Court held that exemption notifications made under statutory powers are a rule of law and are to be interpreted in the spirit of their intent.

In Parle Exports, the court clarified that:

1. Exemption notifications are not merely administrative guidelines – they carry statutory force and must be treated with the same interpretative rigor as the parent legislation.
2. Terms used in notifications must be interpreted in their common commercial and contextual sense, not in hyper-technical or restrictive ways.
3. Where an exemption is granted to advance a beneficial objective, such as promoting health or nutrition, the construction should favour the assessee unless it results in absurdity or contradiction.
4. The context and legislative purpose behind the notification must guide interpretation, not merely the grammatical reading.
5. If the language is reasonably capable of two interpretations, the one that furthers the object of the exemption should prevail.

Building on that jurisprudence, the current court further recognized that healthcare today is not confined to curative functions alone but includes diagnostic, preventive, and even preparatory medical processes. This idea was earlier echoed in M. Satyanarayana Raju Charitable Trust v. Union of India (2017 SCC OnLine Hyd 168), where the Andhra Pradesh High Court explicitly rejected the binary between “treatment after illness” and “prevention before illness.”

The court in Satyanarayana Raju recognized that:

• Indigenous and holistic medical systems often prioritize prevention over cure.
• Excluding such systems from tax exemptions due to narrow definitions would “kill” the ecosystem of public health that focuses on well-being and disease prevention.

In this judgment, the Tribunal applied the same rationale to stem cell banking, noting that:

• Cord blood stem cells are collected at birth for future use , this is preventive and potentially curative.
• The services provided involve rigorous diagnostic testing, compatibility assessments, and clinical infrastructure that align with standard healthcare definitions.
• The absence of specific language in earlier notifications does not negate their healthcare nature ,the scope of “healthcare services” under Notification No. 25/2012-ST was always broad enough to include such services.

Additionally, the court crafted a nuanced distinction between retrospective application and clarificatory intent:

• While accepting the Madras High Court’s view in Life Cell International that the 2014 notification could not operate retrospectively, the Tribunal departed from its reasoning by asserting that clarificatory notifications do apply to pending disputes a principle drawn from WPIL Ltd. v. CCE (2005) 7 SCC 113 where a clarificatory notification was given retrospective effect because it merely explained an existing exemption.

This distinction allows the law to remain consistent while providing relief in genuine cases without reopening settled assessments, a balance between fiscal certainty and equitable interpretation.

In essence, the ruling reiterates and evolves the judicial doctrine that:

“Where an exemption is granted for the advancement of public interest , particularly in healthcare , it must be interpreted in a manner that supports its functional application rather than being restricted by textual silence or bureaucratic gaps.”

This judgment will serve as a significant precedent not only for the stem cell banking industry but also for other emerging medical technologies that may not be expressly named in earlier statutes or notifications but fall squarely within the purpose they were designed to serve.

Coram

• Justice A.K. Narang
• Justice Leena Mehrotra