January 28, 2026 : The Hyderabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that cleaning, sanitation and housekeeping services provided to Government hospitals are exempt from service tax. The Tribunal set aside a service tax demand of ₹3.40 crore along with interest and penalties raised by the department.
The Bench, comprising Judicial Member Angad Prasad and Technical Member A.K. Jyotishi, ruled that such services fall squarely within the scope of public health and sanitation conservancy. These activities are specifically exempted under Notification No. 25/2012-Service Tax dated 20 June 2012, commonly referred to as the Mega Exemption Notification.
The appeals arose from an Order-in-Original passed by the Commissioner of Central Tax, Guntur, which had confirmed service tax demand for the period from 1 July 2012 to 31 March 2016. The assessee, M/s Srinivasa Outsourcing Services Pvt. Ltd., was engaged in providing cleaning, sanitation, housekeeping and manpower supply services to various Government hospitals in Andhra Pradesh, including a Government Mental Care Hospital. The services were rendered either directly to hospitals or through the Andhra Pradesh Health and Medical Housing and Infrastructure Development Corporation.
The department alleged that the services were taxable under Section 65B(51) of the Finance Act, 1994, denied the benefit of exemption under the Mega Exemption Notification, and confirmed a service tax demand of ₹3,40,56,246 along with interest. Penalties were also imposed on the company and its director under Sections 77 and 78 of the Finance Act.
The appellants argued that the services were provided exclusively to Government hospitals run by the State Government and were intrinsically linked to public health and sanitation, which are functions ordinarily entrusted to municipalities. They relied on Entry No. 25(a) of Notification No. 25/2012-ST, which exempts services provided to Government by way of activities relating to public health, sanitation conservancy and solid waste management. It was further contended that the issue involved interpretation of an exemption notification and, therefore, the extended period of limitation could not be invoked.
After examining the contracts, scope of work and statutory provisions, the Tribunal noted that the services included cleaning of hospital buildings and premises, maintenance of toilets, bathrooms, drainage and sewerage systems, and disposal of normal as well as biomedical waste. These activities were held to be integral to sanitation conservancy and public health.
The Tribunal observed that Government hospitals are institutions run by the State Government and that services rendered to such hospitals qualify as services provided “to Government” for the purpose of the exemption notification. It held that the Commissioner had misread and misapplied the Mega Exemption Notification while denying the exemption. The Bench also noted that amendments made to the notification in 2014 further clarified that public health and sanitation activities are independently exempt.
On limitation, the Tribunal held that there was no evidence of fraud, suppression or wilful misstatement. Since the dispute was purely interpretational, the extended period of limitation was not invocable. As the service tax demand itself was unsustainable on merits, the penalties imposed on the company and its director were also set aside.
Accordingly, allowing both appeals, the CESTAT quashed the entire service tax demand, interest and penalties, holding that cleaning and sanitation services provided to Government hospitals are exempt from service tax.
Final Order No. A/30044–30045/2026 dated 27 January 2026 in Service Tax Appeal Nos. 30932 & 30933 of 2018, CESTAT Hyderabad Bench.
