1995 (10) TMI 163 - AT - Customs

Summary

Issues Involved:
1. Eligibility for customs duty exemption under Notification No. 64/88-Cus.
2. Compliance with post-importation conditions.
3. Legality of penalties imposed on the partners of the appellant.
4. Interpretation of the term "hospital" under the notification.

Issue-wise Detailed Analysis:

1. Eligibility for Customs Duty Exemption under Notification No. 64/88-Cus:

The appellant, M/s. Gujarat Imaging & Research Institute (GIRI), imported medical equipment in 1991 and availed of customs duty exemption under Notification No. 64/88-Cus., dated 1-3-1988. The exemption was granted based on a certificate issued by the Directorate General of Health Services (DGHS). However, the Collector of Customs, Sahar Airport, Bombay, alleged that the exemption was obtained through misstatement and suppression of facts, and that the appellant did not meet the requirements stipulated in the notification. The Collector demanded customs duty of Rs. 46,57,556 and imposed penalties on the partners of GIRI.

2. Compliance with Post-importation Conditions:

The notification required the importer to fulfill certain post-importation conditions, including the installation of the equipment and the functioning of the hospital. The DGHS certificate dated 9-2-1990 confirmed the equipment's eligibility for exemption, provided the conditions in Table 4(b) of the notification were met. The appellant argued that they had fulfilled all conditions, including providing free treatment to a significant number of patients. The Tribunal noted that the equipment had been installed and the diagnostic center had started functioning from 28-03-1991. The appellant contended that any shortfall in the number of patients given free treatment could be made up in the subsequent period, as no specific time span was mentioned in the notification.

3. Legality of Penalties Imposed on the Partners of the Appellant:

The adjudicating authority imposed a penalty of Rs. 2 lakhs on each of the three Indian partners of GIRI. The appellant argued that the show cause notice was issued only to one partner, and imposing penalties on all partners without following the principles of natural justice was not sustainable in law. The Tribunal found merit in this contention.

4. Interpretation of the Term "Hospital" under the Notification:

The notification defined "hospital" to include institutions rendering medical, surgical, or diagnostic treatment. The DGHS and the Ministry of Health and Family Welfare clarified that diagnostic centers without indoor patient treatment facilities were eligible for customs duty exemption. The Tribunal referred to its decision in Surlux Diagnostics Ltd. v. Collector of Customs, which held that a diagnostic center qualifies as a hospital under the notification. The Tribunal emphasized that a strict interpretation of the term "hospital" would defeat the purpose of granting exemptions to deserving importers.

Conclusion:

The Tribunal concluded that the appellant's diagnostic center met the definition of a hospital under the notification and had fulfilled the necessary conditions for customs duty exemption. The equipment had been installed, and the center had started functioning. The Tribunal also found that the penalties imposed on the partners were not justified. Consequently, the appeal was accepted, and the impugned order was set aside.