The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Hyderabad, has upheld the recovery of customs duty from a Hospital after finding that it failed to fulfil the free treatment obligations attached to the duty-free import of medical equipment.
The bench of Angad Prasad (Judicial Member) and A.K. Jyotishi (Technical Member) upheld confiscation of the imported goods, redemption fine and penalties. It ruled that cancellation of the hospital’s Customs Duty Exemption Certificates (CDECs) by the Director General of Health Services (DGHS), coupled with the failure to establish compliance with the prescribed conditions, disentitled the hospital to retain the exemption.
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The hospital imported various medical equipment between 1990 and 1993 without paying customs duty, relying on exemption certificates issued by DGHS. The equipment was cleared subject to compliance with the conditions governing the exemption.
These conditions included providing free treatment to an average of 40% of outdoor patients. The hospital was also required to provide free treatment to indoor patients from economically weaker families whose income fell below the prescribed limit and reserve at least 10% of its beds for such patients.
On February 2, 2001, DGHS cancelled the hospital’s exemption certificates on the ground that it had failed to fulfil the mandatory conditions. Customs authorities subsequently initiated proceedings to recover the duty foregone and confiscate the imported goods.
The dispute went through several rounds of adjudication and appellate proceedings. In an earlier round, the tribunal remanded the matter for fresh consideration, including examination of the hospital’s claims under alternative exemption notifications.
Following the remand, the adjudicating authority confirmed the customs duty demand, ordered confiscation with an option to redeem the goods on payment of a fine, and imposed penalties. The hospital challenged that decision before CESTAT.
The hospital argued that the adjudicating authority had relied merely on the cancellation of its exemption certificates without independently establishing a breach of the exemption conditions.
It maintained that it was a reputed institution serving the public and that substantial compliance with the prescribed obligations had been established. According to the hospital, the adverse findings rested on assumptions and incomplete verification.
The hospital also contended that, even if its original exemption claim failed, the imported goods qualified for relief under alternative notifications. It argued that components, accessories and spare parts integral to specified medical equipment should not lose exemption merely because they were imported separately.
The revenue opposed these submissions, arguing that the cancellation of the certificates remained operative and that verification by the competent authorities had established failure to meet the free treatment and bed reservation requirements.
The tribunal held that the exemption was conditional and that the prescribed social obligations formed the foundation of the benefit.
It explained that the purpose of granting customs relief on sophisticated medical equipment was to ensure that hospitals extended medical benefits to economically weaker sections. Compliance with those requirements was therefore essential to continued eligibility.
The bench found that the competent authorities had recorded failures concerning both free treatment of outdoor patients and reservation of beds for poor indoor patients. The hospital had not effectively rebutted those findings with convincing evidence demonstrating compliance.
Relying on the Supreme Court’s decision in Mediwell Hospital and Healthcare Pvt. Ltd. v. Union of India, the tribunal held that hospitals receiving such exemption remain under a continuing obligation to meet the attached conditions. Authorities, in turn, are required to enforce those obligations.
Once DGHS cancelled the certificates for breach of the conditions, the hospital ceased to possess the essential qualification for availing the exemption, the bench concluded.
The tribunal also rejected the claim under Notification No. 65/88-Cus. for a component described as a “Mogalix X-Ray Tube” for an angioscope used in coronary angiography.
The relevant entry specified the angioscope itself. The adjudicating authority had found that the hospital imported a component separately, rather than the equipment listed in the notification.
Agreeing with that reasoning, CESTAT held that exemption could extend only to goods falling within the language of the relevant entry. An item’s role as an essential component or accessory did not, by itself, establish eligibility.
The tribunal referred to Collector of Customs, Madras v. Dasappa Dharmaspatre, which concerned a separately imported television monitor claimed as an accessory to an angioscope. That decision supported restricting the exemption to goods specifically covered by the notification.
The hospital’s claim under Notification No. 208/81-Cus. for multi-channel cardioscope monitors, spares and accessories also failed.
The tribunal observed that the relevant entry expressly excluded cardioscopes and cardiac monitors. It therefore held that the imported goods fell within the exclusion clause.
The bench endorsed the adjudicating authority’s reliance on Micronic Devices v. Commissioner of Customs, Mumbai and Electro Mexicals v. Collector of Customs, Bangalore, which supported denying relief where the notification specifically excluded the goods or components concerned.
CESTAT reiterated that exemption notifications require strict interpretation and that the claimant bears the burden of establishing eligibility.
The tribunal held that failure to satisfy the post-import conditions rendered the goods liable to confiscation under Section 111(o) of the Customs Act, 1962.
It found the recovery of customs duty legally sustainable and declined to interfere with the redemption fine and penalties. Accordingly, it upheld the adjudication order and dismissed the appeal.
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