Hospital Losing DGHS Certificate Cannot Retain Customs Duty Exemption Under Notification: CESTAT [Read Order]

The Hyderabad Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) held that a hospital whose Customs Duty Exemption Certificates were cancelled by the Director General of Health Services cannot retain customs duty exemption under Notification No. 65/88-Cus.

Durgabai Deshmukh Hospital & Research Centre imported medical equipment during 1990 to 1993 without payment of customs duty. The hospital claimed exemption under Notification No. 65/88-Cus. dated 1 March 1988 on the basis of Customs Duty Exemption Certificates issued by DGHS.

The exemption was subject to post-import conditions. The hospital had to provide free treatment to an average of 40% outdoor patients and free treatment to indoor patients from weaker sections. It also had to reserve at least 10% of beds for such patients.

DGHS cancelled the certificates on 2 February 2001 after finding that the hospital failed to comply with the notification conditions. Customs authorities then initiated proceedings for recovery of customs duty, confiscation of imported goods, fine and penalty.

The appellant’s counsel argued that the adjudicating authority relied only on cancellation of the certificates without independently proving violation of conditions. They argued that there was substantial compliance and that the hospital served the public.

The appellant’s counsel further argued that the goods were eligible for alternative exemption under Notification Nos. 65/88-Cus. and 208/81-Cus. They argued that imported components, accessories and spare parts were essential parts of medical equipment.

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The revenue counsel argued that the foundation for exemption ended once DGHS cancelled the certificates. They relied on Mediwell Hospital and Healthcare Pvt. Ltd. v. Union of India and argued that hospitals availing exemption under Notification No. 65/88-Cus. have a continuing obligation to follow its conditions.

The bench comprising A.K. Jyotishi (Technical Member) and Angad Prasad (Judicial Member) observed that the exemption was not unconditional. It was granted to ensure that hospitals importing advanced medical equipment at concessional rates serve economically weaker patients.

The tribunal observed that the appellant failed to rebut the findings of non-compliance with convincing evidence. Once DGHS cancelled the certificates, the hospital lost the essential qualification for exemption.

The tribunal also rejected the alternative exemption claim. It observed that separately imported component parts of Angioscope and multi-channel Cardio Scope Monitors were not covered by the entries relied on by the appellant.

The tribunal upheld the customs duty demand, confiscation under Section 111(o), redemption fine and penalty. The appeal was dismissed.

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