M/S. R.G. Stone Urological ... vs Union Of India & Ors.
2010 Latest Caselaw 4500 Del

        IN THE HIGH COURT OF DELHI AT NEW DELHI

             W.P.(C) 2485 of 2001 & CMs 4301/2001 & 12962/2007

                                        Reserved on: 27th August 2010
                                        Decision on: 24th September 2010

        M/s. R.G. STONE UROLOGICAL RESEARCH
        INSTITUTE                                               ..... Petitioner
                        Through: Mr. Jeevan Prakash with
                        Mr. Jyotinder Kumar, Advocate.

                        versus

        UNION OF INDIA & ORS                        ..... Respondents
                      Through: Ms. Maneesha Dhir, Ms. Geeta Sharma,
                      and Ms. Preeti Dalal, Advocates for R-1 to 3 & 5.
                      Mr. Amiet K. Andley with
                      Mr. Arun K. Sharma, Advocate for R-4/GNCTD.

         CORAM: JUSTICE S. MURALIDHAR

        1. Whether Reporters of local papers may be
             allowed to see the judgment?                          No
        2. To be referred to the Reporter or not?                 Yes
        3. Whether the judgment should be reported in Digest?     Yes

                                 JUDGMENT

24.09.2010

1. The challenge in this writ petition is to an order dated 20th November

2000 passed by the Directorate General of Health Services (`DGHS‟) (MG

Section) withdrawing the Customs Duty Exemption Certificate (`CDEC‟)

issued to the Petitioner for the import of medical equipments and spare parts

in terms of a Notification No. 64/88 dated 1st March 1988 issued by the

Ministry of Finance, Government of India.

Facts

2. The Petitioner, which is a unit of R.G. Stone Enterprises Pvt. Ltd., is a

hospital with indoor patient facilities and total bed strength of 17 beds. On

20th January 1987, the Petitioner‟s predecessor-in-interest, i.e. the Delhi

Urological Institute and Research Centre (DUIRC) was issued an import

licence for importing one Lithostar Universal Urological Workstation for

therapy and diagnostics and one Ultrasound Sonolines. On 19th April 1987,

DUIRC applied for a CDEC for import of two equipments, i.e., one

Lithotriptor and one ultrasound equipment. On 27th June 1988, the DGHS

issued a CDEC in respect of the Lithostar Universal Urological Workstation

in favour of DUIRC. On 3rd January 1989, CDEC was granted to DUIRC for

the spare parts with respect to the above equipments.

3. On 6th/11th July 1989, the DUIRC informed the Joint Secretary (Medical),

Delhi Administration of the fact that it had installed the Lithostar equipment

and enclosed a copy of the installation certificate from the suppliers. The

address of DUIRC was shown as Bansal Nursing Home Complex - 3590,

Sita Ram Bazar, Delhi-110006 and its Centre at F-12, East of Kailash, New

Delhi- 110065. On 7th August 1989, in reply to the above letter the

Directorate of Health Services, Delhi Administration called for an

explanation of the circumstances under which the installation of the

equipment had taken place on a site other than that mentioned in the

undertaking given by DUIRC. In other words, an explanation was sought as

to why the equipment was installed at F-12, East of Kailash, New Delhi

instead of 3590, Sita Ram Bazar, Delhi.

4. On 12th June 1990, the DUIRC replied to the above letter explaining that

on account of the inadequate space and the congested area, it was not

possible to install the equipment at the Sita Ram Bazar address. Moreover,

no ambulance could enter or exit the area. The site at East of Kailash had the

capacity for 40 beds whereas the one at Sita Ram Bazar had only 10-12

beds. Also, it explained that getting the equipments released from the

customs had delayed the commissioning of the project. However, DUIRC

expressed regret for installing the equipment in a site other than the one

approved by the DGHS. It further informed the DGHS that DUIRC was

popularly known as "R.G. Stone Clinic". Meanwhile, on 24th April 1990, yet

another CDEC was issued by the DGHS to DUIRC for further spare parts.

5. On 30th April 1992, the Directorate of Health Services (DHS) of the Delhi

Administration wrote to the DUIRC asking for the quarterly returns.

Pursuant thereto, the DUIRC submitted detailed information in the form of a

report dated 24th July 1992. The details in brief for the period from 1st

January 1992 to 30th June 1992 were set out. As far as the Out-Patient

Department (OPD) patients, the total number was 929, of which 563 were

paid patients and 366 were free patients. Further it was informed that during

this period the DUIRC had treated 383 patients by lithotripsy and of these it

had "given generous concession to 72 financially needy patients." The

DUIRC added that: "We have also treated free 5 patients who were not

having income of more than Rs. 500/- per month. We are also keeping 10%

of our beds for this category of patients." It further pointed out that it had

sent a written communication to the DGHS expressing its desire to treat

more poor free patients as recommended by any government medical

institution. Several press releases and advertisements inviting poor persons

for concessional and free treatment at the institute had already been issued.

6. In response to the above return filed by the DUIRC, the DHS, Delhi

Administration wrote to the DUIRC a letter dated 7th August 1992 stating as

under:

"Sir,

This is in reference to your letter dated 24th July 1992, on the subject of submission of your quarterly reports.

i) Your quarterly statement have been inspected and found in order till dated 30th June 1992.

ii) You are also requested to intimate the Directorate regarding the change in premises from Bazar Sita Ram to F-12, East of Kailash, New Delhi. Vide paras 4 (B) of N.N. 64/88 as to why it was deemed necessary to change the premises.

Yours faithfully,

-Sd-

(Dr. S.C. Mahajan) Medical Superintendent Nursing Homes (II)"

7. The DUIRC, by a separate letter dated 15th September 1992, again

furnished the reasons for the change in the place of installation of the

equipment. According to the Petitioner, nothing was heard in response

thereto. The DUIRC also submitted a Proforma in compliance with

Notification No. 64/88 dated 1st March 1988 in terms of which the CDEC

had been granted. The figures of total number of patients treated in OPD, the

number of patients treated free for the years 1992, 1993 and 1994, and the

details of indoor treatment provided during these three years were given. As

regards indoor patients under the column "No. of admissions given to

patients with less than Rs.500/- pm", the DUIRC indicated „Nil‟. However,

under the column "No. of admissions given to the patient & treated free/with

concession" for years 1992, 1993 and 1994, the figures indicated were 78,

88 and 208 respectively. The number of beds specialty wise was shown to be

seventeen. A note was further added to the Proforma stating that "No patient

with income less than Rs.500/- p.m. has come to our Institute for Indoor

Treatment. However, we have treated with free/concession to personnel of

DWS only."

8. The above report was furnished to the DHS on 15th July 1999. In response

thereto, on 23rd August 1999 the DHS wrote to the DUIRC stating:

"With reference to your statement as per proforma for the calendar years 1992, 1993 & 1994, we confirm that the report has been examined and found in order."

9. On 14th January 2000, the DGHS wrote to the DUIRC asking it to furnish

further information as required under the exemption Notification No. 64/88.

On 24th January 2000, R.G. Stone Urological Research Institute (the

Petitioner herein) inter alia pointed out that the details for the years 1992,

1993 and 1994 had already been submitted to the DHS of the Delhi

Administration and that a certificate had already been received from the

DHS stating that those details were found in order. As regards the details for

the years 1995, 1996, 1997, 1998 and 1999, it was stated that it would be

submitted in due course.

10. Another reminder was sent by the DGHS on 8th March 2000 to the

Petitioner, asking it to furnish the necessary information within ten days. In

reply, on 11th March 2000 the Petitioner informed the DGHS that "A

satisfactory report of period from 1995 onwards could not be inspected by

State Government‟s concerned authority because of their busy schedule. As

soon as, the inspection is over we will complete the formalities." On 15th

November 2000, the Petitioner enclosed the report for the period 1995 to

30th October 2000. A photocopy of the said letter bearing the receipt of

acknowledgement dated 25th November 2000, presumably of the DGHS, has

been enclosed. In the Proforma, details were given up to year 1999 as

regards the OPD patients. The detailed lists of concessions extended for the

entire period with the names of the patients was also enclosed. On 18th

November 2000, the Petitioner wrote to the DGHS stating that report as

regards the period 1995 till 30th October 2000 had already been submitted to

the Director, Lok Nayak Hospital, New Delhi. The postal proof of the above

letter having been dispatched to the Deputy Director, DGHS is also

enclosed.

11. Thereafter on 20th November 2000, the impugned order came to be

passed by the DGHS without referring to the Petitioner‟s letters dated 15th

November 2000 and 18th November 2000. The DGHS observed that since

the Petitioner had failed to furnish any information "to substantiate

continuous discharge of the post import obligations, it has been concluded

that your institution is not eligible to retain the benefits of customs duty

exemption availed under the said notification. Therefore, the CDEC referred

to in annexure are, hereby withdrawn as cancelled."

12. The Petitioner states that in the impugned order dated 20th November

2000, a reference was made to a report prepared by the State Government.

However, copy of the said report was not furnished to the Petitioner. On 25th

November 2000, the Director (Administration), Lok Nayak Hospital asked

the Petitioner to furnish information as regards Columns G & H of point 3 of

the Proforma. On 28th November 2000, the Petitioner wrote to the DGHS

requesting revocation of the impugned order dated 20 th November 2000. On

30th December 2000, the Petitioner furnished the details asked for by the

Director (Administration), Lok Nayak Hospital by the letter dated 25th

November 2000.

13. The Petitioner states that on 3rd January 2001 the Director

(Administration), Lok Nayak Hospital submitted a report to the State Health

Secretary of the GNCTD to the effect that there was nothing adverse against

the Petitioner.

14. Consequent upon the impugned order dated 20th November 2000 having

been marked by the DGHS to the Commissioner of Customs, the Petitioner

received a notice dated 7th March 2001 from the latter and proceedings

commenced under the Customs Act, 1962 as well.

15. In the above background, the Petitioner filed the present petition on 18th

April 2001 challenging the order dated 20th November 2000.

16. On 18th January 2002, this Court directed that till the next date no final

order will be passed pursuant to the impugned order by the Respondents.

That interim order was continued till 29th January 2004 when it was

modified to the extent that "the final order, if any, passed by the respondent

authorities shall not be given effect to till the next date."

17. The Petitioner was permitted to amend the writ petition by an order

dated 18th January 2005 whereby the Petitioner was allowed to incorporate

certain facts arising as a consequence of the impugned order.

The amended writ petition

18. To complete this narration, it may be mentioned that by the amendment

the Petitioner brought on record the following facts:

(i) The original import licence was in the name of DUIRC. An

amendment was applied for to incorporate the words ("a unit of

R.G. Stone Enterprises Pvt. Ltd.") under the name of the said

Centre in the import licence.

(ii) All correspondence between the DUIRC and the Petitioner and

the DGHS and the DHS was only at the East of Kailash address

and that both authorities were aware of the installation of the

equipment at that address.

(iii) On 6th/11th July 1989 the DUIRC informed the Joint Secretary

(Medical) Delhi Administration that its Centre had started

functioning and that an installation certificate in terms of Para 4(b)

of the Notification No. 64/88 should be issued to it. The letter head

on which the above letter was typed out indicated that the

Petitioner‟s unit was located at East of Kailash.

(iv) The DUIRC and later the Petitioner continued to provide free

concessional treatment to poor patients between 1992 and 1999. It

also organised free camps at several places outside Delhi.

(v) The impugned order of 20th November 2000 was issued by the

DHS despite being aware of the fact that the investigations by the

Delhi Government were in progress and that the details were to be

submitted after the conclusion of such investigations. The reasons

given in the impugned order were also assailed.

19. In the amended writ petition, additional grounds of challenge were also

raised. The Petitioner, on 26th August 2002, filed a photocopy of the

inspection report dated 3rd January 2001 of the Director (Administration),

Lok Nayak Hospital.

Reply of the Respondents

20. A counter affidavit was filed to the amended writ petition by

Respondents 1 to 3. While it was not denied that the State Government had

given a report dated 3rd January 2001, it was stated that such report was

received belatedly "i.e. much after the impugned order, which included the

information for the years 1995 to 1999." It was pointed out that the said

inspection report "has also not stated that the institution is giving entire

services free in OPD and has not treated any indoor patient with income less

than `500/- per month, free of cost." The Respondents maintained that

despite repeated reminders by the DGHS, no reply had been received from

the Petitioner.

21. A reference was made by the Respondents 1 to 3 to Writ Petition (Civil)

No. 409 of 1996 (PUCL v. Union of India) filed in this Court as a public

interest litigation seeking the quashing of suspected illegal CDECs issued by

the DGHS. This Court constituted a one man committee of Mr. S.D. Mohile,

Member (CBEC) for taking action for recovery of customs duty and for

initiating other proceedings under the Customs Act, 1962 against the

defaulting parties. Another committee called the Rosha Committee under the

Chairmanship of Shri Padam Rosha, comprising of senior officers drawn

from the Revenue Intelligence, Central Excise, DGHS and CBI was

constituted under the orders of this Court. It was stated that the Rosha

Committee was also examining the Petitioner‟s case.

22. A reference was also made in the reply to the judgment of the Supreme

Court in Mediwell Hospital & Health Care (P) Ltd. v. Union of India AIR

1997 SC 1623 (hereafter `the Mediwell Hospital case‟) in which it is held

that the Notification No. 64/88 granting exemption should be construed as

casting a continuing obligation on the part of all those who had obtained

certificate from the appropriate authority. It was held that the objective of

giving free treatment to at least 40 per cent of the outdoor patients as well as

free treatment to all the indoor patients belonging to families with an income

of less than ` 500/- per month must be achieved at all costs and if the said

obligation was not discharged, then steps could be taken for realisation of

the customs duty from such of those entities who had availed the CDECs.

23. The Respondents state that the case of the Petitioner was considered at

the CDEC meeting held on 7th September 2000 and despite opportunities

given to the Petitioner, it had failed to give information for the period from

1995 onwards. As regards the report of the GNCTD, it is stated that the

information provided by the Petitioner had not been verified and cross-

checked with the registers. It was stated that MG Section of the DGHS had

not received the Petitioner‟s letters dated 11th March 2000, 15th November

2000 and 18th November 2000. Although it is not denied that the report of

the Delhi Government of 3rd January 2001 was received by the DGHS only

on 15th January 2001, it was not in dispute that no patient with the income of

less than ` 500/- per month came to the Petitioner for indoor treatment. It

was submitted that the voluminous documents submitted and the various

concessions given to patients was not information sought for "in terms of the

notification requirement."

Submissions of Counsel

24. Apart from reiterating the facts narrated hereinbefore, Mr. Jeevan

Prakash learned counsel appearing for the Petitioner referred to the fact that

by a Notification No. 98/94 dated 1st March 1994, the Notification no. 64/88

dated 1st Mach 1988 had been rescinded. He, therefore, submitted that in any

event after 1st March 1994 there was no obligation on the Petitioner to

continue to comply with the obligation under Notification No. 64/88.He

referred to the decision of the Supreme Court in Faridabad CT Scan Centre

v. D.G. Health Services (1997) 7 SCC 752 which overruled a certain

operative portion of the decision in the Mediwell Hospital. He also referred

to the decision in Sri Sathya Sai Institute High Medical Sciences v. Union

of India 2003 (158) ELT 675 (SC), which overruled certain other operative

portions of the decision in Mediwell Hospital case. He also placed reliance

upon the judgments of the different High Courts in Apollo Hospitals

Enterprises Ltd. v. Union of India 2001 (133) ELT 58 (Mad); J.J.M.

Medical College v. Director General of Health Services 2006 (193) ELT

401 (Kar); Core Healthcare Ltd. v. Union of India 2006 (198) ELT 21

(Guj) and Dr. Balabhai Nanavati Hospital & Nanavati Hospital Medical

Research Centre v. Union of India 2009 (233) ELT 442 (Bom.). In order

to buttress the submission that the decision in the Mediwell Hospital case no

longer holds good, learned counsel for the Petitioner relied upon the

decisions in State of Haryana v. Ranbir (2006) 5 SCC 167 and Divisional

Controller, KSRTC v. Mahadeva Shetty (2003) 7 SCC 197.

25. Appearing for the Respondents Ms. Preeti Dalal, learned Advocate

referred to the decisions in Bharath Diagnostic Centre v. Commissioner of

Customs, Air Cargo (I & G), New Delhi 2007 (207) ELT 113 (Tri. - Bang.)

and the Division Bench of the Bombay High Court in Shah Diagnostic

Institute Private Ltd. v. Union of India 2008 (222) ELT 12 (Bom). It was

submitted that once a CDEC had been obtained, the obligation thereunder

had to be continuously met notwithstanding the fact that the notification

stood withdrawn in 1994. In the instant case, as far as the DGHS is

concerned, it had no information from the Petitioner that it had complied

with its obligations for the years 1995 to 1999 and, therefore, it was justified

in withdrawing the CDEC.

Scope of Notification No. 64/88: Applicability of Para 2 to the Petitioner

26. The first issue to be considered is about the scope of the Notification No.

64/88 issued under the Customs Act, 1962. The Table appended to the

notification sets out the conditions subject to which the CDEC is granted to

hospitals. Para 2(a) of the Table requires a hospital certified by the Ministry

of Health and Family Welfare, Government of India to comply with the

following requirements of free treatment:

"(a) free, on an average, to at least 40 per cent of all their outdoor patients; and

(b) free to all indoor patients belonging to families with an income of less than rupees five hundred per month, and keeping for this purpose at least 10 per cent of all the hospital beds reserved for such patients; and

(c) at reasonable charges, either on the basis of the income of the patients concerned or otherwise, to patients other than those specified in clauses (a) and (b)."

27. Para 4 of the Table to the said notification, which is relevant for the

present purposes, reads as under:

"4. Any such hospital which is in the process of being established and in respect of which the said Ministry of Health and Family Welfare is of opinion-

(i) that there is an appropriate programme for establishment of the hospital,

(ii) that there are sufficient funds and other resources required for such establishment of the hospital,

(iii) that such hospital would be in a position to start functioning within a period of two years, and

(iv) that such hospital, when it starts functioning would be relatable to a hospital specified in paragraph 1, 2 or 3 of this Table.

and the said Ministry of Health and Family Welfare certifies to that effect:

Provided that-

(a) in the case of a hospital relatable to paragraph 3 of this Table, the importer produces evidence to the Assistant Collector of Customs at the time of clearance of the said hospital equipment that the same is being imported in accordance with the conditions specified in proviso to that paragraph:

(b) the importer shall give an undertaking in writing to the Assistant Collector at the time of clearance of the said hospital equipment that the importer shall furnish certificates from the said Ministry of Health and Family Welfare or from the Directorate General of Health Services, Government of India, within such period as the Assistant Collector of Customs may specify in this behalf or within such extended period as the Assistant Collector of Customs, on sufficient cause being shown, may allow in each case, to the effect-

(i) that such hospital equipment has been installed in the hospital; and

(ii) that such hospital has started functioning;

(c) the importer shall furnish, at the appropriate time, the certificates referred to in (b);

(d) the importer executes a bond in such form and for such sum as may be specified by the Assistant Collector of Customs binding himself to pay, on demand, an amount equal to the duty leviable on the said hospital equipment--

(i) if such hospital starts functioning within the period specified therefor, as is not proved to the satisfaction of the Assistant Collector of Customs to have been installed in such hospital, or

(ii) if such hospital does not start functioning within the period specified therefor.

Explanation.--For the purposes of this notification, the expression "Hospital" includes any Institution, Centre, Trust, Society, Association, Laboratory, Clinic and Maternity Home which renders medical, surgical or diagnostic treatment."

28. Although it is sought to be contended by the learned counsel for the

Petitioner that the requirement under Para 2 was applicable only to the

existing hospitals, this court is unable to accept the said submission. Para 4

relates to hospitals which are in the process of being established. This clause

certainly applies to the Petitioner since at the time it obtained the CDEC, it

was in the process of being established. Nevertheless under Para 4(iv), such

hospitals which start functioning "would be relatable to a hospital specified

in paragraph 1, 2 or 3 of this Table." Therefore, once the Petitioner Hospital

commenced its functioning, it had to comply with the requirement of Para 2.

No objection by Respondents to explanation given by Petitioner for shifting the site of installation of equipment

29. An analysis of the above narrative reveals that the Petitioner, on its part,

had given a satisfactory explanation why it had to shift the place of

installation of the equipment from Sita Ram Bazar to East of Kailash. There

is no denial by the Respondents that it gave such an explanation. There is

also no denial of the fact that at no point in time was the Petitioner informed

that its explanation was unacceptable. Therefore, any objection raised about

the Petitioner having shifted the place of installation without seeking prior

permission is not a tenable one. At no point in time, till the passing of the

impugned order dated 20th November 2000, was the Petitioner informed

either by the DHS or the DGHS that its explanation was unacceptable.

Compliance with Notification No. 64/88

30. The crucial aspect of the matter is about the compliance by the Petitioner

with the conditionalities in Para 2 of the Table to the Notification No. 64/88.

The submission here is two- fold. One is that the Custom Notification was

valid only till 1994, after which there was no requirement of complying with

the said Notification. It is further submitted that till 1994, the Petitioner‟s

statistics of providing free treatment for the years 1992, 1993 and 1994 were

furnished to the DGHS as well as the DHS and found by the latter to be in

order. It is accordingly submitted that the requirement of Para 2 of the Table

to the Notification No. 64/88 was satisfied.

Analysis of Mediwell Hospital and the later Supreme Court decisions

31. This brings us to the decisions of the Supreme Court, beginning with the

Mediwell Hospital case, on whether the obligation under Notification No.

64/88 continues indefinitely and, in any event, even after the repeal of the

said notification.

32. The facts in the Mediwell Hospital case, a judgment delivered by a

Bench of two learned Judges of the Supreme Court, were that the Mediwell

Hospital & Health Care Pvt. Ltd established a Modern Heart Institute and

Research Centre. It obtained a CDEC from the DGHS in respect of certain

sophisticated hospital equipments. When it applied for amendment in the

CDEC on the ground that it was granted the CDEC for equipments other

than what was imported by it, the DGHS refused to grant CDEC for

Marquette Case 15 (the equipment imported in that case). In the meanwhile,

the equipment was imported and was allowed to be cleared by the Customs

Authority upon the Mediwell furnishing a bank guarantee. The High Court

of Punjab and Haryana held that Mediwell was merely running a Diagnostic

Centre and not a hospital and, therefore, was not covered by the Notification

No. 64/88. In allowing Mediwell‟s appeal, the three issues were addressed

by the Supreme Court as is apparent from para 7 of the judgment ([email protected] p.

762):

"7. In view of the rival submission the questions which arose for our consideration are:

1. Whether a diagnostic centre is entitled to seek for issuance of a certificate to enable it to import equipments without payment of customs duty?

2. Whether in the facts and circumstances of the present case, more particularly in the absence of any denial of the allegations made by the appellant it is possible for the Court to come to the conclusion that there has been a discriminatory treatment between appellant and persons similarly situated, and if so, whether there is any nexus for the same.

3. Whether the appellant had complied with all the pre-

conditions stipulated in the exemption notification for being entitled to the issuance of a certificate by the Respondent No. 2 for import of the equipment in question without payment of customs duty."

33. What is relevant, as far as the present case is concerned, is the answer to

Question No. 3. The Supreme Court observed that while Mediwell was

entitled to get the CDEC from the DGHS, "the very notification granting

exemption must be construed to cast continuing obligation on the part of all

those who have obtained the certificate from the appropriate authority and

on the basis of that have imported equipments without payment of customs

duty to give free treatment at least to 40 per cent of the outdoor patients as

well as give free treatment to all the indoor patients belonging to the families

with an income of less than Rs. 500 per month." The Supreme Court

required the competent authority to "continue to be vigilant and check

whether the undertakings given by the applicants are being duly complied

with after getting the benefit of the exemption notification and importing the

equipment without payment of customs duty." It was consequently held that

if upon enquiry the authority was satisfied that the said obligation was not

being carried out "then it would be fully open to the authority to ask the

persons who have availed of the benefit of exemption to pay the duty

payable in respect of the equipments which have been imported without

payment of customs duty." All the above observations were made in para 13

of the judgment ([email protected] p.766). In para 14, a direction was given that all the

persons, including Mediwell, who had the benefit of the CDECs "should

notify in the local newspaper every month the total number of patients they

have treated and whether 40% of them are the indigent persons below

stipulated income of ` 500/- per month full particulars and address thereof

which would ensure that the condition to treat 40% of the patients free of

cost would continuously be fulfilled." In the event of default, it was directed

that coercive official action should be undertaken, and that the above

condition should become part of the CDEC itself. Subject to the fulfillment

of the above conditions, as set out in paras 13 and 14 of the judgment

([email protected] p.766-767), the judgment of the High Court was set aside and the

DGHS was directed to reconsider the case of Mediwell and issue the

necessary CDECs within a period of three months.

34. Thereafter, the writ petition filed by the PUCL in this Court was heard

and a detailed order was passed on 2nd May 2003 by a Division Bench of this

Court. After examining the report of the Member (Customs), Central Board

of Excise and Customs („CBEC‟) it was noted that so far as the DGHS was

concerned, "396 cases were examined. In respect of 386

institutions/hospitals CDEC has either been withdrawn or cancelled."

35. In the meanwhile, within nine months of the decision in Mediwell

Hospital case, the issue was again examined by a three Judge Bench of the

Supreme Court in Faridabad CT. Scan Centre v. D.G. Health Services. The

Petitioner was aggrieved by the denial of the CDEC and cited the cases of

certain others similarly placed who had been granted such CDECs. Reliance

was placed on the observations made in para 10 of the Mediwell Hospital

case that a diagnostic centre run by a private individual purely on

commercial basis may not be entitled to exemption under the notification

issued by the Central Government. It was noticed in Faridabad CT. Scan

Centre that despite the above observations made in the Mediwell Hospital

case, Mediwell had been granted on the ground that several other individual

diagnostic centres not attached to any hospital had been granted the

exemption and that denial of such CDEC to Mediwell would be violative of

Article 14 of the Constitution. The three-Judge Bench disagreed with the

above view expressed in the Mediwell Hospital case. It explained that the

principle of equality under Article 14 did not apply when the order relied

upon was unsustainable in law and illegal. It was held that "the decision in

Mediwell Hospital does not lay down the correct law on this point."

(emphasis supplied)

36. It is clear from the decision in Faridabad CT. Scan Centre that only

insofar as the two-Judge Bench in the Mediwell Hospital case held that even

a diagnostic centre not attached to any hospital could be granted the CDEC,

such decision was held to be no longer good law. By no means can this be

construed as an overruling by the larger bench in Faridabad CT. Scan

Centre of the entire decision of the smaller bench in the Mediwell Hospital

case.

37. Again, another three-Judge Bench of the Supreme Court had occasion to

deal with the other part of the Mediwell Hospital case in Sri Sathya Sai

Institute High. Medical Sciences v. Union of India. As noted in the

decision itself, the petition came to be placed before the larger Bench in

view of the directions in Mediwell Hospital that in order to avail benefit of

the exemption under Notification No. 64/88, the applicant had to issue an

advertisement on a monthly basis in a local newspaper that the total number

of indigent patients treated free was at least 40% with full particulars and

addresses of each of such indigent patient. The three Judge Bench in Sri

Sathya Sai Institute observed that it was the prerogative of the Government

to grant exemption and, therefore, it was for them to impose appropriate

conditions. It was not open to the Court to impose such conditions.

Consequently, it was held that "directions issued in Para 14 of the

Mediwell's case shall stand overruled."

38. The resultant position is that after the judgment in Sri Sathya Sai

Institute High. Medical Sciences v. Union of India, the directions in para

14 of the decision in the Mediwell Hospital case, which imposed a condition

of the holder of a CDEC having to issue advertisement in newspapers

regarding the provision of free treatment, were held to be no longer good

law.

39. Consequently, only the directions contained in para 13 of the Mediwell

Hospital case that declared that the obligation under Notification No. 64/88

was a continuing one, which was required to be monitored by the authorities,

survived.

Effect of repeal of Notification No. 64/88

40. What is significant is that none of the above three judgments noticed an

important fact that the Notification no. 64/88 stood withdrawn with effect

from 1st March 1994 itself. Consequently, there was no occasion for the

Supreme Court to consider whether the obligation to fulfill the conditions

attached to the said Notification continued even beyond that date. That

question arose before the Madras High Court in Apollo Hospitals

Enterprises Ltd. v. Union of India. In that case, the Petitioner had imported

certain life saving medical equipments for installation in its hospital and

obtained a CDEC under the Notification No. 64/88. The Petitioner‟s

application was rejected on the ground that the DGHS had relied upon a

certain report, a copy of which had not been given to the Petitioner.

Secondly, the DGHS had failed to consider whether non-compliance of the

requirement of Clause 2 of the Notification No. 64/88 was wilful. It had also

not considered whether the compliance was required to be made only till

such time the Notification No. 64/88 survived.

41. The learned Single Judge of the Madras High Court in Apollo Hospitals

held that the requirement of complying with the condition under Clause 2 of

the table to the Notification No. 64/88 would continue till such time the said

notification was operational. It was further held that such liability cannot be

enforced after the repeal of the notification. It was held in para 43 (ELT @

p. 75):

"43. Having derived such exemption whether it is open to the petitioners to contend that after the rescinding of Notification No. 64/88, it is not open to the authorities to enforce the liability. The answer is simple, in view of the judgments of the Supreme Court referred to above. The petitioners those who benefited the tax exemption are bound to discharge the liability during the period when the said Notification 64/88 was in force. Hence it is always open to the authorities to enforce such obligation only during that period when the Notification No. 64/88 was in force and not for the subsequent period. So it is for the authorities to establish that the petitioners had violated the conditions imposed under Notification No. 64/88 subsequent to their availing the benefit of the exemption of Duty and before the end of February, 1994, since Notification 99/94, rescinding the Notification 64/88 came into force on 1-3-94."

42. In Dr. Balabhai Nanavati Hospital & Nanavati Hospital Medical

Research Centre v. Union of India, a Division Bench of the Bombay High

Court explained that an order cancelling the CDEC passed by the DGHS had

to be preceded by a show cause notice. Likewise in J.J.M. Medical College

v. Director General of Health Services, a learned Single Judge of the

Karnataka High Court held that an order cancelling the CDEC without

issuing a show cause notice would be violative of the principles of natural

justice. These principles also weighed with the Supreme Court in Civil

Appeal Nos. 7282-7283 of 2005 (Sir Ganga Ram Trust Society v. Union of

India) in which, by an order dated 24th October 2007, the Supreme Court

had remanded the matter to the DGHS for giving the appellant therein an

opportunity of being heard before withdrawal of the CDECs. In Core

Healthcare Ltd. v. Union of India, a Division Bench of the Gujarat High

Court held that if the departmental authorities failed to establish

jurisdictional facts, no show cause notice could be issued to cancel the

CDEC.

43. The resultant position from the above discussion would be that as far as

the Customs Notification No. 64/88 is concerned, the requirement under

Para 2 of the Table to provide free treatment to at least 40% of all their

outdoor patients and provide free treatment to all indoor patients belonging

to families with an income of less than ` 500/- per month, would be a

continuing obligation but that such obligation would continue till the time

the Notification No. 64/88 continued to exist. Such obligation could not be

enforced even after the repeal of the said notification, i.e., even after 1 st

March 1994.

44. It is in the above background that this Court proceeds to examine the

judgment of the Division Bench of the Bombay High Court in Shah

Diagnostic Institute Private Ltd. v. Union of India. The facts in that case

were that the Petitioner was granted a CDEC on 17 th December 1985 for

import of an MRI machine. The MRI machine was allowed clearance in part

shipments. The show cause notices were issued on 14th December 1992, 5th

June 1993 and 10th November 1993 calling upon the Petitioners therein to

show cause as to why the duty amount of `3,82,47,105/- should not be

levied and recovered and the MRI machine not be confiscated. After

considering the reply of the Petitioners, an order was passed on 28th August

1994 withdrawing the CDEC ordering the recovery of the duty amount

together with the penalty of `10,00,000/-. This was challenged before the

Bombay High Court. The facts in the connected writ petition were that some

spare parts of the MRI machine were sought to be cleared by invoking

Notification No. 64/88.

45. The Bombay High Court negatived the challenge to the reasonableness

of the conditions imposed by Notification No. 64/88. It was held that one of

the essential conditions in Para 2(b) of the said notification was that the

beneficiary of the CDEC must be a hospital, which can provide both free

medical and diagnostic treatment to all indoor patients belonging to the

families with an income of less than ` 500/- per month and at least 10 per

cent of the hospital beds should be reserved for such patients. Since the first

Petitioner did not have the facility of inpatients, it could not have complied

with the said conditions and, therefore, was ineligible for the benefit of

exemption. It was then held that the attempt by the Petitioners therein to

have the machines installed in the premises of the Breach Candy Hospital

and Research Centre and not in their own units was dishonest and

constituted the practice of a fraud on the revenue authorities. Consequently,

it was held that the CDEC was rightly withdrawn. It was further held that the

judgment in Apollo Hospitals Enterprises Ltd. did not help the case of the

Petitioners at all. The contention that the Notification No. 64/88 was

repealed on 1st March 1994 and, therefore, the conditions imposed

thereunder ceased to be effective, was rejected by the Bombay High Court

by referring to Section 159A of the Customs Act, 1962. It was held that the

rescission of the Notification No. 64/88 did not affect the liability acquired,

accrued or incurred by the Petitioners with regard to the fulfillment of Para

2(b) of the said Notification.

46. The above view of the Division Bench of the Bombay High Court in

Shah Diagnostic appears to have been relied upon by a three-member Bench

of the CESTAT in Bharath Diagnostic Centre v. Commissioner of

Customs, Air Cargo (I&G), New Delhi where while discussing the very

same notification, it was held that even if the notification was rescinded,

action could be taken for violation of the conditions under which the benefit

of the said notification had been obtained during the period the said

notification was in force. Referring to paras 42 and 43 of the Madras High

Court ruling in Apollo Hospitals, the CESTAT also held that a careful

reading of the said paras would reveal that the authorities can enforce the

obligations only during the period when the Notification No. 64/88 was in

force and not for the subsequent period.

47. The resultant position on a collective reading of the judgment of the

Bombay High Court in Shah Diagnostic and the order of the CESTAT in

Bharath Diagnostics Centre is that with the repeal of the Customs

Notification No. 64/88 with effect from 1st March 1994, the Petitioner in the

instant case would have to satisfy the Respondents that it duly complied with

the conditionalities in Para 2 of the Table to the Notification during the time

the said Notification was in force. While all the judgments referred

hereinbefore talk of the validity of action taken by the Respondents after the

repeal of the Notification for the non-compliance during the period the said

notification was in force, none of the judgments state that the obligation to

comply with the conditions under Notification No. 64/88 continued after the

said notification was repealed.

Consequences for the Petitioner

48. There are two rival contentions on the scope and enforceability of the

obligations under Notification 64/88. The first, as advocated by the

Petitioner, is that the obligation of the Petitioner to comply with the

Notification No. 64/88 continued up to 1st March 1994, and could be

enforced only till the time the said notification was in force. This, in the

considered view of this Court, is indeed placing a highly restrictive

interpretation of the said exemption notification. In other words, the

obligation under Notification No. 64/88 could be enforced even after the

repeal of such notification. The issue really is about the extent of the

obligation under Notification 64/88.

49. The contention advanced by the Respondents is that in terms of the

decision in the Mediwell Hospital case, the obligation under the Notification

No. 64/88 continued indefinitely, i.e. even beyond the date of repeal of the

Notification No. 64/88. The contention is that the DGHS would, in such

event, be empowered to enforce the obligation of the Petitioner under

Notification No. 64/88, which continued indefinitely, even after the said

notification ceased to exist.

50. In the considered view of the Court, there is no scope indeed for

accepting the contention as put forth by the Respondents. None of the

decisions of the Supreme Court discussed hereinbefore or of the Division

Bench of the Bombay High Court or the order of the CESTAT held the

obligation under the Notification No. 64/88 to continue indefinitely i.e. even

beyond the date on which such notification stood repealed and further such

obligation was also enforceable beyond the date of repeal. In those cases,

what was sought to be enforced was an obligation arising during the period

when the said notification was in force.

51. Consequently, as far as the present case is concerned, by its impugned

action initiated pursuant to the Notification No. 64/88, DGHS at best could

seek enforcement of the Petitioner‟s obligation under Notification No. 64/88

up to 1st March 1994 and not beyond that date.

52. Factually, however, not only have the Petitioner‟s returns filed up to 1st

March 1994 been accepted by the DHS, but also no action was taken by the

DGHS till 2000. Further the Petitioner continued with its obligations under

Notification No. 64/88 and furnished to the DGHS the figures of compliance

even up to 31st October 2000.

53. Without going into the factual controversy whether such details were in

fact received by the DGHS, the fact remains that as far as the Delhi

Government was concerned, its special inspection report of 3rd January 2001

clearly indicated that the Petitioner had complied with the conditions of

Notification No. 64/88 even as on that date. As far as the Petitioner is

concerned, it was entitled to presume that with no objection having been

raised to the figures submitted by it up to 1st March 1994 it had complied

with the requirements of Notification No. 64/88. The action taken by the

DGHS by way of the impugned order in seeking to withdraw the CDEC for

non-compliance of the conditionalities attached to the Notification No. 64/88

was, therefore, unsustainable in law.

54. As regards the obligations for the period subsequent to 1st March 1994,

as already held by this Court, there is no such obligation arising from the

Notification No. 64/88 after the date of its repeal. Even otherwise, the

Petitioner is entitled to take benefit of the certificate given to it by the Delhi

Government on 3rd January 2001 that it continued to fulfill its obligations

under the Notification No. 64/88 even up to 31st October 2000.Nothing has

been shown to this court to discard the earlier approval by the DHS of the

Delhi government of the returns filed by the Petitioner of its compliance of

the Notification No.64/88 up to 1st March 1994. In any event up to the time

of the impugned order in November 2000, the correctness or the adequacy of

the data furnished by the Petitioner was never questioned. Again as regards

the Petitioner‟s performance of its obligations under Notification No.64/88,

up to 31st October 2000, i.e. beyond the date of its repeal, there is no reason

shown why the report dated 3rd January 2001 of the Director

(Administration), Lok Nayak Hospital of the GNCTD should not be

accepted.

Conclusion

55. For the aforementioned reasons, this Court holds that the impugned order

dated 20th November 2000 passed by the DGHS withdrawing the CDEC

granted to the Petitioner is unsustainable in law and accordingly sets it aside.

The writ petition is allowed with costs of `5,000/-, which will be paid by the

Respondents to the Petitioner within a period of four weeks.

S. MURALIDHAR, J.

SEPTEMBER 24, 2010 akg