ORDER
Gowri Shankar, Member (T)
1. D.S. Kothari Hospital, Mumbai, imported two consignments of medical equipment, consisting of gastro fibrescope with accessories and fibre optic endoscope with accessories in 1991 and August, 1993. The hospital claimed and was granted benefit of Notification 64/88. The notification exempts medical equipment from payment of duty subject to conditions prescribed therein. Consequent upon reports of vide spread misuse of the notification, a committee referred to as the Rosha Committee was appointed on the orders of the Supreme Court to enquire into various aspects of the matter. The Committee by its letter dated 7.4.1998 requested the Commissioner of Customs to institute an enquiry regarding fulfilment by the appellant the conditions subject to which the exemption was granted to it. Enquiries were taken up by the Commissioner of Customs, Air Cargo Complex, through which the goods are imported. In the course of enquiry the hospital submitted a statement of patients treated by it for the period 1991 to 1998. This showed that one of the conditions prescribed in the notification, that 40% of the outdoor patients should be given free treatment, had not been compiled with. The department thereupon made further enquiries. Kishore Pandya, Chief Accountant of the hospital accepted in his statement that the condition was not compiled with for the years 1991-92 onwards till 1997-98 except for the year 1994-95 and stated that the hospital was ready to pay the duty on account of its failure. S.M. Masurekar, Administrator of the hospital, also accepted this failure and expressed readiness to pay duty.
2. Notice was issued to the hospital and Masurekar proposing confiscation of the medical equipment under Clause (o) of Section 111 of the Act and penalty under Sections 112 and 114A on the hospital and on Masurekar. After hearing the parties and considering the cause shown the Commissioner ordered confiscation of the equipment with an option to redeem them on payment of fine of Rs. 9.20 lakhs and imposed penalty of Rs. 14.77 lakhs approximately on the hospital and Rs. 1 lakh on Masurekar. Hence these appeals.
3. When the appeal was called for hearing the matter was passed over at the request of Ms. Falguni Thacker, advocate, on behalf of Mr. Shyam Diwan, who was not present. After all other matters in the cause list was disposed of it was called once again. Ms. Thacker asked the bench to wait for some time as Mr. Shyam Diwan has yet not come. The bench pointed out that this was the last matter on the board and invited Ms. Thacker to at least begin the argument. She declined to do so. Thereafter, the bench considered the submissions made in the appeal and heard the departmental and reserved the matter for orders. A little after that Mr. Shyam Diwan, advocate met one of the members of the bench, regretted his inability for being present in the Court and requested that submissions contained in the synopsis which he had handed over and the decision of the Tribunal be taken into account. These submissions and the decisions have been considered.
4. The contention in the appeal of the hospital is that the imports were made in pursuance of a certificate issued by the Directorate of Health Services of the Government of Maharashtra dated 19.5.1992 and 14.5.1993 and it was on the basis of these certificates that the exemption was granted. Once the exemption had been granted it cannot be denied subsequently. In other words the Customs authorities cannot sit in appeal or judgment over a decision of the competent authority to issue the exemption certificates. A related contention is that Clause (4) of the table to the notification will not apply, that clause refers to hospital which are in the process of being established, and therefore not a hospital which is already set up. Clause (2) and (4) are mutually exclusive and the condition in one cannot be applied to override the condition of the other. Therefore the Commissioner’s finding that the failure to comply with the conditions under Clause (2) rendering the goods liable to confiscation is untenable. There has been substantial compliance with condition (2) of notification and therefore there has been no violation of law. The decisions of the Tribunal in Roshan Oil Mills v. Collector 1998 (99) ELT230; Bajaj Auto Limited v. Collector 1998 (99) ELT 246 and Vadilal Industries Limited v. Collector are relied upon. It is also contended that for the conditions of the notification have been displayed by means of a notice on the board that the hospital would provide free treatment to patients. It is contended that the judgment of the Supreme Court in Mediwell Health Care Pvt. Ltd. v. Union of India would not apply to the facts of the case.
5. The conditions in the table to the notification, material for consideration in this appeal, contained in paragraphs 2 and 4 of it, are reproduced below:
2. All such hospital which may be certified by the said Ministry of Health and Family Welfare in each case to be run for providing medical, surgical or diagnostic treatment not only without any distinction of caste, creed, race, religion or language but also–
(a) free, on an average, to at least 40% per cent of all their outdoor patients ; and….
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 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.
6. An analysis of these paragraphs shows that paragraph 2 of the table relates to hospitals which were existing when the certificate is issued by the Ministry of Health and Family Welfare in each case. Paragraph 4 refers to hospital which are being established. In respect of such a hospital if the Ministry of Health and Family Welfare certifies that there is a proper programme for its establishment for which there are sufficient funds and other resources requires, for the establishment, and such hospital would be in a position to start functioning within a period of two years, and such hospital when it starts functioning would be relatable to a hospital specified in paragraph 1, 2, 3 to the table, the hospital qualifies for the exemption. Now the Clause (4) of the paragraph is significant; it provides that certification by the Ministry that when that hospital starts functioning, would be relatable to a hospital specified in paragraph 1, 2 or 3 of the notification. These are hospitals that would be, respectively be run or substantially aided by such charitable organisations as may be approved by the Ministry, or hospitals providing for free treatment for prescribed number of persons and a hospital, run on non-profit basis. These are being exempted from payment of duty, having regard to the type of treatment available or the geographical situation thereof, or the class of patients to whom treatment is provided. Now, therefore any such hospital which is being set up would be entitled to the exemption provided, if after being set up it is relatable to any one of these three kinds of hospitals. Therefore such a hospital must continue to fulfil the requirement contained in paragraphs 1 to 3 of the table. In other words the obligations cast upon in these three paragraphs has to be fulfilled by the hospital on the date on which the exemption is issued. That obligation is a continuing one. A hospital which, when it was certified to be run or substantially aided by an approved charitable organisation ceased to do so after the certification would not be entitled to the benefit of notification. That is what the Supreme Court has clearly and categorically said with respect to the hospitals of the type specified in paragraph 2 in its judgment in Mediwell Hospital & Health Care Pvt. Ltd. v. Union of India . Emphasis in paragraphs 12 and 13 of this judgment upon the continuing liability by such hospital after getting the benefit of the notification is significant and will have to be kept in mind.
7. The application that the hospital made to the Directorate General of Health Services Maharashtra, for issue of a certificate in order to enable it to avail the benefit of the notification, signed by S.M. Masurekar, Administrator, indicates the number of patients attended and treated free in the OPD in the years 1988-89 to 1990-91 to be 100% and says that indoor facilities were provided freely. The declaration signed by Masurekar also read “Certified also that the above equipment will be utilised free of charge in respect of patients who are entitled to free treatment as per para (4) and (6) of the proforma and that the paying patients will be charged for at the rates which are fixed keeping in view the cost price of the equipment/ instrument/appliances, etc.” In other words the hospital never claimed exemption under paragraph 1, 3 or 4 of the notification. Therefore the contention that requirement of patients to be treated does not apply to this hospital is entirely unacceptable and was also not so understood by the appellant hospital.
8. It is also not possible to accept the conclusion that there having been substantial compliance no penalty is imposable. Paragraph 2 of the notification requires that a minimum of 40% of patients to be treated free. This minimum was never achieved in any of the seven years with which we are concerned. It is significant to note that in the application signed by S.M. Masurekar, the hospital claims that all the out patients i.e., 100% of the out patients for 1988-89 to 1990-91 had been treated free; yet the very same hospital from next year onwards is unable to treat even 40% of out patients free of cost. When the notification states that a minimum 40% of the patients to be treated freely, the compliance to which it requires at least that 40% to be treated free. That is the only compliance. This is the major condition of the notification and that had to be complied. The three reported decisions of the Tribunal are where there was substantial compliance with the main condition of the notification. As the Supreme Court has said in Mediwell Hospital & Health Care Pvt. Ltd. v. Union of India this condition goes to the heart of the matter. If we accept that less than 40% amounts to substantial compliance where is the line to be drawn? Would then 5%, 10%, 25% patients being treated free result in that being compliance with the notification? In our view the answer would be clearly in the negative. It is needless to point out that it is well settled that the condition in notification has to be strictly complied with.
9. There is a reference in the appeal to a decision of the Tribunal in Jagdish Cancer & Research Centre v. CC apparently holding that there is substantial compliance of notification 64/88, penalty need not be imposed. A copy of that decision has not been produced. No reference, publication, its appeal number, has been given to enable us to look into this decision has been given. We are therefore unable to comment upon this decision. However, we reproduce below what the Commissioner has observed with regard to this plea raised before him.
I have gone through the judgment and it states that in view of the Supreme Court judgment in the case of Mediwell Hospital & Health Care Pvt. Ltd. v. Union of India the condition of giving free treatment to 40% OPD patients and 10% IPD patients is an ongoing commitment and any shortfall in one year can be fulfilled in the subsequent year subject to the life span of the imported equipment.
However, the appeal does not contend that the Commissioner’s finding is incorrect. If his understanding is correct his reasoning speaks for itself.
10. The synopsis that was handed over after the hearing by Mr. Shyam Diwan, advocate, too, only narrates the sequence of events leading to the hearing of the appeal. It also enclosed a copy of the decision of the Tribunal in Lions Cancer Detection Centre Trust and Ors. v. CC in appeal C/292 and Ors./99, this decision has not been published; apparently there have been difference of opinion among the two members on one of the issue involved relating to confiscation of goods. The Members of the bench, however, had been in agreement upon the other issue before them, the order of the bench disposed of all appeals of number of hospitals and diagnostic centres. In this order the Tribunal has noted that the Director General of Health Services who was also a noticee in the proceeding before the Commissioner in one of the matters which considered by the bench. The Tribunal’s finding with regard to it are contained in paragraphs 56 to 57 of the lead order of the Member (Technical). This is what apparently relied upon to say that penalty should not be imposed upon the hospital.
11. It is significant to note that the Tribunal has not said that penalty was not imposable on the Director General of Health Services. It only says leniency should have been granted to the importer because leniency had been shown to the Director General of Health Services. It appears reasonable to distinguish the Director General of Health Services from importers in such matters. The Directorate General of Health Services is a body of the Government carrying out statutory and other functions. That organisation would have nothing to gain or loss if the benefit of notification was extended to the individual hospitals. In the absence of collusion between its employees that employees also would have nothing to gain from it. It is difficult to say that any function by it with regard to the condition of the notification, unless shown to be collusive, would invite penalty on it. It is in our view, in such a situation, not correct to treat a department of the Government of India on the same footing as an individual importer in these circumstances. Apart from this there are other factors to be considered. As we have noted the hospital itself had claimed that it had treated 100% out patients free in the preceding three years and made a solemn declaration to duly continuing to treat patients free. By the nature of the notification the certifying authority, Ministry of Health and Family Welfare or the Director General of Health Services would necessarily have to go by the past performance and the current status of the hospital in question. They can obviously not look into the future. It assumes and places an obligation in order to ensure that the nature of the hospital -charitable, free treatment, etc., -would continue to do so when the exemption was granted. The decision of the Tribunal in Lions Cancer Detection Centre does not indicate any basis upon which the Director General of Health Services granted certificates to the hospital of it considered; nor is it possible to say that those hospitals claimed that they provided 100% free treatment as the hospital before us did. We must keep in mind that the subject matter of appeal in Lions Cancer Detection Centre did not directly or by implication extent to consideration of the applicability of the condition contained in paragraph (3) of the notification relating to free treatment to prescribed number of patients.
12. The decision of the Tribunal therefore does not lay down any ratio that where there has been a certificate by the Director General of Health Services there should not be any penalty. On the facts before it, concluded that differential treatment meted out to Director General of Health Services, noting that the Commissioner had only cautioned it, and stated that there should be leniency for the hospital. The facts before us being completely different that decision appears to us entirely irrelevant.
13. The notification requires certificate of two kinds. The hospital in question has to be certified by the Ministry of Health and Family Welfare to be of kind mentioned in paragraphs (1), (2), (3) or (4) of the Table to the notification. In addition the import of the goods is required to be “approved by either generally or in each case where the Government in the Ministry of Health and Family Welfare or by the Director General of Health Services of the Government of India as essential for use in any hospital”. The importer before us, it appears to us has not obtained either of these certificates. By its own statements made in the appeal, the certificates that it obtained is only those issued by the Director General of Health Services of the Government of Maharashtra. The certificates required to be given by the Ministry of Health and Social Welfare that the hospital is of the kind specified in paragraphs 1 to 4 of the notification does not appear to have been obtained at all. In other words it appears that the importation took place only on the basis of certificates issued by the Directorate General of Health Services of Government of Maharashtra. This would in fact itself completely disentitle the hospital for the benefit of the notification. However, this not having been the ground in the show cause notice is not relied upon. It is however, indicated that at no time the Director General of Health Services come into the picture and therefore the blame cannot be conveniently shifted on to it.
14. The confiscation of the goods has to be confirmed. We have noted the sudden failure of the hospital to treat even 40% of the patients when just before importation it was treating 100% all of them free. The fact that a signboard was put up to show free treatment facility is no answer. In a situation of this kind within a city and area of the city teeming with poor and low income people, the claim that a hospital could not find any such persons is ridiculous. We are of the opinion that the hospital has callously not even attempted to comply with the obligation cast upon it by the notification and most which has been considered by the Supreme Court in Mediwell Hospital & Health Care Pvt. Ltd. v. Union of India. In these facts we therefore find no reason to interfere with the order of the Commissioner ordering confiscation and imposing penalty.
15. S.M. Masurekar, the administrator, is the person who solemn undertook while seeking exemption from duty that patients would continue to be treated freely. No argument had been advanced by him as to what steps he undertook to ensure compliance of the terms of notification, and his own undertaking. He does not say why if any of the conditions of the notification were not complied with and could not complied with the matter nor was reported to the Customs authorities or the Director General of Health Services. We therefore find this a fit case for confirming penalty imposed on him.
16. Appeals dismissed.