Circular No. 73/2000-Cus.
Government of India
Ministry of Finance
Department of Revenue
Central Board of Excise & customs
Subject : Demand – limitation – in case of violation of post importation condition
Your attention is invited to the decision of the Supreme Court in the case of Mediwell Hospital & Health Centre Pvt. Ltd vs. Union of India reported in 1997 (89) ELT 425 (SC) = 1997 (68) ECR 750 (SC). The court held that the exemption Notification No. 64/88-Cus cast continuous obligation on the part of the importers to give free treatment at least to 40% of the outdoor patients as well as to give free treatment to indoor patients belonging to the famiiies with income of less than Rs. 500 per month. The court in that case further desired the concerned authorities to ensure that these obligations were carried out and on being satisfied that such obligations have not been discharged shall enforce realization of customs duty from them.
2. The Board has come across a number of cases wherein the Department has invoked provisions of Section 28 of the Customs Act for realization of customs duty on the ground that the post-importation condition, as stipulated in Notification No. 64/ 88, had not been fulfilled. In many of the cases proviso to Section 28(1) were also invoked alleging suppression, mis-declaration etc. Sometimes the duties were demanded under Section 28 even for importation which had taken place more than 5 years before the issue of show cause notice. In many of the cases such demand notices were set aside by the appellate authorities holding that there was no justification for alleging suppression or mis-declaration and since the notice was not issued within normal time limit, the demand of duty was not sustainable. In a few cases Department”s civil appeals filed before the Supreme Court were also dismissed.
3. In two cases references were made to Law Ministry and their opinion obtained on the issue. It has been opined that notification like No. 64/88-Cus., which put post-import conditions of continuing nature, every day of breach starts a new limitation for the purpose of Section 28. Accordingly, the limitation for violation of post-import obligations would start from the last day of violation preceding initiation of proceedings. In the second reference, it was clarified by the Law Ministry that Section 28 appears to deal with cases where the duty was leviable at the point of import but was somehow not levied or short-levied, that it does not appear to cover cases where duty was not leviable at the time of import because of conditional exemption but became leviable subsequently by reasons of subsequent events. Hence, it appeared possible to demand duty if the beneficiary hospitals are not meeting the obligation any more. On the question whether the hospitals could resist demand on the ground that the existing exemption notifications do not cast any continuing obligation of free treatment etc. when medical equipments are imported duty free, the Law Ministry opined that the conditions govern ing the import wouId be as prevailing at the time of import and subsequent changes in law would not confer benefits on the earlier imports. The copy of opinions are enclosed herewith for ready reference.
4. The matter has been considered by the Board. Field formations are advised to issue show cause notices for demand of duty by invoking the provisions of Notification No. 64/88-Cus., without mentioning Section28 of the Customs Act, 1962 wherever the normal period of limitation i.e. one year provided under Section 28(1)(a) is over.
5. The instructions contained in this letter will apply mutatis-mutandis to other exemption notifications also where post-import conditions as stipulated in the notification are not fulfilled.
Opinion dt. 5.6.2000 of Ministry of Law, Justice & Co. Affairs
(Department of Legal Affairs)
The question for consideration is whether duty demand can be raised for violation of conditions of exemption notification No. 64/88. The condition has been held to be a continuing post-import obligation in the case of Mediwell Hospital 1997 (89) ELT 425 (SC).
2. So far as the question of accepting Supreme Court judgement in Paramount Medicos case is concerned, the plea of violation of continuing obligation was never taken and the only question appears to have been whether the assessee was a hospital in absence of indoor patient facilities. The CEGAT appears to have been correct on the issue. Hence, the question of limitation relegates to the background.
3. The first possible objection is whether duty demand would be time bound. Section 29(1)(a) provides for a one year limitation where duty has not been levied or has been short levied or erroneously refunded. The Section appears to deal with cased where the duty was leviable at the point of import but was somehow not levied or short-levied. It does not appear to cover cases where duty was not leviable at the time of import because of conditional exemption but became leviable subsequently by reason of subsequent events. In the present case, the importer was entitled to exemption subject to meeting the continuing obligation. The duty liability would arise when that obligation is not satisfied. Hence, it appears possible to demand duty if the beneficiary hospitals are not meeting the obligation any more.
4. The second possible objection may be that the equipment is currently exempt from duty, hence, the equipment imported earlier subject to conditions would also enjoy duty exemption. We agree with the Department that the conditions governing the import would be as at prevailing at the time of import and subsequent changes in law would not confer benefit is on the earlier importers.
Opinion dt. 5.6.2000 of Ministry of Law, Justice & Co. Affairs
(Department of Legal Affairs)
CBEC has raised a query as to whether a notice for demand can be issued for a period beyond five years in respect of duty exemption wrongly availed under Exemption Notification No. 64/88. The question has arisen in view of the observations of the Hon”ble Supreme Court vide their order dated 17.12.96 in Mediwell Hospital & Health Care Pvt. Ltd. vs. Union of India 1997 (89) ELT 425 (SC) and CEGAT order dated 6.10.95 in Gujarat Imaging & Research Institute Vs. CC 1996 (85) ELT 97 (T).
2. Exemption Notification No. 64/88 provided exemption to all equipment, apparatus and appliances, the import of which is approved either generally or in each case by the Govt. of India in the Ministry of Health and Family Welfare or by the DGHS, as essential for use in any hospital. The Table to the exemption Notification provided the categories of hospitals which could be so certified by the Ministry of Health. Para 2 of the Table mentions hospitals to be run not only without any distinction of caste, creed, race, religion or language but also (a) free, on an average, to at least 40% 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% 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).
Para 4 of the Table included any such hospital which is in the process of being established.
3. In Gujarat Imaging”s case the Tribunal held that the exemption available in diagnostic treatment centres with no indoor treatments patients facilities hence denial of exemption is not sustainable nor is the imposition of penalty or fine justified. The Tribunal relied upon the exemption at the foot of the notification which includes any institution which renders diagnostic treatment. However, the tribunal observed that the condition in para 4(b) of the Table in respect of hospital in the process of being established is a post-importation condition.
4. In Mediwell Hospital the Supreme Court classified the conditions into preconditions and post-conditions. Hon”ble Supreme Court further held that the very notification granting exemption must be construed to cast continuing obligation on the part of alI those who have obtained the certificate from the authority and on the basis of that to have imported equipments of customs duty to give free treatment at least to 40% of the out-door patients as well as would give free treatment to all the indoor patients belonging to the families within income less than Rs. 500 per month. The Court observed that the competent authority should continue to be vigilant and check whether the undertakings given by the applicants are being duly complied with and if on such enquiry the authorities are satisfied that the continuing obligations are not being carried out then it would be fully open to the authority to ask the person who have availed of the benefit of exemption to pay the duty payable in respect of the equipments.
5. From the above background it appears that the above cases dealt with the duty liability because of non-compliance of post-importation conditions which are not only in para 4(b) of the Table but in para 2 of the Table as well. Since the post-importation conditions are continuing obligations, it appears that everyday of breach starts a new limitation of the purpose of Section 28.
6. In this view limitation for violation of post-importation obligations which are continuing conditions would start from the last day of violation preceding the initiation of proceedings.