Circular No. 73 dated 1^st September 2000

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). The Court held that the exemption Notification No. 64/ 88-Cus cast continuous obligation on the part of the importer to give free treatment at least to 40% of the out-door patients as well as to give free treatment to in-door patients belonging to the families 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 governing the import would be as prevailing at the time of import and subsequent changes in law would not confer benefits on the earlier imports. The copies 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 Section 28 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.