By TIOL News Service

NEW DELHI, OCT 15, 2014: THE Central Government has issued Notification No. 63/88-CUS, dated 01.03.1988 granting exemption to hospital equipments imported by specified category of hospitals (charitable) subject to certification from the Directorate General of Health Services (for short, "the DGHS ") to the Government of India. The explanation to the notification reads as under :

"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."

The question before the Larger Bench of the Supreme Court was whether a diagnostic centre would be eligible for the exemption.

The Supreme Court had in Mediwell Hospital & Health Care Pvt. Ltd. vs. Union of India and Ors., 2002-TIOL-69-SC- CUSmade a stray observation:

"Thus a diagnostic centre run by a private individual purely on commercial basis may not be entitled to the exemption under the notification issued by the Central Government."

Exemption Notifications to be strictly interpreted: The Supreme Court referred to several judgements and observed, " With regard to the interpretation and construction of a notification granting exemption, it is settled that at the first instance, strict interpretation would apply, that is to say in the case of ascertaining its applicability."

The meaning of include: The Supreme Court again referring to several decisions observed, "While defining or explaining the meaning of a word or phrase in a statute, the word 'include' is generally used to enlarge the meaning of those words or phrases. When the word 'include' is used as such, those words or phrases must be construed as comprehending not only such things as they signify according to their natural import or as per common parlance, but also those things which the interpretation or explanation clause declares that they shall include. "

Applying the above principles to the observation in the Mediwell case, the Supreme Court explained the decision that a diagnostic centre run by a private individual purely on commercial basis may not be entitled to the exemption under the notification.

The observations made by the Court can be understood as under:

Firstly, if a diagnostic centre is run by a private individual purely on a commercial basis, that centre would not be eligible and entitled to the exemption under the notification. The learned Judges may be justified in saying so for the reason, the exemption notification provides that the hospital should 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

(b) free to all indoor patients belonging to families with an income of less than Rs. 500/- 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).

The Supreme Court understood the Mediwell observations as, "the Court was trying to observe that if an individual is running a diagnostic centre purely on a commercial basis, that is without providing treatment free of cost to at least 40 percent of all their outdoor patients and free to all indoor patients belonging to families with an income of less than Rs.500 /- per month, the same would not be entitled for exemption under the notification. "

However to make things clear, the Supreme Court observed, "that the notification has an explanation which we have already extracted. It explains the meaning of the expression "Hospital" to include an institution, a centre, a trust etc., including a diagnostic centre. We have also taken note of the principle that the word 'includes' in a definition or explanation clause would extend the meaning of the word as declared by the said clause, even if the same may go beyond its natural meaning. If that is so, in our opinion, we are of the considered view that the diagnostic centre is also eligible for claiming exemption under notification dated, 01.03.1988., provided it fulfills all the conditions envisaged under the said notification."

Coming to the facts of the present case, the Supreme Court observed that the Customs Department had made the demand after the DGHS has withdrawn the Customs Duty Exemption Certificate. The appellant had approached the writ court against such withdrawal but for some reason they withdrew the writ petition – and that closed the case against them.

The Supreme Court observed, " In the instant case, the DGHS duly issued an exemption certificate but subsequently the same was withdrawn by the same authority. If for any reason the appellant was aggrieved by such withdrawal, it should have questioned the same. Since having questioned the said withdrawal and having withdrawn it later on, we are of the opinion that the appellant cannot take exception to the duty demand made by the respondent."

The appeal is dismissed.

(See 2014-TIOL-86-SC-CUS-LB)