Medical Care Vs. Union of India &
Ors  Insc 205 (23 February 2007)
C.K. THAKKER & LOKESHWAR SINGH PANTA
(Arising out of SPECIAL LEAVE PETITION (C) NOs.10429 to 10431 OF 2005) C.K.
This appeal has been filed against a common judgment and order passed by the
High Court of Andhra Pradesh, Hyderabad on December 31, 2004 in Writ Petition
Nos. 22734 & 22735 of 1996 and 3355 of 2001.
Few facts which are necessary for understanding the controversy are that the
appellantShare Medical Care is a Society registered under the Andhra Pradesh
(Telengana Area) Public Societies Act, 1350 Fasli (Act 1 of 1350 F) ('Society'
for short) and owes its origin to the desire of Non Resident Indian (NRI)
Scientists and Doctors based in the United States of America (USA). The aim of
the Society is to share the advanced technology with the citizens of India.
The appellant-Society was established with the intention to construct and run
hospitals, medical and diagnostic centers, etc. It is a charitable hospital and
is run on 'no-profit' basis. It is located at village Ghanapur, about 40-50 kms
away from the city of Hyderabad. It
started its activities in the year 1993. It has specialized in treatment of
heart and related ailments having the latest equipments and specialist doctors.
In the year 1992-93, the appellant-Society imported certain medical
equipments for the use in its charitable hospital. According to the appellant,
under Notification No. 64/88-Cus dated March
1, 1988, exemptions were granted to hospital equipments imported by
specified category of hospitals (charitable) subject to certification by
Directorate General of Health Services (DGHS). The table in the notification
classified hospitals in four categories.
According to the appellant, it falls under Para No.3 of the table of
The appellant, however, along with several other hospitals, had applied for
the benefit of exemption notification not under para 3 but para 2 of the table.
The benefit of exemption was granted. Since the Society was also entitled to
exemption under para 3 of the table, an application was made to DGHS
highlighting the fact that the appellant is a non-profit organization and had
been permitted to import medical equipments by DGHS by certification. It has
been registered as an institution to receive donations in foreign exchange and
since the area of operations of the main hospital at Ghanapur and the Rural
Health Hospital are in rural areas, it would be entitled to invoke para 3 of
the table of notification of exemption. The Deputy Director General (Medical),
DGHS, by an order dated January 25, 2000 rejected the application of the
appellant observing therein that initially the request was made by the
appellant for exemption under para 2 of the notification and accordingly, the
institution was granted such exemption. It was, therefore, not open to apply
for exemption under para 3 of the table of the exemption notification and the
application was liable to be rejected.
Being aggrieved by the above order passed by the Deputy Director General
(Medical), the appellant-Society filed the above petitions in the High Court of
Andhra Pradesh. The High Court also dismissed the petitions observing that it
was not in dispute that the appellant (petitioner) claimed exemption in respect
of import of hospital equipments and was allowed on the basis of its prayer
under category para 2 of the table. The High Court noted that the learned
counsel for the appellant-petitioner relied upon certain decisions in support
of the contention that a categorization could be changed but it held that the
exemption was granted in category 2 of the table, certain information was
sought which was not supplied by the Society and the exemption was withdrawn.
Regarding category 3, however, the High Court observed that when the appellant
did not fulfill conditions relatable to category 2 institution, its claim for
conversion of categorization under category 3 was untenable. Accordingly, all
petitions were dismissed.
We have heard learned counsel for the parties.
Learned counsel for the appellant submitted that it is settled law that even
if exemption is granted for one category or under one notification and the
applicant is entitled to claim more or greater benefit under other category or
other notification, the authority is duty bound to consider the case of the
applicant in the other category or other notification and there is no question
of any estoppel or bar to such plea. It was, therefore, incumbent upon the
Deputy Director General (Medical), DGHS to consider the application of the
appellant on merits and rejection of application only on the ground that the
appellant had earlier applied under category 2 and, therefore, it was not open
to it to apply under category 3 and the application was not tenable was illegal
and contrary to law. The learned counsel for the appellant further submitted
that it was only because of rejection of application on the ground of
maintainability that it made a limited prayer before the High Court to direct
the Deputy Director General (Medical), DGHS to consider and decide the
application of the appellant on merits. By not doing so, the error of law
committed by the Deputy Director General (Medical), DGHS had been repeated by
the High Court and hence both the orders are liable to be set aside. It was
submitted that the Deputy Director General (Medical), DGHS may be asked to
consider the matter of the appellant on merits as to whether it would be
entitled to exemption under category 3.
The learned counsel for the respondents, on the other hand, supported the
order of the authority relying on an affidavit in reply filed by the Assistant
Director General (M) who stated that the representation of the appellant was
examined carefully by the authorities and it was decided that when the
appellant had voluntarily applied under category 2 of the exemption
notification, he could not change it to category 3. Category 2 exemption was
not 'thrust upon' the appellant. The appellant- hospital never objected the
categorization of its hospital in the past. When the said exemption benefits
were withdrawn for non-fulfillment of free treatment obligations, the appellant
represented its case as an 'afterthought' to category under para 3 of the table
of exemption notification which was rejected. It, therefore, cannot be said
that any illegality had been committed and the appeal deserves to be dismissed.
Having heard learned counsel for the parties, in our opinion, the appeal
deserves to be allowed. It is, no doubt, true that initially the appellant
claimed exemption under category 2 of exemption notification which was granted.
That, however, does not mean that the appellant could not claim exemption
under category 3. So far as cancellation of exemption under category 2 is
concerned, we are not called upon to decide legality or otherwise of the said
decision as it has not been challenged before us in the present proceedings.
The short question which we have to answer is whether the appellant could claim
exemption under category 3 and non-consideration of the said application by the
Deputy Director General (Medical) is in consonance with law. Our reply is in
the negative. And we are supported in our view by the decisions of this Court.
In this connection, attention of the Court has been invited to certain
decisions by the learned counsel for the appellant.
In Collector of Central Excise, Baroda v. Indian Petro Chemicals, (1997) 11
SCC 318, this Court held that if two exemption notifications are applicable in
a given case, the assessee may claim benefit of the more beneficial one.
Similarly, in H.C.L. Limited v. Collector of Customs, New Delhi, (2001) 130
E.L.T. 405 (SC), this Court relying upon Indian Petro Chemicals, held that
where there are two exemption notifications that cover the case in question,
the assessee is entitled to the benefit of that exemption notification which
may give him greater or larger relief. In Unichem Laboratories Ltd. v.
Collector of Central Excise, Bombay, (2002) 7 SCC 145 : JT 2002 (6) SC 547, the
appellant was a manufacturer of bulk drugs. Exemption was granted to him under
one item. He, thereafter, filed a revised classification list categorizing its
bulk drugs under the other Head claiming more benefit. The claim was rejected
on the ground that the appellant had not claimed the benefit of exemption at
the time of filing the classification list and subsequently it could not be
The appellant approached this Court.
Allowing the appeal and setting aside the order, this Court held that if no
time is fixed for the purpose of getting benefit under the exemption
notification, it could be claimed at any time. If the notification applies, the
benefit thereunder must be extended to the appellant. The Court held that the
authorities as well as the Tribunal were not right in holding that the
appellant ought to have claimed the benefit of the notification at the time of
filing of classification lists and not at a subsequent stage.
The Court then stated;
"There can be no doubt that the authorities functioning under the Act
must, as are in duty bound, protect the interest of the Revenue by levying and
collecting the duty in accordance with law - no less and also no more. It is no
part of their duty to deprive an assessee of the benefit available to him in
law with a view to augment the quantum of duty for the benefit of the Revenue.
They must act reasonably and fairly".
(emphasis supplied) In Kerala State Cooperative Marketing Federation Ltd.
& Ors. v. Commissioner of Income Tax, (1998) 5 SCC 48 : JT 1998 (4) SC 145,
interpreting Section 80-P(2)(a) of the Income Tax Act, 1961, this Court said;
"We may notice that the provision is introduced with a view to
encouraging and promoting growth of co-operative sector in the economic life of
the country and in pursuance of the declared policy of the Government. The
correct way of reading the different heads of exemption enumerated in the
section would be to treat each as a separate and distinct head of exemption.
Whenever a question arises as to whether any particular category of an income
of a co-operative society is exempt from tax what has to be seen is whether
income fell within any of the several heads of exemption. If it fell within any
one head of exemption, it would be free from tax notwithstanding that the
conditions of another head of exemption are not satisfied and such income is
not free from tax under that head of exemption. The expression
"marketing" is an expression of wide import. It involves exchange
functions such as buying and selling, physical functions such as storage,
transportation, processing and other commercial activities such as
standardisation, financing, marketing intelligence etc. Such activities can be
carried on by an Apex Society rather than a primary society". (emphasis
supplied) From the above decisions, it is clear that even if an applicant does
not claim benefit under a particular notification at the initial stage, he is
not debarred, prohibited or estopped from claiming such benefit at a later
In the instant case, the ground which weighed with the Deputy Director
General (Medical), DGHS for non- considering the prayer of the appellant was
that earlier, exemption was sought under category 2 of exemption notification,
not under category 3 of exemption notification and exemption under category 2
was withdrawn. This is hardly a ground sustainable in law. On the contrary,
well settled law is that in case the applicant is entitled to benefit under two
different Notifications or under two different Heads, he can claim more benefit
and it is the duty of the authorities to grant such benefits if the applicant
is otherwise entitled to such benefit.
Therefore, non-consideration on the part of the Deputy Director General
(Medical), DGHS to the prayer of the appellant in claiming exemption under
category 3 of the notification is illegal and improper. The prayer ought to
have been considered and decided on merits. Grant of exemption under category 2
of the notification or withdrawal of the said benefit cannot come in the way of
the applicant in claiming exemption under category 3 if the conditions laid
down thereunder have been fulfilled.
The High Court also committed the same error and hence the order of the High
Court also suffers from the same infirmity and is liable to be set aside.
Strong reliance was placed by the respondents on a decision of this Court in
Mediwell Hospital & Health Care Pvt. Ltd. v. Union of India & Ors.,
(1997) 1 SCC 759 : JT 1997 (1) SC 270. In Mediwell Hospital, the Court was
considering the very same notification 64/88 and grant of exemption to hospital
equipments imported by specified category of hospitals. The Court held that an
Individual Diagnostic Centre if covered by the notification, could claim import
of equipments without paying customs duty.
But in case of failure on the part of the persons availing the benefit to
satisfy conditions laid down in the notification, it is incumbent on the
authorities to recover such duty.
The Court stated;
The competent authority, therefore, should 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 and if on such enquiry the
authorities are satisfied that the continuing obligation 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 which have been imported without payment of customs duty. Needless
to mention the government has granted exemption from payment of customs duty
with the sole object that 40% of all outdoor patients and entire indoor
patients of the low income group whose income is less than Rs.500/- p.m. would
be able to receive free treatment in the Institute.
That objective must be achieved at any cost, and the very authority who have
granted such certificate of exemption would ensure that the obligation imposed
on the persons availing of the exemption notification are being duly carried
out and on being satisfied that the said obligations have not been discharged
they can enforce realisation of the customs duty from them.
In the counter-affidavit, it has been asserted that in the light of the
observations in Mediwell Hospital, the Director General of Health Services and
Department of Health decided to review cases of all (396) beneficent
institutions who had availed of benefits under notification 64/88, and the
appellant was one of them. Since it was found that the appellant was not
fulfilling the conditions set out in para 2 of the Table, the benefit was
In our opinion, the decision in
Hospital would not take away the
right of the appellant to claim benefit under para 3 of the Table of exemption
notification. If the appellant is not entitled to exemption under para 2, it
cannot make grievance against denial of exemption. But if it is otherwise
entitled to such benefit under para 3, it cannot be denied either. The
contention of the authorities, therefore, has no force and must be rejected.
For the foregoing reasons, the appeal deserves to be allowed and is
accordingly allowed. The respondent- authorities are directed to re-consider
the case of the appellant as to exemption in category 3 of the exemption
notification strictly in accordance with law, on its own merits and without
being inhibited by the observations made by us hereinabove. The appeal is
allowed with costs.
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