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Wednesday, January 06, 2010

Supreme Court : Appeal (civil) 919 of 2007 DATE OF JUDGMENT: 23/02/2007

Appeal (civil) 919 of 2007



DATE OF JUDGMENT: 23/02/2007


(Arising out of SPECIAL LEAVE PETITION (C) NOs.10429 to 10431 OF 2005)


Leave granted.
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 notification.
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
In this connection, attention of the Court has been
invited to certain decisions by the learned counsel for the
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 done.
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 stage.
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 withdrawn.
In our opinion, the decision in Mediwell 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
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