Navin C. Nanda National Institute of Echo Cardiography & Cardiac Research vs Union of India

This is a petition filed by M/s. Navin C. Nanda National Institute of Echo Cardiography & Cardiac Research (Petitioner No. 1) and Dr. K. Aggarwal (Petitioner No. 2) under Article 226 of the Constitution seeking inter alia, quashing of two notices dated 3rd July, 1997 and 9th July, 1997 issued by the Union of India through Ministry of Health & Family Welfare, New Delhi, the orders dated 4th November, 1997 and 17th December, 1997 passed by the Directorate General of Health Services (DGHS) and the show cause notice dated 3rd January, 1998 issued by the Commissioner of Customs. The consequential declaration sought is that the Customs Duty Exemption Certificates (CDECs), dated 4th July, 1988, 9th March, 1992, 25th March, 1992 and 23rd August, 1993 are valid and binding upon the respondents.

The background to the present petition is that the aforementioned entity (Petitioner No. 1) is a registered firm of which Dr. K.K. Aggarwal (Petitioner No. 2), who is one of the two partners, is a Senior Consultant Cardiologist. The other partner Col. K.L. Chopra is also a renowned Senior Consultant Cardiologist and at the relevant time was Head of the Department of Medicine and Cardiology at Moolchand Khairati Ram Hospital (hereafter ''Moolchand Hospital'') for over two decades.

It is stated that as a result of the training received by them abroad, the two doctors decided to bring new technology used in Echo Cardiography to India and with that objective formed the Petitioner No. 1 institute. Dr. Agarwal also negotiated with Moolchand Hospital for the setting up of a "Colour Doppler Echo Cardiography" equipment in the Department of Cardiology of the Hospital. The understanding was that Petitioner No. 1 would provide free diagnostic services to 40% of the outpatients and 10% of the inpatients of the hospitals as per rules and regulations of the hospital. It is stated that this understanding was reduced to writing by way of a certificate issued by the Medical Superintendent of the Moolchand Hospital on 6th December, 1997.

Thereafter, the petitioners imported the Colour Doppler Echo Cardiography equipment known as the ''Aloka Colour Doppler.'' In order to make the import, Petitioner No. 1 had to obtain an import licence. This had to have the sponsorship of the Health Department of the Delhi State/Delhi Administration. The application by Petitioner No. 1 for import of the aforementioned medical equipment was forwarded by the Directorate of Health Services (DHS), Delhi Administration to the Joint Secretary (Medical), of the Delhi Administration by a letter dated 22nd February, 1988 conveying its ''no objection'' to the grant of an import licence. It was stated therein that "for all practical purposes the petitioner institution appeared to be part of the Department of Cardiology of Moolchand Hospital". On that basis, on 26th February, 1988, the Delhi Administration forwarded the application to the Chief Controller of Imports and Exports, New Delhi also conveying their ''no objection.''

An agreement was entered into between Petitioner No. 1 and the Moolchand Hospital on 1st April, 1988 whereby it was agreed that, within the hospital, the Echo Cardiography and Cardiac Research unit of Petitioner No. 1 would be set up; 10% of the total number of cases treated by the unit as in-patients shall be free, and 40% of the out-patient consultations in the unit will be free and that the Petitioner No. 1 would not, at its discretion, charge any person from amongst the hospital staff and their dependants for treatment.

Notification No. 64/88-CUSTOMS was issued on 1st March, 1988 granting an exemption from customs duty on the import of certain medical equipment upon certification from DGHS. The petitioners applied in terms of the said notification for grant of a CDEC. The DHS, Delhi Administration, by letter dated 19th April, 1988, conveyed its recommendation for grant of the CDEC. In the said letter a reference was made to the agreement between Petitioner No. 1 and Moolchand Hospital. An undertaking was given by Petitioner No. 1 by a letter dated 25th May, 1988 to the Joint Secretary (Medical), Delhi Administration for onward transmission to the DGHS which reads as under :

"1. That the Institution undertaken to provide diagnostic aid/or treatment facilities to all citizens of India without distinction of caste, creed, race, religion or Language.

That the Institution will provide diagnostic, preventive or curative care free of cost to patients not less than 40% of all outdoor patients.

That the indoor treatment facilities will be provided free of cost to all families with income of less than Rs. 500/- per months and for this purpose not less than 10% of the total bed strength give institution will be reserved for such patients.

That the charges levied from other indoor patients will be reasonable either on the basis of the income of the patients/guardians or otherwise.

That the Hospital equipment/apportion [sic] and appliances imported/to be imported by the Institution will only be used in line Institution will not be removed the therefrom for private use & will not be sold or otherwise disposed for without prior permission of the Govt. of India (Ministry of Health & Family Welfare/DGHS).

That the institution has an appropriate programme for the establishment of the Institution.

That there are sufficient funds and resources to establish the Institution.

That the Institution restarted functioning w.e.f. Feb. 1988."

It is stated that after seeking further clarifications from the petitioner, a CDEC was issued to the petitioner on 4th July, 1988 and this certificate was endorsed on an invoice of the equipment sought to be imported. It was clarified by Petitioner No. 1 that the Aloka Colour Doppler was to be imported for installation in the premises of the Moolchand Hospital under a mutual agreement. According to the petitioners all the conditions for grant of the CDEC were complied with.

It is stated that the petitioners continued in the same manner in importing further equipment and applying for CDEC in respect of each such equipment. The same procedure of having the application forwarded through the Delhi Administration was adopted. It is stated that the Medical Superintendent, Nursing Homes, Delhi Administration undertook a detailed inspection on 12th March, 1990 and 21st August, 1990 and in letter dated 3rd September, 1990 gave a certificate which, inter alia, noted as under :

"1. Certified that the Institution provided diagnostic aid and treatment facilities to all citizen of India without distinction of Caste, creed, race, religion or language.

Certified that the Institution provides diagnostic preventive or curative care free of cost to 2360 patients out of 5835 patients which is not less than 40% of all out door patients treated in the year July, 1988 to December, 1989.

Certified that the charges levied from other patients are reasonable either on the basis of the income of the patients/guardians or otherwise.

The Institution has also given an undertaking that the equipments, apparatus and appliance to be imported by the institutions will only be used in the institution concerned and will not be removed there from for private use and will not be sold or otherwise disposed off without prior permission of the Government of India, Ministry of Health & Family Welfare, D.G.H.S. New Delhi.

The Institution has not yet any indoor facilities. The institute had furnished the information, informed that during the period July, 1988 to June, 1989, out of the total of 3918 patients examined, 1291 were the admitted patients of cardiology department of Mool Chand K.R. Hospital (Where this diagnostic Centre is located). Out of this, 149 were rendered free services. And during the period July 89 to December 89, out of the total of 1917 patients examined, 715 were the admitted in patients of the cardiology dept. of Mool Chand K.R. Hospital. Out of which 83 were done free. Showing that they are rendering 11.5% free services. A visit was made on 21-8-90 to verify the facts.

It is again pointed out that M/s. Navin C. Nanda, National Institute of Echocardiography and Cardiac Research Office, MCKR Hospital, Lajpat Nagar, is a diagnostic centre where only OPD facilities are rendered. But, it is pointed out that the institute is rendering free services to the patients admitted in the cardiology department of Mool Chand K.R. Hospital. Though, this institute does not have any indoor beds of its own, but that is being compensated by giving free services on the Alka Colour Doppler to the indoor patients of Mool Chand K.R. Hospital. And the percentage of free patients is more than 10%.

Moreover, this institute has given an undertaking that they are ready to provide free services to all the referred patients from various hospitals functioning under Delhi Admn. So, it is felt that this facility of referral system can be of much use for the patients of Delhi Admn. Hospitals where this sophisticated investigation is not available.

On the above report this Directorate is recommending the case for Customs Duty Exemption for import of Medical equipments. The applications of which are attached with.

The Institution has already obtained N.M.I. certificate from D.G.T.D."

Subsequently, the application for a CDEC was restricted to two machines listed at sl. nos. 4 & 5 of the letter dated 3rd September, 1990. It is stated that the CDEC certificates were granted to the petitioners by Respondent No. 1 on 9th March and 25th March, 1992.

In 1993, an application was made for issuance of a CDEC in respect of one more Colour Doppler Echocardiogram machine after following the same procedure and this was granted on 23rd August, 1993.

In the meanwhile, a Public Interest Litigation, being W.P. (C) No. 409/1996 (People''s Union for Civil Liberties v. Union of India), was filed, inter alia, alleging that the respondents had wrongly granted CDEC to some non-deserving and ineligible persons/institutions/hospitals depriving lakhs of rupees in customs duty by wrongly applying Customs Notification No. 64/88. Under the directions of this Court, a Committee headed by Mr. Padma Rosha (''Rosha Committee'') was constituted. A notice dated 28th January, 1997 was received by the petitioner from the said Committee which was replied to on 18th February, 1997 by the petitioners. A further response was submitted on 10th June, 1997 in response to another letter dated 19th May, 1997 received from the Rosha Committee.

On 11th July, 1997 the first show cause notice was received by the petitioners from the DHS asking them to submit a list of equipment for which the CDECs were issued and whether the said equipment imported was functional. On 16th July, 1997, the petitioner responded to the above letter and stated that the petitioner No. 1 institute had imported the following equipments :

"This is in reference to your letter dated 11-7-1997 regarding import of medical equipment by our Institute. The Institute had imported the following medical equipment :

Aloka Colour Doppler Model SSD 860

Aloka Colour Doppler Model SSD 870

Mac 15 Electrocardiography

Apogee CX Colour Doppler Echocardiography.

The equipments Colour Doppler 860 and 870 are non-functional; Aloka 860 since January 194 and Aloka 870 since March 1996. Both the models have been discontinued by the Aloka as spare parts are not available with the company. Apogee CX is presently being used for doing free diagnostic work. The machine is also been used for conducting various free diagnostic camps.

Mac 15 Electrocardiograph has been used now for over six years and as the technology over a period of time has changed the machine is not under commercial use for the last one year. The machine at present is being used for various free heart check-up camps being organised by the Institute.

Over a period of time the Institute has acquired newer models for doing the above diagnostic services."

In the meanwhile on 3rd July 1997 the DGHS issued a show cause notice to the Petitioner No. 1 referring, inter alia, to the decision of the Supreme Court in Mediwell Hospital and Health Care Pvt. Ltd. v. UOI - AIR 1997 SC 1623 : 1997 (89) E.L.T. 425 (S.C.), in which it had been noted that the Government had granted exemption in terms of the aforementioned Customs Notification No. 24/98 with the object of providing free treatment to certain categories of low income group patients and that the authorities who granted the CDEC are to ensure that the said obligation was discharged.

This was followed by a second show cause notice dated 9th July, 1997 to the same effect. The petitioner then replied to the DGHS on 16th July, 1997, inter alia, pointing out that the Petitioner No. 1 had been fulfilling its obligations to provide free services to 40% of the outpatients and 10% of the inpatients of the hospitals. It was also pointed out that Petitioner No. 1 was "attached to the various Delhi Administration Hospitals as per the directions issued by the Directorate of Health Services Government of Delhi" under which they provided free diagnostic and therapeutic services in the Cardiac Lab to the indoor patients of the hospital. It was specifically stated that the institute had been fulfilling all the criteria under the Customs Notification No. 64/88, dated 1st March, 1988.

In the writ petition, it has been stated that, along with the aforementioned letter, Petitioner No. 1 also submitted the relevant information/documents copies of which have been enclosed with the writ petition. This provided the month wise data of treatment of both outpatients and inpatients for the years 1988-89 to 1996-97.

The petitioners state that they received order dated 4th November, 1997 issued by the DGHS withdrawing the CDEC dated 4th July, 1988 issued in terms of the Notification No. 64/88 dated 1st March, 1988 for the Colour Doppler Echo Cardiography equipment and the CDEC No. 47/88, dated 9th March, 1992 issued in respect of spare parts for the said machine. The petitioners state that in the said order it was observed that no reply had been received from either the petitioners or the State Government in response to the show cause notice dated 3rd July, 1997. It also referred to the fact that a deadline for receiving replies had been set by the High Court as 15th September, 1997 in the orders passed by it on 1st August, 1997 in W.P. (C) 409/1996 (People''s Union for Civil Liberties v. Union of India). In the said order, the DGHS stated that since the petitioner had not responded to the show cause notices, the DGHS had on the basis of the information available with it, come to the conclusion that the Petitioner No. 1 "is only a diagnostic centre, not having indoor patients treatment facilities and therefore, does not fulfil the conditions for availing and retaining CDEC."

On 9th November, 1997, the petitioners addressed a letter to the DGHS pointing out that the show cause notice had already been responded to in July, 1997. A copy of the said notice was again enclosed with this letter. It was inter alia pointed out that "Mool Chand K.R. Hospital does not have Cardiac Lab of their own and hence the Cardiac Lab (NCNNI) cannot be considered as an independent unit within the hospital. We are also enclosing a copy of the agreement with Mool Chand K.R. Hospital where it is clearly mentioned in Clause-VII that 10% of the total number of cases treated by the centre as indoor patient shall be free and 40% of the outdoor consultation will be free. We hereby request your kindself to take the above into consideration and revised your decision to withdraw various CDEC''s issued to us."

A letter was also addressed on 19th November, 1997 to the Secretary (Medical), Government of Delhi by the petitioners requesting his personal intervention for him forward to the verified records of the institute to the DGHS at the earliest.

In response to a letter received from the DGHS, the petitioner on 24th November, 1997 enclosed in a proforma the information sought by the DGHS. The entire set of correspondence was again sent to the DGHS by the petitioner on 26th November, 1997.

On 17th December, 1997, DGHS passed a further order stating that the CDEC issued to the petitioners on 25th March, 1992 and 23rd August, 1993 stood withdrawn/cancelled. In this order it was stated that the DGHS had not received any reply/recommendations from the State Government verifying the data/information furnished by the petitioners. In Paras 3 and 4 of the order, it was stated as under :

"3. On scrutiny, it has been observed that your Institute had (a) no indoor treatment facilities of its own : (b) no data has been given with regard to total number of OPD cases, number of OPD cases treated free and number of patients with income less than Rs. 500/- p.m. treated free; (c) Claims have not been verified/certified by the State Govt: (d) observation of Hon''ble Supreme Court about continuing obligation and clarification of Deptt. of Revenue that Diagnostic Centres without indoor treatment facilities are not eligible to retain custom duty exemption.

For the reasons explained above, this Dte. has come to the conclusion that M/s. Navin C. Nanda National Institute of Echo-Cardiography & Cardiac Research Centre, New Delhi is only a diagnostic centre, not having indoor patients treatment facilities, and therefore, does not fulfil the conditions for availing and retaining CDEC issued to it under notification No. 64/88-Cus., dated 1-3-88."

The petitioner wrote a letter dated 25th December, 1997 to the DGHS enclosing the earlier correspondence with the DGHS, Delhi Administration and again pointed out that Petitioner No. 1 institute was not a diagnostic centre but the official lab of the Moolchand Hospital and had been providing free services to the indoor and outdoor patients which in fact had been verified by the State Health authorities.

On 3rd January, 1998, the Commissioner of Customs issued a show cause notice stating, inter alia, that the petitioners did not furnish any installation certification within the stipulated period and the hospital had not started functioning within the stipulated period and that it appeared that the Petitioner No. 1 institute "is not functioning and as such there is no facility for treatment of the indoor/outdoor patients". As a result of non-fulfilment of the conditions stipulated in Customs Notification No. 64/88, the Petitioner No. 1 was asked to show cause as to why a duty of Rs. 5,05,796/- together with interest @ 20% should not be demanded apart from confiscation of the imported machinery.

The petitioner replied to the above Show Cause Notice on 20th January, 1998 seeking for sometime. The allegations of the show cause notice were denied and it was stated that the Petitioner No. 1 had furnished all the information and certificates as to the instalment of the machinery and that it had also started functioning in the stipulated period. It was pointed out that the case was decided against the petitioners without granting an opportunity of personal hearing.

Thereafter, a further detailed reply was submitted by the petitioners to the Commissioner of Customs on 24th January, 1998.

In the present writ petition, while directing notice to be issued, the Court on 4th February, 1998 passed the following interim order :

"In the meantime, the respondents may proceed with the adjudication proceedings. However, the final order to be passed shall not be given effect to till the next date except by the leave of the court."

By the subsequent order dated 4th May, 1999 the interim order was made absolute. In response to the notice issued in the writ petition, a reply has been filed by the DGHS.

Mr. Rahul Gupta, learned counsel appearing for the petitioner, points out that in neither of the orders of the DGHS dated 4th November, 1997 or 17th December, 1997, was a reference made to the replies filed by the petitioner to the show cause notices. The orders proceed on the basis that no reply was in fact filed. He further points out that the show cause notice issued by the Customs was only as a result of the erroneous orders of the DGHS which were themselves passed without verifying the detailed information furnished by the petitioner. He states that despite the orders of this Court permitting the Customs to proceed with the adjudication, no adjudication in fact took place pursuant to the show cause notice dated 3rd January, 1998. He referred to the decisions in Mediwell Hospital and Health Care Pvt. Ltd. (supra) as further modified in Sri Sathya Sai Institute v. UOI - 2003 (158) E.L.T. 675 (S.C.).

Mr. Gupta pointed out that pursuant to orders of this Court in the PIL and the Supreme Court, show cause notices were issued to several importers of medical equipment alleging violation of the conditions attached to the CDECs issued in terms of the Notification No. 64/88, dated 1st March, 1988. There was confusion as to whether action could be taken in respect of the obligations/conditions to be fulfilled in terms of the CDEC for the period beyond the said Notification No. 64/88 which was replaced by another Notification in 1994. He referred to the decision of the Madras High Court in Apollo Hospitals Enterprises Ltd. v. Union of India - 2001 (133) E.L.T. 58 (Mad.) and this Court in R.G. Stone Urological Research Institute v. UOI & Ors. - (173) 2010 DLT 385 : 2011 (263) E.L.T. 366 (Del.) both of which clarified that the DGHS could seek enforcement of the obligations under the said Notification No. 64/88 only during the period in which the said notification was in existence.

Learned counsel for the respondents sought to defend the impugned SCNs and orders. Learned counsel appearing on behalf of the Customs was unable to confirm whether any adjudication order was in fact passed pursuant to the Show Cause Notice dated 3rd January, 1998.

A perusal of the show cause notices issued to the petitioner by the DGHS reveal that the action was triggered pursuant to the orders passed by this Court in W.P. (C) No. 409/1996 (People''s Union for Civil Liberties v. Union of India) as well as the Supreme Court in Mediwell Hospital and Health Care Pvt. Ltd. (supra). Those orders were based on the general apprehension of non-fulfilment of the conditions attached the CDEC Certificate in terms of Notification No. 64/88 issued by the Customs. The petitioners made a specific averment in Para 27 of the writ petition that they had furnished a detailed reply on 16th July, 1997 to the show cause notice. In response to the said averment, it is simply stated in the counter affidavit filed on behalf of the DGHS that this is a matter of record. In other words, there is no denial that the DGHS did receive the petitioners'' reply dated 16th July, 1997 and yet in the first impugned order dated 4th November, 1997, it is stated that the petitioner had failed to file a reply before the dead line fixed by this Court in W.P. (C) No. 409/1996, i.e., 15th September, 1997. It is only on the basis of the above failure to file the reply that a conclusion was drawn that the Petitioner No. 1 institute failed to fulfil the conditions attached with the CDEC.

The strongest point in support of the contention urged by the petitioners is that despite the petitioners thereafter pointing out to the DGHS that the above conclusion drawn by the DGHS was not justified since a reply had already been furnished by the petitioners, in the subsequent order dated 17th December, 1997 again, no reference is made to the replies actually furnished by the petitioner not only on 16th July, 1997, but also subsequently. It is also stated that no recommendation was received by the State Government. With the petitioner having furnished the details of the free treatment being given by it to the indoor and outdoor patients in fulfilment of the required conditions attached to the CDEC, the onus shifted to the respondents to have these details verified and to point out to the petitioner if there was anything incorrect or erroneous in the said information furnished by the petitioner. As already noticed herein, the petitioners had furnished this information on more than one occasion and in a proforma as demanded by the DGHS. With there being no reference whatsoever to the information furnished by the petitioner, and the petitioner not having been afforded a personal hearing, the conclusion drawn in the orders dated 4th November, 1997 and 17th December, 1997 that the petitioners have not fulfilled the conditions in availing the CDEC appear to be wholly unjustifiable. There appears to be a complete non-application of mind to the reply furnished by the petitioner the receipt of which is in fact not denied in the counter affidavit filed by the DGHS.

As far as the Customs Department is concerned, there appears to be no valid reason why it did not proceed with the adjudication of the show cause notice issued by it, for well over 17 years now despite the specific orders of the Court permitting it to do so and to even pass a final order. They were only restrained from giving effect to such order. The only conclusion that the Court can draw from this is that the Customs Department is clearly not interested in proceeding with the show cause notice issued by it.

For the aforesaid reasons, the Court quashes the two Show Cause Notices dated 3rd July, 1997 and 9th July, 1997 and the corresponding orders dated 4th November, 1997 and 17th December, 1997 issued by the DGHS withdrawing the four CDECs issued to Petitioner No. 1. The Show Cause Notice dated 3rd January, 1998 issued by the Customs Department to Petitioner No. 1 is also quashed.

The writ petition is allowed in the above terms but with no order as to costs.