Conditional customs exemption lapses when the exemption certificate is withdrawn, making the underlying duty demand sustainable.

A customs exemption under Notification No. 64/88-Cus. was conditional on a valid exemption certificate and the category of hospital covered by that certificate. The record showed the certificate had been issued for a hospital treated under paragraph 2 of the notification, not paragraph 1, and the Commissioner (Appeals) had relied on an unsupported assumption to the contrary. Once the DGHS withdrew the certificate for non-fulfilment of the stipulated conditions, the exemption ceased to operate and the continuing liability to customs duty remained enforceable. The duty demand was therefore sustainable and the original demand was restored.

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Issues: Whether the respondents were entitled to retain the customs duty exemption under Notification No. 64/88-Cus. after withdrawal of the Customs Duty Exemption Certificate, and whether the duty demand was sustainable.

Analysis: The exemption under the notification was conditional and depended upon the category of hospital for which the certificate was issued. The record showed that the DGHS had issued the certificate treating the hospital as falling under paragraph 2 of the Table to the notification, and not paragraph 1. The Commissioner (Appeals) had proceeded on an unsupported assumption that the respondents were recognised as a charitable hospital falling under paragraph 1. Once the DGHS withdrew the exemption certificate for non-fulfilment of the stipulated conditions, the continuing obligation attached to the exemption remained operative and the natural consequence was liability to customs duty. The withdrawal of the foundation for exemption could not be ignored by the customs authorities.

Conclusion: The duty demand was sustainable and the respondents were not entitled to the exemption after withdrawal of the certificate.

Final Conclusion: The impugned appellate order was unsustainable and the original duty demand was restored.

Ratio Decidendi: Where a customs exemption depends on a valid exemption certificate and the competent authority withdraws that certificate, the exemption lapses and customs duty becomes payable in accordance with the continuing conditions of the notification.

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