Diagnostic centre exemption under customs notification turned on the broad meaning of "hospital" and post-import compliance conditions.

Notification No. 64/88-Cus. treated institutions rendering medical, surgical, or diagnostic treatment as "hospital", so a diagnostic centre could qualify for customs duty exemption without any additional indoor-patient requirement. The commentary states that where the equipment was installed and the DGHS certification and bond mechanism contemplated post-import compliance, an alleged shortfall in free-treatment conditions did not by itself defeat the exemption or sustain duty demand, redemption fine, or penalty. It also notes that individual penalties on partners were unsustainable where the show cause notice was not issued to all of them, raising a natural justice concern.

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Issues: (i) whether a diagnostic centre fell within the expression "hospital" for the purposes of Notification No. 64/88-Cus. dated 1-3-1988 and was therefore eligible for customs duty exemption; (ii) whether the alleged shortfall in fulfilment of post-import conditions defeated the exemption and justified duty demand, penalty, and redemption fine; and (iii) whether the penalty imposed on the partners was sustainable.

Issue (i): whether a diagnostic centre fell within the expression "hospital" for the purposes of Notification No. 64/88-Cus. dated 1-3-1988 and was therefore eligible for customs duty exemption.

Analysis: The notification expressly included within "hospital" institutions rendering medical, surgical, or diagnostic treatment. The goods had been certified by the DGHS as essential for the notified purpose, and the surrounding communications showed that diagnostic centres without indoor patient facilities were eligible under the notification. The definition in the notification could not be cut down by reading in an additional requirement of in-patient beds or indoor treatment where the text itself covered diagnostic treatment.

Conclusion: The diagnostic centre qualified as a hospital under the notification, and the exemption was available.

Issue (ii): whether the alleged shortfall in fulfilment of post-import conditions defeated the exemption and justified duty demand, penalty, and redemption fine.

Analysis: The record showed that the equipment had been installed, the centre had started functioning, and the DGHS certificate had already been issued subject to fulfillment of post-import conditions. The notification contemplated post-import certification and the bond and bank guarantee covered such eventualities. On the facts, the alleged deficiency in free treatment did not justify denying the exemption or sustaining the fiscal and penal demands.

Conclusion: The alleged shortfall did not take the case out of the notification, and the duty demand, penalty, and redemption fine were unsustainable.

Issue (iii): whether the penalty imposed on the partners was sustainable.

Analysis: The show cause notice had not been issued to all the partners, yet individual penalties were imposed on each of them. Such a course offended procedural fairness and the principles of natural justice.

Conclusion: The penalties imposed on the partners were not sustainable.

Final Conclusion: The exemption claim was upheld, the adverse order was set aside, and the appellant obtained complete relief from the duty demand and consequential penalties.

Ratio Decidendi: Where a customs exemption notification expressly includes diagnostic treatment within "hospital," the expression must be given its stated width, and post-import conditions cannot be used to narrow the exemption beyond the notification's terms; consequential penalties cannot survive where the exemption applies and procedural fairness is lacking.

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