The Hindu Business Line : Tax keeps pace with medical advances

At the heart of this case is the `accessory' to an MRI system. The case signals why it is important for our health that the taxman tuned in to developments in the medical sphere.

THE Manipal Academy of Higher Education imported `Path Speed Work Station' in the year 2000. When the Academy claimed the benefit under a Customs Notification, the Department denied the same. The Academy wanted to re-export the goods, but the taxman turned down that request too, even as he confiscated the workstation, stipulated a redemption fine of Rs 50 lakh and levied a penalty of Rs 20 lakh each on the Academy, the buyer, and on Wipro GE Medical Systems, the seller.

The points raised by `the original authority' were that there was no indication that the workstation was designed to be linked exclusively to the MRI system. "The value of the goods claimed as accessories is Rs 2,19,67,500 while the value of the main MRI system cleared was Rs 1,90,32,468 and it is beyond imagination that an MRI system or any equipment can have an accessory which is costlier than the system itself," observed the taxman's order.

Arguing at the Bangalore Tribunal, the Academy's advocate B.V. Kumar explained that the goods had been sold in 1999 `on high sea sales contract' by Wipro GE. "The goods were declared as partial shipment of GE 0.2T Sigma Profile Magnetic Resonance Imaging (MRI) System. However, on examination, the goods were found to be `Path Speed Work Station' which in the opinion of the Revenue was not entitled for the exemption Notification," one learns from the text of the Tribunal's order available in Excise Law Times dated December 5.

Accessory defined

Kumar explained that the gadget worked in conjunction with the MRI system. It was useful for storing and retrieving MRI images, he said. "It definitely enhances the working of MRI system and it can be considered as an `accessory' of the MRI system," Kumar reasoned. According to the Notification, an accessory of MRI system was entitled for exemption, he said.

In this context, Kumar cited definitions of `accessory' from varied sources. For instance, in the Jolly Exports P Ltd case, it was held that accessory means something contributing in a subordinate degree to attain a general result or effect. "If a machinery cannot be worked without the part, then it ceases to be an accessory. If it adds merely to the convenience or effectiveness of a machinery like a speedometer it would be an accessory," it was said then.

Accessory is an object or device that is not essential in itself but that adds to the beauty, convenience, or effectiveness of something else, the apex court had said in the Annapurna Carbon Industries Co case, drawing from Webster's Dictionary. In the Eureka Forbes Ltd case (2000) it had been held that prefilter `for enhancing the utility of the activated carbon column' is not an essential part of Aquaguard but an accessory. "An object or device which adds to the effectiveness of something else cannot be considered to be an integral part of the equipment but it can only be an accessory," it was observed.

Only an archiving system

For the Department, it was Shobha L. Chary who argued that there was `misdeclaration' on the part of the Academy. The imported goods were nothing but PACS or `Picture Archiving and Communication System', she said. "This enables the pictures taken in either MRI or X-ray or ultrascan to be stored and later retrieved for various purposes," explained Chary. Accordingly, the workstation was "a standalone system and by no stretch of imagination... an accessory of MRI system," she added. "This has nothing to do with MRI in the sense that it does not enhance the functioning of MRI system. Its only function is storing all other inputs from MRI, CT, X-ray, and so on for retrieval," averred Chary.

To prove her point, she too cited cases such as: The Nirulas Corner House P Ltd case where the apex court had held that "can filler fruit feeder and ripple machine are all independent machines and not accessories to the continuance ice cream freezer"; the Electronics Ltd case where it was held that trolleys for coolers are not accessories for coolers; and the Sen and Pandit Electronics P Ltd case where the Tribunal had held that voltage stabiliser is not an accessory of refrigerating and air-conditioning appliances.

Systems in other hospitals

To understand the function of the goods in question, the Tribunal perused a letter from the Medical Superintendent of Tata Memorial Hospital, Mumbai, where a similar equipment is used for tertiary care of cancer patients.

"Evaluation of cancer requires comparing of images accrued over a period of time for proper diagnosis and treatment," explained that letter. "It has been our experience that manual storage of radiographs is cumbersome, time-consuming for retrieval and is associated with the radiographs being spoilt, thereby negating the very purpose of archiving," it continued.

One learns from the letter that after exploring various options, Tata hospital had chosen to acquire PACS from Wipro GE "since they were the first to market the product in India." PACS is being fully integrated with the imaging modalities and the Radiology Information System, states the letter.

"This facility enables the clinicians to view the images alongside the reports. The pre-fetch facility makes available all previous images to the clinicians on their desktop for comparison with recent ones. Further, the procurement of diagnostic workstations for radiologists will enable them to do softcopy reporting which will enable the hospital to go film-less," concludes the letter on a positive note.

The Tribunal considered also an extract from www.gwhospital.com/p5581.html, provided by the Christian Medical College and Hospital, Vellore, about the functioning of PACS in the George Washington University Hospital. The "benefits of a PACS system are multi-fold; report turnaround time is reduced and patient care is improved, as physicians will no longer need to wait for film images to be processed and then analysed and/or delivered," it read. "Images will be permanently stored at the hospital in a DVD jukebox, eliminating lost records. PACS can reduce or even abolish the use of films, resulting in cost savings. Finally, patients will benefit because they will no longer need to bring their X-rays to their physicians," explained the URL.

Tribunal's observations

"Great strides have been made in diagnosis of various diseases. Medical imaging has played a great role in clinical diagnosis," noted the Tribunal. The phrase `medical imaging' means the production of visual representations of body parts, tissues or organs, for use in clinical diagnosis, encompasses X-ray methods, MRI, single-photon-emission and positron-emission tomography, and ultrasound, defined the Tribunal, citing the Dictionary of Scientific and Technical terms.

With the use of sophisticated instruments, it is possible to scan any part of the body and get the image for proper diagnosis, noted the Tribunal. "Normally, the image is recorded in a film. However, with the PACS, it is possible to store and retrieve the image through the computer system."

The goods in question definitely enhance the utility of MRI and other scanning systems, said the Tribunal. "The impugned goods may not be exclusively used with only MRI system. It is capable of use along with CT, ultra scan, X-ray systems. But that cannot be the reason to say that the system cannot be used as an accessory to the MRI system," reasoned the Tribunal.

What is the test to decide if an equipment is an accessory, asked the Tribunal, and sought help in `a very simple definition' from the Advanced Learner's Dictionary (Oxford): "An extra piece of equipment that is useful but not essential or that can be added to something else as a decoration". Speedometer came as a handy example; it is not very essential for the functioning of a motor vehicle, but it definitely enhances the utility of the vehicle, pointed out the Tribunal.

Similarly, the imported system is not very essential for the working of MRI system, but there is no doubt that the workstation connected to the MRI enhances utility, stated the Tribunal, on the strength of the product literature and expert opinion.

"The fact that the impugned goods cost much more than the MRI system cannot be a reason to hold that they are not accessories," clarified the Tribunal. "In our view, the impugned goods pass the test of being an accessory to the MRI system," ruled the Tribunal, setting aside the confiscation and penalty. The Academy is, therefore, entitled to the benefit under the Notification, ordered the Tribunal.

A case that signals why it is important for our health that the taxman kept pace with developments in the medical sphere.

Cases@TheHindu.co.in

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