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Social Welfare Surcharge (SWS) On Imports Using Scrips – Is Exemption An Exception?
Mr. Sriram Balakrishnan (Partner EY)
Mr. Ramani NVS (Manager EY)
The below article is on the recent judgment by the High Court of Madras in the case of Gemini Edibles and Fats India Pvt Ltd [TS-3-HC-2020(MAD)-CUST], rendered in the context of applicability of Social Welfare Surcharge (hereinafter referred to ‘SWS’) in the case of imports using duty credit scrips.
Facts of the Case
In this case the Petitioner, being an importer of goods, has filed two writ petitions challenging the debit of SWS in the duty credit scrips for imports as well as challenging the denial of refund of such debits.
SWS was introduced as a levy under Section 110 of the Finance Act, 2018 to meet the Government's obligations to finance education, health and social security. The said surcharge was levied at the rate of 10% of the aggregate of duties of Customs levied and collected by the Government under Section 12 of the Customs Act, 1962. The said surcharge was levied as duty of customs.
Notifications 24/ 2015 (MEIS) and 25/2015 (SEIS) (Customs - Tariff) dated 08 April 2015 provides for exemption from Basic Customs duty and Basic Customs Duty and Additional Customs Duty on goods imported subject to condition that the Duty Credit Scrips are debited.
While considering the above writ petitions, the High Court had framed the following questions for its consideration:
- Whether the process of import of goods under scrips is to be treated as exemption or payment of Customs Duty?
- Whether SWS is an independent levy or it also takes the colour of the parental levy viz., the customs duty?
- If the customs duty is totally exempted and not paid, whether the Revenue is justified in making deduction towards SWS out of the value of the scrips?
- Whether Notification Nos.24/2015
Analysis
- While examining the above issue, the High Court has considered a medley of arguments put forth both by the Petitioner and respondents on the point of whether the exemption notifications is resulting in exemption from tax.
- The Petitioner argument was primarily focussed on the point of leviability of SWS, effectively, in a situation where the Basic Customs Duty is exempt. The Petitioner has also argued that exemption notifications are applicable only for Basic Customs Duty and does not apply for SWS and hence debiting the scrips for SWS is not valid. The Petitioner have relied, amongst others, on the judgments of Madras High Court in the case of Commissioner of Customs Tuticorin vs. DCW [2014(306) ELT 398] and Gujarat High Court in the case of Commissioner of Customs vs. Pasupati Acrylon Ltd. [2013 (296) ELT182 (Guj.)] [TS-16-HC-2012(GUJ)-CUST] as upheld by Supreme Court to canvass the point that when the basic duty levy is exempt a surcharge levy like SWS will automatically be not leviable. Further, it was also argued by the Petitioner that levy and collection of Customs Duty does not mean debit in scrips and hence it cannot be said that customs duty is not exempt. In fine, the Petitioner argued that 10% of SWS on “Nil” BCD will result in no levy of SWS. Petitioner has also argued that the amount of payment made through scrips are categorized under “Duty Foregone” category in the budget documents to prove the fact that no duty is collected.
- Countering the arguments of the Petitioner, the respondents majorly based their arguments on the provisions of Para 3.15
The Respondent has also relied on the rulings of Madras High Court in the case of TANFAC Industries Ltd., Vs. Assistant Commissioner of Customs Cuddalore, [TS-4-HC-2009(MAD)-CUST] upheld by Supreme Court [TS-4-HC-2009(MAD)-CUST, CCE v. SPIC, Heavy Chemicals Division, [2014 25 GSTR 538 (Mad)] and Gujarat High Court in case of Ratnamani Metals And Tubes Ltd. v. Union of India, [2016 (339) ELT 509 (Guj)] to hold the argument that debit of duty scrips for payment of BCD under these notifications is not exemption per se, though these notifications are issued as exemption notification under Section 25 of Customs Act, 1962.
Respondents has also contended that if BCD is debitable in scrip, SWS would also be debitable in scrip. However, subsequently this plea was withdrawn as both the Petitioner and respondents have relied upon the ruling of Supreme Court in the case of Unicorn Industries vs Union of India [TS-1108-SC-2019-EXC]. Based on Unicorn judgment both the Petitioner and respondents have agreed on the point that BCD and SWS are independent levies.
- After considering the arguments, the High Court proceeded to determine the questions set out for consideration as follows:
i) Relying on the provisions of Foreign Trade Policy read with the exemption notifications, the High Court took a view that the amount debited in the scrips are nothing but payment of customs duty since the duty credit scrips represents money value. Accordingly, it was held in Para 29 that customs duty was levied and collected, though deducted from the value of the scrips.
The High Court has also held the primacy of the decision of the Madras High Court in the case of Tanfac as upheld by the Apex Court on 09.10.2009 over the rulings placed on by the Petitioner. The High Court has also considered the different point of view taken by Gujarat High Court in the cases of Gujarat Ambuja and Pasupati Acrylon case 2013 (297) E.L.T. A102 (SC). However, the High Court has not regarded these judgements as those were pronounced without taking cognizance of dismissal of SLP in the Tanfac by Supreme court against the Petitioner as it was not placed before Gujarat High Court. A similar view taken in the case of Gujarat High Court in the case of Ratnamani Metals And Tubes Ltd. 2016 (339) ELT 509 (Guj) was also relied upon by the High Court to conclude the view held in Tanfac judgment.
The High Court has observed that it is relying on TANFAC ruling in the absence of any direct decision of the Apex Court on this point.
Accordingly, it was held that the Petitioner was not justified in contending total exemption of BCD in case of import through scrips.
ii) The High Court has also held that SWS is an independent levy and exemption notification issued for usage of scrips are restricted only to BCD and does not apply to SWS. Accordingly, it was held that the respondents are not empowered to debit SWS from the value of the scrips.
iii)The High Court has also held that the exemption granted is not a full exemption but only against payment of duty in cash.
iv)Finally, the High Court has also re-iterated the point that since the exemption is only for payment of duty in cash, the liability to pay SWS shall arise and the same shall be discharged in cash or in any other mode.
...Consequential orders of re-credit of value of scrip was also ordered once the Petitioner pays the SWS by cash or in any other mode.
- The ruling has touched upon several important aspects, of which the following points are worth highlighting:
a) As stated above, the High Court based its conclusion by relying on the ruling of TANFAC Industries in holding debit in duty credit scrips would not amount to exemption, especially, in the absence of any direct decision of the Apex Court on this point. It needs mention that the Department had preferred an appeal before Apex Court against the ruling of Gujarat High Court in the case of Pasupati Acrylon and the same was dismissed in 2013 with a ruling “no ground is made out to interfere in this matter”. This particular fact has not been considered by the Madras High Court.
b) One of the key considerations of High Court to decide that BCD is not exempt is on the premise that debiting SWS is equivalent to levy and collection. However, there are rulings of the Apex Court on the point of collection of tax. In the case of Somaiya Organics Versus State of Uttar Pradesh [2001 (4) TMI 84 - SC)] the Apex Court has held that collection of duty means physical realization of the tax which is levied.
While the High Court ruling results in a situation of payment in cash and re-credit to the Petitioner however this can have significant impact on the Customs system as well as can have various other consequences as explained above. It would be interesting to note how the aforesaid points will be taken up at higher forums before a conclusion is arrived on the matter.
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(View expressed are personal)