CESTAT rules Social Welfare Surcharge cannot be levied on MEIS/SEIS imports with notional Basic Customs Duty

CESTAT Kolkata held that Social Welfare Surcharge (SWS) cannot be levied on goods imported under MEIS/SEIS schemes when computed on notional Basic Customs Duty in cash. The tribunal applied established jurisprudence regarding Education Cess non-applicability for DEPB/Target Plus schemes to SWS, finding provisions pari materia. The tribunal prioritized Circular dated 01.02.2022 over earlier Circular dated 10.1.2020, distinguishing SC precedent in Unicorn Industries which concerned area-based exemption refunds rather than levy issues. Appeals were allowed, modifying assessments to exclude SWS imposition with consequential relief.

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Issues Involved:
1. Levy and collection of Social Welfare Surcharge (SWS) on exempted Basic Customs Duty (BCD).
2. Applicability of Circulars and previous judicial decisions regarding SWS and similar surcharges.
3. Interpretation of exemption notifications and their impact on the computation of SWS.

Summary:

Issue 1: Levy and Collection of SWS on Exempted BCD
The core issue in these appeals is whether SWS should be levied on BCD that is exempted under specific notifications. The Appellant argued that since BCD was not collected due to the exemption, SWS should also be zero. This argument is based on Section 110(3) of the Finance Act, 2018, which states that SWS is calculated on duties "levied and collected." The Appellant cited the Supreme Court's decision in Somaiya Organics Limited, which defined "collection" as the physical realization of tax. The Tribunal agreed with the Appellant, noting that BCD was shown as "zero" in the Bills of Entry, indicating no actual collection of BCD.

Issue 2: Applicability of Circulars and Judicial Decisions
The Appellant referenced Circular No. 03/2022, which clarified that SWS would be nil if the aggregate of customs duties is zero. The Tribunal noted that this beneficial circular should be applied retrospectively, as per the Supreme Court's decision in Suchitra Components. The Tribunal also considered previous judicial decisions, including the Bombay High Court's ruling in the Appellant's own case, which supported the non-leviability of SWS on exempted BCD. The Tribunal found that the earlier Circular No. 2/2020, which mandated SWS on imports against MEIS/SEIS scrips, could not override the later beneficial circular.

Issue 3: Interpretation of Exemption Notifications
The Tribunal examined the exemption notifications (Nos. 24/2015 and 25/2015) and concluded that the debit of BCD to the scrips is a procedural matter and does not constitute actual collection. The Tribunal referenced multiple High Court decisions, including Gujarat Ambuja Exports and Reliance Industries, which held that similar debits under DEPB and Target Plus Schemes did not amount to tax collection. The Tribunal found that the Appellate Commissioner's reliance on Circular No. 5/2005 was misplaced, as it had been quashed by the Gujarat High Court.

Conclusion:
The Tribunal concluded that SWS could not be levied on notional BCD when BCD is exempted under the relevant notifications. The Tribunal also noted that the Bombay High Court's decision in the Appellant's favor was not stayed and had been followed by refund orders. The appeals were allowed, and the assessments were modified to remove the imposition of SWS, providing consequential relief to the Appellant.

(Order pronounced in open court on 22/09/2023.)

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