MEIS scheme imports exempt from Social Welfare Surcharge when customs duty exempted under Section 110

CESTAT Mumbai held that Social Welfare Surcharge (SWS) is not payable on goods imported under MEIS scheme where customs duty is exempted. The tribunal ruled that since SWS is calculated at 10% of customs duty actually levied under Section 110 of Finance Act 2018, and no customs duty was payable due to exemption notification, SWS automatically becomes zero. The decision followed Bombay HC precedent in La Tim Sourcing case and SC's ruling in Pasupathi Acrylon Ltd, establishing that no cess is payable when basic customs duty is nil. Appeals allowed in favor of appellants.

---

---

Issues Involved:
1. Whether Social Welfare Surcharge (SWS) is payable when Basic Customs Duty (BCD) is exempt under Notification No. 24/2015-Cus.
2. The interpretation of the legal provisions under Section 110 of the Finance Act, 2018, and Section 25 of the Customs Act, 1962.
3. The relevance of previous judgments and circulars in determining the applicability of SWS.

Summary:

Issue 1: Whether Social Welfare Surcharge (SWS) is payable when Basic Customs Duty (BCD) is exempt under Notification No. 24/2015-Cus.

The appellants, M/s Reliance Industries Limited and M/s Reliance Life Sciences Private Limited, argued that since the BCD was 'zero' under Notification No. 24/2015-Cus. dated 08.04.2015, the SWS at 10% of such 'zero' BCD would also be 'zero'. The department, however, insisted on the payment of SWS, contending that there was no specific exemption for SWS in the said notification. The Tribunal concluded that since the effective rate of customs duty is 'zero' by virtue of the notification, the rate of SWS when calculated in terms of Section 110 of the Finance Act, 2018, would also be 'zero'. The Tribunal relied on the clarification issued by the Ministry of Finance in Circular No. 3/2022-Customs dated 01.02.2022, which stated that SWS is 'NIL' when the aggregate of customs duties for calculation of SWS is 'zero'.

Issue 2: The interpretation of the legal provisions under Section 110 of the Finance Act, 2018, and Section 25 of the Customs Act, 1962.

The Tribunal examined the relevant legal provisions, noting that Section 25 of the Customs Act, 1962, empowers the Central Government to issue notifications exempting goods from customs duty. In this case, Notification No. 24/2015-Cus. exempted the goods from BCD. Section 110 of the Finance Act, 2018, provides that SWS shall be calculated at the rate of 10% on the aggregate of duties of customs. Since no customs duty is leviable due to the exemption, there is no question of paying SWS. The Tribunal held that the Customs department's responsibility is to ensure that the goods sought to be exempted are imported under the MEIS scheme and that the conditions of the notification are met.

Issue 3: The relevance of previous judgments and circulars in determining the applicability of SWS.

The Tribunal referred to several judgments, including the case of LA TIM Metal & Industries Limited vs. Union of India, where it was held that if BCD is 'Nil', then SWS payable at 10% of BCD is also computed as 'Nil'. The Tribunal also cited the case of Commissioner of Customs (Export) vs. Reliance Industries Ltd., where it was held that when customs duty is fully exempt under the DEPB scheme, the education cess calculated at 2% on the customs duty also becomes 'Nil'. The Tribunal found that these judgments supported the appellants' case. Additionally, the Tribunal noted that the Ministry of Finance's Circular No. 3/2022-Customs clarified that SWS is 'NIL' when the aggregate of customs duties is 'zero'.

In conclusion, the Tribunal set aside the impugned orders and allowed the appeals in favor of the appellants, with consequential relief, if any.

---