Customs exemption notifications do not automatically cover Social Welfare Surcharge; duty credit scrip debit is payment of duty.

A customs exemption notification issued under Section 25(1) of the Customs Act must be construed by its substance and operative effect, not by the source of power alone; the notification may provide complete or conditional relief depending on its terms. Exemption from customs duty does not automatically extend to Social Welfare Surcharge levied under Section 110 of the Finance Act, 2018 unless that charging provision is expressly or clearly covered, so the surcharge remains payable. Debit of MEIS/SEIS duty credit scrips under the Foreign Trade Policy is a mode of payment of customs duty, not a mere procedural step. Non-credit to the Consolidated Fund of India does not negate levy or collection where duty is discharged through the prescribed mechanism.

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Issues: (i) Whether a notification issued under Section 25(1) of the Customs Act, 1962 must, by that source of power alone, be treated as granting exemption from levy of customs duty. (ii) Whether exemption notifications referring only to Section 25(1) of the Customs Act, 1962 extend to Social Welfare Surcharge levied under Section 110 of the Finance Act, 2018. (iii) Whether debit of MEIS/SEIS duty credit scrips is merely procedural or constitutes a mode of payment of duty. (iv) Whether absence of credit to the Consolidated Fund of India negates levy or collection of duty for the purpose of Social Welfare Surcharge.

Issue (i): Whether a notification issued under Section 25(1) of the Customs Act, 1962 must, by that source of power alone, be treated as granting exemption from levy of customs duty.

Analysis: The source of power is not conclusive by itself. The scope and effect of the notification must be determined by its substance, object and operative effect, applying the doctrine of pith and substance and the principle of substance over form. A notification issued under Section 25(1) may confer different kinds of relief, including complete exemption, partial exemption, or a conditional mechanism for discharge of duty.

Conclusion: The source of power alone does not decide the nature of the benefit, and the notification must be construed on its true substance.

Issue (ii): Whether exemption notifications referring only to Section 25(1) of the Customs Act, 1962 extend to Social Welfare Surcharge levied under Section 110 of the Finance Act, 2018.

Analysis: Exemption from one levy does not automatically extend to another levy imposed under a different enactment. The notifications in question referred only to Section 25(1) of the Customs Act, 1962 and did not refer to Section 110 of the Finance Act, 2018. Legislative practice showed that when the Government intended to exempt a surcharge or cess, the notification expressly referred to the charging provision for that levy. The surcharge could therefore not be treated as covered by the customs exemption notifications.

Conclusion: The notifications did not exempt Social Welfare Surcharge, and the surcharge remained payable.

Issue (iii): Whether debit of MEIS/SEIS duty credit scrips is merely procedural or constitutes a mode of payment of duty.

Analysis: The Foreign Trade Policy permitted duty credit scrips to be used for payment of customs duty, and the debit mechanism was part of the method of discharging that obligation. The Court distinguished a purely duty-free regime from a conditional exemption through scrip debit. On the scheme and the controlling precedent within the jurisdiction, debit of the scrips was not a mere administrative formality but an actual mode of payment of duty.

Conclusion: Debit of MEIS/SEIS scrips is a mode of payment of duty and not a mere procedural exercise.

Issue (iv): Whether absence of credit to the Consolidated Fund of India negates levy or collection of duty for the purpose of Social Welfare Surcharge.

Analysis: Whether amounts ultimately enter the Consolidated Fund of India does not determine the existence of a levy or collection. The constitutional destination of receipts is distinct from the validity and incidence of the charging mechanism. The Court rejected the argument that duty foregone or non-credit to the Consolidated Fund destroys levy or collection where the statutory duty is otherwise discharged through the prescribed mechanism.

Conclusion: Non-credit to the Consolidated Fund of India does not negate levy or collection of duty.

Final Conclusion: The exemption notifications did not cover Social Welfare Surcharge, and the debit of duty credit scrips amounted to payment of customs duty. The writ appeals therefore failed.

Ratio Decidendi: A customs exemption notification must be construed by its substance, and unless the charging provision of a separate levy is expressly or clearly covered, exemption from customs duty does not extend to that separate levy; debit of duty credit scrips under the scheme constitutes payment of duty.

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