2024 (6) TMI 142 - HC - Customs

Madras HC upholds Social Welfare Surcharge liability despite MEIS/SEIS scrip debiting under Section 25(1) Customs Act

M/s Gemini Edibles and Fats India Pvt. Ltd. Versus Union of India (Through its Secretary), Assistant Commissioner of Customs, Zonal Joint Director General of Foreign Trade, Director General of Foreign Trade

M/s Gemini Edibles and Fats India Pvt. Ltd. Versus Union of India (Through its Secretary), Assistant Commissioner of Customs, Zonal Joint Director General ... Issues Involved:1. Whether a notification issued u/s 25(1) of the Customs Act can be understood as granting exemption from levy of customs duty.2. Whether a notification containing reference only to Section 25(1) of the Customs Act can be understood as granting exemption to other levies such as Education Cess, Secondary and Higher Education Cess, SWS, etc.3. What is the effect of debit of duty scrips: whether it is a mode of payment of duty or merely procedural and an administrative exercise.4. Whether forming part of the Consolidated Fund of India is a sine qua non for a levy to operate/exist.Summary:Issue 1: Whether a notification issued u/s 25(1) of the Customs Act can be understood as granting exemption from levy of customs duty.The court examined Section 25(1) of the Customs Act, which allows the Central Government to grant exemptions from customs duty. It was argued that notifications issued under this section inherently provide exemptions. However, the court held that the nature and scope of the notification must be determined by applying the doctrine of pith and substance, which requires examining the true character and effect of the notification beyond its form and appearance. The court concluded that notifications under Section 25(1) do not automatically grant exemptions from the levy of customs duty.Issue 2: Whether a notification containing reference only to Section 25(1) of the Customs Act can be understood as granting exemption to other levies such as Education Cess, Secondary and Higher Education Cess, SWS, etc.The court referred to the Supreme Court's decision in Modi Rubber, which held that exemption notifications must explicitly reference the statutes under which other levies are imposed to extend the exemption to those levies. The court found that Notification Nos. 24 and 25 of 2015 only referenced Section 25(1) of the Customs Act and did not include references to the provisions under which SWS is levied. Therefore, the notifications could not be understood as granting exemptions from SWS.Issue 3: What is the effect of debit of duty scrips: whether it is a mode of payment of duty or merely procedural and an administrative exercise.The court referred to the DEPB scheme and similar cases, where it was held that debiting duty scrips is a mode of payment of duty and not an exemption. The court emphasized that the debit of MEIS/SEIS scrips is a mode of discharging duty obligations under the Customs Act. The court also noted that the FTP 2015-2020 allows duty credit scrips to be used for payment of customs duty, and such debits can be adjusted as CENVAT credit or duty drawback. Thus, the court concluded that debiting duty scrips constitutes payment of duty.Issue 4: Whether forming part of the Consolidated Fund of India is a sine qua non for a levy to operate/exist.The court rejected the argument that taxes must form part of the Consolidated Fund of India to be considered levied or collected. The court held that the validity of a levy does not depend on whether the funds reach the Consolidated Fund. The court cited the Supreme Court's decision in Jaora Sugar Mills, which stated that the manner in which funds are utilized does not affect the validity of the levy. Therefore, the court concluded that the fact that duty does not form part of the Consolidated Fund of India does not impact the determination of whether there was a levy or collection of duty.Conclusion:The court dismissed the appeals, upholding the order of the learned Judge, and concluded that the appellant is liable to pay SWS, which cannot be debited from MEIS/SEIS scrips. The court directed the respondents to recredit the value of SWS debited from the scrips, subject to the appellant paying SWS in cash or any other mode within four weeks.