2024 (11) TMI 1055 - HC - Customs

Section 110 means Social Welfare Surcharge not payable when customs duty is exempted by a scrip; declaration granted

M/s. Dalmia Cement (Bharat) Limited Versus Union of India and others

HC held that Social Welfare Surcharge (SWS) is not payable where the underlying customs duty is exempted under a scrip; because section 110 charges SWS as ... Requirement to pay Social Welfare Surcharge (SWS) - levy of SWS on imported goods, when the basic customs and additional duty of customs are debited in the scrip - HELD THAT:- We see from relevant provisions in section 110 reproduced above that the levy and collection is provided by sub-section (1). The levy is to be on goods imported into India and accordingly collected. Sub-section (3) is the charging provision. It says, the levy under sub-section (1) shall be calculated at 10% on the aggregate of duties, taxes and cesses, which are levied and collected by the Central Government in the Ministry of Finance (Department of Revenue) under section 12 of the Customs Act, 1962. There is no dispute before us that the scrip petitioner holds, exempts it on collection from it, the customs duty levied. In M/s. Unicorn Industries [2019 (12) TMI 286 - SUPREME COURT] case of appellant before the Supreme Court was in resisting the levy and collection of National Calamity Contingency duty (NCCD). A finding by the Supreme Court that appeared to be obvious from the beginning was, absence of any notification issued under the legislation or Act providing for the levy and charge for collection of NCCD, being Finance Act, 2001. On behalf of petitioner clear submission is, for furthering challenge in the writ petition reliance is not placed on M/s. Unicorn Industries (supra) nor SRD Nutrients Private Limited [2017 (11) TMI 655 - SUPREME COURT]. The challenge mounted is on case that where the charge is on amount of customs duty paid and such duty is exempt, the charge being a percentage of duty paid, must be zero. No duty was paid so there cannot be a percentage of it, to result in any sum payable as SWS. Upon a person obtaining exemption, he cannot be said to be discharging liability to pay duty. There is no fact of collection following the levy. The charging provision by sub-section (3) in section 110 is a percentage of customs duty paid, as collected by the Central Government. The duty paid being zero, collection is zero and percentage of it must also be zero. Our reasoning might appear to be similar to that made by the Supreme Court in SRD Nutrients [supra] but petitioner is not relying on the judgment, understandably so. Petitioner’s case is of submitting to provisions in section 110 of Finance Act, 2018, as applicable to it but, working of the charging provision releasing it from paying SWS. Debits in the scrip is for purpose of measure of quantum of exemption utilized under it. Having said that, it appears petitioner has prayed for exemption in its prayer. It is competent for us to mould the prayer. On query made Mr. Sridharan submits, his client protested but the new system in place does not permit registration of any protest. As such, his client was compelled to pay. In the circumstances, petitioner is entitled to and gets declaration that it is not required to pay SWS calculated on customs duty, exempted under scrip held by it. WP allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether Social Welfare Surcharge (SWS) under section 110 of the Finance Act, 2018 is payable where basic customs duty and additional customs duties are discharged by debit to a duty credit scrip issued under the Merchandise Exports from India Scheme (MEIS), thereby resulting in no actual customs duty being collected. 2. Whether a notification or exemption under the Customs Act (or debit of a duty credit scrip) that exempts payment/collection of customs duty can, by itself, exempt the corresponding SWS imposed under separate legislation (Finance Act, 2018), or whether SWS remains payable because it is a distinct levy under a different statutory scheme. 3. Whether debit of a duty credit scrip constitutes 'payment/collection' of customs duty for purposes of calculating SWS under section 110(3), and whether the mechanistic debit on the scrip can operate as the constitutional 'collection' contemplated by Article 265. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Payability of SWS where customs duty is discharged by duty credit scrip Legal framework: Section 110(1) levies SWS on imported goods; section 110(3) charges SWS at 10% on the aggregate of duties, taxes and cesses 'levied and collected by the Central Government ... under section 12 of the Customs Act, 1962 and any sum chargeable on the goods ... under any other law ... as an addition to, and in the same manner as, a duty of customs.' MEIS scrips are issued under powers in section 25 of the Customs Act and used to debit basic and additional customs duties per Foreign Trade Policy provisions. Precedent treatment: The Supreme Court in earlier decisions has held that exemption under one statute does not automatically exempt another levy imposed by different legislation unless a notification under the latter specifically exempts it; decisions such as those following that principle were relied on by revenue. Several High Courts (Madras Division Bench in the referred judgment) applied that approach to hold SWS payable despite scrip debit. Other High Courts have taken differing views. Interpretation and reasoning: The Court examined the text of section 110(3) and concluded that SWS is a percentage charged on duties that are 'levied and collected.' Where a duty credit scrip results in exemption from payment/collection of customs duty, there is no actual collection by the Government; the collected amount is zero. The Court treated the statutory phrase 'levied and collected' in the constitutional and tax-law context (drawing on jurisprudence distinguishing 'levy' and 'collect') and concluded that debit of a scrip, which effects exemption, does not equate to collection in monetary terms by the Government for the purpose of computing a percentage-based surcharge. The debit in the scrip is a measure of quantum of exemption used, not payment/collection that generates an amount on which SWS can be calculated. Ratio vs. Obiter: Ratio - Section 110(3)'s charging mechanism requires actual collection of the underlying customs duty; where collection is nil due to exemption by valid scrip, SWS computed as a percentage of collected duty is nil. Obiter - observations distinguishing factual matrices of other High Court decisions and comments on administrative circulars having no force of law. Conclusion: SWS is not payable where customs duty is exempted/ discharged by debit to a duty credit scrip resulting in zero customs duty collection; consequently, the SWS calculated on such exempted customs duty is nil. Issue 2 - Effect of notification under one statute (Customs Act) on levy under separate statute (Finance Act) and role of administrative circulars Legal framework: Notifications under section 25 of the Customs Act may exempt or permit discharge of customs duty; SWS is levied under a separate enactment (Finance Act, 2018). Article 265 requires taxation only by authority of law, and case-law distinguishes 'levy' from 'collection.' Precedent treatment: The Court engaged with the Supreme Court's reasoning (as cited by revenue) that exemption under one statute does not automatically exempt another levy unless the latter's statute or notification specifically provides exemption; administrative circulars do not have the force of law and cannot override statutory text or substitute for notifications required by the charging statute. Interpretation and reasoning: The Court acknowledged the general principle that exemptions under one statute do not extend to separate statutory levies absent express provision. However, it confined that principle to situations where the underlying duty is imposed and collected, and where the challenged levy is not contingent on actual collection being zero. Here the Court emphasized that the critical inquiry under section 110(3) is whether there is any amount actually levied and collected by the Government; if none, there is nothing on which to levy a surcharge. The Court therefore differentiated the conceptual question of statutory independence of levies from the practical operation of a percentage-based charging provision that depends on amounts collected. The Court also held that administrative circulars cannot supply statutory authority to impose a levy where the statutory charging mechanism yields nil by reason of exemption. Ratio vs. Obiter: Ratio - Independence of statutory levies does not override the textual operation of a charging provision that predicates the surcharge upon amounts actually levied and collected; thus an exemption that results in no collection precludes computation of SWS. Obiter - remarks on limits of administrative circulars and comparative High Court decisions. Conclusion: While separate statutes ordinarily require separate authority for exemption, where a scrip legitimately prevents collection of customs duty, the statutory mechanism for SWS (a percentage of collected duties) produces no liability; administrative circulars cannot alter that statutory outcome. Issue 3 - Whether debit of duty credit scrip constitutes 'payment/collection' for Article 265 and section 110(3) purposes, and relief for past payments made under compulsion Legal framework: Article 265 prohibits taxation except by authority of law; tax terminology distinguishes levy/assessment from collection/realization. The MEIS/FTP provisions describe nature of duty credit scrips and permitted uses (including discharge of basic and additional customs duties). Precedent treatment: Authorities construing 'collection' as physical realization of tax and treating exemptions as meaning no collection were considered. Decisions holding debit of scrip to be a mode of discharging duty obligation were examined, including conflicting High Court views. Interpretation and reasoning: The Court interpreted debit of a duty credit scrip as an administrative mechanism to track quantum of exemption utilized rather than as a monetary payment to the Consolidated Fund constituting collection. Applying Article 265 jurisprudence and the statutory wording of section 110(3), the Court concluded that where the scrip effectually results in no collection, SWS cannot be computed as a percentage of a non-existent collected amount. The Court further addressed the practical consequence where the taxpayer had been compelled to effect protest-less payments under a system that did not permit registration of protest and moulded relief to declare no liability and to address amounts paid under compulsion. Ratio vs. Obiter: Ratio - Debit of duty credit scrip that results in nil collection cannot be equated to collection for purpose of imposing SWS; declarations and relief are appropriate where payment was made under compulsion without ability to protest. Obiter - discussion on administrative practice and cross-jurisdictional High Court divergences. Conclusion: Debit of a duty credit scrip does not amount to collection of customs duty for purposes of computing SWS; accordingly, SWS is not payable on customs duties exempted via scrip, and the aggrieved party is entitled to a declaration to that effect and relief for compelled payments in the circumstances described.