2024 (11) TMI 1055 - HC - Customs

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

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: Whether a holder of a MEIS duty credit scrip who is exempt from payment of customs duty is liable to pay Social Welfare Surcharge (SWS) calculated as a percentage of aggregate duties where the customs duty component is discharged by debit to the scrip.Analysis: Section 110(1) creates the levy of SWS on imported goods; section 110(3) prescribes the charging mechanism as ten percent of the aggregate of duties, taxes and cesses which are 'levied and collected' under section 12 of the Customs Act, 1962 and any sum chargeable under other laws. The duty credit scrip under section 25 of the Customs Act operates to exempt or discharge the customs duty obligation so that no customs duty is collected from the scrip holder. Where no customs duty is collected because the scrip effects an exemption or discharge, the base amount on which SWS is to be calculated (i.e., duties 'levied and collected') is nil. Prior authorities addressing analogous additional duties distinguish between levy/charging and actual collection or payment for computation of consequential levies; the operative question is whether debit of a duty credit scrip constitutes collection of customs duty for purposes of section 110(3). The holding below treats debit in the scrip as measure of exemption utilised, not as actual collection of customs duty when the scrip effects exemption and no payment is made to the Consolidated Fund.Conclusion: Where customs duty in respect of imported goods is discharged by debit to a MEIS duty credit scrip resulting in no customs duty being collected, SWS computed as a percentage of duties 'levied and collected' under section 12 cannot be charged because the collected duty is nil; accordingly the scrip holder is not liable to pay SWS on the exempted customs duty.Final Conclusion: The writ petition is allowed and the petitioner is declared not liable to pay Social Welfare Surcharge calculated on customs duty exempted or discharged by the duty credit scrip held by it.Ratio Decidendi: For the purpose of section 110(3) of the Finance Act, 2018 the Social Welfare Surcharge is computed as a percentage of customs duties actually levied and collected; where customs duty is discharged by a duty credit scrip resulting in no collection, the surcharge cannot be imposed on that exempted quantum.