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 a percentage of duties levied and collected, an exempted (zero) duty yields a zero SWS. The court granted a declaration that the petitioner need not pay SWS calculated on customs duty exempted by the scrip and allowed the writ, noting the petitioner had been forced to pay due to system constraints and is entitled to relief.

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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.

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