2025 (10) TMI 626 - AT - Customs

SWS liability is computed on Basic Customs Duty, so when Basic Customs Duty is nil, Social Welfare Surcharge is nil

CESTAT MUMBAI - AT set aside the impugned order and allowed the appeals, holding that Social Welfare Surcharge (SWS) is computed on Basic Customs Duty ... Seeking for early hearing of appeals - requirement tp pay Social Welfare Surcharge (SWS) in cash in respect of import of goods, which are fully exempt from payment of Basic Customs Duty (BCD) through Notification No. 24/2015-Customs, dated 8-4-2015 issued by the Central Government under Section 25(1) of the Customs Act, 1962 - HELD THAT:- The issue arising out of the present dispute is no more res integra, in view of the judgment delivered by the Hon’ble Bombay High Court in the case of LA TIM Metal & Industries Limited v. Union of India [2022 (11) TMI 1099 - BOMBAY HIGH COURT]. In the said judgment, the Hon’ble High Court have held that though SWS is payable at 10% on BCD, but where the BCD is ‘Nil’, then SWS shall also be computed as ‘Nil’. For arriving at such conclusion, the Hon’ble High Court have also relied upon and referred to the Circular No. 3/2022-Cus., dated 1-2-2022 issued by the Central Board of Indirect Taxes & Customs (CBIC), clarifying that the amount of SWS payable would be ‘Nil’, in the cases where the aggregate customs duties is ‘zero’, even though the SWS is not exempted. It is also found that the Customs department had filed a Review Petition against the above judgment dated 15-11-2022, which was dismissed by the Hon’ble Bombay High Court vide judgment dated 21-6-2024 [2024 (6) TMI 1511 - BOMBAY HIGH COURT]. Thus, the matter arising out of the present dispute regarding payment of SWS, in case where the BCD amount is ‘Nil’, has attained finality and is no more open for any debate. The impugned order dated 28-4-2022 is set aside and the appeals are allowed in favour of the appellants. ISSUES PRESENTED AND CONSIDERED 1. Whether Social Welfare Surcharge (SWS) is payable in cash on import of goods where Basic Customs Duty (BCD) is rendered nil by virtue of a Government exemption under Section 25(1) of the Customs Act (including clearance against duty-credit scrips/MEIS), notwithstanding that SWS is statutorily leviable as a percentage of BCD. 2. Whether a departmental assessment that notionally assesses SWS and collects cash where aggregate customs duties are zero can be sustained in view of administrative clarification and higher-court precedent addressing computation of SWS when aggregate customs duty payable is nil. ISSUE-WISE DETAILED ANALYSIS Issue 1: Liability to pay SWS where BCD is Nil Legal framework: SWS is a surcharge levied as a percentage on the aggregate of customs duties payable on imported goods. The Central Government has power under Section 25(1) of the Customs Act to grant exemptions (e.g., where imports are cleared against duty-credit scrips/MEIS), which may result in BCD being assessed as nil. Precedent treatment: The Tribunal relied on a binding decision of the relevant High Court holding that where BCD is nil, SWS computed as a percentage of BCD is also nil. The administrative authority (CBIC) issued a circular clarifying that SWS payable would be nil where the aggregate customs duties are zero. The departmental attempt to collect SWS in cash despite nil aggregate duty has been addressed and contrasted with these authorities. Interpretation and reasoning: The Court reasoned that SWS is necessarily contingent on the quantum of aggregate customs duties; if that aggregate is zero, the percentage basis for computing SWS yields nil. Administrative clarification confirming that SWS is to be computed on the aggregate customs duties (and therefore nil if aggregate is zero) reinforces this legal construction. The Tribunal found no basis to sustain a notional or cash recovery of SWS where BCD and other customs duties stand at zero following lawful exemption or debit via duty-credit scrips. Ratio vs. Obiter: Ratio - The legal ratio applied by the Court is that SWS, being a surcharge calculated as a percentage of aggregate customs duties, cannot be levied where that aggregate is nil; consequently, no separate cash payment of SWS is exigible in such cases. The reliance on the CBIC circular and the High Court's holding is treated as part of the binding ratio for the specific legal question. Conclusion: Where BCD and aggregate customs duties are assessed as nil (including when exemption under Section 25(1) or clearance against duty-credit scrips results in nil BCD), SWS computed on that aggregate is also nil; collection of SWS in cash under those facts is not justified. Issue 2: Effect of administrative circular and finality of higher-court decision on departmental assessments Legal framework: The interplay between statutory levy, administrative clarifications (CBIC circulars), and judicial pronouncements determines whether past assessments and recoveries ought to be sustained or set aside. Precedent treatment: The Tribunal expressly followed the High Court judgment holding SWS nil where aggregate customs duties are zero and noted that a departmental Review Petition against that judgment was dismissed, thereby confirming finality. The CBIC circular was treated as consistent with and reinforcing the High Court's interpretation. Interpretation and reasoning: The Tribunal treated the High Court judgment and the CBIC circular as dispositive on the legal question, removing it from being res integra. Given the higher-court ruling and the administrative clarification that SWS is computed on aggregate customs duties (and thus nil when aggregate is zero), departmental assessments or appellate orders upholding cash collection of SWS were considered contrary to law and administrative guidance. Ratio vs. Obiter: Ratio - Final judicial pronouncement and the administrative circular are determinative and must govern similar cases; assessments inconsistent with that position are liable to be set aside. Any departmental arguments to the contrary were superseded by the dismissed review and the resultant finality. Conclusion: Administrative circulars clarifying computation of SWS, together with a final High Court decision (with review dismissed), bind subsequent adjudication; orders sustaining cash collection of SWS where aggregate duties are nil must be set aside and refunds/consequential relief afforded as per law. Disposition and Consequential Findings The Tribunal applied the settled principle that SWS is a percentage of aggregate customs duties and therefore computed as nil where aggregate duty is nil; it followed the High Court decision and administrative guidance, treated the matter as finally resolved by dismissal of the review, set aside the impugned appellate order that upheld cash collection of SWS, and allowed the appeals with consequential relief as per law.