Limitation and Unjust Enrichment in case of Social Welfare Surcharge collected at the time of provisional assessment of Bill of Entry

[haribabu koduri]

Customs department has collected Social Welfare Surchage (SWS) on imports in case of some of the bill of entries. The BOEs were assessed provisionally. At the time of final assessment SWS was withdrawn in view of the clarification given by CBIC vide Circular No. 3/2022-Customs Dt.01-02-2022. 

Whether limitation is applicable for refund claims filed in such cases, since levy itself is held to be not as per law in the Circular itself.

Whether unjust enrichment is applicable in such cases. Particularly, when the sale price of the finished products is determined by market forces, but not by cost of production. Whether the SWS is included in cost or not, the sale price is determined by market forces. There is no question of collecting SWS from the customer, whether expensed or kept as receivable in the books of accounts, since sale price is not determined by cost of production.

[YAGAY and SUN]

LEGAL NOTE ON REFUND OF SOCIAL WELFARE SURCHARGE (SWS) POST FINALISATION OF PROVISIONAL ASSESSMENT UNDER CBIC CIRCULAR NO. 3/2022-CUSTOMS DATED 01.02.2022

In cases where SWS was levied at the time of provisional assessment and subsequently withdrawn upon final assessment pursuant to CBIC Circular No. 3/2022-Customs dated 01.02.2022, refund of such duty arises as a statutory consequence of finalisation under Section 18(2)(b) of the Customs Act, 1962. In such circumstances, the limitation under Section 27 is not independently applicable.

Judicial precedents have consistently clarified that where refund arises due to finalisation of a provisional assessment, limitation is to be computed from the date of final assessment. The Supreme Court in Allied Photographics India Ltd. v. Union of India [2004 (3) TMI 63 - Supreme Court] and the Delhi High Court in Sony India Pvt. Ltd. v. CC [2014 (306) E.L.T. 513 (Del.)] held that refund claims filed consequent to final assessment under Section 18 are not barred by limitation, as the refund right crystallises only upon such finalisation.

Regarding unjust enrichment under Section 27(2), the burden lies on the importer to demonstrate that the incidence of SWS was not passed on to any other person. However, in cases where the pricing of finished goods is driven by market forces and not by cost-based pricing, and where no specific duty component (such as SWS) is separately recovered from the customer, the principle of unjust enrichment may not apply. Courts have recognised this in CCE v. Ashok Leyland Ltd. [2002 (142) E.L.T. 253 (Tri.-Chennai)] and Solar Industries India Ltd. v. CC, Nagpur [2015 (320) E.L.T. 250 (Tri.-Mumbai)].

To rebut unjust enrichment, the importer may furnish a Chartered Accountant’s certificate, accounting treatment details, and evidence of pricing policy showing that SWS was not recovered or factored into the sale price.

Accordingly, refund of SWS in such cases is legally permissible without limitation and is not barred by unjust enrichment, subject to submission of appropriate documentary evidence.

[Shilpi Jain]

Time limit for claiming refund of the sws should be from the date of the order finalising the provisional assessment.

Unjust enrichment there are various cases that can be taken recourse of in these cases. Also consider getting a CA certificate in this regard 

[KASTURI SETHI]

Time limitation is applicable. Peruse Section 27(1B)(c) of the Customs Act, 1962 which is extracted below :

"(c) where any duty is paid provisionally under section 18, the limitation of one year shall be computed from the date of adjustment of duty after the final assessment thereof or in case of re-assessment, from the date of such re-assessment.]"

Focus is on the method of calculation of SWS in the said circular. Focus is not on "withdrawn" Rather, the word, "withdrawn" does not exist in the Circular No. 3/22-Customs dated 1.2.22.

AI Summary

Refund of provisional surcharge arises on final assessment; limitation runs from finalisation and unjust enrichment is rebuttable with accounting evidence.
Refund claims for Social Welfare Surcharge charged provisionally and withdrawn on finalisation arise upon final assessment; limitation is computed from the date of final assessment rather than the provisional levy. Unjust enrichment is a defence that the importer must rebut by showing the surcharge was not passed on; evidence may include accounting treatment, pricing policy, and a Chartered Accountant's certificate.