2024 (2) TMI 1321 - AT - Customs

Levy of Social Welfare Surcharge (SWS) on Goods Imported under MEIS Scheme - Benefit of Exemption Notification No. 32/2005-Cus. - benefit of Zero duty SWS - HELD THAT - In the present case, it is not in dispute that the licensing authority has raised any objection with regard to non-observance or non-fulfillment of the conditions mentioned in the notification dated 08.04.2015. Thus, it would not be proper on the part of the Customs authorities to say that debit of customs duty in the MEIS scrip would disentitle the imported goods from the claim of the benefit of Zero rate SWS. Since, the effective rate of the customs duty is NIL or Zero , by virtue of the notification dated 08.04.2015, the rate of SWS when calculated in terms of Section 110 ibid would automatically become zero , inasmuch as SWS is to be calculated not on the value of the goods, but on the duty of customs levied on the imported goods, which is evident from sub-section (3) of Section 110 of the Finance Act, 2018. The said statue has mandated that SWS levied under Sub-section (1) of Section 110, shall be calculated at the rate of 10% on the customs duty levied and collected by the Central Government. In the present case, since no customs duty is leviable in terms of notification dated 08.04.2015, there is no question of payment of SWS. Since there was ambiguity in context with the subject issue, the Tax Research Unit in the Department of Revenue, Ministry of Finance vide Circular No.3/202-Customs dated 01.02.2022 had clarified that calculation of SWS is dependent on amount of the customs duty that is actually payable and not otherwise. It has been in explained in specific terms that legal provisions does not require calculation of SWS on notional value of customs duty calculated, as in the present case, the BCD is calculated for purpose of accounting by debit entry in the MEIS scrip and the payment of BCD is exempt under Section 25 ibid. Thus, we find that the clarification issued by the Ministry of Finance amply makes it clear that SWS is NIL , when the aggregate of customs duties for calculation of SWS is Zero . Learned AR also made a submission that the Revenue has filed Review Petitions against the judgement of the Hon ble Bombay High Court it the case of La Tim Sourcing (India) and La Tim Metal Industries Ltd. 2019 (10) TMI 506 - BOMBAY HIGH COURT , and the same is pending. In this regard, we find that the Hon ble High Court of Bombay had taken note of the judgements cited by the Revenue as decided by Hon ble Madras High Court and after proper examination of the issues in hand had decided the case by holding the view that SWS shall be computed as Nil when BCD is Nil . Inasmuch as the Hon ble Supreme Court had already upheld the decision of the Hon ble Gujarat High Court in the case of Pasupathi Acrylon Ltd. 2014 (1) TMI 169 - GUJARAT HIGH COURT wherein it was held that no cess is payable when BCD is Nil , judicial discipline would not permit to take a different view than the one decided by the Hon ble Apex Court. In view of the above and since, the said judgements of Hon ble High Court of Bombay are in operation, this Tribunal is bound to follow the ratio decided therein. Thus, we do not find any merits in the impugned orders passed by the learned Commissioner of Customs (Appeals). Therefore, by setting aside the impugned orders, the appeals are allowed in favour of the appellants, with consequential relief, if any.

Summary

Issues Involved:
1. Whether Social Welfare Surcharge (SWS) is payable when Basic Customs Duty (BCD) is exempt under Notification No. 24/2015-Cus.
2. The interpretation of the legal provisions under Section 110 of the Finance Act, 2018, and Section 25 of the Customs Act, 1962.
3. The relevance of previous judgments and circulars in determining the applicability of SWS.

Summary:

Issue 1: Whether Social Welfare Surcharge (SWS) is payable when Basic Customs Duty (BCD) is exempt under Notification No. 24/2015-Cus.

The appellants, M/s Reliance Industries Limited and M/s Reliance Life Sciences Private Limited, argued that since the BCD was 'zero' under Notification No. 24/2015-Cus. dated 08.04.2015, the SWS at 10% of such 'zero' BCD would also be 'zero'. The department, however, insisted on the payment of SWS, contending that there was no specific exemption for SWS in the said notification. The Tribunal concluded that since the effective rate of customs duty is 'zero' by virtue of the notification, the rate of SWS when calculated in terms of Section 110 of the Finance Act, 2018, would also be 'zero'. The Tribunal relied on the clarification issued by the Ministry of Finance in Circular No. 3/2022-Customs dated 01.02.2022, which stated that SWS is 'NIL' when the aggregate of customs duties for calculation of SWS is 'zero'.

Issue 2: The interpretation of the legal provisions under Section 110 of the Finance Act, 2018, and Section 25 of the Customs Act, 1962.

The Tribunal examined the relevant legal provisions, noting that Section 25 of the Customs Act, 1962, empowers the Central Government to issue notifications exempting goods from customs duty. In this case, Notification No. 24/2015-Cus. exempted the goods from BCD. Section 110 of the Finance Act, 2018, provides that SWS shall be calculated at the rate of 10% on the aggregate of duties of customs. Since no customs duty is leviable due to the exemption, there is no question of paying SWS. The Tribunal held that the Customs department's responsibility is to ensure that the goods sought to be exempted are imported under the MEIS scheme and that the conditions of the notification are met.

Issue 3: The relevance of previous judgments and circulars in determining the applicability of SWS.

The Tribunal referred to several judgments, including the case of LA TIM Metal & Industries Limited vs. Union of India, where it was held that if BCD is 'Nil', then SWS payable at 10% of BCD is also computed as 'Nil'. The Tribunal also cited the case of Commissioner of Customs (Export) vs. Reliance Industries Ltd., where it was held that when customs duty is fully exempt under the DEPB scheme, the education cess calculated at 2% on the customs duty also becomes 'Nil'. The Tribunal found that these judgments supported the appellants' case. Additionally, the Tribunal noted that the Ministry of Finance's Circular No. 3/2022-Customs clarified that SWS is 'NIL' when the aggregate of customs duties is 'zero'.

In conclusion, the Tribunal set aside the impugned orders and allowed the appeals in favor of the appellants, with consequential relief, if any.