2024 (6) TMI 142 - HC - Customs

Liability to pay Social Welfare Surcharge (SWS) - denial of discharge by debiting from the MEIS / SEIS Scrips, while directing the appellant to pay SWS either in cash or in any other mode. Whether a notification, only by virtue of having been issued under Section 25(1) of the Customs Act, can be understood as resulting in providing exemption from levy of customs duty (or) enquiry must be made as to the substance of the notification applying the doctrine of pith and substance to understand the scope and nature of the notification? - HELD THAT - The contention of the appellant that by mere virtue of reference to Section 25 (1) of the Customs Act, the Notifications must be treated as granting exemption from levy itself is liable to be rejected and we would have to travel beyond the nomenclature, form and appearance to discern the true character and nature of the benefit conferred under each notification - it is necessary for the Courts not to assume that all notifications under Section 25 of the Customs Act would constitute exemption from the levy itself, but, would depend on the substance of the notification. Whether a notification containing a reference only to Section 25(1) of the Customs Act can be understood as granting exemption to other levies such as Education Cess, Secondary and Higher Education Cess, SWS, etc.? - HELD THAT - There is no doubt that Notification Nos.24 and 25 of 2015 are limited / confined in their operation only to customs duty and cannot be understood as resulting in exemption of SWS, inasmuch as, the notifications do not bear any reference to the provisions providing for the levy of SWS which has been found relevant by the Supreme Court in understanding the legislative intent as to whether the benefit of exemption must be limited / confined to Customs Duty or must be treated as covering other levies as well. What is the effect of debit of duty scrips? viz. , whether it is a mode of payment of duty (or) it is merely procedural and an administrative exercise? - HELD THAT - Similar issue has arisen for consideration in the context of DEPB scheme, which, in many ways, is similar to MEIS / SEIS schemes. Importantly, while considering the scope of the notification involving DEPB scheme, divergent views have been expressed. One view was that notwithstanding the debiting of the scrips to the extent of duty levied, it is an exemption while the other view was that the notification requiring debiting of DEPB scrips is not an exemption from levy, but, rather, an option extended with regard to the mode of discharging the duty liability. A reading of the provisions of the FTP would show that duty credit scrips under MEIS and SEIS schemes can be used for payment of customs duty, for import of inputs or goods subject to exceptions. Further, debit under duty scrip is capable of being adjusted as CENVAT credit or duty drawback. Basic customs duty paid through debit under duty credit scrips shall be adjusted for Duty drawback - the debit of MEIS /SEIS scrips is one of the modes of discharging the duty obligation under the Customs Act. The contention of the appellant that there is no payment although the duty credit scrips is debited is ill-founded and runs counter to the notifications, provisions of the Customs Act, the FTP. Whether forming part of the Consolidated Fund of India is a sine qua non, for a levy to operate / exist? - HELD THAT - If the fact that taxes do not reach the Consolidated Fund of India cannot be a reason to question the levy, we fail to see how that aspect would have any bearing on determining the scope or nature of any exemption notification or in determining the imposition or otherwise of a levy or its collection. It is, thus, clear that the attempt by the appellant to suggest that there is no levy/ collection unless it forms part of the Consolidated Fund of India is unsustainable and liable to be rejected as lacking merit - The fact that duty does not form part of Consolidated Fund of India does not have any bearing on determining the scope and nature of an exemption notification nor would have relevance in determining as to whether there was any levy/ collection of duty. The order of the learned Judge need not be interfered - writ appeals stand dismissed.

Summary

Issues Involved:

1. Whether a notification issued u/s 25(1) of the Customs Act can be understood as granting exemption from levy of customs duty.
2. Whether a notification containing reference only to Section 25(1) of the Customs Act can be understood as granting exemption to other levies such as Education Cess, Secondary and Higher Education Cess, SWS, etc.
3. What is the effect of debit of duty scrips: whether it is a mode of payment of duty or merely procedural and an administrative exercise.
4. Whether forming part of the Consolidated Fund of India is a sine qua non for a levy to operate/exist.

Summary:

Issue 1: Whether a notification issued u/s 25(1) of the Customs Act can be understood as granting exemption from levy of customs duty.
The court examined Section 25(1) of the Customs Act, which allows the Central Government to grant exemptions from customs duty. It was argued that notifications issued under this section inherently provide exemptions. However, the court held that the nature and scope of the notification must be determined by applying the doctrine of pith and substance, which requires examining the true character and effect of the notification beyond its form and appearance. The court concluded that notifications under Section 25(1) do not automatically grant exemptions from the levy of customs duty.

Issue 2: Whether a notification containing reference only to Section 25(1) of the Customs Act can be understood as granting exemption to other levies such as Education Cess, Secondary and Higher Education Cess, SWS, etc.
The court referred to the Supreme Court's decision in Modi Rubber, which held that exemption notifications must explicitly reference the statutes under which other levies are imposed to extend the exemption to those levies. The court found that Notification Nos. 24 and 25 of 2015 only referenced Section 25(1) of the Customs Act and did not include references to the provisions under which SWS is levied. Therefore, the notifications could not be understood as granting exemptions from SWS.

Issue 3: What is the effect of debit of duty scrips: whether it is a mode of payment of duty or merely procedural and an administrative exercise.
The court referred to the DEPB scheme and similar cases, where it was held that debiting duty scrips is a mode of payment of duty and not an exemption. The court emphasized that the debit of MEIS/SEIS scrips is a mode of discharging duty obligations under the Customs Act. The court also noted that the FTP 2015-2020 allows duty credit scrips to be used for payment of customs duty, and such debits can be adjusted as CENVAT credit or duty drawback. Thus, the court concluded that debiting duty scrips constitutes payment of duty.

Issue 4: Whether forming part of the Consolidated Fund of India is a sine qua non for a levy to operate/exist.
The court rejected the argument that taxes must form part of the Consolidated Fund of India to be considered levied or collected. The court held that the validity of a levy does not depend on whether the funds reach the Consolidated Fund. The court cited the Supreme Court's decision in Jaora Sugar Mills, which stated that the manner in which funds are utilized does not affect the validity of the levy. Therefore, the court concluded that the fact that duty does not form part of the Consolidated Fund of India does not impact the determination of whether there was a levy or collection of duty.

Conclusion:
The court dismissed the appeals, upholding the order of the learned Judge, and concluded that the appellant is liable to pay SWS, which cannot be debited from MEIS/SEIS scrips. The court directed the respondents to recredit the value of SWS debited from the scrips, subject to the appellant paying SWS in cash or any other mode within four weeks.