2024 (11) TMI 1055 - HC - Customs

Requirement to pay Social Welfare Surcharge (SWS) - levy of SWS on imported goods, when the basic customs and additional duty of customs are debited in the scrip - HELD THAT - We see from relevant provisions in section 110 reproduced above that the levy and collection is provided by sub-section (1). The levy is to be on goods imported into India and accordingly collected. Sub-section (3) is the charging provision. It says, the levy under sub-section (1) shall be calculated at 10% on the aggregate of duties, taxes and cesses, which are levied and collected by the Central Government in the Ministry of Finance (Department of Revenue) under section 12 of the Customs Act, 1962. There is no dispute before us that the scrip petitioner holds, exempts it on collection from it, the customs duty levied. In M/s. Unicorn Industries 2019 (12) TMI 286 - SUPREME COURT case of appellant before the Supreme Court was in resisting the levy and collection of National Calamity Contingency duty (NCCD). A finding by the Supreme Court that appeared to be obvious from the beginning was, absence of any notification issued under the legislation or Act providing for the levy and charge for collection of NCCD, being Finance Act, 2001. On behalf of petitioner clear submission is, for furthering challenge in the writ petition reliance is not placed on M/s. Unicorn Industries (supra) nor SRD Nutrients Private Limited 2017 (11) TMI 655 - SUPREME COURT . The challenge mounted is on case that where the charge is on amount of customs duty paid and such duty is exempt, the charge being a percentage of duty paid, must be zero. No duty was paid so there cannot be a percentage of it, to result in any sum payable as SWS. Upon a person obtaining exemption, he cannot be said to be discharging liability to pay duty. There is no fact of collection following the levy. The charging provision by sub-section (3) in section 110 is a percentage of customs duty paid, as collected by the Central Government. The duty paid being zero, collection is zero and percentage of it must also be zero. Our reasoning might appear to be similar to that made by the Supreme Court in SRD Nutrients supra but petitioner is not relying on the judgment, understandably so. Petitioner s case is of submitting to provisions in section 110 of Finance Act, 2018, as applicable to it but, working of the charging provision releasing it from paying SWS. Debits in the scrip is for purpose of measure of quantum of exemption utilized under it. Having said that, it appears petitioner has prayed for exemption in its prayer. It is competent for us to mould the prayer. On query made Mr. Sridharan submits, his client protested but the new system in place does not permit registration of any protest. As such, his client was compelled to pay. In the circumstances, petitioner is entitled to and gets declaration that it is not required to pay SWS calculated on customs duty, exempted under scrip held by it. WP allowed.

Summary

Issues Involved:

1. Requirement to pay Social Welfare Surcharge (SWS) on imported goods when customs duty is exempted via duty credit scrip.
2. Interpretation of Section 110 of the Finance Act, 2018 concerning the levy and collection of SWS.
3. Applicability of Supreme Court judgments and High Court decisions on exemption and levy of additional duties.

Issue-wise Detailed Analysis:

1. Requirement to Pay Social Welfare Surcharge (SWS):

The petitioner challenged the requirement to pay SWS on imported petroleum coke, which is exempt from customs duty through a duty credit scrip issued under the Merchandise Exports from India Scheme (MEIS). The petitioner argued that since the customs duty is exempt, the SWS, which is a percentage of the customs duty, should also be zero. The petitioner relied on the interpretation that if no customs duty is paid, no SWS should be imposed.

2. Interpretation of Section 110 of the Finance Act, 2018:

The core of the petitioner's argument was based on Section 110 of the Finance Act, 2018, which provides for the levy and collection of SWS. Sub-section (3) of Section 110 states that SWS shall be calculated at a rate of 10% on the aggregate of duties levied and collected under Section 12 of the Customs Act, 1962. The petitioner contended that since the customs duty was exempted, the aggregate duties paid were zero, and thus the SWS should also be zero. This interpretation was supported by the absence of any notification under the Finance Act exempting the SWS, which the petitioner argued was necessary for such a levy.

3. Applicability of Supreme Court Judgments and High Court Decisions:

The petitioner distinguished its case from the Supreme Court judgment in M/s. Unicorn Industries v. Union of India, which dealt with the levy of National Calamity Contingent Duty (NCCD). The petitioner argued that the principle from Unicorn Industries, which required a notification for exemption, did not apply because their case was about the calculation of SWS based on exempted customs duty. The petitioner also referenced the Supreme Court's decision in Union of India v. Modi Rubber Ltd., which upheld that additional duty should be calculated on the reduced duty payable after exemption.

The court noted the divergence in views among different High Courts, with the Madras High Court taking a contrary position to the petitioner's argument. However, the court disagreed with the Madras High Court's view, emphasizing that the charging provision in Section 110(3) requires a percentage of customs duty paid, which in this case was zero, thus resulting in zero SWS.

Conclusion:

The court allowed the writ petition, granting the petitioner a declaration that it is not required to pay SWS calculated on the customs duty exempted under the scrip held by it. The court recognized the petitioner's entitlement to exemption from SWS based on the interpretation of Section 110 of the Finance Act, 2018, and the specific circumstances of the case.