Orissa High Court: “Social Welfare Surcharge Exempt Where Customs Duty is Waived Under Merchandise Exports from India Scheme (MEIS) Scrip” – Court Rules SWS Inapplicable as It Is Tied to Customs Duty, Which Was Fully Exempted

Court’s Decision:
The Court ruled in favor of the petitioner, declaring that they are not required to pay the Social Welfare Surcharge (SWS) on the customs duty exempted through the MEIS duty credit scrip. The petitioner’s challenge against the levy of SWS was upheld, and the writ petition was allowed.

Facts:
The petitioner, M/s. Dalmia Cement (Bharat) Limited, imported petroleum coke for use in manufacturing cement. To facilitate the importation of the goods, the petitioner used a duty credit scrip issued under the Merchandise Exports from India Scheme (MEIS). This scrip granted the petitioner an exemption from the payment of customs duties. However, the petitioner faced an issue when it was asked to pay an additional levy—SWS—on the imported goods, which was introduced under the Finance Act, 2018. The petitioner contended that since the customs duty on the goods was exempted, no additional surcharge should apply to the transaction.

Issues:
The primary issue in the case was whether the SWS, which is calculated as a percentage of customs duty, should be levied on goods that are exempt from customs duty through the MEIS scrip.

Petitioner’s Arguments:
The petitioner argued that the SWS should not be levied since the customs duty was exempted through the MEIS scrip. The petitioner explained that the SWS is a percentage of the customs duty paid, but since no customs duty was paid due to the exemption, the SWS should also be zero. The petitioner drew attention to the legislative provision and prior judgments to assert that exemptions on one type of duty should extend to related surcharges, such as the SWS.

Respondent’s Arguments:
The respondent, the Union of India, represented by the revenue, argued that the SWS is a separate levy imposed by section 110 of the Finance Act, 2018. The respondent contended that regardless of the exemption from customs duties through the scrip, the SWS should be calculated as a percentage of the duties and taxes levied under the Customs Act, as specified in section 110 of the Finance Act. The revenue relied on the judgment in M/s. Unicorn Industries to justify the applicability of the SWS despite the customs duty exemption. The respondent maintained that no specific exemption from SWS existed under the Finance Act for cases like the petitioner’s.

Analysis of the Law:
The court examined the provisions of the Finance Act, 2018, focusing on section 110, which provides for the levy of SWS on goods imported into India. The SWS is calculated as a percentage of the customs duties and taxes levied on imported goods, as outlined in section 110(3). The court analyzed the operation of section 136, which imposes a levy of excise duty (National Calamity Contingent Duty or NCCD) and how it relates to the calculation of additional duties like SWS.

The court discussed the concept of duty exemptions under the MEIS scrip, which exempts customs duties on certain goods. It also considered the impact of such exemptions on the SWS, which is levied as a percentage of customs duties paid. Since no customs duty was paid, the court concluded that there was no basis for charging SWS.

Precedent Analysis:
The court referred to the M/s. Unicorn Industries case to understand how exemptions in one statute (Customs Act) do not necessarily extend to duties or surcharges imposed under a separate statute (Finance Act). The judgment in M/s. Unicorn Industries clarified that exemptions granted under one legislation cannot automatically extend to exemptions from duties levied under another. The Court also analyzed previous judgments involving the application of duties and taxes, including the case of SRD Nutrients Private Limited v. Commissioner of Central Excise, which addressed issues regarding exemption from certain excise duties and additional duties.

The court emphasized that, in the context of the present case, the MEIS scrip provides an exemption from customs duties but does not provide an exemption from the SWS, as the latter is levied under the Finance Act, 2018, and is governed by a different provision.

Court’s Reasoning:
The Court concluded that since the SWS is a percentage of the customs duty, and the customs duty in this case was exempted through the MEIS scrip, no duty had been paid. Therefore, the SWS, which is tied directly to the payment of customs duties, should also be considered exempt. The Court reasoned that when no customs duty was paid (due to the exemption granted under the scrip), no further surcharge (SWS) should be levied, as the charging provision for SWS is based on the amount of customs duty paid.

The Court disagreed with the view taken by the Madras High Court in a similar case (M/s. Gemini Edibles and Fats India Pvt. Ltd.), where it was held that the SWS was a separate levy and thus should be charged even when customs duties were exempt. The Court in the present case emphasized that there is no requirement to pay SWS when there has been no payment of customs duty, and the exemption granted under the scrip applies to both the customs duty and the related surcharge.

Conclusion:
The Court ruled that the petitioner was not required to pay the SWS calculated on customs duty exempted under the scrip. The writ petition was allowed, and the petitioner was granted a declaration that it is not required to pay the SWS for the goods imported under the MEIS scrip.

Implications:
The decision has broader implications for businesses using duty credit scrips under the MEIS, as it clarifies that exemptions from customs duties also apply to related surcharges like the SWS. This ruling may affect how the SWS is applied in future cases, particularly for businesses relying on duty exemptions and the functioning of scrips. The judgment also emphasizes the distinction between exemptions granted under different statutes and the importance of ensuring that exemptions are specifically provided for in the relevant legislation.

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