Trader Not Liable To Pay Social Welfare Surcharge On Customs Duty Which Is Exempted Under MEIS Scheme: Orissa High Court

The Orissa High Court has held that Social Welfare Surcharge (SWS) leviable on customs duty will be nil where a trader is exempted from paying customs duty under the Merchandise Exports from India Scheme (MEIS).Section 110 of the Finance Act 2018 contemplates levy of SWS on imported goods specified in the First Schedule to the Customs Tariff Act, 1975. As per sub-section (3), SWS is calculated at the rate of ten per cent on the aggregate of duties, taxes and cesses levied and collected under section 12 of the Customs Act, 1962.A division bench of Justices Arindam Sinha and MS Sahoo observed,“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.”It reasoned that once a person obtains exemption, he cannot be said to be discharging liability to pay duty since there is no “collection” following the levy.The Petitioner herein, an importer of petroleum coke, had challenged the requirement to pay SWS. It claimed to be exempted from all of the customs duty leviable and argued that since SWS is a percentage of the customs duty, and the customs duty being zero, levy of SWS must also be zero.It relied on Union of India v. Modi Rubber Ltd. (1986) where the issue before the Supreme Court was- where there had been partial exemption of duty payable, whether additional duty was also thus exempted. The Supreme Court had upheld Revenue's contention that the additional duty by percentage was to be calculated on the reduced duty payable.Petitioner also relied on Section 25 of the Customs Act to argue that there can either be levy and collection of tax or exemption.The Revenue on the other hand contended that SWS being a levy under the Finance Act, is a separate and distinct levy. It submitted that exemption under MEIS was pursuant to notification under the Customs Act and there is no exemption notification under the Finance Act. It relied on M/s. Unicorn Industries v. Union of India (2019) where the Supreme Court held that exemption pursuant to notification issued under a legislation cannot extend to exemption of another levy imposed by a different legislation, for different purposes.In the case at hand, Revenue argued that the levy of customs duty is for generation of revenue and levy of SWS is for social welfare.The High Court held that Petitioner is not required to pay SWS calculated on customs duty, exempted under MEIS.It differed from a division bench judgment of the Madras High Court rendered in M/s. Gemini Edibles and Fats India Pvt. Ltd. v. Union of India (through its Secretary), Assistant Commissioner of Customs and others (2024) which upheld the view that a duty credit scrip like MEIS has money value and the act of debiting of the scrips towards Customs duty, in effect, amounts to levy and collection of duty from the importer.Accordingly, the petition was allowed.Appearance: Sr. Advocate V. Sridharan with Advocates Mukesh Panda, Shobhit Jain, Rahul Tangri for Petitioner; Senior Standing Counsel TK Satapathy for RevenueCase title: M/s. Dalmia Cement (Bharat) Limited v. Union of India and othersCase no.: W.P.(C) No.19961 of 2019Click Here To Read/Download Order

Trader Not Liable To Pay Social Welfare Surcharge On Customs Duty Which Is Exempted Under MEIS Scheme: Orissa High Court

Kapil Dhyani

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