The issue of exemption from Social Welfare Surcharge (SWS) on imports made against MEIS and SEIS duty credit scrips has been mired with prolonged litigation and the disputes are pending at various judicial forums.
Importers have time and again adopted a position that debit of Basic Customs Duty (BCD) from scrips tantamount to an exemption. Thus, SWS being calculated as a percentage of BCD will be automatically exempted and there would be no requirement to debit the SWS amount from the scrips. On the other hand, the Revenue has been contending that payment through scrips does not result in grant of an exemption and therefore, the importers will have to pay SWS in cash or by debiting the scrip, in addition to the BCD paid by debiting the scrip.
In a recent judgement, the Hon’ble Madras High Court in Gemini Edibles, 2020-VIL-05-MAD held that debit of BCD from the scrips does not lead to a conclusion that the goods are exempted from BCD. As a consequence, it was held that there was no exemption available to SWS. Going a step further, the High Court, by placing reliance on the recent decision of the Apex Court in Unicorn Industries, 2019 (12) TMI 286 (SC), held that SWS must be paid in cash or through some other mode and cannot be paid by debiting the scrip.
This decision has far-reaching ramifications on the industry and may lead to huge working capital impact. In order to understand and appreciate the implications of the decision, Lakshmikumaran & Sridharan is organizing a conference call on 09th January 2020.
Mr. Raghavan Ramabadran
Advocate & Partner, L&S