Central Board of Indirect Taxes and Customs (CBIC) has clarified that in case of imports under Merchandise Exports from India Scheme (MEIS) and Services Exports from India Scheme (SEIS), Social Welfare Surcharge (SWS) is not exempted and must be levied and collected on the imported goods.
Circular No. 2/2020-Cus., dated 10-1-2020, issued for the purpose, notes that duty credit scrips are only a mode of payment of duty and not an exemption from duty even though the use of said scrip is governed by exemption notification.
The Circular, clarifying so, also observes that the debit of SWS through duty credit scrips is not envisaged in the FTP and the exemption notifications, and hence the same must be paid in cash.
However, it may be noted that the Circular further states that for ensuring ease of doing business, the Board has decided that in respect of past cases, payment of SWS made through duty credit scrips is to be accepted as revenue duly collected and recoveries in cash will not be insisted.
The Madras High Court decision
Interestingly, the Madras High Court has on 3rd of January, 2020 also passed a Judgment in the case of Gemini Edibles and Fats India Pvt. Ltd. holding that importer was liable to pay SWS on BCD as adjustment of Customs duty from the duty credit scrips by way of debit is not to be termed as Nil duty.
The Court observed that the act of debiting duty from the scrips amounts to levy and collection of the duty from the importer. It held that neutralization of duty and the fact that duty in money had not gone to the exchequer, does not mean that no duty was levied and collected. The Court was also of the view that exemption granted under the Notifications Nos. 24 and 25/2015-Cus., is not an exemption from payment of Customs duty in toto.
The High Court, just like the CBIC Circular, also held that recovery of SWS cannot be done by making debit from the value of the scrips, as SWS is not the subject matter of exemption granted under said Notifications and since the levy and collection of SWS is an independent levy, that too, under a different enactment.
Recent Supreme Court decision in the case of Unicorn Industries, was relied upon both by the High Court and in the CBIC Circular.