Social welfare charges on customs

The Central Board of Indirect Taxes and Customs (‘CBIC’) has put a rest to the controversy with respect to the levy of Social Welfare Surcharge (‘SWS’) on the goods exempted from the basic customs duty.

In a recent Circular No. 03/2022 dated 01.02.2022 (‘Circular’), the CBIC has issued a clarification stating that SWS is leviable at the rate of 10% of the aggregate of customs duties payable on import of goods and not on the value of imported goods. In other words, it means that if aggregate customs duty payable is zero on account of an exemption, the SWS shall be computed as 10% of custom duty equal to ‘Nil’ (as aggregate amount of customs duties payable is zero). It is further stated in the circular that in the absence of any law, SWS cannot be computed on the notional customs duty calculated at tariff rate where applicable aggregate of duties of customs is zero.

The levy of SWS on imported goods was introduced with effect from February 2018 vide Chapter VI – Section 110 to Finance Act 2018. As per Section 110(3) of the Finance Act, 2018, SWS shall be calculated at the rate of 10% of the customs duty levied and collected under Section 12 of the Customs Act, 1962. Further, as per Section 110(5) of the Finance Act, 2018, all the provisions of the Act including those relating to exemption shall apply to levy and collection of the SWS on imported goods as they apply in relation to the levy and collection of duties of customs on such goods under the Customs Act, 1962.

Accordingly, in view of the provisions under the Act, the SWS shall not be levied on the goods on which customs duty is exempted. This view was in confirmation with the decision of the Hon’ble Supreme Court in the matter of SRD Nutrients Private Limited  (‘SRD Nutrients’), wherein the Apex Court held that when there is no excise duty payable being the same exempted, there would not be any levy of Education Cess, in as much as Education Cess @ 2% is to be calculated on the aggregate of duties of excise.

However, the decision of the Hon’ble Supreme Court in SRD Nutrients was declared per incuriam by the Apex Court in the matter of Unicorn Industries vs. Union of India. In the said decision, the Apex Court held that “In the absence of a notification containing an exemption to such additional duties in the nature of education cess and secondary and higher education cess, they cannot be said to have been exempted” and thereby followed the decision of the three-judge bench in UOI v. Modi Rubber Limited, 1986-VIL-09-SC-CE.

It would be pertinent to note that the decision of the Unicorn Industries by the Apex Court passed in 2019 ignited the controversy with respect to levy of SWS which was well settled by the SRD Nutrients. As a result of this pro-revenue judgement, the industry witnessed a significant impact in the manner that the department started issuing notices to the corporates seeking detail of such imported goods on which custom duty was exempted and thereby imposing the liability of SWS on such goods.

Certainly, this Circular gives a sigh of relief to the importers against whom the department had or proposed to fasten the liability. This step by the CBIC certainly should be applauded as this would put lid to plethora of litigation which was foreseen by the industry with respect to this issue post Unicorn Industries decision of the Apex Court.