Gemini Edibles and Fats India Pvt. Ltd. Vs Union of India (Madras High Court)
Point for consideration in this writ petition is as to whether the Revenue is justified in debiting the Social Welfare Surcharge (SWS) also from and out of the value of the relevant scrips issued under two schemes viz., MEIS and SEIS, while debiting the customs duty from those two scrips.
SWS is an independent levy imposed and collected under a different enactment viz., the Finance Act, 2018. Notification Nos.24/2015 and 25/2015 specifically entitle the Revenue to debit the duties leviable viz., duty of customs under the First Schedule to the Customs Tariff Act, 1975 and additional duties leviable thereon under Section 3 of the Customs Tariff Act, 1975. Except these two duties, the above exemption notifications do not empower the Revenue to make debit of any other levy or duty or surcharge or cess either under the Customs Act, or under other enactment. It is well settled that the exemption notifications are to be construed strictly. Scope and ambit of exemption notifications cannot be enlarged or extended beyond its intend as specifically spoken to therein. A benefit given in an exemption notification must be confined only with such of those benefits referred to therein in strict sense and not to be extended beyond there is no need to interpret the same. Thus, under the guide of interpreting an exemption notification, a benefit conferred on a person cannot be extended as an “undue benefit”, which he is not entitled to otherwise under the notification. Going by the terms of the above exemption notifications and in view of the fact that levy and collection of Social Welfare Surcharge is an independent levy, that too, under a different enactment viz., the Finance Act, 2018, I am of the view that the respondents/Revenue are not empowered to make the debit of Social Welfare Surcharge, from and out of the value of the scrips apart from making debit of the duties leviable on the subject matter goods.
Exemption granted in respect of a particular excise duty cannot be a bar for determination of yet another duty levied and collected under different enactment, even though such levy and collection was based upon the particular excise duty exempted. The Hon’ble Supreme Court has clearly held that when a particular kind of duty is exempted, other types of duty or cess imposed by legislation for a different purpose cannot be said to have been exempted. Therefore, I am of the firm view that assuming the subject matter exemption notifications grant exemption in respect of the customs duty in toto, the petitioner is not justified in contending that the other duties or levy payable under different enactment are also exempted. In this case, I have already pointed out that exemption granted is against payment of duty in cash and not the liability itself in toto, as such duty is admittedly, debited from the value of the scrips. In other words, the Social Welfare Surcharge being a levy imposed under the Finance Act, 2018 and an independent levy, the petitioner is bound to pay the same. If the liability to pay the customs duty element is discharged by effecting adjustment from the value of the scrips, the liability to pay the Social Welfare Surcharge is also by the petitioner either by way of cash or by other mode, since the scrips cannot be used for discharging such liability. The above three questions thus, are answered accordingly.
In the result, the Writ Petitions are disposed of as follows:
(a) The petitioner is liable to pay the appropriate Social Welfare Surcharge on Basic Customs Duty in respect of the subject matter imported goods.
(b) However, recovery of such Social Welfare Surcharge cannot be done by making debit from the value of the scrips produced by the petitioner, as Social Welfare Surcharge is not the subject matter of exemption granted under Notification 24 and 25 /2015.
(c) Consequently, the respondents are liable and thus, directed to re-credit the value of Social Welfare Surcharge so far debited from the scrips held by the petitioner, subject to a condition that the petitioner pays such Social Welfare Surcharge either in cash or in any other mode before the concerned respondent within a period of four weeks from the date of receipt of a copy of this order.
(d) On receipt of such payment, the respondents are directed to re-credit the value of the Social Welfare Surcharge so far debited rom the scrips held by the petitioner, within a period of two weeks thereafter.
FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT
W.P.No.24490 of 2019 is filed challenging the order of the second respondent dated 10.07.2019, wherein and whereby the petitioner was informed that 49.5% 49.5% on assessable value (BCD at 45% and Social Welfare Surcharge at 4.5%) of the goods imported is being debited from Scrips and no excess duty is being collected and thus, the question of refund does not arise.
2. W.P.No.27452 of 2019 is filed to quash 193 Bills of Entry listed therein, as the same being contrary to law and for direction to the respondents to re-credit the Social Welfare Surcharge component in all the METS and SETS duty credit scrips of the petitioner from which such surcharge was deducted and further to restrain the respondents from debiting any amount pertaining to SWS from the METS and SETS duty credit scrips and from debiting any amount pertaining to BCD over and above the prescribed rate on all future imports.
3.The petitioner in both the writ petitions is one and the same.
4. The case of the petitioner is as follows:
The petitioner is in the business of manufacturing and marketing edible oils and fats. Importing of goods is part and taxguru.in parcel of the petitioner’s activities ordinarily attracting the levy of Customs Duties. The petitioner offset such Customs Duties, by procuring scrips under the MEIS (Merchandise Exports from India Scheme) and SEIS (Service Exports from India Scheme) provided for under Chapter 3 of the FTP and utilizing such scrips. The concept of MEIS and SEIS Schemes are as follows:
MEIS
i) A claimant needs to export notified goods (coded under the ITC-HS) to notified places, as provided for under Appendix 3B to the Handbook of Procedures (“HOP”) of the FTP, in order to be entitled to MEIS benefit. The rate of reward for each type of export is also provided for under Appendix 3B. (Para 3.04 -FTP)
ii) The value considered for calculating MEIS benefit is the realized FOB value of exports in free foreign exchange of the FOB value of exports as given in the shipping bills in free foreign exchange whichever is lesser. (Para 3.04 -FTP)
iii) The claimant is then granted a ‘Duty Credit Scrip’ which can be used for defraying Customs Duties on imports, Excise Duties on manufactured goods and Service Tax on the procurement of services. However, the goods and services in question are to be notified by the Department of Revenue. (Para 3.02- FTP)
iv) Duty Credit Scrips are freely transferable meaning that they can be sold and procured for a consideration. (Para 3.02- FTP)
v) Chapter 3 of the HOP covers all the procedure related aspects of the MEIS scheme.
SEIS
i) The claimant needs to export certain notified services listed under Appendix 3D, rendered in the manner prescribed under Para 9.51(i) and Para 9.51(ii) of the FTP. (Para 3.08(a))
ii) The claimant needs to have a minimum prescribed threshold of Net Free Foreign Exchange earnings. (Para 3.08(b))
iii) The claimant is then granted a ‘Duty Credit Scrip’ which can be used for defraying Customs Duties on imports, Excise Duties on manufactured goods and Service Tax on the procurement of services. However, the goods and services in question are to be notified by the Department of Revenue. (Para 3.02- FTP)
iv) Duty Credit Scrips are freely transferable meaning that they can be sold and procured for a consideration. (Para 3.02- FTP)
v) Chapter 3 of the HOP covers all the procedure related aspects of the SEIS scheme.”
b) The petitioner procured MEIS and SEIS scrips from various exporters, who had obtained the same under Chapter 3. Notification No.24/2015-Customs dated 08.04.2015 exempts goods imported against MEIS scrips from Customs Duties under the First Schedule to the Customs Tariff Act, 1975 and additional Duties leviable thereon under Section 3 of the Customs Tariff Act, 1975. A similar Notification in Notification No.25/2015 dated 08.04.2015 was issued exempting goods imported against SEIS scrips, as well. By virtue of the aforesaid provisions, notifications and scrips, the customs duties, that were otherwise payable by the petitioner became exempt.
c) Social Welfare Surcharge (hereinafter referred to SWS) was introduced as a levy under Section 110 of the Finance Act, 2018 to meet the Government’s obligations to finance education, health and social security. The said surcharge was levied at the rate of 10% of the aggregate of duties of Customs levied and collected by the Government under Section 12 of the Customs Act, 1962.
d) The petitioner imported certain goods at Karaikal Port in the normal course of its business during the period July 2017 to July 2018 and its Bills of Entry were assessed. The petitioner’s MEIS licenses and SEIS licenses were debited by the amounts pertaining to SWS by the second respondent by including the same as part of customs duties. The petitioner through letter dated 26.06.2019 sought to ascertain the methodology adopted by the second respondent in deducting excess duties of customs from the scrips. The second respondent responded through the impugned letter stating that there was no excess duty being collected from the petitioner. The deduction of the amounts pertaining to SWS from the petitioner’s MEIS and SEIS licenses is incorrect, unwarranted. Only Customs Duty leviable under the First Schedule to the Customs Tariff Act and Additional Duty under Section 3 of the Tariff Act can be debited from the MEIS and SEIS scrips other than what has been mentioned in the exempted notification. SWS is levied under Section 110 of the Finance Act 2018 as a duty of customs and not under the First Schedule to the Customs Tariff Act. Even if SWS is considered as equivalent to Customs duty, it is still not levied under the First Schedule to the Customs Tariff Act and therefore, not exempted under Notification No.24/2015 or 25/2015. Hence, the second respondent does not have power to deduct SWS amount from the MEIS and SEIS scrips. SWS is not in the nature of Customs Duties. The levy of SWS is not attracted at all. SWS is not to be charged on the imports because Section 110(3) of the Finance Act, 2018 provides for it to be calculated at the rate of 10% on the aggregate of duties of Customs, which themselves are exempted. SWS is calculated at the rate of 10% on the aggregate of duties”levied and collected”. The imports made through MEIS and SEIS scrips are exempted from the levy and collection of Customs Duty by virtue of Notification Nos.24 and 25 of 2015. Therefore, the levy of SWS is not attracted. Circulars dated 10.04.2011 and 10.08.2004 clarified that goods exempt from Service Tax, Excise Duties and Customs Duties are effectively leviable to Nil duty and customs duties are effectively leviable to Nil duty and therefore, the levy of education cess would not be attracted. The above circulars issued by the Department of Revenue are binding on its functionaries.
5. In W.P.No.27452 of 2019, the petitioner is aggrieved against debit of SWS in respect of goods imported at Chennai Port during the period February 2018 to July 2019.
6. Counter Affidavit is filed in W.P.No.24590 of 2019. Learned counsel appearing for the Revenue in W.P.No.27452 of 2019 submitted that he is adopting the counter filed in W.P.No.24490 of 2019 as well as the argument advanced by the learned counsel appearing for the Revenue in the above writ petition.
7. The averments made in the counter affidavit are as follows:
a) Merchandise Exports from India Scheme (MEIS) and Service Exports from India Scheme (SEIS) are export incentives. Under both the scheme, duty credit scrips are granted as rewards and such scrips can be used for payment of Custom Duties, payment of excise duties, payment of service tax, payment of customs duty and fee as per paragraph 3.18 of the policy. Under the earlier Foreign Trade Police namely FTP 2004-2009, the duty paid through debits under DEPB Scheme which is similar to MEIS Scheme and SEIS Scheme under FTP 2015-2020 was originally treated as exemption from duty and that goods cleared through debit under DEPB Scheme were exempted goods. Subsequently para 4.3.5 of the FTP 2004-09 was amended so as to give the benefit of Cenvat credit or duty drawback to additional customs duty paid through debit under DEPB Scheme. Customs Notification 96/2004 dated 17.09.2004 read with Customs Circular No.59/2004 dated 21.10.2004 laid down that the additional customs duty paid through debit under DEPB Scheme shall be allowed to be availed as cenvat credit or duty drawback. Thus, it is submitted that the MEIS Scheme and SEIS Scheme under FTP 2015-20, which allows the debit of basic customs duties and other duties from duty credit scrips is the same as the DEPB Scheme available under the amended para 4.3.5 of Foreign Trade Policy 2004-2009. Thus, these schemes provide the objective to neutralize the incidence of customs duties on import component of the export product. This neutralization is provided by way of duty credit against export product which is at a specified percentage of FOB value of export. Thus, the MEIS Scheme and the SEIS Scheme like the earlier DEPB Scheme provides for payments for customs duty and additional duty by utilization of credit available in the credit schemes which are given as export rewards by the Government of India. In other words, the importer has the option to pay the customs duties either by cash or through debit under duty credit scrips. Para 3.15 of the Foreign Trade Policy 2015-20 laid down in categorical terms that the customs duties paid through cash or through debit under duty credit scrips shall be adjusted as Cenvat credit or duty drawback. Thus the provisions of the FTP 2015-20 make it very clear that the duty credit scrips awarded under the MEIS and SEIS Schemes is not an exemption from the duties but only a revenue neutralization scheme where the customs duties otherwise payable are debited from the duty credit scrips awarded by the Government of India. In such an event the submission of the petitioner herein that the imports are exempted from the levy of customs duty in cases where MEIS and SEIS Scrips are utilized is wholly untenable and incorrect. The SWS is a duty on the imported goods in addition to the other customs duties except the ones mentioned in clause (a) to (d) of sub Section (3) and is collected as a duty of customs. Sub Section 5 of Section 110 of Finance Act 2018 lays down that the provisions with regard to assessment, non levy, short levy, refunds, exemptions, interest, appeals, offences and penalties shall apply to the levy and collection of SWS as they applied to other customs duties and also the rules and regulations as the case may be. Thus, it is submitted that in such an event the debit of the SWS from the duty credit scrips treating it as an additional customs duty is well justified. Notification 24/2015-Customs dated 08.04.2015 and Notification 25/2015 -Customs dated 08.04.2015 have to be read in the context of para 3.15 of FTP 2015-20.
b) The MEIS and SEIS Scheme do not give the benefit of exemption of customs duty and additional customs duty but only give the benefit of neutralization in the form of debit from the duty credit scrips. Clause 2 of the Notification 24/2015-Customs and Notification 25/2015-Customs dated 08.04.2015 states that the exemption mentioned in clause (1) are subject to the conditions laid down in sub clause (1) to (10) of clause 2 of the Notifications. Sub clause (8) and (9) lays down that the importer shall be entitled to avail the drawbacks of the customs duty and CENVAT credit or drawback or additional customs duty against the amount debited in the scrips. Sub clause (5) lays down that the said scrips has to be produced before the proper officer of customs at the time of clearance for the debit of the duties leviable on the goods. Thus on a conjoint reading of the clauses in the Notifications, it is evident that there is no factual exemption on the customs duty but the Notifications only speak about the debit of the leviable duties from the duty credit scrips. Thus the SWS which was introduced as an additional customs duty under Section 110 of the Finance Act, 2018 has to be treated on the same plane as the basic customs duty and other customs duties as per sub section (5) of Section 110 of the Finance Act, 2018. Thus, in such an event the debit of SWS from the duty credit scrips is wholly justified and well in order and in accordance with the provisions of sub section (5) of Section 110 of the Finance Act, 2018 read with para 3.02 of the FTP 2015-2020. The Customs Circular issued by the CBIC Circular No.5/2005- Customs dated 31.01.2005 have clarified that in the case of DEPB Scheme, though the imports are governed by an exemption notification, the fact remains that in case of such imports the duty is debited from the DEPB scrips. The same Circular also lays down that the education cess which was in existence at that time and which was leviable at 2% of the aggregate duties of customs except safeguard duty, countervailing duty and anti dumping duty can be debited from the DEPB scrips when the imports are made under the DEPB scheme. The present SWS has replaced the education cess and is now calculated as 10% of the aggregate of basic customs duties and other additional duties except safeguard duty, countervailing duty, anti dumping duty and the SWS. Further, as Circular No.5/2005-Customs dated 31.01.2005 has not been rescinded till date, the same is applicable to SWS also. It is true that Social Welfare Surcharge is a Surcharge on the Basic Customs duty. Only if the BCD is ‘zero%’ without any condition attached to it, the Social Welfare Surcharge would also be ‘zero’. But in the present case, it is not ‘zero%’. The BCD which is leviable is being debited from the scrips issued by DGFT. So, the importer is actually ‘paying’ the BCD but not by cash but by using the scrips. Hence, the contention of the petitioner is not sustainable. The Constitutional Bench of the Hon’ble Supreme Court in the case of Commissioner of Customs, Mumbai v. Dilip Kumar (2018 (9) SCC 1) held that every taxing statute including charging computation and exemption clause should be interpreted strictly, in the case of exemption notification the benefit of ambiguity must be strictly interpreted in favour of the revenue only.
8. Mr.Sujit Ghosh, the learned counsel for the petitioner made his oral submissions. A written submission and an additional written submission on behalf of the petitioner are also filed. The sum and substance of the submissions made by the petitioner are as follows:
a) Both these writ petitions are filed challenging the arbitrary and illegal debit of Social Welfare Surcharge from the scrips obtained by the petitioner under the Merchandise Exports and India Schemes (MEIS) and the Service Exports from India scheme(SEIS) under the Foreign Trade Policy 2015-2020 relevant to two imports made at Karaikal Port and Chennai Port. The respondents instead of debiting Basic Customs Duty(BCD) at 45% on the assessable value of bill of entry from the scrips of the petitioner have debited 49.5% by adding 10% of Social Welfare Surcharge, which is illegal, arbitrary and unsustainable in law. Notification Nos. 24 & 25/2015 specifically exempt goods when imported using MEIS and SEIS scrips from the whole of the duty of customs leviable thereon under the First Schedule to the Customs Tariff Act 1975 and the whole of additional duty leviable thereon under Section 3 of the Customs Tariff Act, 1975. The exemptions under the aforesaid Notifications are effectuated by way of debiting the duty amount from the value that the MEIS and SEIS scrips bear. Debiting of the scrip is only an administrative mechanism of tracking when the upper limit of exemption is reached. Therefore, it cannot be stated that the debit of scrip means payment of Customs Duties or that the duties are paid through the scrips. As per the above said two Notifications, the act of debit is permitted only for those duties which are leviable on the goods but for the specific exemption provided in the Notifications. In other words, only the Customs Duty leviable under the First Schedule to the Customs Tariff Act and Additional Duty under Section 3 of the Tariff Act can be debited, which is specifically exempted. In other words, if the rates of duties are prescribed under some other statute, even if those may be in the nature of Customs Duties, debit of such duties is not permissible under the said notification. Insofar as Social Welfare Surcharge (SWS) is concerned, the same is levied under Section 110 of the Finance Act, 2018 and not under the Customs Tariff Act, 1975. Consequently, since the rate of SWS is not prescribed under the Customs Tariff Act, neither SWS is exempted under the aforesaid Notification, nor it is debitable under the said notification. However, where the Basic Customs Duty as also to CVD is exempted under the said notification, then the effective tax rate of those imports works out to NIL.
b) By virtue of Section 110(3) of the Finance Act 2018, Social Welfare Surcharge would also be NIL, since the same is calculated at the rate of 10% on the aggregate of Duties, Taxes and Cesses which are levied and collected under the Customs Act where the Basic Customs Duties and CVD is exempted on the use of the scrips, the customs authorities have no authority to either debit SWS or recover any SWS, since SWS would be NIL where the petitioner is eligible for exemption from Basic Customs Duty and CVD.
c) The above contention is squarely covered by a decision of the Division Bench of this Court reported in 2014(306) ELT 398 (Mad). The above position has also been accepted by other High Courts in number of cases as follows:
i) 2013 (296) ELT 182 (Guj.) (Commissioner of Customs vs. Pasupati Acrylon Ltd.)
ii) 2015(322) ELT 121 (Bom.) (Commissioner of Customs (Export) vs. Reliance Industries Ltd.)
iii)2013 (289) ELT 273 (Guj.) (Gujarat Ambuja Exports Ltd.)
iv) 2011 TIOL 1063-HC-AP-CUS (Commissioner of Central Excise Vishakapatnam vs. Kedia Overseas)
d) The above Notifications grant exemption from payment of duties and cannot be read as requiring the importer to “pay duty through debit”. If the Notification contemplates payment of duty through the scrips, then monies paid by way of tax would have formed part of the Consolidated Fund of India and not shown as “Duties Foregone” in the Budget Documents. Tax incentives through exemptions etc. do not form part of the Consolidated fund of India. From a perusal of Union Budget of 2018-19 and more particularly, Annexure 7 of the Receipt Budget presented before the Parliament makes it abundantly clear that Revenue Impact on account of Export Promotion Concessions such as SEIS schemes and MEIS schemes etc. adds up to the Total Customs Duty Foregone by the Government of India. It is crystal clear that the incentives available under the DEPB scheme, SEIS Scheme, MEIS Scheme etc. tantamount to Revenue Foregone by the Central Government and thus do not form part of the Consolidated Fund of India. If debit of Duty through the scrips indeed amounted to payment of Tax, then for sure, such payment would have contributed to the Revenue Earned by the Government of India and not the “Revenue Foregone”.
e) If debit of Duty amounts to “payment of tax” then occasion for imposition of interest in case of irregular utilization of the scrips could not have arisen. Even in a situation where Duty has been paid, as per the pleadings of the Respondent (through a scrip) where such scrip was irregularly used by exporter, there can be no occasion for the Revenue to recover further duties along with interest, solely on account of such irregular usage of the scrip. This hypothesis is on the edifice that having collected the Duty through debiting the Scrip, no loss to the ex-chequer could have taken place, warranting a further recovery of Duties collected earlier at the time debit and charging of interest thereon.
f) The respondents have placed undue reliance on the term “debit” that occurs in Notifications No. 24 and 25 of 2015. The respondents lost sight of the fact that the very term “debit” occurs in the Exemption Notification No. 18/2015 pertaining to Advance Authorization and Exemption Notification No. 19/2015 pertaining to Duty Free Import Authorization i.e., the so called exemption and remission schemes under Chapter 4 of the FTP. The fact that the said term i.e. “debit” is used both for SEIS and MEIS notifications as also Advance Authorization and DFIA Notifications, goes on to indicate that the said term “debit” is only used to refer to a mechanism of subtracting from the instruments in question, the extent of the exemption availed by an claimant. The said term “debit” cannot, by any stretch of imagination, be equated with “payment through a scrip/ license”.
g) Aspect of Duty Foregone i.e., grant of exemption adequately demonstrated in the Bill of Entry. On a perusal of the Bill of Entry it is clearly noticed that in the first table contained in the Bill of Entry, after making reference to the exemption notification made applicable to the petitioner an amount of Rs.7107665.30/- has been indicated as “BCD Fg”. The term “fg” stands for nothing other than “Foregone”. Therefore the phrase BCD Fg 7107663.30/- can only mean that, it is the quantum of Basic Customs Duties that has been Foregone by the Customs Authorities and hence cannot mean that that is the amount of Basic Customs Duties paid by the petitioner. From a perusal of the Notification concerned, it is abundantly clear that the same has been issued under Section 25(1) of the Customs Act Under that Section, power has been granted to the Central Government, to grant exemption from Customs Duty either conditionally or subject to certain conditions. Accordingly, where the source of power of the legislative action of the executive is under Section 25(1) of the Customs Act (power to grant exemption), such a delegated legislation in the form of Notification cannot be anything other than a Notification granting exemption. Any other interpretation suggestive of the Notification requiring payment of tax, would run wholly contrary to the source of power, effectuated for issuing the subject notification and thus cannot be countenanced.
h) Significance of the phrase “But for this exemption”. On a perusal of Clause 2(v) of the present Notification, it can be noticed that the power has been granted to the proper officer to debit the duties leviable on the goods but for this exemption. The choice of the words “but for this exemption” essentially denotes that where without the operation of the exemption notification, Customs Duty is payable, however, on application of the exemption notification, the duties are exempt. The present notification is only an exemption notification. The petitioner relies upon the Constitution Bench decision of the Supreme Court in the case of AV Fernandes vs. State of Kerala – AIR 1957 SC 657. The petitioner also relies upon the Division Bench decision of the Supreme Court in the case of HICO Products vs. CCE 1994 (71) ELT 339 (SC).
i) The substance of the Notification ought to be relied upon and not certain works used out of The reference to the word “paid” used in the foreign trade policy or the word “debit” used in the Notifications concerned, ought not to be read out of context in appreciating whether or not the notification concerned is an exemption notification or not. Instead it is the substance of the notification that ought to be looked at and not certain context. Accordingly, words such as “paid” used in the FTP or “Debit” used in the “Notification” ought not to be considered in coming to the conclusion that the exemption is indeed an exemption notification and not a notification in which duty is being asked to be paid through the mechanism of debit. A Division Bench of the Supreme Court in the case of Asst.Commr. Commercial Taxes. Vs. Dharmendra Trading Company 1988(3) SCC 570 at para 6 had the occasion, to adopt the above test of “substance of the concession” as opposed to “certain words used out of context” to ascertain the nature of the incentive granted. In summary it is the petitioner’s submission that ab initio exemption or outright exemption is not the only way in which duties are foregone. Instead based on policy and expediency and such other factors, there are other methods through which exemptions are granted (such as refund to the taxable person or refund to the recipient of services or refund net of credit utilized) and in similar vein debiting of duty through the value scrip is yet another administrative methodology adopted, to confer the exemption and may not be read to mean that such debiting is a method of payment of Duty. Since the respondents have themselves pleaded that where customs duties are exempted, Social Welfare Surcharge would also be exempted Duty under the present exemption notifications are exemption there can be no occasion for imposition of SWS through the mechanism of debit. Furthermore, since SWS is calculated at 10% of the aggregate of Duties payable (pursuant to Section 110(3) of the FA 2018) which in the present case would be NIL by operation of the present exemption notifications, the liability to pay SWS would also be NIL (10% of NIL being Zero).
j) Decisions of the Division Bench of the Madras High Court in Tanfac and SPIC are distinguishable. Furthermore the Tanfac decision was rendered by the Madras High Court in 2009, whereas in the year 2013, a Division Bench of the Madras High Court in case of Commissioner of Customs Tuticorin vs. DCW reported in 2014(306) ELT 398 (Mad.) in identical facts and issues involved as in the present petition, had come to the conclusion that the notification concerned therein i.e. Notification 96/2004 dated 17.09.2004 under which customs duties were being debited under the DEPB scheme, essentially granted a total exemption from the payment of Customs Duties, and consequently, it was held that Education Cess (similar to SWS) was also exempt.
k) The Respondents’ reliance on Circular 5/2005 dated 21.05.2005 is wholly misplaced. It is submitted that such reliance is wholly misplaced because the said circular had been set aside as constitutionally invalid by the Hon’ble Gujarat High Court. Alternative remedy is not efficacious in the present case. In fact alternate remedy is an exercise in futility and the petitioner rightly approached this Hon’ble Court in writ proceedings under Article 226.
9. Mrs. Aparna Nandakumar, learned counsel for the second respondent in W.P.No.24490 of 2019 made her oral submissions. Learned counsel also filed written submissions. Mr. Santhanaraman, learned counsel for the second respondent in W.P.No.27452 of 2019 submitted that he is adopting the argument advanced by Mrs. Aparna Nandakumar. Thus, the sum and substance of the submissions made on behalf of the second respondent in both the writ petitions are as follows:
a) The petitioner herein is challenging the debit of Social Welfare Surcharge (SWS) from the duty credit scrips. The petitioner herein is under the Exports of India Incentive Schemes namely Merchandise Export India Scheme (MEIS in short) and Service Export from India Scheme (SEIS in short) under the Foreign Trade Policy 2015-20 (FTP in short). The object of these scheme is to offset infrastructure inefficiencies and to provide exporters a level playing field. The Exports from India Schemes falling under Chapter 3 of the FTP 2015-20 are different from the duty exemption/remission scheme which fall under Chapter 4 of the FTP 2015-20. Para 3.02 of the FTP 2015-20 lays down the nature of rewards available under the MEIS and SEIS Schemes. These rewards are in the nature of duty credit scrips which are freely transferable. These duty credit scrips are identical to DEPB Scrips which was introduced in the year 1997 under the FTP 1997-2002. The DEPB Scrips ceased to be in operation from the year 2015.
Under FTP 2004-2009 there were five schemes which were identical to the DEPB Schemes like VKGUY. These five schemes have been replaced by the MEIS AND SEIS Schemes under FTP 2015-2020. Under both the schemes, the basic customs duty, additional customs duty and central excise in respect of certain inputs can be debited from the duty credit scrips as provided in para 3.03 of the FTP 2014-2019.
b) Notification 24 & 25/2015-Customs which lay down about the MEIS and SEIS Schemes is similar to Notification 6/2004- Customs. Clauses 8 and 9 speaks about the admissibility of CENVAT Credit. Chapter 3 and Chapter 4 of the FTP 2015-2020 operate on different premises. While Chapter 3 lays down that duties can be paid by way of debit through scrip rewards in which case the benefit of CENVAT credit/Duty Drawback is available, Chapter 4 speaks about exemptions/conditional exemptions and circumstances in which CENVAT Credit/Duty Drawback can be availed when there is no specific exemption. Thus, the petitioner endeavour to equate all the incentive schemes under one umbrella of exemption is wholly erroneous. The Duty Entitlement passbook Scheme or the Duty Credit Scrips Scheme cannot be treated as an exemption from payment of duty. In this regard, the second respondent herein places reliance on the decision of the Hon’ble Supreme Court in Commissioner of Customs, Calcutta v. Indian Rayon and Industries Ltd. [2008 (10) SCALE 498]. The decision of the Apex Court has been followed by the Division Bench of this Court in Tanfac Industries Ltd. v. The Assistant Commissioner of Customs, Customs Division, 2009 (165) ECR 186 (Madras). SLP 24638-24640/2009 filed against this decision dismissed by the Hon’ble Supreme Court. Tanfac Industries decision has been followed by another Division Bench of this Court in CCE v. SPIC, Heavy Chemicals Division, [2014] 25 GSTR 538 (Mad). The second respondent herein also places reliance on the decisions of the Hon’ble Supreme Court in Yasha Overseas v. Commissioner of Sales Tax, (2008) 8 SCC 681. The second respondent herein also places reliance on the decisions of the Hon’ble Gujarat High Court in Ratnamani Metals And Tubes Ltd. v. Union of India, 2016 (339) ELT 509 (Guj). The decision of the Gujarat High Court in Gujarat Ambuja Exports Ltd v. Government of India (289) ELT 273 (guj) relied on by the petitioner herein is not applicable to the facts of the present case.
c) The petitioner herein has argued that the sub silentio principle will be applicable to the decisions referred to by the second respondent for the reason that the Hon’ble Supreme Court and the Division Bench of this Court do not refer to the debit of education cess which has been addressed by the Hon’ble Gujarat High Court in Gujarat Ambuja. Thus, in the context, the second respondent herein relied on the decision of this Court in QD Seatamon Designs Private Limited v. P.Suresh 2019 (1) MLJ 163 (Mad), which has relied on two judgments of the Supreme Court and one judgment of the Full Bench of this Court lays down that the sub silentio principles cannot be an exception to Article 141 of the Constitution of India.
d) SWS was introduced vide Section 110 of the Finance Act, 2018 and it was essentially to replace Education cess. As laid down in Section 110 of the Finance Act, 2018 the SWS is a duty of customs in addition to other duties of customs under the Customs Act, 1962. Therefore, the second respondent submits that the SWS is not an independent levy but takes the nature and colour of the parent levy viz basic customs duty (BCD). If the BCD is exempt then SWS being an allied levy will also be exempt. If the BCD is exempt then SWS being an allied levy will also be exempt. If the BCD is debitable a duty credit scrip schemes like the MEIS and SEIS, the SWS which is also a duty of customs and an allied levy, is also debitable from the duty credit scrips. There is no specific bar for debiting the SWS from the duty credit scrips.
e) It is further submitted that Section 110(5) of the Customs Act makes it crystal clear that the treatment meted out to the levy, assessment, etc., on the BCD would mutatis mutandis be applicable to SWS also. In this connection, the second respondent places reliance on the decisions of High Court and Apex Court laying down that Automobile Cess/Education Cess/Secondary and Higher Education Cess/National Calamity Contingent Duty are duties of excise and are not independent levies:
A. CCE v. TELCO (1997) 5 SCC 275.
B. Banswara Syntex v. UOI (Rajasthan High Court) RLW 2007(4) Raj.2995.
The provisions of Section 110 of the Finance Act, 2018 are similar to Section 93 of the Finance Act, 2004 by which Education cess was introduced. While Section 93(1) of the Finance Act 2004 is comparable to Section 110(1) of the Finance Act, 2018, Section 93(2) and 93(3) of the Finance Act, 2004 are comparable to Section 110(4) and (5) of 2018. Thus, it is submitted that the decision in Banswara rendered in the context of education cess is applicable in all fours to the issue of SWS. The decision of the Hon’ble Rajasthan High Court in Banswara has been affirmed by the Hon’ble Supreme Court in SRD Nutrients v. CCE, (2018) 1 SCC 105 and in Bajaj Auto Ltd. Vs. UOI 2019 (366) ELT 577 (SC).
f) Based on the ratio laid down by the Hon’ble Supreme Court, when the basic customs duty is not exempted and is debitable from the duty credit scrips, the SWS which takes the colour of parent levy viz., basic customs duty and is not an independent levy, is also debitable from the duty credit The Constitutional Bench of the Hon’ble Supreme Court in Commissioner of Customs v. Dilip Kumar 2018 9 SCC 1 has laid down that exemption notifications must be construed very strictly and when there is an ambiguity in exemption notification, it should be in favour of the Revenue. The petitioner herein has now filed an amendment petition to amend the prayer and grounds seeking for a certiorarified mandamus as against the Bill of Entry. Thus the second respondent submits that the Bill of Entry which reflects the debit of Social Welfare Surcharge, the action by which the petitioner herein is aggrieved is an appealable order under Section 128 of the Customs Act, 1962. BCD and Additional Customs Duty can be debited from duty credit scrips which are export rewards under MEIS and SEIS Schemes. The debit through the duty credit scrips is only payment of customs duty and is not an exemption. SWS is calculated at 10% of the BCD. This being an additional customs duty takes the colour of parent levy namely BCD. In the present case, as BCD is not exempt but debitable from duty credit scrips, SWS is also not exempt but debitable from duty credit scrips.
10. After hearing the oral submission of the learned counsels for both sides and receiving their written submissions as well, this Court reserved the matter “for orders” on 18.11.2019. However, on 09.12.2019, both the learned counsels appeared before me and made a mention in the open Court that a recent decision rendered by the Hon’ble Supreme Court dated 06.12.2019 in the case of Unicorn Industries v. Union of India & others (Civil Appeal No.9237 of 2019 dated 06.12.2019), has a bearing on the issue involved in these cases and therefore, for the purpose of explaining the effect of the said decision, they requested for listing the matter for further hearing. Accordingly, the matter was listed on 16.12.2019 and at the request of the learned counsel for the petitioner, it was adjourned to 18.12.2019. On 18.12.2019, the learned counsels appearing on either side made their submissions regarding the effect of the above decision of the Apex Court made in Unicorn Industries case, and also filed additional written submissions (by the petitioner) and revised written submissions (by the respondent). Accordingly, the matter was reserved “for orders” on 18.12.2019.
11. In the revised written submission filed by the learned counsel for the revenue, apart from reiterating the earlier contentions, the learned counsel fairly submitted that the revenue can no longer rely upon the decisions of the Apex Court in SRD Nutrients Private Limited and Bajaj Auto Limited cases, in support of their contention that the Social Welfare Surcharge is not an independent levy but took the colour of the parent However, the revenue sought to contend that the present issue is not a case of exemption of basic customs duty to test whether the exemption is at all applicable to social welfare surcharge and on the other hand, the issue revolves around the question whether the payment of SWS can be debited from the duty credit scrips like the customs duty.
12. In the additional written submissions filed on behalf of the petitioner, they relied on the recent decision of the Apex Court made in Unicorn Industries case, and contended that SWS could not have been debited from the scrips because notification Nos. 24 and 25 of 2015 exempted only Customs Duties levied under the Customs Act and Customs Tariff Act and therefore, in the absence of any machinery for debiting SWS from the scrips, the revenue ought not to have debited the same from the scrips.
13. Heard Sujith Ghosh, learned counsel for the petitioner and Mrs. Aparna Nandhakumar, learned counsel for the Revenue. Perused the pleadings, written submissions and case laws cited on either side.
14. Point for consideration in this writ petition is as to whether the Revenue is justified in debiting the Social Welfare Surcharge also from and out of the value of the relevant scrips issued under two schemes viz., MEIS and SEIS, while debiting the customs duty from those two scrips.
15 .a) The petitioner is in the business of manufacturing and marketing of eatable oils and fats. They import certain goods as a part and parcel of their business activities.
b) Foreign Trade Policy 2015-2020 contains two schemes viz., Merchandise Exports from India Scheme (MEIS) and Service Exports from India Scheme (SEIS). Under the MEIS, a claimant has to export notified goods to notified places in order to be entitled to MEIS benefit, calculated based on the realised FOB value of exports in free foreign exchange or the FOB value of the exports as given in the shipping bills in free foreign exchange, whichever is lesser. Once such export is made, the claimant is granted a duty credit scrip, which can be used for paying the customs duty, excise duty on manufactured goods and service tax on the procurement of service.
c) Likewise, for taking benefit under SEIS, the claimant needs to export certain notified services rendered in the manner prescribed under the Foreign Trade Policy. Accordingly, the claimant can be used for paying the customs duty on imports, etc., Thus, it is seen that under both schemes, the basic customs duty, additional customs duty and central excise duty in respect of certain inputs can be debited from the duty scrips.
d) Clause 3.02 under Chapter 3 of Foreign Trade Policy for the period 01st April 2015 to 31st March 2020 reads as follows:
“3.02 Nature of Rewards
Duty Credit Scrips shall be granted as rewards under MEIS and SEIS. The Duty Credit Scrips and goods imported/domestically procured against them shall be freely transferable. The Duty Credit Scrips can be used for:
(i) Payment of Basic Customs Duty and Additional Customs Duty specified under Sections 3(1), 3(3) and 3(5) of the Customs Tariff Act, 1975 for import of inputs or goods, including capital goods, as per DoR Notification, except items listed in Appendix 3A.
(ii) Payment of Central excise duties on domestic procurement of inputs or goods;
(iii) Deleted
(iv) Payment of Basic Customs Duty and Additional Customs Duty specified under Sections 3(1), 3(3) and 3(5) of the Customs Tariff Act, 1975 and fee as per paragraph18 of this Policy.”
16. The Central Board of Indirect Taxes and Customs issued two notifications in 24/2015 and 25/2015, both dated 08.04.2015. The petitioner seeks to rely on the above said Social Welfare Surcharge (SWS) cannot be debited from the above duty credit scrips.
17. Notification No.24/2015-Customs dated 08.04.2015 reads as follows:
“[TO BE PUBLISHED IN THE GAZETTE OF INDIA, EXTRAORDINARY, PART II SECTION 3, SUB-SECTION (i)]
GOVERNMENT OF INDIA
MINISTRY OF FINANCE
(DEPARTMENT OF REVENUE)
Notification No. 24/2015 – Customs
Dated- 8th April, 2015
G.S.R. 269 (E).– In exercise of the powers conferred by sub-section (1) of section 25 of the Customs Act, 1962 (52 of 1962), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts goods when imported into India against a duty credit scrip issued by the Regional Authority under the Merchandise Exports from India Scheme in accordance with paragraph 3.04 read with paragraph 3.05 of the Foreign Trade Policy (hereinafter referred to as the said scrip) from,-
(a) the whole of the duty of customs leviable thereon under the First Schedule to the Customs Tariff Act, 1975 (51 of 1975) (hereinafter referred to as said Customs Tariff Act); and
(b) the whole of the additional duty leviable thereon under section 3 of the said Customs Tariff Act.
2. The exemption shall be subject to the following conditions, namely :-
(1) that the duty credit in the said scrip is issued –
(a) against exports of notified goods or products to notified markets as listed in Appendix 3B of Appendices and Aayat Niryat Forms of Foreign Trade Policy 2015-2020;
(b) against exports of notified goods or products transacted through e-commerce platform as listed in Appendix 3C of Appendices and Aayat Niryat Forms of Foreign Trade Policy 2015-2020. In such cases the maximum free on board value, for calculation of duty credit amount, shall not exceed Rs.25,000 per consignment;
(2) that the export categories or sectors specified in paragraph 3.06 of the Foreign Trade Policy and listed in Table annexed hereto shall not be counted for calculation of export performance or for computation of entitlement under the scheme;
(3) that the imports and exports are undertaken through the seaports, airports or through the inland container depots or through the land customs stations as mentioned in the Table 2 annexed to the Notification No. 16/2015- Customs dated 01.04.2015 or a Special Economic Zone notified under section 4 of the Special Economic Zones Act, 2005 (28 of 2005):
Provided that the Commissioner of Customs may within the jurisdiction, by special order, or by a Public Notice, and subject to such conditions as may be specified by him, permit import and export through any other sea-port, airport, inland container depot or through any land customs station:
Provided further that the exports of notified goods or products transacted through e-commerce platform as listed in Appendix 3C of Appendices and Aayat Niryat Forms of Foreign Trade Policy 2015-2020 are undertaken either through the courier mode from airports at Chennai, Mumbai or Delhi or through the Foreign Post Offices at Chennai, Mumbai or New Delhi;
(4) that the said scrip is registered with the Customs Authority at the port of registration specified on the said scrip;
(5) that the said scrip is produced before the proper officer of customs at the time of clearance for debit of the duties leviable on the goods and the proper officer of customs taking into account the debits already made under this exemption and debits made under the notification Nos. 20/2015 – Central Excise, dated the 8th April, 2015 and 10/2015 -Service Tax, dated the 8th April, 2015, shall debit the duties leviable on the goods, but for this exemption;
(6) that the said scrip and goods imported against it shall be freely transferable;
(7) that where the importer does not claim exemption from the additional duty of customs leviable under section 3 of the said Customs Tariff Act, he shall be deemed not to have availed the exemption from the said duty for the purpose of calculation of the said additional duty of customs;
(8) that the importer shall be entitled to avail of the drawback of the duty of customs leviable under the First Schedule to the said Customs Tariff Act against the amount debited in the said scrip;
(9) that the importer shall be entitled to avail drawback or CENVAT credit of additional duty leviable under section 3 of the said Customs Tariff Act against the amount debited in the said scrip;
(10) that the benefit under this notification shall not be available to the items listed in Appendix 3A of Appendices and Aayat Niryat Forms of Foreign Trade Policy 2015-2020.
Explanation. – In this notification –
(I) “Capital goods” has the same meaning as assigned to it in paragraph 9.08 of the Foreign Trade Policy;
(II) “Foreign Trade Policy” means the Foreign Trade Policy, 2015-2020, published by the Government of India in the Ministry of Commerce and Industry notification number 01/2015-2020, dated the 1st April 2015 as amended from time to time;
(III) “Goods” means any inputs or goods including capital goods;
(IV) “ITC (HS)” has the same meaning as assigned to it in paragraph 9.27 of the Foreign Trade Policy;
(V) “Regional Authority” means the Director General of Foreign Trade appointed under section 6 of the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992) or an officer authorised by him to grant an authorisation including a duty credit scrip under the said Act.
Table
Comments are closed.