Background: This newsletter is focusing on the levy of Social Welfare Surcharge (“SWS”) on imports made and present practice of its debit through duty credit scrips such as Merchandise Exports from India Scheme (“MEIS”), Service Exports from India Scheme (“SEIS”) etc. of the Foreign Trade Policy (“FTP”).
Issue: C&AG at Chennai has pointed out that SWS should be paid in cash in respect of imports where Customs duty is debited under MEIS scrips as the relevant Customs exemption notification exempts only Customs duty leviable under First Schedule of Customs Tariff Act, 1975 (“Customs Tariff Act”). Further, representations have been received from the trade that as the goods cleared against MEIS scrips are exempted from Basic and Additional Duty of Customs, therefore SWS should also be zero. The levy of SWS has also been challenged in various High Courts by the trade on the said ground.
Clarification: CBIC vide Circular No. 02/2020-Customs dated January 10, 2020 clarified:
- As per Section 110 of the Finance Act, 2018 (“Finance Act”), SWS is levied and collected, on the goods imported into India, as a duty of Customs on the goods specified in the First Schedule to the Customs Tariff Act. The SWS is calculated at the rate of ten per cent on the aggregate of duties, taxes and cesses which are levied and collected under Section 12 of the Customs Act, 1962 (“Customs Act”). This surcharge is in addition to any other duties of Customs or tax or cess chargeable on imported goods.
- The duty credit scrips issued under schemes such as MEIS, SEIS, etc. are granted as rewards/incentives for exporters under the respective FTP. As per Para 3.02 of the FTP 2015-20, these scrips can be used for payment of Basic Customs Duty and Additional Customs Duty specified under Sections 3 (1), 3 (3) and 3 (5) of the Customs Tariff Act for import of inputs or goods and for payment of Central Excise duties on domestic procurement of inputs or goods. The relevant Customs exemption notifications also allow debit of Basic Customs Duty and Additional Duties of Customs in the duty credit scrips. It is to mention that the debit of SWS through duty credit scrip is not envisaged in the FTP and the exemption notifications.
- Further, as per Para 3.15 of the FTP, Basic Customs Duty paid through debit in the duty credit scrip is allowed to be adjusted for duty drawback. Duties debited in duty credit scrip are taken into account while determining the All Industry Rates and Brand Rate of duty drawback. Similarly, Additional Customs Duty paid on imported goods and Central Excise duty paid on domestic procurement of goods is also allowed to be adjusted as CENVAT Credit or Duty Drawback. Hence duty credit scrips are only a mode of payment of duty and not an exemption from duty even though the use of the said scrip is governed by an exemption notification.
- Reliance was placed on the case of the Hon’ble Supreme Court, M/s Unicorn Industries Vs. Union of India and Others (Civil Appeal Nos. 9237 & 9238 of 2019 dated December 6, 2019) to clarify that that SWS is not exempted and has to be levied and collected on the imported goods.
- Further, as per past practice, SWS is being allowed to be debited in the duty credit scrips along with Basic Customs Duty and Additional Duties of Customs. However, keeping in view the position explained hereinabove, it emerges that SWS cannot be debited through duty credit scrips and therefore has to be paid by the importer in cash. Directorate General of Systems had been requested to make the relevant System level changes in this regard.
- With regard to the past cases of debits of SWS already made in duty credit scrips, it has been decided by the Board that for ensuring ease of doing business, such past cases should not be disturbed and the payments made through debit in duty credit scrips may be accepted as revenue duly collected and recoveries in cash not be insisted for these cases.
- A suitable Trade Notice and Standing Order may be issued for the guidance of the trade and officers.
Read more at : http://www.cbic.gov.in/resources/htdocs-cbec/customs/cs-circulars/cs-circulars-2020/Circular-No-02-2020.pdf