No need to debit Social Welfare Surcharge (‘SWS’) where customs duties are paid through scrips

Education Cess (‘EC’) and Senior and Higher Education Cess (‘SHEC’) were levied on all imported goods as a duty of customs till it was abolished vide Finance Act, 2018. Subsequently, the Government levied Social Welfare Surcharge (‘SWS’) at the rate of 10 percent of Basic Customs Duty (BCD)[1] w.e.f. February 2, 2018.

Under the Foreign Trade Policy, 2015-20 (‘FTP’), exporters get scrips like MEIS, SEIS etc. on export of specified goods and services. Apart from that, the regular importers also buy scrips from the market for payment of customs duties. Post introduction of GST, these scrips can be used for payment of BCD but not for Integrated Goods and Services Tax (‘IGST’). The amount of BCD debited through scrips is exempted under Customs law vide Notification No.24/2015-Cus dated April 8, 2015.

It has been seen that at the time of import, the importers also debit SWS amount from scrips in addition to BCD amount. This update intends to discuss whether SWS is exempted in a situation where BCD is exempted or not, and if yes, whether SWS needs to be paid through scrips or not.

Legal background

SWS is levied as a percentage of BCD, similar to EC and SHEC. Specifically, in context of export benefits, the issue whether EC and SHEC will be exempted where BCD is paid through DEPB scrips came up for consideration before the Courts.

There are numerous High Court judgments (duly affirmed by Supreme Court) wherein it has been consistently held that where BCD is debited in DEPB scrips and is exempted vide a Notification issued under the Customs law, EC and SHEC will also be exempted. The Courts also held that there shall be no need of debit of EC and SHEC from DEPB scrips in such cases. In the context of EC and SHEC, the Supreme Court held that in case basic duty is exempted, EC and SHEC shall also be exempted[2].

Basis above, SWS shall be exempted where BCD is exempted on account of payment made from scrips. Hence, there is no requirement to pay SWS in cash or through scrips.

NITYA Comments:

The adoption of above methodology will result in savings of 10 percent of BCD amount (amount of SWS) where BCD is paid through MEIS or SEIS scrips. The same is explained with help of an example:

Particulars

Duties paid in cash

Duties paid through scrips (presently)

Duties paid through scrips

(proposed)

Assessable value

100

100

100

BCD (assumed 10%)

10

(11 debited through scrips)

(₹10 debited through scrips)

SWS (10% of BCD)

1

Here, instead of paying ₹11 in cash, ₹10 should be debited through scrips.

It is pertinent to note that IceGate (Indian Customs Electronic Commerce Gateway) does not permit payment of BCD through scrips exclusive of SWS. In such a case, the importers should file a representation with the customs department for making necessary changes in IceGate.

For the past period and till requisite changes are made in IceGate, importers can file refund with customs department for the amount of SWS debited in scrips. Such refund needs to be filed within 1 year from date of imports and will be subject to satisfaction of test of unjust enrichment.

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