Refund of Social Welfare Surcharge paid in past when Customs Duty was exempt

by | Feb 21, 2022 | Outlook

CBIC Circular No. 3/2022 – Customs dated February 1, 2022 (‘SWS Exemption Circular’) comes as relief and likely to settle issue of applicability of Social Welfare Surcharge (‘SWS’) wherein Basic Customs Duty (‘BCD’) is exempt. It clarifies that SWS is not payable if BCD payable is zero.

As a natural corollary of this Circular, question arises as to whether taxpayers can claim refund of SWS paid in past. In this Outlook, we have analyzed this question in backdrop of various legal issues:

Legal Concern Relevant Law and Jurisprudence NITYA Comments
Applicability of Circular Refund of SWS paid in past can only be claimed if Circular has retrospective application. Para 4 of Circular considers non-applicability of SWS as mere clarification.

 

Circular is clarificatory and thus has retrospective effect.

 

Modus of claiming refund The Supreme Court in case of ITC Limited v. CCE, 2019-VIL-32-SC-CU (‘ITC Judgement’) held that refund claim contrary to an assessment order cannot lie until and unless assessment order is challenged through appeal. In number of judgments that came after ITC Judgment, it was held that it is not necessary to prefer appeal to amend BOE and same can be done through Section 149 of the Customs Act, 1962 (‘Customs Act’).

 

Taxpayers can challenge respective BOE through appeal or can file amendment application under Section 149. Basis this, refund can be sought. 
Time limit Under Section 27 of the Customs Act, refund can be claimed within one year from date of payment of tax. Notably, the Courts in various cases allowed filing of refund application after prescribed time limit on the ground that where levy itself did not exist or tax was wrongly collected by Government, such amount will not qualify as ‘tax’. The Courts applied time limit prescribed under the Limitation Act, 1963 in such cases. On the contrary, in other set of judgments including Supreme Court’s Larger Bench judgement in case of Mafatlal Industries Limited v. UOI, 1996-VIL-01-SC-CE, it was held that refund of wrongly paid ‘tax’ will be governed by time limit prescribed under respective laws.

 

While there is time limit of sixty days (and thirty days for condonation of delay) for filing appeal against self-assessed BOE, there is no prescribed time limit for filing amendment application under Section 149. If refund is sought through appellate mechanism, one year is computed from date of appellate order.

 

In the light of Supreme Court’s suo moto order extending time limit for judicial and quasi-judicial proceedings in wake of COVID-19 pandemic, time period falling between March 15, 2020 to February 28, 2022 shall be excluded for computing time limit for filing appeal and claiming refund. Refund against BOE not covered by Supreme Court’s extension order, can also be attempted by taking support from favorable jurisprudence. 

 

Unjust Enrichment It is necessary to satisfy test of ‘unjust enrichment’ for claiming refund of taxes. For this purpose, SWS paid in past must appear as ‘receivable’ in books of account to prove that incidence of tax was not passed on. In some cases, Courts allowed refund even where tax was debited to Profit & Loss Account on the ground that booking as ‘expense’ is not conclusive that incidence has been passed on.

 

 

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