Gujarat HC issues notices to Centre, GST Council over surcharge imposition

The Gujarat High Court has issued notices to the Union government, the GST Council, and the Customs authorities over imposition of surcharge and cess on duties paid through scrip-based incentives by exporters. 

Earlier, exporters had moved the HC, challenging the constitutional validity of imposition of the education cess and the social welfare surcharge. 

However, the government not only wanted exporters to pay cess and surcharge, but also later issued another circular that said these had to be paid in cash and not through adjustments in scrips.  Exporters went to the court against the new circular, and sought to club this issue with the earlier one. 

“The circular has gone ahead to clarify that surcharge becomes payable through cash and this is a serious concern for exporters, especially when the constitutional challenge is to be decided on the applicability of the surcharge,” said Abhishek Rastogi, counsel for the petitioners. Rastogi, partner at Khaitan & Co., said the circular has been challenged so that both the problems are addressed simultaneously and the exporters get the much -desired relief in this environment of slow down.

The cess and the surcharge are imposed at the time of imports, where duties are paid through the Merchandise Exports from India Scheme (MEIS) scrips.

MEIS is a scrip-based incentives provided to exporters under the foreign trade policy 2015-20. These scrips could be used for payment of duties.

However, basic Customs duty has been subsumed in GST. Now, cess and surcharge are imposed on basic Customs duty. Petitioners argued overhow cess and surcharge can be imposed on the basic Customs duty which is zero. 

“As the cess is imposed on the aggregate Customs duty, ideally they are not payable as anything multiplied by zero is zero,” Rastogi said. The scheme is being replaced by the WTO-compliant Remission of Duties or Taxes on Export Product (RoDTEP) scheme. MEIS was to expire from this month, but was later extended till the end of this financial year.