Redefining law on exemptions

The Central Board of Indirect Taxes and Customs (CBIC) has issued a clarificatory circular that Social Welfare Surcharge (SWS) cannot be debited to the duty credit scrips issued under the Merchandise Exports from India Scheme (MEIS) or Services Exports from India Scheme (SEIS). SWS must be paid in cash, says CBIC.  

MEIS and SEIS allow exemption of basic customs duties (BCD) and specified Additional Duties of Customs (ADC) but not the exemption of SWS.  One condition for the exemption is that the amount of duties must be debited to the duty credit scrip issued under these schemes. However, the Customs department so made the software in its Electronic Data Intercharge system that when exemption from BCD was claimed by presenting such scrip, the system automatically allowed it by a debit. 

Recently, an audit team objected to the practice, contending that the said schemes do not exempt SWS. Thereafter, importers started getting demands that they must pay the SWS in cash, even for the past cases where exemption had been granted by debit to such duty credit scrip.  

The CBIC clarification now says past cases need not be reopened but future exemption will be allowed only of the duties specified in the schemes and SWS must be paid in cash. 

CBIC relies on the Supreme Court judgment in the case of Unicorn Industries [2019-TIOL-528-SC-CX-LB]. Wherein it was held that when a particular type of duty is exempted, other types of duty or cess imposed by different legislation for a different purpose cannot be said to have also been exempted. 

Recently, the Madras High Court followed this judgement in the case of Gemini Edibles and Fats India Ltd.

There is no quarrel with the view that SWS is not exempted when MEIS and SEIS allow exemption of only the BCD and specified ADC. But, SWS is leviable at 10 per cent of the BCD. 

When the BCD is fully exempted, the SWS becomes nil. CBIC (earlier known as CBEC), however, takes a view that duty credit scrips are only a mode of duty payment and not an exemption, even though use of the said scrips is governed by an exemption notification.  

CBEC Circular no. 5/2005-Cus,  dated January 31, 2005, taking the same view, was struck down in the case of Reliance Industries Ltd [2005 (188) ELT 449 (Tri. Mumbai). The tribunal held no education cess is leviable on fully exempted DEPB (Duty Exemption Passbook) import and, therefore, no debits from the DEPB scrip are required. 

A plethora of judgments on the same issue from high courts and tribunals 

state that when BCD is exempted by debit to DEPB, the education cess leviable as a percentage of the BCD is also nil. 

These judgments did not look at whether education cess is exempted but at the fact that it is a function of BCD, and that when BCD is nil, any percentage of BCD also works out to nil. 

Anyway, for now, importers are relieved that past cases will not be reopened. They may not get to debit SWS in the scrips but will utilise the credit available to that extent to pay BCD on other import.

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