The Kolkata Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that Social Welfare Surcharge (SWS) cannot be levied where the Basic Customs Duty (BCD) itself is fully exempt under the Merchandise Exports from India Scheme (MEIS) and the Service Exports from India Scheme (SEIS).
The bench Justice Ashok Jindal (Judicial Member) and K. Anpazhakan (Technical Member) set aside multiple orders passed by the Commissioner (Appeals) and allowed the appeals filed by Emami Limited, holding that no SWS could be computed on a notional amount of customs duty.
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The appellant/assessee engaged in the manufacture and sale of ayurvedic medicines and cosmetics, imported synthesis menthol during the period from July 2019 to December 2019. The company filed 25 Bills of Entry claiming exemption from Basic Customs Duty under Notification Nos. 24/2015-Cus. and 25/2015-Cus., issued under the MEIS and SEIS export promotion schemes.
While the customs electronic data interchange (EDI) system correctly granted exemption from BCD by debiting the applicable MEIS/SEIS duty credit scrips, it simultaneously automatically debited Social Welfare Surcharge at 10% of the BCD foregone. Emami paid the SWS under protest and informed the customs authorities that the surcharge was not legally payable because the underlying Basic Customs Duty stood exempt.
The company challenged the assessments before the Commissioner (Appeals), seeking refund of the SWS debited from its duty credit scrips. However, the appellate authority rejected the claims by relying upon the Supreme Court’s decision in Unicorn Industries and the Madras High Court’s ruling in Gemini Edibles and Fats Pvt. Ltd.
The central question before CESTAT was whether Social Welfare Surcharge can be levied when the importer enjoys complete exemption from Basic Customs Duty under Notifications 24/2015-Cus. and 25/2015-Cus. issued under the MEIS and SEIS schemes.
The Tribunal noted that the controversy had already been settled in Emami’s own earlier case through Final Order No. 77304-77500/2024, where it had examined the effect of CBIC Circular No. 3/2022-Cus. dated February 1, 2022.
According to the Circular, where the aggregate customs duties forming the base for calculating Social Welfare Surcharge are zero, the amount of SWS payable is also nil, even if there is no separate exemption notification specifically exempting the surcharge.
Relying on this clarification, the Tribunal reiterated that SWS cannot be calculated on a hypothetical or notional Basic Customs Duty that is otherwise exempt.
The Bench also referred to its earlier decisions, including Dalmia Cement (Bharat) Ltd., which had extensively relied on the CBIC Circular. The Circular clarifies that SWS is levied as 10% of the aggregate customs duties payable, not on the value of imported goods.
Accordingly, if the aggregate customs duty payable is zero because of an exemption notification, the surcharge must also be computed as zero. The Tribunal emphasized that the law does not contemplate computation of Social Welfare Surcharge on a notional customs duty that is never payable.
The Tribunal further relied upon the Bombay High Court’s decision in Emami’s own case, wherein the High Court had directed the customs authorities to refund the amount deducted towards SWS within eight weeks along with applicable interest upon receipt of a proper refund application.
The Bench also referred to judicial precedents such as La Tim Metal Industries Ltd., where the courts held that when imported goods are cleared with Nil Basic Customs Duty, Social Welfare Surcharge, which is computed as a percentage of BCD, must likewise be nil.
The CESTAT held that importers are not liable to pay Social Welfare Surcharge when Basic Customs Duty is fully exempt under Notifications 24/2015-Cus. and 25/2015-Cus. issued under the MEIS and SEIS schemes.
The Tribunal consequently set aside all the impugned appellate orders and allowed the appeals with consequential relief, paving the way for refund of the surcharge wherever legally claimed.
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