Social Welfare Surcharge will be ‘Nil’ when Basic Customs Duty is ‘Nil’: CESTAT [Read Order]

In a recent judgement, the Kolkata bench of the Customs Excise and Service Tax Appellate Tribunal ( CESTAT ) ruled that when the Basic Customs Duty ( BCD ) is "Nil," the Social Welfare Surcharge ( SWS ), which is calculated at 10% of the BCD, will also be "Nil."

The Appellant, M/s Emami Agrotech Limited engaged in refining and selling edible oils, imports crude edible oil from various countries, refining it at its facility in Haldia, West Bengal. During the relevant period, the Appellant filed 82 Bills of Entry ( BOEs ) on the Electronic Data Interchange ( EDI ) portal for the import of 82 consignments of crude palm oil, claiming the benefit of Exemption Notification Nos. 24/2015-Cus. and 25/2015-Cus., both dated April 8, 2015, under the MEIS/SEIS export promotion schemes.

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While Basic Customs Duty ( BCD ) was exempted under these notifications, the Appellant was required to pay Social Welfare Surcharge ( SWS ) in cash for clearing these consignments. The Appellant argued that since the BCD was exempted, there should be no liability for SWS, which is calculated based on the BCD, now effectively zero.

The Appellant challenged the assessments of these BOEs by filing appeals before the Appellate Commissioner, seeking a refund of the SWS paid. However, the appeals were rejected.

The Appellant contends that the Supreme Court's judgment in Unicorn Industries vs. Union of India does not apply to this case. In that case, the Court dealt with a different exemption notification, No. 71/2003-CE, which granted duty concessions to units in northeastern states. The issue was whether Education Cess ( EC ) and Secondary and Higher Education Cess ( SHEC ) should be included in the exemption, even though not specifically mentioned. Since these cesses were refundable only after duty collection, the Supreme Court did not address their applicability when the underlying duty was zero.

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It was a settled legal principle, as established in IndusInd Media and Communications Ltd. vs. Commissioner of Customs, New Delhi that a judgment is authoritative for what it decides, not for what might be inferred from it. Additionally, the decision in Commissioner of Central Excise Bangalore vs. Srikumar Agencies further clarifies that court rulings should not be interpreted out of context. Therefore, the Supreme Court’s ruling in Unicorn Industries does not apply to the current case, as the issue of EC and SHEC levied on zero duty was not before the Court.

Further emphasized that it is not seeking an exemption from SWS but challenging the very applicability of SWS in this case. Exemption, they argue, presupposes a liability, which only exists when there is a valid levy. This argument is supported by the Supreme Court’s rulings in Associated Cement Companies Ltd. vs. State of Bihar and Peekay Re-Rolling Mills Pvt. Ltd. vs. Assistant Commissioner, where it was established that an exemption can only apply when a valid liability exists.

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In a related case, Somaiya Organics, the Supreme Court ruled that since no BCD was collected due to the exemption under Notifications 24/2015 and 25/2015, the SWS calculated at 10% of zero should also be zero.

The bench further noted that this issue has been examined in several previous decisions, including cases involving the Appellant and Reliance Industries Ltd. Furthermore, Circular No. 3/2022 dated February 1, 2022, issued by the Central Board of Indirect Taxes and Customs ( CBIC ), clarified that SWS would be nil when the aggregate of customs duties, forming the basis for calculating SWS, is zero. Therefore, although SWS was not explicitly exempted, the payable SWS in this case is zero.

The two member bench of the tribunal comprising Ashok Jinda ( Judicial member ) and K. Anpazhakan ( Technical member ) concluded that the Appellant was not liable to pay SWS since the BCD payable is zero. Accordingly, the impugned orders were set aside, and the appeals allowed with consequential relief, if any.

To Read the full text of the Order CLICK HERE

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