SMEs move HC against cess on exempted exporters

MUMBAI: Some small and medium enterprises have dragged the government to court over levying cesses on firms exempted from customs duty even as the revenue department scrambles to boost tax collections.

These SMEs have filed a writ petition in the Gujarat High Court, challenging applicability of cesses — including education cess, higher secondary education cess and social welfare surcharge— on exporters exempted from paying any customs duty on their imports under Merchandise Exports from India Scheme (MEIS).

While there is no clarity on whether cesses are applicable to beneficiaries of MEIS, in most cases cess are levied over and above an existing tax, people familiar with the matter said. In their writ petition, SMEs have argued that if they are exempted from customs duty, the question of cess applicability doesn’t arise.


The high court on Wednesday allowed the matter to be heard and granted interim relief to SMEs.

“Such an interim order will provide a sigh of relief to exporters who are already tensed after India lost to the US at the WTO with respect to export benefits under various schemes,” said Abhishek A Rastogi, partner at Khaitan & Co, who argued for the SMEs.

For many SMEs, customs duty is exempted due to usage of scrips — or a mechanism wherein future tax liabilities can be set off if an exporter meets certain conditions.

“MEIS and SEIS scrip usage clearly exempts levy of customs duty, and debit in the scrip is just a mere procedure to ensure that the exemption benefit doesn’t exceed the quantum sanctioned,” Rastogi said. “As a corollary, the cesses on the aggregate duty which is exempt are not payable.”

This is not the first time that importers have clashed with the revenue department.

Earlier importers had dragged the government to the Delhi High Court over the issue goods sold within bonded warehouses. The petition, however, was withdrawn after the government amended the goods and services tax (GST) framework to address concerns of the exporters.

The indirect tax department has been under stress to meet its internal targets.

EThad on December 26 reported that there could be a shortfall of Rs. 63,200 crore in GST collections in the current financial year and as much as `2 lakh crore by 2021.