Madras High Court Quashes Customs Order on Education Cess Debiting from MEIS Scrips and Upholds Importer’s Right to Refund

Aadrikaa Legal Services (ALS) – IDT Tax I Arbitration I Litigation

Date: 16.05.2026

Madras High Court Quashes Customs Order on Education Cess Debiting from MEIS Scrips and Upholds Importer’s Right to Refund

KTV Health Food Pvt. Ltd. recently secured a significant legal win at the Madurai Bench of the Madras High Court regarding the debiting of education cess from MEIS scrips. This case clarifies the legal position on whether education cess and secondary and higher education cess can be paid using MEIS scrips, a question that has implications for importers across India.

Background of the Case

1. Petitioner: KTV Health Food Pvt. Ltd., an importer and manufacturer, imported RBD Palmolein for manufacturing refined oil during 2017-2018.
2. MEIS Scrips: Under the Foreign Trade Policy 2015-20, importers can use MEIS scrips to pay customs duties instead of cash.
3. Dispute: The Customs Department objected to the payment of education cess and secondary and higher education cess (totaling Rs. 66,66,582) via MEIS scrips, insisting these should be paid in cash.

Customs Department’s Stand

• The department cited Notification No.24/2015-Cus and Supreme Court judgment in Unicorn Industries v. Union of India, arguing only basic customs duty and certain additional duties can be debited from MEIS scrips.
• Education cess and secondary and higher education cess, levied under Finance Acts 2004 and 2007, were not eligible for scrip payment.
• Circular No.02/2020-Customs clarified that only past cases of SWS (Social Welfare Surcharge) debits should not be disturbed, not education cess.

Petitioner’s Arguments

• The petitioner argued that education cess and secondary and higher education cess are part of customs duty, as per Finance Acts 2004 and 2007.
• Notification No.24/2015 exempts the whole of customs duty and additional duty when goods are imported against MEIS scrips.
• Circular No.02/2020 should apply to past cases like theirs, ensuring ease of doing business.

Court’s Analysis and Decision

1. Statutory Interpretation:
   • The court examined Finance Acts 2004 and 2007, confirming that education cess and secondary and higher education cess are treated as duties of customs.
   • The court found that the Customs Department’s distinction between customs duty and cess was not supported by law.
2. Circular Application:
   • Clause 11 of Circular No.02/2020 allows past payments made via scrips to be accepted as revenue, without insisting on cash recovery.
   • The court held that denying this benefit to the petitioner was unjustified.
3. Supreme Court Judgment:
   • The court clarified that the Unicorn Industries case was misapplied by the Customs Department and actually supported the petitioner’s position.

Final Orders

• The impugned order demanding cash payment for education cess was quashed.
• The Customs Department was directed to accept the payment made via MEIS scrips and not insist on cash recovery for the education cess and secondary and higher education cess.

Implications for Importers

• This judgment sets a precedent for importers who have paid education cess and secondary and higher education cess via MEIS scrips in the past.
• It ensures that such payments are recognized as valid, supporting ease of doing business and preventing unnecessary cash recoveries.

Conclusion

The Madras High Court’s decision in favor of KTV Health Food Pvt. Ltd. provides clarity and relief to importers regarding the use of MEIS scrips for paying education cess. The judgment reinforces the principle that statutory duties, including cesses, can be paid via scrips and that past payments should not be disturbed, aligning with government policy for ease of business.

Connected Matter

CESTAT Mumbai Validates MEIS Scrip Payments for Education Cess and Surcharges

Source: Madras High Court

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