SEPTEMBER 24, 2018

By G Mohana Rao, Assistant Commissioner (Retd.)

Recently issue of GST on DFIA scrip has cropped up with confusing answers from different sections of the government.

The issue of duty free credit scrips was discussed in the 22nd meeting of GST Council. The council noted that pre-GST, duty credit scrips issued as incentives to exporters by DGFT could be used for debiting Customs duty as well as Additional Custom Duty on imports, Central Excise duty and Service tax on domestic procurement. However, post GST, these scrips can be used only for Basic Customs Duty. This has reduced the utility of scrips and their sale value has come down. The Committee noted that the premium on scrips has come down to the disadvantage of exporters. Accordingly, the council recommended the reduction of GST rate on sale-purchase of duty credit scrips from 5% to Nil. The duty credit scrips, thus, attract Nil GST under S.No. 122A of Notification No. 2/2017-Central Tax (Rate) dated 28.06.2017 as amended by Notification No. 35/2017-Central Tax (Rate) dated 13.10.2017.

CBIC vide circular No. 46/20/2018-GST dated 6 th June, 2018 clarified that other scrips like Renewable Energy Certificates (RECs) and Priority Sector Lending Certificates (PSLCs) and other similar documents are classifiable under heading 4907 and attract 12% GST. The moot question is now of leviability of GST on transfer/sale of the DFIA scrip. Thus, the position for different scrips is as under:

The GST Council minutes talk of MEIS and SEIS scrips. These scrips are basically reward schemes under chapter 3 of the Foreign trade policy, 2015-20. However, whether DFIA scrip is a duty credit scrip or duty free scrip? The DFIA scheme is an entitlement scheme wherein the exporter is allowed to import the raw material duty free. However, it is also post export scheme wherein the exporter exports first and then is allowed to import the raw material duty free. In such cases, DFIA is a replenishment scheme and export obligation being already over, is transferable as well.

Further, DFIA is issued under chapter 4 of the Foreign trade policy (FTP). The term duty credit scrip is neither defined in the GST Law nor in the FTP, however, on-going through the FTP, it is observed that duty credit scrips are issued under chapter 3 and 5 of the FTP. As such, EPCG scrip is a duty credit scrip and post export EPCG scrip which is transferable appears to be exempt in GST as well. On the same analogy, one can say DFIA scrip should also be exempt. However, it is not so since different government sections interpreting the issue differently.

However, one government section is of the opinion that DFIA is an advance license of Chapter 4; cannot be termed as duty credit scrip and should not be covered in the above mentioned exemption notification. However, DGFT in a tweet reply stated that DFIA scrips are exempted. An officer of CGST has also in a reply stated that DFIA scrip is exempted. However, if the intention is to make such scrips exempted and to give impetus to the exports, the statute should say so in so many words, else different field formations may take divergent views and issue will be litigated. When a tax/duty is exempted on a particular issue or scrip, it is to be examined as to what extent that particular scrip is be exempted!!

It is desirable that the CBIC comes out with an appropriate unambiguous pronouncement on the subject issue and alleviate the fears of the export trade.

(The author is Managing Partner, Elysian Tax Advisors, Mumbai and the views expressed are strictly personal)