GST Update No 245 on no credit reversal on sale of Duty Credit Scrips

Duty Credit Scrips are part of export incentives granted by the government to boost exports. A duty credit scrip is a certificate that can be used by its holder for payment of import tariff (customs duties). It is a pass that allows the holder to import commodities by not paying a specified amount in import duties. These are paper authorisations that allow the holder to import inputs that go into manufacture of products that are exported or machinery used for producing such goods without paying duties equivalent to the printed value. No GST is payable on the sale of such scrips and they are treated as exempted supplies under GST Law. Consequently, the exporters were required to reverse the proportionate input tax credit of the same. Recently, 47th Council meeting addressed this issue and held that no input tax credit shall be reversed on exempted supply of duty credit scrips. The detailed analysis of this amendment is the subject matter of discussion of our present update. Duty Credit Scrips (DCS) have been exempted from the levy of GST vide Notification No. 02/2017-CGST (Rate) dated 13.10.2017. Consequently, in accordance with the provisions of Section 17(2) of CGST Act, 2017, the amount of credit is required to be reversed in accordance with Rule 42 of CGST Rules, 2017. As a result, the GST department started issuing notices in this regard to the taxpayer on the grounds that sale of DCS is “exempt” which thereby require reversal of common input tax credit. Further, in few instances, the officers issued reversal of credit on purchase of all inputs on the grounds that input/goods are used against export of goods for earning Duty Credit Scripts. This triggering point increased the burden and headache for the taxpayers. The trade and industry were relived from this misery when the GST Council in its recent meeting decided the matter in their favour regarding no requirement of reversal of input tax credit for exempted supply of duty credit scrips by the exporters in accordance with Rule 42 and 43 of CGST Rules, 2017. Further, clause (d) to Explanation I has also been added after Rule 43 of CGST Rule, 2017 in this respect vide notification no. 14/2022-Central Tax dated 05.07.2022 wherein the value of exempt supply shall exclude the supply of DCS. However, the question arises is whether the amendment made by way of insertion of explanation is prospective or retrospective in nature. It is being held that explanation seeks to clarify the position of law and so is to be construed to have retrospective application. Reliance can be placed in this respect on the decision of Apex Court in the case of M/s Vatika Township Private Limited [2014 (9) TMI 576] and Channan Singh V/s Smt. Jai Kuar [AIR 1970 SC 349] wherein it was held that amendment which seeks to provide remedy which the legislature failed to provide initially have retrospective effect. Therefore, the explanation added regarding non reversal of input tax credit on duty credit scrips shall have retrospective effect i.e. from 13.10.2017 from the date of introduction of exemption to supply of DCS. Hence, the assessees who have already reversed input tax credit may contest the same on the grounds of retrospective applicability of the explanation and claim re-credit or refund of the said credit. Moreover, the time period from 01.03.2020 to 28.02.2020 has been excluded for computation of time limit for filing refund claim. However, it is often observed that the department is reluctant in implementing the favourable provisions retrospectively so the assessee should take the decision to litigate the matter considering the litigation cost vs benefit available to them.

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GST Update No 245 on no credit reversal on sale of Duty Credit Scrips

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