To determine applicability of GST on sale or purchase of DFIA (Duty Free Import Authorizations)

PJ/Case Law/2018-2019/3534

Name-M/S Spaceage Syntex Pvt Ltd. (GST AAR Maharashtra)
Citation- GST-ARA- 13/2018-19/B-86 dated 06.08.2018
Issue- To determine applicability of GST on sale or purchase of DFIA (Duty Free Import Authorizations)
Submissions By Applicant-The applicant has submitted that both Duty Credit Scrips and DFIAs are issued as export incentive and therefore it does not matter that the Duty Credit Scrip can be used for payment specified duties and under DFIA it is duty remission. The applicant has also submitted that the GST Council had observed that the duty credit scrips such as MEIS was losing value due to its reduced usability as it could no longer be used to pay IGST / GST. Hence it clearly appears that it was only the duty credit scrips which were loosing their value and not DFIA because DFIA does not envisage payment of duty at all. DFIA is connected with duty free imports. This is definitely a major difference between the two. The applicant has also submitted that to restore the lost incentive on sale of duty credit scrips, it was proposed by the Council that the GST on sale purchase of these duty credit scrips was being reduced from 5% to 0%.

Contentions by Department- Duty Credit Scrips and DFIAs are not one and the same or similar at all. They are different incentives given to exporters with different conditions and have been separately defined and explained in different Chapters of the FTP. Even though both are an incentive to exporters to promote and increase exports from the country, both the schemes are used in different circumstances and in different manner. When the FTP itself has segregated the two in different Chapters with different procedures, it would not be proper to consider the two schemes as one and the same and therefore we differ with the views of the applicant on this issue. Hence we find that DF1A is distinguishable from ‘Duty Credit Scrips’ and cannot be considered as a Duty Credit Scrip as envisaged under the Serial No. 122A of Notification 1/2017 Central Tax (Rate) inserted vide Notification No.35/2017-Central Tax(Rate) dated 13.10.2017 even though it falls under CTH 4907. Hence we find that DFIA though will fall under Chapter 4907 and attract applicable GST as exemption is in respect of only Duty Credit Scrips. The Authority for Advance Ruling, Maharashtra held that this transaction is not exempt from GST.
The appellant filed an appeal to Appellate Authority for Advance Ruling, Maharashtra.

The Appellate Authority for Advance Ruling, Maharashtra observed that meaning of DFIA is not given as per GST law. However, as per Foreign Trade Policy (FTP) 2015-20, DFIA is the instrument to give incentives to importers which entitles them to import goods specified without payment of customs duty. Even though duty credit scrips and DFIA have been given under different chapters and different schemes, yet the basic nature and functionality of both the instruments are same, i.e., to set-off Basic Customs Duty on the import of goods.

As per rate notification under GST, ‘Duty Credit Scrips’ are exempted from GST. *The duty credit scrips and DFIA are same as per trade parlance* and, hence, the tax treatment shall also be same.
Therefore, the Appellate Authority for Advance Ruling, Maharashtra set aside the ruling of AAR and held that GST shall not be applicable on buying/selling of DFIA which are nothing but Duty Credit Scrips.
GST - DFIA, also popularly known as duty paying scrips in the trade parlance is equivalent to the duty credit scrips, insofar as the tax treatment thereon is concerned and accordingly there will be Nil rate of GST on the sale or purchase of DFIA as provided in Sr. no. 122 of Notification 02/2017-CTR - Board Circular dated 06.06.2018 has while clarifying the issue of classification of various certificates and scrips and taxability thereon has used the word ‘duty paying scrips' and ‘duty credit scrips' interchangeably - AAAR is compelled to interpret that both the words ‘duty paying scrips' and ‘duty credit scrips' are one and the same - AAR ruling set aside and appeal allowed: AAAR
- Appeal allowed: AAAR

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PJ/Case Law/2018-2019/3534

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