In Re: M/s. Spaceage Syntex Pvt. Ltd.
GST
2018 (11) TMI 885 – AUTHORITY FOR ADVANCE RULING, MAHARASHTRA – 2018 (19) G. S. T. L. 281 (A. A. R. – GST)
AUTHORITY FOR ADVANCE RULING, MAHARASHTRA – AAR
Dated:- 6-8-2018
GST-ARA-13/2018-19/B-86
GST
SHRI B.V. BORHADE, AND SHRI PANKAJ KUMAR, MEMBER
PROCEEDINGS
(under section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017)
The present application has been filed under section 97 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017 [hereinafter referred to as “the CGST Act and MGST Act”] by M/s. SPACEAGE SYNTEX PVT LTD., the applicant, seeking an advance ruling in respect of the following question.
Whether GST is applicable on Sale and/or Purchase of DFIA licenses?
At the outset, we would like to make it clear that the provisions of both the CGST Act and the MGST Act are the same except for certain provisions. There
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
ed duties of the customs on the imported goods.
* DFIA is a duty exemption scheme and does not give any credit of duty.
* In response to above we hereby submit as under….
* Duty Free Import Authorization is issued to allow duty free import of inputs. In addition, import of oil and catalyst which is consumed / utilized in the process of production of export product, May also be allowed.
* Duty Free Import Authorization shall be exempted only from payment of Basic Customs Duty.
* Provisions of paragraphs 4.12, 4.18, 420, 4.21 and 4.24 of FTP 2015-2020 shall be applicable to DFIA also.
* With regard to duty credit and duty exemption, these both terms are synonymous as duty credit available can only be utilized to pay custom duty liabilities where as duty exemption allows the importer to import goods duty free against the custom duty. With this nomenclature it's clear that end uses of both are same.
* DFIA license are also freely transferable as du ty credit scrip's are.
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
Exporters of Service.
3. Department while disagreeing with the exemption to DIFA Licenses, opined that Duty Credit Scrips falls under different chapters. It is respectfully submitted that substance of both the schemes is relevant. It is respectfully submitted that Chapter 3 and Chapter 4 needs to be read together as both the chapters explains rewards to exporters. It may be noted that in both chapters common thread is benefits under MIES/SIES/EIS.
4. Nomenclature used under .4907 is 'Duty Credit Scripts. It is submitted as under:
a. Under both schemes credit, relief or advantage given is of payment of basic customs duty.
b. Both are scrips i.e. are paper authorizations.
c. Both are entitled only on fulfilling Export obligations and submission of BRC.
d. It is observed by Department that DFIA is duty exemption scheme and does not give any duty credit.
The meaning of word credit as defined in legal dictionary is as under:
'credit'
(Delayed payment), noun advance, chance to
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
is that, under 'Duty Credit Scrips', any OGL item can be imported, under DFIA only the items specified in a particular Authorization can be imported.
It is submitted that Duty Credit scrips are value based whereas DFIA is quantity plus value based. It is respectfully submitted that this distinction has no relevance as the purpose of the schemes offered is to give boost to export and also to give competitive edge to Indian exporters by offerings these advantages.
6. Both the Duty Credit scrips' and DFIA Licences are freely transferable and can be used for payment of specified 'duties of the customs on the imported goods.
7. The Department opines that Duty Credit scrips' can be used for payment of specified 'duties of the customs on the imported goods and other fees as stipulated in the para 3.18 of the FTP. Whereas Duty free import Authorisation (DFIA) are issued in terms of Chapter 4 of FTP 2015-2020. The details are as under. Schemes under this Chapter enables duty free import of i
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
roduction, including replenishment of inputs or duty remission. DFIA is issued to allow duty free import of inputs.
C. Another difference between Duty credit scrip's and DFIA' that, whereas under duty credit scraps, any OGL items can be imported, under DFIA only the items specified in a particular authorization can be imported.
C. MEANINGS OF RELEVANT WORDS.
a. Word Credit means – an amount of money that is given to someone. Publicly acknowledge a contributor's role in the production of.
b.. Remit means To transmit (money) in payment ITO refrain from exacting (a tax or penalty), The act of reducing or Canceling the amount of money that you owe.
A remission is conventional when it comes about through an express grant to the debtor by a creditor. It is tacit when the creditor makes a voluntary surrender of the original title to the debtor under private signature constituting the obligation.
c. scrip means a certificate entitling the holder /authorisation/license.
D. FE
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
Scheme Agri. Infrastructure Incentive Scrip, and VKGUY) for rewarding merchandise exports with different kinds of duty scraps with varying conditions (sector specific or actual user only) attached to their use. Now all these schemes have been merged into a Single Scheme, namely Merchandise Export from India Scheme (MEIS).
(b) Rewards for export of notified goods to notified markets under 'Merchandise Exports from India Scheme (MEIS) shall be payable as percentage of realized FOB value (in free foreign exchange).
(C) Scrip's issued under Exports from India Schemes can be used for the following:
(i) Payment of Basic customs duty for import of inputs / goods including capital goods, except items listed in Appendix 3 A.
(d) Minimum value addition shall be required to be achieved.
(e) These duty credit Scrip's are to be freely transferable and usable for payment of Custom duty.
(f) Entitled only after export is completed and Bank realization certificate is obtained.
(g) Valid
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
SSIONS
1. At the outset it is submitted that there is no dispute that the scrip DFIA is covered under HSN code: 4907 which read as 4' Duty Credit Scrip”
2 Question ultimately boils down to the issue whether DFIA license is Duty Credit Scrip.
3 It is submitted that we disagree with department view for the reasons as under:
A. MEIS and DFIA are under different chapter. It is submitted that this makes no difference as rational behind the issue of both scrips need to be taken into considerations.
B. Under Duty Credit Scrip any OGL can be imported. In Our opinion DIFA license also allows to import only OGL items. Hence this view expressed by the department is incorrect.
C. Department view is that the Duty Credit Scrip can be used for payment of specified duties and under DFIA they say it is duty remission. We do not understand how these two benefits are different. Essence of the benefits is reward in duty payment.
4. It is submitted that rationale behind issuing such scrip's n
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
oods for export. Another difficulty was 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.
The Council was unanimous that it is in the national interest to take all possible measures to support the exporting community, which earns valuable foreign exchange and provides significant employment especially in the small and medium sector.
6. It is submitted that how exporter having DFIA license discriminated from exporter having MEIS license. This is against natural justice.
7. Your attention is drawn to notification issued by GST council while determining the taxability of RECs and PSLCs licenses. It is observed that these licenses are not in the nature of duty remission or nonpayment of duties. Copy of Notification closed.
8. It is submitted that in the letter issued by GST council, clarification says that DFIA license is like MEIS/SEIS and exempt from GST. It is submitted that if your honour di
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
ncil today.
4. The Council identified the major difficulties constraining the export sector are on account of delays in refunds of IGST and input taxes on exports and working capital blockage as exporters have to upfront pay GST on inputs and capital goods for export production or for procuring goods for export. Another difficulty was 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 ICST / GST.
5. The Council was unanimous that it is in the national interest to take all possible measures to support the exporting community, which earns valuable foreign provides significant employment especially in the small and medium sector. Accordingly, the Council approved the following package of relief and incentives for exporters with immediate affect:
a. Within the next 4 days i.e. by 10.10.2017 the held-up refund of IGST paid on goods exported outside India in July would begin to be paid. The August backlog would get c
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
ts under Section 147 of CGST/SGST Act and refund of tax paid on such supplies given to the supplier.
c. Merchant exporters will now have to pay nominal GST of 0.1 % for procuring goods from domestic suppliers for export. The details would be released soon,
d. The permanent solution to cash blockage is that of “e-Wallet” which would be credited with a notional amount as if it is an advance refund. This credit would be used to pay IGST, GST etc. The details of this facility would be worked out soon. The Council desired that the “e-Wallet” solution should be made operational w.e.f. 1st April 2018.
e. Exporters have been exempted from furnishing Bond and Bank Guarantee when they clear goods for export.
f. Specified banks and Public Sector Units (PSUs) are being allowed to import Gold without payment of IGST.
This can then be supplied to exporters as per a scheme similar to Advance Authorization.
g. To restore the lost incentive on sale of duty credit scrips, the GST on sale pur
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
x. No were reference to Chap.3 and/or Chap.4 of FTP is indicated. Hence it is too understood in broader perspective.
4. It was explained that nowhere duty credit scrips are defined. Your honour is of the opinion that MEIS & SEIS are only Duty Credit Scrips, as these words appears in Para 3.02 of FTP 1915-20.
5. It is submitted that MEIS / SEIS / DFIA are the schemes under FTP and authorisations for the duty credit / duty saved are issued under these schemes.
6. We had produced the MEIS and DFIA authorisations to further highlight duty credit/saved aspect. MEIS authorisation specifies the duty credit in authorisation. The DFIA licence also gives the duty saved / credit amount, by giving the permitted CIF value of imports. It was explained that under both schemes only basic duty exemption is allowed. Both authorisations states Duty credited and duty saved /credit amount (Copies of Both Attached)
7. The first and most elementary rule of constructions is to assume that the words and p
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
paying scrips classifiable under the same heading will attract NIL GST.
3. Copy of the same is enclosed herewith.
11. In the course of discussion we have submitted before your honour, letter received from GST council clarifying applicability of GST. This letter clarifies that advance authorisation are included in Duty Credit Scrips and exempted from GST. Copy of the letter is enclosed. Advance authorisation is under chapter 4 of FTP. Hence it is incorrect to say that credit scrips falls under chapter 3 only.
This clarification is given on the basis of minutes of 22nd GST council dated 6th October 2017 meeting and it is not superintendent's view.
12. The exemption of MEIS is based on the Clarification in GST council press release and clarification says “Duty Credit Scrips such as MEIS”. Thus the intention of the legislature is to include similar scrips for exemption. (Copy enclosed.)
A long title of a Legislation may not control, circumscribe or widen the scope of the legislation
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
it scrips.
17. Tweet from honourable commerce minister clarifying that rate should be zero following the same analogy:
B. MEIS VS DFIA:
1. In the course of discussion similarities between MEIS and DFIA were explained. Same are in detailed listed in our submission dated 01/08/2018. In the course of discussion no difference was observed by your honour except that the words Duty Credit Scrips are not tagged to DFIA.
2. Also rationale followed by GST council while granting exemption on Duty Credit Scrips was explained. It was stated that taxing the sale/purchase of the scrips amounts to double taxation under GST. Bill of entries in support were produced. Following example can explain it further:
i. CIF value say
100
ii. Duty thereon say (Paid through MEIS or DFIA) 100
iii IGST @ 18%
36
Hence amount payable
136
Thus IGST is already charged once and hence taxing the scrip sale/purchase amounts to double taxation.
Both IGST payable using MEIS or DFIA is on the
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
ther difficulty Was 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
The Council was unanimous that it is in the national interest to take all possible measures to support the exporting community, which earns valuable foreign exchange and provides significant employment especially in the small and medium sector.
It is incorrect to ignore the intention of the legislature.
4. The rule of interpretation for exemption is: an exemption clause in taxing statue must be, as far as possible, construed liberally and in favour of the assessee, provided no violence is done to the language used.
C. In the background of above submissions we pray as under:
a. The authorities should not interpret the words Duty Credit Scrips in narrower sense. Interpretation should be broad based and convincing taking into consideration circumstantial clarifications / notifications issued.
It is submitted that the directory pub
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
se (V) states as under :
“to restore the lost incentive on sale of duty credit scripts, the GST on Sale-Purchase of the scripts has been reduced from 5% to 0%.
A ruling is required Whether DFIA (Duty Free Import Authorization) covered under HSN – 4907.0090 has nil GST applicable
03. CONTENTION – AS PER THE CONCERNED OFFICER
The submission, as reproduced verbatim, could be seen thus-
Written submissions
M/s. Spaceage Syntex Pvt. Ltd.47, Navketan Industrial Estate, Mahakali Caves Road, Andheri (East), Mumbai 400033 (here in after referred to as 'the applicant') has filed above detailed application under Section 98 of the Central Goods and Service Tax Act, 2017 read with Rule 104 (1) of the CGST Rules, 2017 seeking advance ruling on:
(i) Whether GST is applicable on Sale and/or Purchase of DFIA Licenses.
(ii) A ruling is required whether DFIA(Duty Free Impost Authorisation) covered under HSN 4907 00 90 has nil GST applicable.
2. M/s. Spaceage Syntex Pvt. Ltd. was registered und
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
he cases is in the range of 2% to 5% of the realised (FOB value) ( in free foreign exchange). These scrips are issued to exporters as an incentive for them as the export industry has huge potential for employment creation in India.
4. The exporter to whom the Duty Credit Scrip has been issued can use the Duty Credit Scrip for the payment of
1. Basic Custom Duty.
2. Safeguard Duty.
3. Transitional Product Specific Safeguard Duty.
4. Anti-Dumping Duty.
5. With effect from 13.10.2017 GST on “Duty Credit Scrips” classified under CSH No.4907 is NIL as per Serial No.122A inserted vide Notification No.35/2017-Central Tax(Rate) dated 13.10.2017. Currently there is zero GST on Supply of these Scrips and can be used to pay Customs Duties, Composition fee, Application fee under Foreign Trade Policy(FTP).
6. The basic issue to be decided in the application is whether the DFIA (Duty Free Import Authorisation) will be covered under 'Duty Credit Scripts' as envisaged in the Serial No. 12
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
import of inputs.
6.1.3. Another difference between the Duty Credit Scrips' and DFIA is that, whereas under 'Duty Credit Scrips', any OGL item can be imported, under DFIA only the items specified in a particular Authorization can be imported.
6.1.4. In the view of the discussions above, it is evident that DFIA is not 'Duty Credit Scrip'. The 'Duty Credit Scrips' are issued under MEIS and SEIS schemes as per Chapter 3 of the Foreign Trade Policy as 'Reward against export of Specified goods. They can be utilised to make payment of Customs duties on the imported goods. On the contrary, DFIA is separate scheme under chapter 4 of the FTP. DFIA is not included in the MEIS and SEIS prescribed under Chapter 3 of FTP. DEIA is duty exemption scheme and does not give any duty credit. DFIA cannot use for payment of Customs Duty. Thus 'DFIA' is distinguished from 'duty credit scrips' and hence it is not Duty Credit Scrip as envisaged under the Serial No. 122A of Notification 1/2017 Central Tax (R
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
/ 2017-Central Tax(Rate) dated 13.10.2017 is limited only to 'Duty Credit Scrips' which are different than DFIA.
04. HEARING
The case was taken up for preliminary hearing on dt. 13.06.2018, with respect to admission or rejection of the application when Sh. Anil Vishwakarma, C.A. appeared and requested for admission of application as per their contentions in ARA application, The jurisdictional officer Ms. Hema Venktesh, Supt. appeared and made written submissions.
The application was admitted and final hearing was held on 17.07.2018, Sh. Anil Vishwakarma, C.A. appeared and made oral and written submissions. As requested another opportunity was given wherein Sh. V. D. Lagu, C.A. alongwith Sh. Pravin Mehta, Director and Sh. Mozar Dhalu appeared and made oral and written submissions and requested that they would be making further submission latest by 06.08.2018. The jurisdictional officer, Sh. Yashwant Mulye, Supt., Mumbai East Commissionerate appeared and made written submissions.
05
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
2. The holder of DFIA has to properly do accounting of inputs as mentioned in para 4.12 of the FTP.
3. Para 4.18 of the FTP which deals with the exportability/ importability of items that are prohibited/ restricted, etc. must be followed by the holder of DFIA license. Such holder of DFIA license shall also source inputs from the domestic market and the Export proceeds shall be realized in freely convertible currency except otherwise specified. Goods exported under DFIA may be re-imported in same or substantially same form subject to such conditions as may be specified by Department of Revenue.
4. DFIA shall be exempted only from payment of Basic Customs Duty (BCD).
5. DFIA shall be issued on post export basis for products for which Standard Input Output Norms (SION) have been notified.
6. Merchant Exporter shall be required to mention name and address of supporting manufacturer of the export product on the export document for export prescribed under the GST rules.
7. Application
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
scribed under GST rules. Only such inputs may be permitted for import in the authorisation in proportion to the quantity of these inputs actually used/ consumed in production, within overall quantity against such generic input/alternative input. In addition, if in any SION, a single quantity has been indicated against a number of inputs (more than one input), then quantities of such inputs to be permitted for import shall be in proportion to the quantity of these inputs actually used/consumed in production and declared in Shipping Bill / Bill of Export / Tax invoice for supply prescribed under GST rules within overall quantity against such group of inputs. Proportion of these inputs actually used/consumed in production of export product shall be clearly indicated in Shipping Bill / Bill of Export / Tax invoice for supply prescribed under GST rules.
11. Separate DFIA shall be issued for each SION which has a validity of 12 months from the date of issue. No further revalidation shall be
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
t DFIA is issued only after the goods are exported and export obligation is completed. DFIA, under the GST laws is covered under HSN code 4907.
DUTY CREDIT SCRIPS :
Under Chapter 3 of the FTP, there are two schemes for exports of Merchandise and Services respectively, namely (i) Merchandise Exports from India Scheme (MEIS) and (ii) Service Exports from India Scheme (SEIS).
A. As per the para 3.02 of the FTP, Duty Credit Scrips are granted as rewards under MEIS and SEIS. The Duty Credit Scrips and goods imported / domestically procured against them shall be freely transferable. The Duty Credit Scrips can be used for Payment of Basic Customs Duty and Additional Customs Duty specified under sections 3 (1), 3 (3) and 3 (5) of the Customs Tariff Act, 1975 for import of certain inputs or goods, including capital goods and also payment of Central excise duties on domestic procurement of inputs or goods.
B. Objective of the MEIS is to promote the manufacture and export of notified goods/
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
s duties/ taxes to the Central Govt. It is issued to exporters of goods/services under FTP(Foreign trade Policy) and is freely transferable. Duty credit scrip's can be used for payment of specified duties of the customs on the imported goods. Duty credit available can only be utilized to pay custom duty liabilities. DFIA license are also freely transferable as duty credit scrips are. Duty Credit scrips are value based whereas DFIA is predominantly quantity based. Both the Duty Credit scrips and DIFA Licences are freely transferable and can be used for payment of specified 'duties of the customs on the imported goods.
In view of the above discussions we find that there is a lot of difference between Duty Credit Scrips and DFIA which includes the following :
a. Duty Credit Scrips are covered under Chapter 3 of the FFP and can be used for payment of specified duties of the customs on the imported goods whereas DFIA is a duty exemption scheme and does not give any credit of duty.
b. Du
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
eas no such norms are required for issue of Duty Credit Scrips.
g. The validity of a Duty Credit Scrip is of 24 months wheras the validity of DFIA is 12 months.
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 / CST. 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
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
Notification No.35/2017-Central Tax(Rate) dated 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.
Finally the applicant has submitted that letter received from GST council clarifies that advance authorisation are included in Duty Credit Scrips and exempted from CST. They have also submitted that this clarification is given on the basis of minutes of 22nd GST council dated 6th October 2017 meeting. In this connection we find that the mail sent to Mr Manish Modi states that “I am directed to inform you that as per the minutes of discussions in the 22nd GST Council Meeting held on 6th October, 2017 the Advance Authorizations are included in the Duty Credit Scrips…” However it appears that no circular, notification, etc appear to have been issued by the Government in this regard and therefore the contention of the applicant on the said issue is not acceptable
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =