What are Duty Credit Scrips?
Duty Credit Scrips (DCS)is an export promotion benefit offered by the Government of India under the Foreign Trade Policy (FTP) 2015-20. As with other export benefits, the aim is to incentivize exporters so that they boost the inflow of foreign exchange to India.
A DCS provides tax incentives on exports, which can be used by exporters to set off their import duties. It is issued under the Merchandise Exports from India Scheme (MEIS), Service Exports from India Scheme (SEIS), and the Export Capital Goods Scheme.
FTP 2015-20 lays down the features and the provisions related to DCS. The scheme is implemented and administrated by the Government’s Ministry of Commerce and Industry, in association with the Directorate General of Foreign Trade (DGFT).
What are the uses of Duty Credit Scrips?
DCS can be used by an exporter to pay their tax liabilities. It can be used against tax liabilities arising out of basic customs duty, additional customs duty, safeguard duty, transitional specific safeguard duty, and anti-dumping duty. DCS can be transferred to others, but it cannot be used to set off GST, compensation cess, and education cess.
From the date of issue, a DCS remains valid for 24 months. But the benefits don’t need to cease after two years.
If the exporter doesn’t have a foreseeable use of the DCS within the validity period, they can always transfer it to another person who can use it against their own outstanding tax liability.
Additionally, the DGFT can also revalidate a DCS if the exporter submits a special request, under exigent circumstances.
It is clear that the duty credit scrips are the instruments to award incentives to the exporters with the objective of the export promotion by allowing them to set off the basic customs duty against it. It is also to be noted that the duty credit scrips are not allowed to set off the IGST/CGST/SGST liability.
How Duty Credit Scrips work?
DCS helps an exporter limit their cash outflow in tax liabilities and frees up cash for much-needed working capital to meet export orders. An exporter gets a scrip of 2% to 5% (of his export value) depending upon the EXIM Policy regulations Imagine a situation where an exporter has received an export order and needs to import raw materials to begin the production process. Naturally, the exporter will need funds to execute both the production and despatch. At this time, the last thing the exporter would want is to pay import duty on the purchase of raw materials, eating into their working capital. Having DCS takes that burden off the exporter’s shoulders. For instance, if the exporter has a DCS balance of Rs. 1 lakh and Rs. 1.5 lakh is customs duty liability for import of raw materials, they will need to pay only the difference (Rs. 50,000). In other words, they can utilize the Rs. 1 lakh in DCS towards the outstanding customs duty liability.
How to apply for Duty Credit Scrips?
1. Under MIES
- Within 12 months from the date of Let Export Order.
- Within 3 months from the day EDI bills are uploaded to the DGFT server by the Customs.
- Printing/release of non-EDI shipping bills, whichever is later.
- An application can be filed with a maximum of 50 shipping bills. It can be done online by means of Ayat Niryat Form 3A, along with eBRC and shipping bills.
- Under MEIS, a freely transferable DCS is granted on realized FOB value of exports in foreign exchange at a rate of 2-5%, depending on the product imported.
2. Under SEIS
- In SEIS scrips, the last filing date of the application is 12 months from the end of the financial year pertaining to the claim period.
- Under SEIS, you will have to choose the port of registration and mention it in the application.
- The government will give incentives of 3 to 5% to all the Service Providers from India to organisations outside India.
- The SEIS Scheme introduced in 2015 will stay valid for 5 years i.e from 2015 to 2020
- Under SEIS, DCS is granted for 5% of the net foreign exchange earned.
3. Under EPCG
Post Export EPCG Duty Credit Scrip Scheme
- Post-export, the EPCG duty credit scrip scheme is made available to exporters who intend to import capital goods by paying the applicable duty in cash.
- Basic Customs duty paid on Capital Goods shall be remitted in the form of freely transferable duty credit scrip(s), similar to those issued under Chapter 3 of FTP.
- Specific EO shall be 85% of the applicable specific EO under the EPCG Scheme. However, average EO shall remain unchanged.
- Duty remission shall be in proportion to the EO fulfilled.
- All provisions for utilization of scrips issued under Chapter 3 of FTP shall also be applicable to Post Export EPCG Duty Credit Scrip(s).
- All provisions of the existing EPCG Scheme shall apply insofar as they are not inconsistent with this scheme.
4. Documents required:
- Copy of the foreign inward remittance certificate
- Copy of Import/Export code
- CA certificate
- Copy of registration-cum-membership certificate
- Copy of invoice
- Copy of foreign exchange earned
- List of directors (in case of companies)
- Board resolution
In a 2019 notification, the DGFT disclosed the decision of phasing out physical copies of MEIS & SEIS Duty Credit Scrips DCS issued with Electronic Data Interchange (EDI) port as the port of registration.
However, both these scrips will continue to be transmitted electronically from DGFT to Customs. The details, such as registration of DCS, assessment of Bill of Entry, giving out of charge, etc will be available to the concerned officers in ICES.
As an exporter, you have to get the scrips registered with the Customs department. Customs House Agents (CHAs) will facilitate this registration for you.
How long are they valid for?
From the date of issue, a DCS remains valid for 24 months. But the benefits don’t need to cease after two years. If the exporter doesn’t have a foreseeable use of the DCS within the validity period, they can always transfer it to another person who can use it against their own outstanding tax liability. Additionally, the DGFT can also revalidate a DCS if the exporter submits a special request, under exigent circumstances.
How to Sell Duty Credit Scrips?
The credit script is sold when the exporter has no use of the incentives and for a fact that it would actually be the only profit this entity would make.
There is no organized market for this type of transfer and in the case of peer-to-peer (P2P) transfers, DCS is generally sold at a discount.
For instance, if an exporter has a duty credit scrip worth Rs. 2,00,000 & he sells it to a buyer for Rs. 1,95,000 maintaining the face value as 2,00,000 for the buyer.
It works in favor of both, the buyer as well as the exporter.
For buyer- he gets a discount of 5000 & For exporter- he gets the value for the duty credit scrip which was anyway going to be a waste after a period of time.
Sale of Duty Credit Scrip under GST:
GST classifies DCS as goods under the provisions of the Act. As a result, the sale of DCS used to attract GST unless it was specifically exempted. However, since taxing a tax-based incentive serves little purpose, the sale of DCS was made exempt from duty scrips under GST under an October 2017 notification.