2018 (11) TMI 885 - AAR - GST

Levy of GST - Sale and/or Purchase of DFIA licenses - whether the Duty Free Import Authorization (DFIA) license is a Duty Credit Scrip as defined under GST laws? Held that - Duty credit scrips are issued under MEIS and SEIS scheme and can be used to pay various 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. 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 - DFIA 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 even though it falls under CTH 4907 Ruling - GST is applicable on Sale and / or Purchase of DFIA licenses.

Summary

Issues Involved:
1. Whether GST is applicable on the sale and/or purchase of DFIA licenses.
2. Whether DFIA licenses fall under the category of "Duty Credit Scrips" as defined under GST laws.

Issue-wise Detailed Analysis:

1. Applicability of GST on Sale and/or Purchase of DFIA Licenses:

The applicant, M/s. SPACEAGE SYNTEX PVT LTD., sought an advance ruling on whether GST is applicable on the sale and/or purchase of DFIA licenses. The Authority for Advance Ruling (AAR) clarified that DFIA licenses, though falling under HSN code 4907, are distinct from "Duty Credit Scrips." The AAR concluded that GST is indeed applicable to the sale and/or purchase of DFIA licenses because they do not qualify for the exemption extended to "Duty Credit Scrips."

2. Classification of DFIA Licenses as "Duty Credit Scrips":

Applicant's Argument:
The applicant argued that DFIA licenses should be considered "Duty Credit Scrips" because:
- Both DFIA and Duty Credit Scrips are issued as export incentives.
- DFIA licenses allow duty-free import of inputs, similar to the benefits provided by Duty Credit Scrips.
- Both are freely transferable and can be used for payment of specified duties of customs.
- The rationale behind exempting Duty Credit Scrips from GST should apply to DFIA licenses as well.

Department's Counter-Argument:
The department contended that DFIA licenses differ from Duty Credit Scrips for several reasons:
- Duty Credit Scrips are issued under Chapter 3 of the FTP (Foreign Trade Policy) and can be used for payment of specified duties of customs, whereas DFIA is a duty exemption scheme under Chapter 4 and does not provide duty credit.
- Duty Credit Scrips are value-based, while DFIA is quantity-based.
- DFIA licenses are issued post-export and are specific to certain inputs, unlike Duty Credit Scrips, which can be used for a broader range of imports.

AAR's Observations:
The AAR examined the characteristics and purposes of both DFIA licenses and Duty Credit Scrips:
- Duty Credit Scrips are granted as rewards under MEIS (Merchandise Exports from India Scheme) and SEIS (Service Exports from India Scheme) for promoting exports, and they can be used to pay various duties/taxes.
- DFIA licenses allow duty-free import of inputs for export production and are issued post-export, based on Standard Input Output Norms (SION).
- The AAR noted significant differences in the issuance, usage, and conditions of DFIA licenses and Duty Credit Scrips, concluding that they are not the same or similar.

Conclusion:
The AAR determined that DFIA licenses cannot be classified as "Duty Credit Scrips" under GST laws. Consequently, DFIA licenses do not qualify for the GST exemption applicable to Duty Credit Scrips. Therefore, GST is applicable on the sale and/or purchase of DFIA licenses.

Order:
The AAR ruled affirmatively that GST is applicable on the sale and/or purchase of DFIA licenses.