SALE OR TRANSFER OF MEIS SCRIPS BY AN SEZ UNIT TO A DTA UNIT – IS IT PERMITTED ??

[Subramanya Rayaprol]

The most coveted duty credit scrip scheme namely MEIS, Merchandise Export Incentive Scheme, was rewarded to the exporters for export of goods, by merging various similar Duty Credit Scrips or export incentive schemes, with a simplified procedure.

MEIS is a duty scrip given as a reward by the government to an exporter of goods. The value of the scrips is 2% to 5% of the FOB value of goods exported. There are more than 5000 tariff lines which are eligible for MEIS. The scrips can be used to offset import duties and are freely transferable.

The SEZ units export goods manufactured by them, to their customers outside India, and realise the export proceeds in foreign exchange. Such exports are rewarded with MEIS Scrip, with a face value, and such amount of face value can be utilised for paying customs duties on import of goods by themselves or the SEZ unit can transfer the MEIS Scrip to any other importer, by a transfer letter.

In the process of transfer of MEIS scrip from the SEZ unit to the DTA unit, the fact that MEIS Scrip is a ‘Duty Credit Scrip’ which is classified to be ‘goods’ under GST Tariff and also under the Customs Tariff, under HSN Code 4907. Therefore, the transfer of such goods i.e. ‘MEIS Scrip or Duty credit scrip’ to be a clearance from the SEZ Unit to the DTA unit, and it attracts Customs duty under Section 30 of the SEZ Act, 2005.

On the onset of the GST Regime, the Duty Credit Scrips was classified as “Goods” and the MEIS license was covered under HSN code of “4907- Duty Credit Scrips" and the GST Rates initially was 12%, which got reduced to 5%, and subsequently reduced to ‘Nil’ with effect from 13.10.2017 vide notification number 36/2017 - IT(Rate), by inserting sl. No. 122A in original exemption notification 2/2017-IT(Rate), so as to exempt payment of IGST on such Duty Credit Scrips. The extract of the said notification is as below:

S. No.	Chapter / Heading /  Sub-heading / Tariff item	Description of Goods
(1)	(2)	(3)
	.   .   .	.   .   .
	.   .   .	.   .   .
122A	4907	Duty Credit Scrips
	.   .   .	.   .   .

But still, the Customs Tariff and the GST Tariff (based on Customs Tariff only) sill show the import duty on the goods falling under HSN 4907 – 10% BCD, as below:

4907	UNUSED POSTAGE , REVENUE OR SIMILAR STAMPS OF CURRENT OR NEW ISSUE IN THE COUNTRY IN WHICH THEY HAVE, OR WILL HAVE, A RECOGNIZED FACE VALUE; STAMP-IMPRESSED PAPER; BANK NOTES; CHEQUE FORMS; STOCK, SHARE OR BOND CERTIFICATES AND SIMILAR DOCUMENTS OF TITLE	UQC	BCD	ADC
49070010	Unused postage, revenue or similar stamps of current or new issue in the country in which they have, or will have, a recognized face value	kg.	10%	-
49070020	Bank notes	kg.	10%	-
49070030	Documents of title conveying the right to use Information Technology software	kg.	10%	-
49070090	Other	kg.	10%	-

Moreover, the HSN for Duty Credit Scrips declared as goods is only in 4 digits i.e. 4907. The further sub-heading is not available for the same. But however, in the Customs  Tariff, there are four sub-headings 49070010, 49070020, 49070030, and 49070090. On going through the descriptions given, the Duty Credit Scrips do not fall in any of the above HSN 49070010,49070020 and 49070030. Therefore, for the sake of Customs Tariff, it should more appropriately fall under the ‘CTSH 49070090 – Others’.

Now, if we examine the definition of imports under the SEZ Act, 2005, under Section 2, Sub-Clause (o),

(o) “import” means-

(i) bringing goods or receiving services, in a Special Economic Zone, by a Unit or Developer from a place outside India by land, sea or air or by any other mode, whether physical or otherwise; or

(ii) receiving goods, or services by, Unit or Developer from another Unit or Developer of the same Special Economic Zone or a different Special Economic Zone;

It can be seen that the goods cleared from the SEZ unit into the DTA, is not ‘Import’ within the meaning given under Section 2 (o) of the SEZ Act, 2005. However, even though such clearance is not “import’, Section 30 of the SEZ Act, 2005, specifically mentions that such goods when cleared from the SEZ unit to a DTA unit, Customs duty is to be paid as if it is physical imports. Section 30 of SEZ Act, 2005 reads as,

30. Domestic clearance by Units.

Subject to the conditions specified in the rules made by the Central Government in this behalf :

(a) any goods removed from a Special Economic Zone to the Domestic Tariff Area shall be chargeable to duties of customs including anti-dumping, countervailing and safeguard duties under the Customs Tariff Act, 1975, where applicable, as leviable on such goods when imported; and

(b) the rate of duty and tariff valuation, if any, applicable to goods removed from a Special Economic Zone shall be at the rate and tariff valuation in force as on the date of such removal, and where such date is not ascertainable, on the date of payment of duty.

Now, Since the clearance of MEIS Scrips or Duty Credit Scrips attracts customs duties as goods imported from SEZ unit to the DTA unit, the provisions of the Import policy also gets attracted.

As per the ITC HSN Code Import policy, the import of goods falling under the HSN Code 49070010, 49070020, and 49070090 are restricted. The goods falling under HSN Code “49070030 - Documents of title conveying the right to use Information Technology software” is freely importable. The relevant ITC HSN Code Table is as below:  

Tariff Item Description Policy Conditions (1) (2) (3) (4) . . . . . . . . . . . . 4907 UNUSED POSTAGE, REVENUE OR SIMILAR STAMPS OF CURRENT OR NEW ISSUE IN THE COUNTRY IN WHICH THEY HAVE, OR WILL HAVE, A RECOGNIZED FACE VALUE; STAMP-IMPRESSED PAPER; BANK NOTES; CHEQUE FORMS; STOCK, SHARE OR BOND CERTIFICATES AND SIMILAR DOCUMENTS OF TITLE 49070010 Unused postage, revenue or similar stamps of current or new issue in the country in which they have, or will have, a recognized face value Restricted Import by banks and dealers authorised by RBI will not require a licence by DGFT. Other condition of RBI will apply. 49070020 Bank notes Restricted 49070030 Documents of title conveying the right to use Information Technology software Free 49070090 Other Restricted   . . . . . . . . .

Since the MEIS Scrip or Duty Credit Scrip, would fall only in the ‘Other’ category under HSN 49070090 in the CTH 4907, it appears that the clearance of MEIS Scrip from SEZ Unit to the DTA unit, which attracts the provisions of the Import policy, read with Section 30 of the SEZ Act, 2005, is RESTRICTED. However, the duty credit scrips which are issued online only, which are paperless, for the SEZ ports within the EDI ports, since April, 2019 vide circular no. 11/2019-Customs, and paper licences are discontinued, are not affected by this interpretation as there is no paper scrip and therefore there is no goods ‘duty credit scrip’ falling under HSN Code 4907.

The ineligible category of the MEIS Scheme is well defined and includes the export of goods from DTA to SEZ unit. But, the clearances of the goods from the SEZ Unit to the DTA unit appears to have been ignored while extending the MEIS scheme to the direct exports made by the SEZ units, who otherwise has no import duty liability. Since the import policy restricts the goods ‘duty credit scrips’ falling under CTH 49070090, the customs department or the SEZ authorities should certainly look into it, and provide a solution to the genuine exporters, who would get caught unknowingly, to those SEZ units who are in the non-EDI SEZ zones issuing paper scrips.

Conclusion: Hence, the import of Duty Credit Scrips appears to be falling under the RESTRICTED category under the Import policy for HSN Code 49070090, and may not be allowed without fulfilment of the conditions that may be imposed by the Government. But, what happens to the MEIS Licences already transferred to the DTA Units . . .??