Boomerang here from GST policy

GST Council has not fixed tax rate for transfer/sale of duty credit scrips or authorisations/licence

Last week, the revenue secretary said payment of the Goods and Services Tax (GST) would not be allowed through duty credit scrips issued under various export promotion schemes of the Foreign Trade Policy (FTP). This decision, unwittingly, could result in encouraging of import.

In the current FTP 2015-20, transferable duty credit scrips are issued to exporters under the Merchandise Exports from India Scheme against export of goods, under the Services Exports from India Scheme against export of services and under the post-export Export Promotion Capital Goods Scheme.

Beside, duty credit scrips issued in accordance with the earlier FTP 2009-14 under the Focus Market Scheme, Focus Product Scheme, Vishesh Krishi Gram Udyog Yojana, 

Served from India Scheme, etc, are also available with exporters. These duty credit scrips can be used to pay basic customs duty (BCD), additional customs duty (CVD and SAD), excise duty (ED) and service tax (ST). Cenvat credit of CVD, SAD, ED and ST debited to the scrips can be taken.  Most of these duty credit scrips are transferable.  

In the coming GST regime, CVD, SAD and ED will not be levied, except on certain petroleum products. Instead, Integrated GST (IGST) will be levied on import and inter-state supplies. Central GST and State GST will be levied on intra-state supplies. If duty credit scrips cannot be used to pay these taxes, they can be used only for payment of BCD. And, this will dramatically increase the supply of scrips available to pay BCD.

At present, if the BCD is 10 per cent  and CVD is 12.5 per cent, the aggregate duty works out to 29.441 per cent. So, on import of Rs 1,000, the entire duty of Rs 294.41 can be paid through duty credit scrips. In the GST regime, if BCD is 10 per cent and IGST is 18 per cent, the aggregate duty (assuming no other levies) will be 29.8 per cent. And, on import of say Rs 1,000, only Rs 100 can be paid through duty credit scrips. Thus, in the GST regime, for utilisation of scrips of Rs 298, import to be made will be Rs 2,980, whereas under the present regime, duty credit of Rs 294.41 can be utilised on import of Rs1,000 only.  

So, to utilise the available scrips, more import will have to be made. Those who do not have more import to make will sell the scrips in the market. Thus, it is possible that at least in the short run, availability of more scrips to pay BCD can bring down the premiums on the scrips.

The GST Council has not fixed any tax rate for transfer/sale of duty credit scrips or authorisations/licences. There is no HSN Code for the scrips or licences/authorisations. It means no GST need be paid on supply of scrips/authorisations and traders in these need not be registered.  This also might impact the premiums on scrips/authorisations, unless the Council decides to tax these.

Lower premiums make import cheaper.  For example, if the premiums come down from the present 92-95 per cent (with VAT/CST) to 85-87 (without GST), importers can pay BCD of Rs 100 by spending only Rs 85-87. That could mean substantial savings that make import attractive. Premiums might rise over a period but in the short run, lower premiums are likely to bring in more of import.