Sale of scrips under export promotion schemes to attract 12% GST

Exporters will now have to shell out the goods and services tax (GST) at 12 per cent when selling scrips of export-incentive schemes such as the Merchandise Export from India Scheme (MEIS).

The government on Thursday clarified that scrips received by exporters under the Services Exports from India Scheme and the Incremental Export Incentivization Scheme, apart from the MEIS, will be taxed.

Exporters earn duty credits through the form of scrips at fixed rates of 2 per cent, 3 per cent, and 5 per cent, depending upon the product and country. The earned scrips can be freely transferred to others or sold. Exporters have continued to maintain that more government help is needed to sustain India’s falling outbound trade.

“MEIS etc fall under heading 4907 and attract 12 per cent GST,” the Central Board of Excise and Customs (CBEC) said in its frequently asked questions on the GST.

The GST is based on a category of goods and services based on the harmonised system number (HSN) codes. HSN 4907 relates to financial securities such as shares and bond certificates, and bank notes, cheque forms, etc.

Exporters are up in arms with the FAQs and demanded that export-incentive scrips such as the MEIS be made a separate category with a different HSN code, and the rate be reduced to 5 per cent.

Sources said the GST Council might take up the demand at its meeting on Saturday.

“What is the legal sanctity of FAQs? It’s not a notification. It's an interpretation,” Federation of Indian Export Organisation Director General and Chief Executive Officer Ajay Sahai told Business Standard.

The CBEC also said in its disclaimer to FAQs that these clarifications were only for educational and guidance purposes and did not have legal validity. 

Explaining the rationale of exporters’ demand to cut the rate on the MEIS to 5 per cent, he said those buying the scrips would have to wait to utilise the MEIS for tax purposes if the GST on their products is 5 per cent.

The premium on the scrips is going to drop as a result of this, the executive director of the Engineering Exports Promotion Council of India said.

The largest of such export promotion schemes in the form of scrips, the MEIS, was introduced in April 2015 under the Foreign Trade Policy and currently incentivises merchandise exports along with 7,913 items.