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Understanding Duty Credit Scrips: Meaning and How to Sell Them

Duty Credit Scrips (DCS) Explained

Duty Credit Scrip (DCS) is an export promotion benefit the Government of India provides under the Foreign Trade Policy (FTP). These incentives aim to encourage exporters to increase foreign exchange inflow into India.

A DCS offers tax incentives on exports, allowing exporters to offset their import duties. It is issued under schemes such as the Rebate of Duties & Taxes on Exported Products Scheme (RoDTEP),  Rebate on State & Central Taxes and Levies Scheme (RoSCTL),

Merchandise Exports from India Scheme (MEIS), Service Exports from India Scheme (SEIS), and the Export Promotion Capital Goods Scheme.

The features and provisions related to DCS are outlined in the FTP, and the scheme is implemented and administered by the Ministry of Commerce and Industry in collaboration with the Directorate General of Foreign Trade (DGFT).

Uses of Duty Credit Scrips

Exporters can utilize Duty Credit Scrips to fulfil their import duty obligations. It can be applied against tax liabilities arising from essential customs duty, additional customs duty, safeguard duty, transitional specific safeguard duty, and anti-dumping duty. However, DCS cannot be used to set off GST, compensation cess, and education cess.

How Duty Credit Scrips Work?

DCS helps exporters minimize their cash outflow for import duty liabilities, freeing up funds for crucial working capital to fulfil export orders. For instance, let’s consider a scenario where an exporter receives an export order and must import raw materials to commence production. Naturally, the exporter requires funds for both production and dispatch. At this point, paying import duty on raw material purchases would deplete their working capital. However, having DCS alleviates this burden. If the exporter has a DCS balance of Rs. 1 lakh and faces a customs duty liability of Rs. 1.5 lakh for raw material imports, they would only need to pay the difference of Rs. 50,000. In other words, they can utilize the Rs. 1 lakh in DCS towards the outstanding customs duty liability.

Validity of Duty Credit Scrips

A DCS remains valid for 24 months from the date of issue. Suppose the exporter foresees no immediate use for the DCS within the validity period. In that case, they can transfer it to another person/entity who can utilize it against their outstanding import duty liabilities. Additionally, the DGFT has the authority to revalidate an expired DCS upon special request by an exporter under special circumstances.

Selling Duty Credit Scrips

Exporters sell DCS when they have no use for the incentives, often resulting in the only profit they would make. There is no organized market for such transfers, and in peer-to-peer (P2P) transfers, DCS is generally sold at a discounted rate.

For example, if an exporter has a duty credit scrip worth Rs. 2,00,000 and sells it to a buyer for Rs. 1,95,000, the face value is maintained as Rs. 2,00,000 for the buyer. This arrangement benefits both parties. The buyer receives a discount of Rs. 5,000, while the exporter obtains value for the duty credit scrip that would otherwise go to waste after a certain period.

Businesses can harness the power of reliable online platforms such as Duty Exchange to streamline their buying and selling of Duty Credit Scrips (DCS). These digital platforms offer an intuitive and user-friendly interface, ensuring a smooth and hassle-free experience. They provide transparent and efficient pricing mechanisms, granting businesses access to a vast network of potential buyers and sellers. Through these platforms, the transfer of scrips is seamless and secure, facilitated by utilizing e-escrow accounts. With near-paperless transactions, businesses can enjoy a fast, safe, and intelligent process, enabling them to optimize their DCS transactions quickly and confidently.

Sale of Duty Credit Scrips under GST

DCS is classified as goods under the provisions of the Goods and Services Tax (GST) Act. Initially, the sale of DCS attracted GST unless specifically exempted. However, recognizing the redundancy of taxing a tax-based incentive, the sale of DCS was exempted from GST under an October 2017 notification.