Duty Credit Scrips Should be Excluded from Value of Exempt Supply to Compute ITC Reversal: AAR [Read Order]

The Telangana State Authority for Advance Ruling (AAR) observed that the Duty Credit Scrips should be excluded from the value of exempt supply to compute Input Tax Credit (ITC) reversal.

M/s. Kaveri Exports, the applicant deals in the export of cotton lint – fully pressed cotton bales and submitted that they are in receipt of duty credit e-scrips under the scheme for remission of duties and taxes on exported products (RoDTEP) from the Department of Foreign Trade. The applicant submitted that these e-scrips are used for clearing imports and are also freely transferrable if the exporter does not have any corresponding imports.

The applicant further argued that these e-scrips are exempted from tax vide Notification No. 02/2017 dt: 28.06.2017. The applicant is of the opinion that as the e-scrips are in nature an incentive the same should be excluded from the total turnover for the purpose of rule 89(4) and 89(4B) of the CGST Rules, 2017. Therefore, that the reversals of input tax credit to be effected under Rule 42 to the extent of exempt supplies, need not be made.

The applicant has sought advance ruling on whether the sale of duty credit e-Scrips is only other income and not form part of Turnover for applying Rule 42, Rule 89(4) and Rule 89(4B) of the CGST Rules, 2017.

The ‘Duty Scrips’ given as incentive to exporters is covered under tariff item no. 4907 at Serial No. 128 of Schedule II of the Notification No. 01/2017. However, vide Notification No. 35/2017 dt:13.10.2017 the original notification no. 02/2017 dt: 28.06.2017 for exempting goods from GST was amended to improve at Serial No. 122A a new entry of ‘Duty Credit Scrips’ under the HSN ‘4907’.

Thus, the duty credit scrips are exempt from tax vide this notification. The duty credit scrips being exempted attracted the provisions of Section 17(2) and Rule 42 of the CGST Act i.e., reversal of all common inputs used for supply of exempt goods/services in the proportion value of supply of such exempt goods and services to the total value of supplies.

A Two-Member Bench of the Authority comprising S.V. Kasi Visweswara Rao, Additional Commissioner (State Taxes)and Sahil Inamdar, (I.R.S), Additional Commissioner (Central Taxes)observed that “After the insertion of clause (d) in the Explanation-1 to Rule 43 of the CGST Rules vide Notification No. 14/2022 dt: 05.07.2022, the value of ‘Duty credit scrips’ shall be excluded from the value of exempt supply for the purpose of applying Rule 42 of the CGST Rules.”

To Read the full text of the Order CLICK HERE

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