Duty Credit Scrips: Meaning & How to Sell Them

International trade is a competitive landscape. Hence, exporters often look to minimize their costs to maximize their profitability. The most efficient tool for them is Duty Credit Scrips (DCS). This is one of the most vital components of the Indian government's export incentives. It will explain what Duty Credit Scrips are, how they work, and how to sell them in case they are no longer required.

Understanding Duty Credit Scrips (DCS)

Duty Credit Scrips (DCS) are part of the export incentive provided under the Government of India's Foreign Trade Policy 2015-2020. Scrips have been permitted for export incentives from India as an offset against some import duties and taxes paid by the exporters. For all practical purposes, DCS can be described as a kind of award for export-oriented units, which enables them to reduce their cash outflow while importing goods required for service operations. In general, the value of Duty Credit Scrips stands in the range of 2% to 5% of export value. Such scripts are under the stewardship of the Directorate General of Foreign Trade. Since they are very much aligned with the broad objectives of India's trade, that is also very impressive.

Purpose and Benefits of Duty Credit Scrips

The primary intent of Duty Credit Scrips is to encourage exporters with relief in the form of duty through finance. DCS, thus, helps exporters save their working capital, which can further be injected into the business to be used for production or other operational costs. A few of the major advantages:

• Cost Reduction:  Exporters can save heavily on imports by utilizing DCS to set off different kinds of duties.
• Improved Cash Flow: Exporters save cash on tax outlays and duties. Consequently, they have better cash flow, and there is always money to invest in expansion.
• Transferability: DCS is transferable; that is, exporters who do not need them can sell or pass them on to other businesses that can utilize them.

How Duty Credit Scrips Work

The Duty Credit Scrips involve the dispensation of credits to exporters against specific import duties. Upon export of goods or services, the exporter would be eligible to receive DCS, formulated on the value of their exports. Taking into account the assumption that an exporter by the name Priya exports goods worth ₹10,00,000 and receives a DCS of 5%, she would be entitled to a scrip of ₹50,000. Now, if Priya needs to import raw material valued at ₹70,000 and an import duty of ₹20,000 is pending against her, she can clear the latter by using part of her DCS. This will make her pay in cash only for a sum of ₹20,000 instead of the entire amount.

Uses of Duty Credit Scrips

Duty Credit Scrips can be utilized to pay various types of import duties and taxes, including:

• Basic Customs Duty (BCD)
• Additional Customs Duty (ACD)
• Safeguard Duty
• Anti-Dumping Duty
• Transitional Specific Safeguard Duty

However, it is important to note that DCS cannot be used for Goods and Services Tax (GST), Compensation Cess, or Education Cess.

Validity and Transferability

Duty Credit Scrips have a shelf life of 24 months from the date of issuance. If, after that period, an exporter does not need to use any of the DCS they have issued to him within the same timeframe, he may sell or even assign these to another party, who can use them for his tax liabilities. The transferability feature is very useful for exporters who may not immediately need the scrips but do not want to lose the value on account of the scrips becoming worthless at the end of the tax year. The DCS is usually sold at a discount; so, if an exporter sells his scrip of ₹2,00,000 for, say, ₹1,95,000, he pockets immediate cash, and the buyer gets to have a valuable credit.

How to Apply for Duty Credit Scrips

Exporters can claim the Duty Credit Scrips under any of the schemes given here in the Foreign Trade Policy:

1. Merchandise Exports from India Scheme (MEIS): This scheme provides incentives to merchandise exporters depending on the export performance.
2. Service Exports from India Scheme (SEIS): This scheme rewards service exporters for their contribution to foreign exchange earnings.
3. Export Promotion Capital Goods Scheme (EPCG): This scheme helps exporters with importing capital goods at reduced rates of duty.

Exporters who wish to apply under such schemes have to apply through the DGFT portal along with necessary documents, including shipping bills and proof of export earnings.

Selling Duty Credit Scrips

The exporter could thus utilize any unused Duty Credit Scrips close to expiration or any they simply want to liquidate for cash flow, and selling them is simple, though not without caveats.

Steps to Sell Duty Credit Scrips

1. Identify Potential Buyers: Since there is no established marketplace for  DCS sales, most exporters will engage in peer-to-peer sales or solicit the assistance of intermediaries.
2. Negotiate Terms: Discuss the terms of sale with potential buyers. Selling parties normally offer a discount on face value to the buyers.
3. Finalize Transaction: Once both parties agree on terms, their respective forms and documentation need to be finalized, and the transfer must be confirmed.
4. Record Keeping: All transactions regarding sales of DCS should be kept for future reference and in respect of compliance.

Final Thoughts

Now that you have a grasp of what Duty Credit Scrips (DCS) are and how they operate in the larger incentives structure for exports in India, you can explore the scope for using them suitably in your businesses. Make sure you review all relevant information on eligibility and compliance before you apply for or sell your scrips. Consequently, prudent management of Duty Credit Scrips by using them to offset import duties or selling them when they are not needed will enhance access to finances and better support your export activities. Be aware of fluctuating market factors and regulation changes that may affect the use of DCSs as you face the complexities that come with international trade.