Subhash Chandra GargThe government rightly wants exporters of garments and made-ups not to suffer the cost of State and Central taxes embedded in their export prices. The GST on these products is zero-rated, entitling the exporters to get all GST input taxes refunded.

All other taxes and levies — on fuel, electricity, and other non-GST goods and services — are refunded under the Rebate of State and Central Taxes and Levies (RoSCTL) scheme.

The garment and made-up exporters are happy that the government has acted in their interest. However, the method of delivering RoSCTL benefits is leaving a bitter taste.

The government delivers RoSCTL benefits in the form of transferable duty credit scrips, not cash. Further, in the light of instructions issued, these scrips can be used only for payment of basic import duties. These cannot be used for special Customs duties, cesses, and surcharges. As the duties that can be paid using these scrips are quite limited, the supply of scrips exceeds the demand.

Consequently, RoSCTL scrips are being sold at a discount. The Apparel Export Promotion Council (AEPC) and the industry report that the scrips are being sold at about 20 per cent discount currently.

RoSCTL scrips are transferable. Buyers of these scrips can also utilise them. That is fine. However, the government recently prescribed that if either the export proceeds are not received in time or there is some other complaint against the originating exporter, the Customs officers can recover the benefit availed of by the buyer-user of the scrip. Not surprisingly, this has driven down the demand for the scrips.

It is a bit strange that the government ends up paying the full value of the scrip as whenever the scrip gets used, the amount equivalent to its face value is reduced from the import duty payable. But the original exporter, however, does not receive the full value. This situation is certainly not in the interest of either the government or the exporters.

A solution needs to be found to rectify the situation.

The government started using such transferable scrips in 1992 to provide better exchange value to the exporters when a dual exchange rate arrangement was put in place. The exporters had to surrender a part of the export proceeds at the lower official exchange rate.

For the rest, export-import (EXIM) scrips were issued. As the market exchange rate was much higher, the exporters got a premium for their EXIM scrips. There is no such premium flowing from the RoSCTL scrips. Rather, there is a market discount.

As the government does not get the benefit of this discount and its intention is clearly to provide the full value of the RoSCTL incentive to the exporters, there is no justification for the government to pay the RoSCTL incentive in the form of scrips.

The best solution from the exporters’ perspective and which does not cause any extra cost to the government is to pay RoSCTL refund in the form of cash incentive.

There is one issue which, however, needs consideration.

Burden on Centre

RoSCTL covers both State and Central levies. The entire RoSCTL burden, however, ostensibly falls on the Central Government as it issues and pays the RoSCTL scrips. The Centre understandably wants to adopt a mode of payment that can make State governments share the burden.

Amongst the import duties, cesses, and surcharges, the States get a share (41 per cent currently) only on the basic Customs duty revenues. Therefore, when the RoSCTL scrips are used in payment of the basic Customs duty, the Centre indirectly passes on 41 per cent cost of RoSCTL refunds to States.

RoSCTL benefits are only of the order of about ₹7,000 crore (RE 2022). However, much larger benefits of other schemes (RoDTEP, etc.) compete for limited space available from the basic Customs duty. The government, therefore, can consider two solutions:

One, the government can expand the universe of duties to all shareable Central taxes for which RoSCTL scrips can be used as payment. There is nothing in the constitutional arrangements that comes in the way of allowing the use of the RoSCTL scrips for payment of corporate taxes or payment of IGST. If the scope of RoSCTL scrips is so expanded, market discount will disappear. The Centre will also be able to transfer part of the burden to the States.

Second, the Centre can pay RoSCTL refund in cash and adjust the payment made against the entire corpus of shareable gross Central taxes. In this method also, the States will bear the same share of the burden.

The second option, of course, is much better. The exporters of garments and made-ups will get the full RoSCTL refund without any frictional loss, and also in a quick time.

The writer is a former Finance and Economic Affairs Secretary

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