We are exporters of goods holding Advance Authorization licence issued under the Foreign Trade Policy. We have not been able to fulfill the export obligation which is mandatory to be fulfilled under the licence.Also, we possess duty scrips issued under the Served from India Scheme (SFIS). Our consultant has informed us that we may pay the export obligation using SFIS duty scrips available with us. Please advise on this aspect?

When an exporter avails the benefit of Advance Authorization under Chapter 4 of the Foreign Trade Policy, export obligation must be fulfilled against the same. As per Para 4.28 of the Handbook of Procedures, in case there is a shortfall in fulfillment of export obligation under Advance Authorization, the same can be paid by furnishing duty scrips.

However, vide notification no. 64(RE-2013)/2009-2014 dated 6 January 2014 the DGFT has amended Para 3.17.11 of the FTP 2009-14, vide which ?Scrips issued under SHIS, SFIS and AIIS cannot be utilised / debited for payment of Custom Duties in case of EO defaults for Authorizations issued under Chapters 4 of this Policy?.

In other words, duty scrips issued under the SFIS scheme cannot be used for an exporter to fulfill default in export obligation under the Advance Authorization scheme. Hence, the default in export obligation shall need to be paid in cash and cannot be paid by way of using SFIS duty scrips.

No VAT on phone sold at counter in MP

We are a dealer of mobile phones registered under Madhya Pradesh VAT Act, 2002 (MP VAT Act). We buy phones from brand owners locally and sell to customers over the counter. We have been charging VAT on sales made by us to customers and claiming input tax credit of VAT paid on purchases within the state. Our consultant has informed us that certain changes have been introduced in MP VAT Act, based on that we are not required to charge VAT on the sale of these products. Please confirm this.

Mobile phones were classified under the ?residual entry? i.e. Part IV of Schedule II of the MP VAT Act, chargeable to VAT at the rate of 13%. Input tax rebate on local purchase of mobile phones was available for payment of tax on sales thereof.

However, vide notification no. F.A-3-11-2014-1-V (17) dated 26 April 2014, the MP VAT authorities have specifically included ?Telephone, Cellular handset and Phablet? in Part III of Schedule II on which tax is applicable at the rate of 13%. The goods covered under this Part are considered to be ?tax paid goods? as per section 2(y) of the MP VAT Act and any subsequent sale of these goods within Madhya Pradesh would not be subject to VAT. In other words, mobile phones and phablets are now subject to VAT at the first point of sale in Madhya Pradesh.

Thus, you would not be required to charge VAT on the sales made to customers.

Further, per Section 14(1) of the MP VAT Act, goods mentioned under Part III of Schedule II are not eligible for Input Tax Rebate (credit). Hence, you would not be eligible to claim Input Tax Rebate of the VAT paid.

The replies do not constitute professional advice. Neither EY nor FE is liable for any action taken on the basis of these replies. Readers may mail their queries to sme@expressindia.com