GST Input Tax Credit on EPCG Customs Duty Payments
You cannot claim Input Tax Credit for customs duties paid due to failing your Export Promotion Capital Goods obligations.
- Ruling
- Advance Ruling No.106/AAR/2023 Dated:05.09.2023
- Authority
- Authority for Advance Ruling
This page was written by Patron Accounting’s AI from the official release and reviewed before publishing. It explains the document in plain language. It is not the document itself. Where this page and the original differ, the original governs.
The short version
- Vijay Flexi Packing Industries asked if they could claim credit for customs duties.
- The company failed to meet their export obligations under the EPCG scheme.
- The Authority ruled that these specific customs payments are not GST input tax.
In short
The company asked if they could claim Input Tax Credit (ITC) for Basic Customs Duty, Countervailing Duty, and Special Additional Duty paid after failing to meet their export targets under the Export Promotion Capital Goods (EPCG) scheme.
What has changed
How it worked before
Businesses were uncertain if these late customs duty payments could be treated as eligible input tax under the GST framework.
What has changed
The Authority decided that these customs duties do not qualify as input tax under the GST Act. In practice, this means you cannot reduce your GST liability by claiming credit for these specific duty payments.
Who this affects
Manufacturers who imported machinery under the EPCG scheme and subsequently paid customs duties due to missed export targets.
An example
Imagine a textile manufacturer who imported looms under the EPCG scheme but failed to export enough goods. They paid the required customs duties and interest to the government. Based on this ruling, they cannot claim these payments as Input Tax Credit against their GST liability.
What you should do
If you are in a similar situation, do not claim this credit in your GST returns. Remember that an Advance Ruling only binds the company that asked and their specific tax office; it is not a general law for all businesses.
If you do nothing
If you claim this credit anyway, your local tax officer may issue a notice to recover the amount with interest and penalties. Assuming this ruling applies to you without professional advice can lead to costly tax disputes.
The terms explained
- Input Tax Credit
- A system that allows businesses to reduce the tax they pay on their sales by the amount of tax they already paid on their business purchases.
- EPCG Scheme
- A government program that allows businesses to import machinery at lower or zero customs duty, provided they commit to exporting a certain value of goods within a set time.
- Advance Ruling
- A formal decision from tax authorities on a specific tax question, which provides clarity for the business that asked but does not automatically apply to others.
The ruling in detail
Authority for Advance Ruling
M/s Vijay Flexi packaging Industries
Advance Ruling No.106/AAR/2023 Dated:05.09.2023 · Tamil Nadu
Questions before the authority
- Whether payment of Basic Customs Duty (BCD), Countervailing Duty (CVD), Special Additional Duty (SAD) made on non-fulfillment of EPCG obligation can be taken as Input tax credit under GST.
Facts
The applicant is a partnership concern engaged in the manufacture of printed poly packing materials. They imported machinery under the EPCG scheme in 2011 but failed to fulfill the export obligation within the prescribed time limit. Consequently, they remitted the required customs duty and interest on 25.09.2020.
Ruling
| Question | What the authority ruled |
|---|---|
| Admissibility of ITC on BCD, CVD, and SAD paid due to non-fulfillment of EPCG obligation | Cannot be claimed as Input Tax Credit The ruling applies to payments made post-implementation of GST for obligations arising from imports made prior to GST. |
The Authority ruled that the payment of Basic Customs Duty, Countervailing Duty, and Special Additional Duty made on account of non-fulfillment of export obligations under the EPCG scheme cannot be claimed as Input Tax Credit under the GST regime. The ruling clarifies that such payments do not qualify as input tax under the GST Act.
Reasoning
The Authority reasoned that the definition of input tax under Section 2 of the GST Act, 2017, is limited to specific taxes and does not include CVD or SAD paid on imports. Furthermore, the GST law does not contain provisions for availing credit of these specific customs duties. The ruling emphasizes that the GST regime only allows for the credit of IGST charged on imports, and there is no provision for the **cenvat credit of CVD and SAD** under the current GST framework.
Provisions relied on
- Section 98(4) of the CGST Act, 2017
- Section 98(4) of the TNGST Act, 2017
- Section 103(1) of the CGST Act, 2017
- Section 103(2) of the CGST Act, 2017
- Section 104 of the CGST Act, 2017
- Section 2 of the GST Act, 2017
- Section 3 of the Customs Tariff Act, 1975
For the practitioner
This ruling confirms that taxpayers cannot claim ITC for customs duties paid due to the **non-fulfillment of EPCG obligations**. It settles the issue by clarifying that such payments are not recognized as input tax under the GST Act. Practitioners should note that this decision effectively denies the transition of legacy customs duty credits into the GST regime.
Source
This is a summary prepared from the published order, which is a scanned document. It is a reading aid and not the authority: where the two differ, the order governs. Verify every provision against the original before relying on it.
Original order: https://www.gstcouncil.gov.in/sites/default/files/AAR/106_vijay_flexi_packaging_order.pdf
Legibility of the scan, as read: high.
Prepared 13-10-2026.
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