Top 10 Legal and Compliance Aspects of MEIS License Sale in India

The Merchandise Exports from India Scheme (MEIS) was introduced under the Foreign Trade Policy (FTP) to incentivise exporters by offering duty credit scrips. These scripts can be used to offset customs duties or sold to other businesses. However, the sale of MEIS licenses involves various legal and compliance considerations that exporters must be aware of to ensure smooth transactions and avoid penalties.

This article explores the top 10 legal and compliance aspects of MEIS License Sale in India, providing exporters with a clear understanding of regulatory requirements.

1. Understanding the Legality of MEIS License Sale

MEIS licenses, issued as duty credit scrips, are legally transferable. The Directorate General of Foreign Trade (DGFT) allows exporters to sell these licenses to other businesses. However, buyers and sellers must ensure that the transaction is carried out per the guidelines outlined in the Foreign Trade Policy. It is important to note that these licenses are considered financial instruments and must be handled with due diligence.

2. Eligibility Criteria for Selling MEIS Licenses

Only eligible exporters who have received MEIS duty credit scrips can sell them. The eligibility is determined based on export performance, HS codes of goods, and the applicable incentives under FTP. The seller must ensure that the license is valid and not expired before initiating a sale. The exporter must also verify that the goods for which the license was issued comply with the conditions stipulated under the scheme.

3. Documentation Requirements

The sale of an MEIS license requires proper documentation, including:

• A copy of the MEIS license (duty credit scrip)

• Letter of Intent or Sale Agreement between buyer and seller

• Invoices and payment records

• KYC documents of both parties

• Declaration from the seller confirming the validity and ownership of the scrip

• Any additional documentation required by banks or financial institutions involved in the transaction

Proper documentation ensures compliance with DGFT and prevents future disputes. It also helps in maintaining financial records that may be required for audits or legal purposes.

4. Verification of License Authenticity

Before purchasing a MEIS license, buyers must verify its authenticity through DGFT’s official portal. Checking the scrip’s validity, balance, and restrictions (if any) helps prevent fraud and ensures that the buyer is acquiring a legitimate license. Due diligence on both ends ensures that the transaction is carried out without legal risks.

5. Taxation and GST Compliance

The sale of an MEIS license is subject to taxation under the Goods and Services Tax (GST) framework. As per Indian tax laws:

• The transfer of an MEIS license is considered a supply of goods.

• A GST rate of 5% applies to such transactions.

• The seller must issue a tax invoice and deposit the applicable GST.

• Non-compliance with GST requirements can lead to penalties and legal consequences.

Additionally, sellers must ensure that the transaction is properly recorded in their financial books to avoid any tax-related discrepancies during audits.

6. Legal Binding of Sale Agreement

To ensure a smooth and legally binding transaction, it is crucial to draft a formal sale agreement. The agreement should include:

• Details of the MEIS license (license number, value, and validity)

• Payment terms and conditions

• Responsibilities of buyer and seller

• Dispute resolution mechanism

• Liabilities in case of non-compliance with regulatory requirements

A well-drafted agreement protects both parties in case of future disputes. It also ensures transparency and minimizes the risk of misunderstandings between buyers and sellers.

7. DGFT Compliance and Reporting

The Directorate General of Foreign Trade (DGFT) monitors the sale and usage of MEIS licenses. Exporters must ensure that they comply with all DGFT reporting requirements, including:

• Submitting details of the transaction if requested

• Keeping records of sales for audit purposes

• Ensuring that the buyer uses the scrips within the permissible framework

Failure to comply with DGFT guidelines may result in penalties or debarment from future benefits. Additionally, businesses should stay updated on changes in policies regarding duty credit scrips to avoid violations.

8. Prohibition on Fraudulent Practices

MEIS licenses should only be sold and used for legitimate purposes. Any attempt to:

• Forge MEIS scrips

• Sell expired or ineligible licenses

• Use fraudulent documents

can result in severe penalties, including legal action under the Foreign Trade (Development & Regulation) Act, of 1992. Businesses must conduct transactions with reputable buyers and sellers to avoid legal trouble. Working with verified intermediaries can also reduce the risk of fraudulent transactions.

9. Time Limits and Expiry Considerations

MEIS licenses come with a validity period, generally ranging from 12 to 18 months from the date of issuance. Exporters must ensure that the scrips are sold and used before expiration. Expired licenses are invalid and cannot be redeemed or transferred. Buyers must verify the expiration date before purchasing an MEIS scrip. Many buyers also prefer licenses with a longer validity period to maximize their benefits.

Additionally, keeping track of the issuance and expiration dates helps in strategic planning and avoids last-minute sales that may not yield optimal value.

10. Dispute Resolution and Legal Recourse

Disputes in MEIS license sales can arise due to issues like non-payment, transfer delays, or misrepresentation. It is advisable to:

• Clearly define dispute resolution mechanisms in the sale agreement

• Use arbitration or legal channels in case of conflicts

• Retain transaction records to support legal claims

• Seek professional legal assistance if necessary

Seeking professional legal assistance can help in resolving disputes effectively and avoiding unnecessary litigation. In case of a dispute, the parties should try to settle matters amicably before proceeding with legal action.

Conclusion

MEIS License Sale can be a profitable opportunity for exporters, but it requires careful adherence to legal and compliance aspects. Ensuring DGFT compliance, verifying documentation, adhering to GST regulations, and maintaining transparency in transactions are crucial for avoiding legal complications.

By following these legal guidelines, exporters and buyers can engage in seamless MEIS license transactions while maximizing trade benefits under India’s Foreign Trade Policy. Additionally, staying updated with any regulatory changes and consulting professionals when required can further help mitigate risks associated with MEIS license transactions.