Sandeep Ahuja & Co.

Established in the year 1986, we are a leading chartered accountancy firm based in Delhi & NCR rendering comprehensive professional services which include statutory audit, internal audit, direct tax, transfer pricing, GST, bank audit, propriety audit, cost accounting, internal financial controls and risk advisory.

Wednesday, December 7, 2016

Service Export from India Scheme

Service Exports from India Scheme.
The new Foreign Trade Policy 2015-2020, with effect from 1.4.2015, Service Exports from India Scheme (SEIS) has been announced by the Government thereby replacing the Service Exports From India Scheme (SFIS) available under Foreign Trade Policy 2009-14.

1. Major Attractions of Service Export from India Scheme:
         I.            Applicability: Applies only to ‘Service Providers located in India’ instead of ‘Indian Service Providers’. It is one of the most significant change from the previous Service Export From India Scheme
       II.             Net Foreign Exchange Earnings Based Rewards: Rate of reward under SEIS are based on net foreign exchange earned.
     III.             Freely Transferable Scrips: Rewards issued as duty credit scrip is freely transferable and usable for all types of goods and service tax debits on procurement of services / goods.
     IV.             Duty Drawback & CENVAT Credits : Debits are eligible for CENVAT credit or drawback.
       V.            Scrip can be used for payment of:
                (i)   Customs Duties for import of inputs or goods, except items listed in Appendix 3A;
                (ii)  Payment of excise duties on domestic procurement of inputs or goods, including capital goods           and
                (iii) Payment of service tax on procurement of services
                (iv) Payment of Customs Duty and fee as per paragraph 3.18 of this Policy.

2. Implications of Applicability of Scheme to Service Providers located in India instead of Indian Service Providers:
 There have been a number of litigations in the past involving foreign subsidiaries & brands who were denied benefits under SFIS  despite conducting business in India on grounds that they were not " Indian Service Providers" & not adding to the endeavour of  Exports of Indian Service Providers.
Some of the popular companies whose applications were rejected by DGFT between 2009-12 were Yum Restaurants India Pvt. Ltd. ( Holding Co. of KFC, Pizza Hut & Taco Bells), Nokia Solutions   etc.

3. Eligibility Conditions for Claiming Rewards under SEIS:
Only following cases of Services Exports From India are eligible for Rewards under the scheme.
a. Cross Border Trade from India to any other country and
b. Supply of a ‘service’ from India to service consumer(s) of any other country.

Following Service Exports are not eligible  to claim rewards in the following cases:
a. Exports of Service by means of  Commercial Presence Abroad:  i.e. Supply of a ‘service’ from India by means of commercial presence in any other country and
b. Exports with assistance of employees or representatives located abroad: Supply of a ‘service’ from India through the presence of employees or representatives in any other country not eligible for reward under the scheme

4.  Net Foreign Exchange Earning Limits for Claiming rewards under SEIS:
a. General Limit : Minimum net free foreign exchange earnings criterion prescribed is US$15,000 in preceding financial year for eligibility under the Scheme.
b. Lower Limits : for Individuals Service Providers &  Sole Proprietorships: For Individual Service Providers and sole proprietorship, such minimum net free foreign exchange earnings criterion is US $10,000 in preceding financial year.
 Note: In case of an Import & Export Code Holder, for calculating threshold limit under SEIS Foreign Exchange earnings only in respect of Services are to be considered & Foreign exchange earnings in respect of trading, capital receipts are not to be considered. IEC is necessary for a Manufacturer & service provider to claim reward under SEIS in respect of export of such services.



5. Meaning of Net Foreign Exchange Earnings under SEIS- Certain Exclusions.
Net Foreign Exchange:       Gross Foreign Exchange Recipts
                                                Less : Payments of Expenses in Foreign Currency/ Remittances of                                                                                       foreign exchange by the applicant.

          i.            Foreign Exchange Recipts & Payments via credit cards as notified by RBI shall also be taken into account for calculating net foreign exchange earnings.
        ii.            Foreign Exchange earnings for services provided by Airlines, Shipping lines service providers plying     from one foreign country to another with routes not touching India at all.
      iii.            Service providers in Telecom Sector.
      iv.             In case  of Educational Sector Services, capitation fees received by schools shall not be considered for calculating threshold limit for rewards under SEIS.
        v.            Clubbing of turnover of services rendered by SEZ / EOU /EHTP / STPI / BTP units with turnover of DTA Service Providers
      vi.             Raising of all types of foreign currency Loans;
    vii.             Export proceeds realization of clients;
  viii.             Issuance of foreign currency Bonds;
       ix.             Issuance of foreign currency Bonds;

6.  Nature of Rewards under SEIS:
Duty Credit Scrips shall be granted as rewards under MEIS and SEIS.
         I.            Meaning of Duty Scrips: Duty Scrip can be understood as a certificate, which can be used for payment of Taxes later i.e. as a certificate of credit of duty. 
       II.            The Duty Credit Scrips and goods imported / domestically procured against them shall be freely transferable. The Duty Credit Scrips can be utilised for:
                (i) Payment of Customs Duties for import of inputs or goods including capital goods, except items             listed in Appendix 3A.
                (ii) Payment of excise duties on domestic procurement of inputs or goods, including capital goods as       per DoR notification.
                (iii) Payment of service tax on procurement of services as per DoR notification.
                (iv) Payment of Customs Duty and fee as per paragraph 3.18 of this Policy.
7.  Cenvat Credit/ Duty Drawback of Duty Paid through Scrips issued under SEIS:
I. Exemption for Payment of Custom Duty:
As per notification no. 25/2015 of Customs, There is an Option to Pay Custom Duty on Imports against debit in Duty Credit Scrips issued under SEIS Duty :
          I.            Exemption to Imports into India: The Central Government has exempted  importers from cash payment of Custom Duty  when goods are  imported into India against debit in duty credit scrip issued under  Service Exports from India Scheme by the Regional Authority.
        II.             Conditions for Exemption for Duty of Customs:
a.       Issue of Valid Duty Scrip under SEIS Scheme :
Importer must have a valid  duty credit scrip  issued to him  located in India against export of notified services listed in SEIS Scheme and Aayat Niryat Forms of Foreign Trade Policy 2015- 2020.
b.       Registration of Duty Scrip at Port of Registration:
The duty scrip shall be registered with the Customs Authority at the port of registration specified on the said scrip.
The duty scrip shall be  produced before the proper officer of customs at the time of clearance for debit of the duties leviable on the goods against credit in the duty scrips and the proper officer of customs.
c.        Duty Drawback if, Exemption not Claimed:
If the importer does not avail abovementioned exemption then, the importer shall be entitled to avail drawback of the duty of customs paid on such imports.
d.       CENVAT Credit & Duty Drawback: The importer shall be entitled to avail drawback of the duty of customs leviable under the First Schedule to the said Customs Tariff Act against the amount debited in the said scrip.

II. Exemption for Payment of Excise Duty:  As per notification no. 21/2015 of Deptt.  The Central Government has exempted the goods specified in the First Schedule and the Second Schedule to the Central Excise Tariff Act, 1985, when cleared against a Service Exports from India Scheme duty credit scrip issued by the appropriate Regional Authority.

Conditions for Exemptions from Excise Duty
    (i).            Presentation of Documents to Custom Officer: Provided condition (i) of notification no. 25 mentioned above are complied with & that the holder of the scrip presents the said scrip to the said Customs Authority along with a letter or proforma invoice from the supplier or manufacturer indicating details of its jurisdictional Central Excise Officer.
  (ii).            Debit of Duty & Updation of Records: The said custom authority, taking into account debits already made to the duty scrips, debit the amount of excise duty from the scrip, update its own records, mention necessary details on the said scrip & send the written advice of such debits to the appropriate Excise officer.
(iii).            Clearance Of Goods: For clearance of goods, the assessee presents the said scrip to excise officer & officer shall endorse the clearance of goods & validate on back side of scrip the amount of duty leviable & keep a record of such clearances.
(iv).            Maintenance of Records: The manufacturer retains a copy of the scrip for claiming CENVAT Credit & Drawback of the duty paid under the scheme.
III. Option to pay Service Tax by means of Duty Credit Scrip & Claim Credit thereon.
Central Government has exempted the taxable services provided or agreed to be provided against a Duty Credit Scrip by a person located in the taxable territory from the whole of the service tax leviable thereon under section 66B of the said Act.
The exemption shall be subject to the following conditions, namely:
a.     Location of Service Provider: That the holder of the scrip, to who has provided or agreed to provide taxable services must be located in the taxable territory.
b.    Presentation of Duty Credit Scrip to Customs Officer: That the holder of the scrip who may either be the person to whom the scrip was originally issued or a transferee holder, presents the scrip to the said Customs Authority along with a letter and an invoice or challan or bill, as the case may be, issued under rule 4A of the Service Tax Rules, 1994 by the service provider indicating details of his jurisdictional Central Excise Officer.
c.     Presentation of Duty Credit Scrip to Excise Officer: The holder of the scrip presents the scrip debited by the said Customs Authority within thirty days to the said Excise Officer, along with an undertaking addressed to the said Officer, that in case of any service tax short debited in the scrip, he shall pay such service tax along with applicable interest.
d.    Verification of debit of Duty: Based on the said written advice and undertaking, the said Officer shall verify and validate, on the reverse of the scrip, the details of the service tax leviable, which were debited by the said Customs Authority, and keep a record of payment of such service tax and interest, if any.
e.     CENVAT Credit of Service Tax: Holder of the scrip, to whom the taxable services were provided or agreed to be provided shall be entitled to avail drawback or CENVAT credit of the service tax leviable under section 66B of the said Act, against the service tax debited in the scrip and validated by the said Officer.

Exemption from Service Tax under RCM to Exporters Receiving Services In Relation to Export from a Commission Agent Located Outside India.
Description Of Service: Service provided by a commission agent located outside India & engaged under a contract by the Exporter for export of goods.
 Quantum of Exemption: Exemption shall be limited to the amount of Service Tax calculated on a value of 10% of FOB Value of export goods provided the service has been used for such goods only.
Conditions for Exemption:
    (i).            The amount of commission paid/ payable must be mentioned on the shipping bill or bill of export.
  (ii).            The exporter shall submit with half yearly return the following documents:
·         The original documents showing actual payment of commission to the commission agent.
·         A copy of agreement or contract entered into between the commission agent located outside India & the exporter in relation to sale of export goods outside India.
Non-Availability of Exemption:
The exemption shall not be available on:
·         Export of canalised items, project exports.
·         Export financed under lines of credit extended by the Govt. of India or EXIM Bank.
·         Export made by an Indian partner in a company with equity participation in an overseas joint venture or wholly owned subsidiary. 
        Contributed by Tanveer Alam CA Finalist at Sandeep Ahuja & Co











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