Under the new Foreign Trade Policy (‘FTP’), the Government of India has introduced the Service Exports from India Scheme (‘SEIS’) 2015-2020 w.e.f. 01st April 2015. The objective of the scheme is to earn maximum foreign exchange in the country and to encourage exports of notified services.
The scheme is for service providers who are engaged in export of services. Such exporters of services can avail the benefit of SEIS scrips provided such services are specified in Appendix 3D of FTP. For example: if the Company has exported auditing service and earned the net foreign exchange of Rs. 2,00,00,000/- then the Company would get the benefit of Rs. 10,00,000/- in the form of a credit scrip. The scrip so obtained is freely transferable. The said scrip can be utilized towards payment of customs duty, excise duty or service tax by the original holder or the transferee of the scrip.
Before the SEIS scheme, in the erstwhile Policy, 2009-14, there was another scheme called ‘Served from India Scheme (‘SFIS’)’. The said scheme was also available for the service exporters but the scrips obtained under SFIS scheme could only be used for import of capital goods and was non-transferable. As a result, it proved non-beneficial to most of the service exporters.
However, the new SEIS scheme is also not free from defects. There are certain discrepancy which have not been taken care of at the time of introducing such scheme nor there has been any clarification issued by Director General of Foreign Trade (‘DGFT’) in this regard, till date.
1. Determination of SEIS benefit on the basis of Net Foreign Exchange: If we look at para 3.08(d) of FTP, it provides the mechanism for calculating the benefit of SEIS scheme. It says:
Net Foreign Exchange=Gross Earnings of Foreign Exchange minus total expenses/payment/remittances of Foreign Exchange by the IEC holder, relating to service sector in the financial year.
It means benefit of SEIS scheme has to be claimed on the basis of net foreign exchange earned in financial year, let us say year 2015-16 minus expenses remitted in foreign exchange relating to service sector in the financial year 2015-16. Therefore, if we go by this logic then all such invoices will also get covered under SEIS scheme which were raised prior to 01st April 2015 but money was remitted to the account of service provider after 01st April 2015 because of the reason that financial year has been made the criteria. Further, it does not make any distinction weather services was provided after 01st April 2015 or prior to 01st April 2015.
Since, the SEIS scheme was introduced on 01st April 2015, hence the DGFT vide public notice no. 3/2015-2020 dated 01st April 2015 has notified Appendix 3D which says “The services and rates of rewards notified against them shall be applicable for services exported made between 1-4-2015 to 30-09-2015 only” which was later amended and date of 30.09.2015 was extended till 31st March 2016.
From the above, it seems that services exported after 01st April 2015 have been made the criteria for claiming SEIS benefit. If services exported after 01st April 2015 has been made the criteria, then following questions would arise:
A. Determination whether service has been provided after 01st April 2015 or before 01st April 2015: Service is intangible and in such situation it would be very difficult to determine whether services has been provided after 01st April 2015 or before 01st April 2015. It is possible that invoice has been raised in January 2015 and payment received in March 2015 but services was provided after 01st April 2015 so whether the said services provided by the Company would be eligible for SEIS benefit is still a question?
B. If SEIS benefit is claimed on the basis of date of invoice: If date of invoice has been made the base for claiming SEIS benefit, then it means invoice raised after 01st April 2015 will be eligible for claiming SEIS benefit and correspondingly their payment should also be received in the financial year 2015-16 by virtue of para 3.08(d) of FTP as explained above. If it is a case, then in such situation question would arise where the invoice has been raised on say 25th March 2016 and payment was remitted to the account of service provider on 25th April 2016. Now it means, one cannot claim the benefit of SEIS because payment was not remitted to the account of the service provider in the financial year 2015-16 despite the fact that the invoice was raised on 25th March 2016. Similarly, SEIS benefit will also not available in next financial year i.e. 2016-17 because invoice was raised prior to 01st April 2016.
Certainly, this is not the intention of the government. In my view, for ease of doing business they have made the financial year as the criteria despite the fact that the invoices may have issued prior to 01st April 2015 and the payment may have remitted to the account of the service provider on or after 01st April 2015. The said view is also supported because in the form prescribed by DGFT there is no column of invoice date and therefore one may also conclude that invoice date is not the criteria for claiming benefit under SEIS, however it is possible that department may interpret differently.
In fact, in the industries also different practices is being adopted; some are taking financial year as a base and filing application despite the fact that invoice may have issued prior to 01st April 2015 and some have applied for SEIS benefit on the basis of invoices issued after 01st April 2015 and we hope that the clarification on this issue will shortly be provided by the DGFT.
2. Service provider should have minimum net foreign exchange earnings of US $15000 in preceding financial year: Para 3.08 of FTP provides that “to claim SEIS benefit service provider should have minimum net free foreign exchange earnings of US $ 15000 in preceding financial year. For individual service providers and sole proprietorship, such minimum net foreign exchange earning criteria would be US $ 10000 in preceding financial year.”
SEIS benefit can be claimed on annual basis as per para 3.04(b) of Handbook of Procedure (‘HBP’). It means application for the financial year 2015-2016 can be made on or after 01st April 2016. Now if we carefully read the para 3.08 of FTP, it is creating confusion regarding eligibility to claim SEIS benefit. The para 3.08 of FTP says that to claim benefit minimum net foreign exchange earnings should be US$ 15000 in preceding financial year. The question is what is the meaning of preceding financial year is it relate to year 2015-16 or 2014-15.
If preceding financial year relates to the year 2014-15 then it means if a Company has started export from April 2015 onwards or was formed in the year April 2015 onwards and that there was no export in the past, then in such situation the Company cannot claim the benefit of SEIS because to claim SEIS benefit there should be minimum net foreign exchange earnings of US $ 15000 in preceding financial year.
In my view, the word preceding financial year has been used for financial year 2015-16. The intention of the Government is to set benchmark for claiming SEIS benefit and that’s why the minimum criteria has been made.
However, on this issue also no clarification has been issued by DGFT till date.
(The Author is Partner at RSA Legal Solutions)