Service Exports from India Scheme (SEIS) and taxability of such notified export of services under IGST Act

Focus: Deemed export of goods under section 147 does not include deemed ‘export of services’ and hence the notified goods only enjoys the privileged benefit of being called as ‘deemed to be exported and thus can avail benefits under IGST even if such goods are manufactured in India although they do not leave India and payments are received in Indian rupees or convertible foreign exchange. Similar clause for notified services declared in SEIS as incorporated in Foreign Trade Policy 2015-20 is not  included in IGST law, which is the deficiency variation noticed in the Foreign Trade policy and IGST law. It in this connection can only be said that IGST law is not in tune with the foreign trade policy 2015-20, which needs modification. It is discriminatory in nature as both export of ‘goods’ and ‘services’ are meant for foreigners or their agencies and earning foreign exchange for the country where the export of goods are taxed at zero rate whereas these notified services under SEIS even though they are eligible to earn incentive under foreign trade policy 2015-20. are taxed under IGST act at 18%.

Service Exports from India Scheme (SEIS): FTP-2015-20

The Government of India had introduced the Service Exports from India Scheme (SEIS) w.e.f. 01.04.2015 under the new Foreign Trade Policy (FTP)- 2015-20 replacing the earlier scheme ‘Served from India Scheme’ (SFIS) pursuant to said Foreign Trade Policy. SEIS shall apply to ‘Service Providers located in India’ instead of erstwhile ‘Indian Service Providers’. Thus SEIS provides for rewards in the form of an incentive to all Service providers of notified services, who are providing services from India, regardless of the constitution or profile of the service provider. The intention is to provide benefits to all service providers located in India, instead of Indian Service Providers. Earlier, under SFIS the benefit was not available for foreign brand of the Indian companies. Under SEIS, the service providers of notified services are incentivized in the form of Duty Credit Scrips at the rate of 3% or 5% on their net foreign exchange earnings. The government of India has now reviwed its foreign trade policy and the welcome initiatives taken in the said mid-term review of Foreign Trade Policy (FTP) – 2015-20, has specifically enchanced the incentive rate by 2% with effect from 1st November 2017 under the Merchandise Exports from India Scheme (MEIS) and Services Exports from India Scheme (SEIS). In addition, w.e.f. 1st November 2017 it has introduced procedural simplification by replacing IEC by PAN and created a new logistics division in the Department of Commerce for the speedy disposal. It has also ensured reintroduction of ARO facility for supply against Advance Authorization/ EPCG/EOU; and further relaxation in export of free of cost samples etc which would mitigate the hardship of the exporters and hassles related to its compliances and will help the exporters to become more competitive in the international market. It will also help in boosting the Make in India initiative. It is felt that SEIS incentive announced for services such as business, legal, accounting, architectural, engineering, educational, hospital, hotels and restaurants would provide impetus for boosting the country’s service exports in non-IT areas. Thise modifications have made the SEIS more attractive than before and its utility also has gone up appreciably. However, the various stake holders do ot know much about this schme which would prove ‘Kamdhenu’ for service industry capable of exporting (deemed) notified services.

Apart from services, there is also a scheme for incentivizing export of merchandise/goods. The Merchandise Exports from India Scheme (MEIS) in the Foreign Trade Policy (FTP) 2015-20 operating since April 1, 2015 rewards export of merchandise which are produced/manufactured in India through Duty Credit Scrips. SEIS and MEIS schemes are designed to make our exports (both services & goods) globally competitive.

Objective of SEIS Scheme

The government has thus introduced an excellent scheme referred above for boosting the export of services. The said scheme is for various service industries like professional, educational, Travel agents, Hotels & Restaurants, Airlines etc. who are earning foreign exchange by way of rendering various types of services. The main categories of services under the said scheme (Illustrate only) are Professional Services, Research & Development Services, Audio Visual Services, Construction and related to Engg. Services, Educational Services, Environment Services, Health related Services, Travel related Services, Sporting Services, Transport Services & Various other specified services

Eligibility for SEIS Scheme

Individual Service Providers and sole proprietorship service providers of notified services need to have minimum NET free foreign exchange earnings of US $ 10,000 in the preceding financial year to be considered as eligible for getting reward in the form of Duty Credit Scrip whereas other service providers of notified services need to have minimum NET free foreign exchange earnings of US $ 15,000 in the preceding financial year to be eligible for getting reward in the form of Duty Credit Scrip. Net Foreign exchange will be calculated to be equal to 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. If the IEC holder is a manufacturer of goods as well as service provider, then the foreign exchange earnings and Total expenses/payment/remittances shall be taken into account for service sector only. Free Foreign Exchange earned through international credit cards and other instruments, if they are permitted by RBI shall also be taken into account in the computation of value of exports. Payment in Indian Rupees for service charges earned on specified services, shall be treated as ‘receipt in deemed foreign exchange as per guidelines of Reserve Bank of India. In order to claim reward under the scheme, service providers willl have to have an active IEC at the time of rendering such services for which rewards are claimed. An application for obtaining Duty Credit Scrip is required to be filed within a period of 12 months from the end of relevant financial year of claim period. Such application is filed online for a financial year on annual basis in form ANF 3B using digital signature.

Under this SEIS,  ‘Service Provider means persons providing :

(a) Supply of a ‘Service’ from India to any other country

(b) Supply of a ‘Service’ from India to service consumer of any other country in India which is an imporatnt and positive change in the outlook of the Central Government..

Comments:

Even if the services are provided by a service provider to a foreign citizen in India, and as the citizen is certainly going back to his country, the services provided to him in India would be covered by this scheme and would be treated as ‘export of service’ under Foreign Treade Policy formulated for the years 2015-20 For example: Foreign Students seeking education in any of the university in India and paying fees in foreign currency, then concerned university would be eligible for reward and these services would be covered under SEIS as specified in Foreign Trade Policy 2015-20 as ‘export of services’ from India even though the foreign student has received these services in India. Similarly thousands of yog lovers coming to India for learning Yog for a month or so and paying fees in foreign currency then the Yog institute imparting yog education would also be treated as ‘exporter of  services from India as Yog education may be included in ‘adult education’ and thus the yog institute would be  eligible for incentive under SEIS as specified in Foreign Trade policy.

Entitlement for SEIS Scheme

All eligible Service providers are entitled for ‘duty credit scripranging from 3% to 5% till 31st October 2017 and 5% to 7%  from 1st November 2017 of Foreign Exchange earned as under:

1 BUSINESS SERVICES      
S. No. SECTORS CPC percent of incentive upto 31.10.2017 percent of incentive from 1.11.2017 onwards
A. Professional services
a. Legal Services 861 5 7
b. Accounting, auditing and book-keeping services 862 5 7
c. Taxation services 863 5 7
d. Architectural services 8671 5 7
e. Engineering services 8672 5 7
f. Integrated engineering services 8673 5 7
g Urban planning and landscape architectural services 8674 5 7
h Medical and dental services 9312 5 7
I. Veterinary services 932 5 7
j Services provided by midwives, nurses, physiotherapists and paramedical personnel 93191 5 7
B. Research development services
a. R&D services on natural sciences 851 5 7
b. R&D services on social sciences and humanities 852 5 7
c. Interdisciplinary R&D services 853 5 7
C. Rental/Leasing services without operators
a. Relating to ships 83103 5 7
b. Relating to aircraft 83104 5 7
C Relating to other transport equipment 83101,

83102,

83105

5 7
d. Relating to other machinery and equipment 83106-83109 5 7
D. Other business services
a. Advertising services 871 3 5
b. Market research and public opinion polling services 864 3 5
c. Management consulting service 865 3 5
d. Services related to management consulting 866 3 5
e. Technical testing and analysis services 8676 3 5
f. Services incidental to agricultural, hunting and Forestry 881 3 5
g. Services incidental to fishing 882 3 5
h. Services incidental to rrunmg 5115 883 3 5
I. Services incidental to manufacturing 885 884 3 5
J. Services incidental to energy distribution 887 3 5
k. Placement and supply services of personnel 872 3 5
l  Investigation and security 873 3 5
m. Related scientific and technical consulting Services 8675 3 5
n

 

Maintenance and repair  of equipment (not 8861-8866 including maritime vessels, aircraft or other transport equipment) 633 3 5
o. Building cleaning services 874 3 5
P Photographic services 875 3 5
q Packaging services 876 3 5
r. Printing, publishing 88442 3 5
s. Convention services 87909 3 5
2 COMMUNICATION SERVICES
Audiovisual services
a. Motion picture and video  tape production and distribution service 9611 5 7
b. Motion picture  projection service 9612 5 7
c. Radio and television services 9613 5 7
d. Radio and television  transmission services 7524 5 7
e Sound recording. n.a 5 7
3 CONSTRUCTION & RELATED ENGINEERING SERVICES
A. General construction work for building 512 5 7
B. General construction work for civil engineering 513 5 7
C. Installation and  assembly work 514, 516 5 7
D. Building completion and  finishing work 517 5 7
4 EDUCATIONAL SERVICES
A. Primary education  services 921 5 7
B. Secondary education services 922 5 7
C. Higher education  services 923 5 7
D. Adult education 924 5 7
5 ENVIRONMENTAL SERVICES
A. Sewage services 9401 5 7
B. Refuse disposal services 9402 5 7
C. Sanitation and similar  services 9403 5 7
6 HEALTH-RELATED AND SOCIAL SERVICES
A. Hospital services 9311 5 7
7 TOURISM AND TRAVEL-RELATED SERVICES
A. Hotels and Restaurants (including catering)
a. Hotel 641-643 3 5
b. Restaurants (including  catering) 641-643 3 5
B. Travel agencies and tour operators services 7471 5 7
C. Tourist guides services 7472 5 7
8 RECREATIONAL, CULTURAL AND SPORTING SERVICES  (other than audiovisual services)
A Entertainment services  (including theater, live bands and circus services) 9619 5 7
B News agency services 962 5 7
C Libraries, archives, museums and other cultural services 963 5 7
D Sporting and other recreational services 964 5 7
9 TRANSPORT SERVICES
A Maritime Transport Services
a. Passenger transportation 7211 5 7
b. Freight transportation 7212 5 7
c. Rental of vessels with crew 7213 5 7
d. Maintenance and repair of vessels 8868 5 7
e. Pushing and towing services 7214 5 7
f. Supporting services for maritime transport 745 5 7
B B. Air transport services
a. Rental of aircraft with crew 734 5 7
b. Maintenance and repair of aircraft

c. Airport operations and ground handling

8868 5 7
C C. Road Transport Services
a. Passenger transportation 7121, 7122
b. Freight transportation 7123 5 7
c. Rental of commercial vehicles with operator 7124 5 7
d. Maintenance and repair of road transport equipment 6112 8867 5 7
e. Supporting services for road transport services 744 5 7
D D. Services auxiliary to all modes of transport
a. Cargo handling services 741 5 7
b. Storage and warehouse services 742 5 7
c. Freight transport agency  services 748 5 7

 Notes:

(1) Under education services, SEIS shall not be available on Capitation fee.

(2) Operations from India by Indian Flag Carriers only is allowed under Maritime transport services.

(3) The present rates of reward are 3% and 5%. The list of services and the rates of rewards are capable of being reviewed. These rates have been enhanced by 2% w.e.f. 1st November 2017

Which categories remittances are not covered under SEIS ?

i) Foreign exchange remittances other than those earned for rendering of notified services would not be counted for entitlement. Thus, other sources of foreign exchange earnings such as equity or debt participation, donations, receipts of repayment of loans etc. and any other inflow of foreign exchange, unrelated to rendering of service, would be ineligible.

ii) Following Foreign Exchange remittances shall not be taken into account for calculation of entitlement under this scheme:

I) Related to Financial Services Sector include

a) Raising of all types of foreign currency Loans,

b) Export proceeds realization of clients,

c) Issuance of Foreign Equity through ADRs/GDRs or other similar instruments,

d) Issuance of foreign currency Bonds,

e) Sale of securities and other financial instruments,

f) Other receivables not connected with services rendered by financial institutions

II) Earned through contract/regular employment abroad (e.g. labour remittances) would include

a) Payments for services received from EEFC Account,

b) Foreign exchange turnover by Healthcare Institutions like equity participation, donations etc.,

c) Foreign exchange turnover by Educational Institutions like equity participation, donations etc.,

d) Export turnover relating to services of units operating under EOU / EHTP / STPI / BTP Schemes or supplies of services made to such units,

e) Clubbing of turnover of services rendered by SEZ / EOU /EHTP / STPI / BTP units with turnover of DTA Service Providers

f) Exports of Goods

g) Foreign Exchange earnings for services provided by Airlines, Shipping lines service providers plying from any foreign country X to any foreign country Y routes not touching India at all

h) Service providers in Telecom Sector

Utilisation of ‘Duty credit Scrip’:

The incentive under the SEIS scheme at a percentage prescribed is issued in ‘duty credit scrips’ The reward now is issued as ‘duty credit scri’p, will no longer be linked with erstwhile actual user condition. It also will not be restricted to usage for specified types of goods. These scrips would be freely transferable and usable for all types of goods and service tax debits on procurement of services/goods. Debits would be eligible for CENVAT credit or drawback but would not be available for payment of GST. However, if the exporter of services is not availing the imports of goods/services, then these scrips are capable of being sold or transferred at a price mutually decided by the parties involved therein either with or without discount to any person, who could use this scrip for payment of duty within 18 months from the time of issue. The mid-term review of Foreign Trade Policy (FTP) – 2015-20, specifically has raised the validity period of duty credit scrips from 18 to 24 months w.e.f. 1st November 2017. Initially, these scrips were subject 12% GST which was causing financial pain to the holder. However, the central government has decided to charge no GST on these scrips on ‘transfer’ or ‘sale’ or ‘otherwise’ of these scrips. The central government is making every effort to boost the export by reducing GST on transfer of duty scrip is one of positive steps in it.

In short, the exporter of the aforesaid services would get duty credit being used for :

a) Payment of Customs Duties for Import of inputs or goods, except items listed in Appendix 3A

b) Payment of excise duties on domestic procurement of inputs or goods, including capital goods as per DoR notification

c) Payment of service tax on procurement of services as per DoR notification

d) Payment of Customs Duty and fee as per paragraph 3.18 of the policy

e) Script issued under this scheme must be valid on the date on which actual debit of duty is made

Section 147 of GST – Exclusion of word ‘services’ from the section explaining Deemed exports under GST Act :

The Government may, on the recommendations of the Council, notify certain supplies of goods as deemed exports, where goods supplied do not leave India, and payment for such supplies is received either in Indian rupees or in convertible foreign exchange, if such goods are manufactured in India.

Analysis

Section 147 of IGST Act which explains Deemed export of goods does not include deemed export of services and hence the section covers only notified goods (not notified services under SEIS) which would be deemed to be exported and benefits under IGST/CGST Acts can be availed even if such goods are manufactured in India and although they do not leave India and payments are received in Indian rupees or convertible foreign exchange. Similar clause for notified services to foreign citizens as specified in  SEIS are provided, then they do not find a place in IGST/CGST law and are not eligible for similar treatment of zero rated GST, which is the deficiency in the Foreign Trade policy and IGST/CGST law. It can only be said that IGST/CGST law is deficient in displaying the mirror image of well thought of foreign trade policy, and hence needs modification.

This section In addition, authorizes the government to notify additional transactions which will be declared to be deemed export of services. Interestingly, there is no section that authorizes deemed exports services to enjoy zero rated benefit except inclusion of deemed exports of goods only within the missionary provisions for claiming refund under section 54 read with rule 89. It is remarkable that all other transactions where the funds are available such as, refunds to UIN-holders under section 55 of CGST Act, the refunds to exporters under section 16 of IGST Act, refunds in case of inverted tax-rate under section 54(3) of CGST Act, etc, are available for goods. However, there is no section granting entitlement to refund’ in respect of ‘deemed exports of services’. The promise by the government alone could provide the necessary entitlement for export of goods but not for export of services.

Section 2(39) of the CGST Act, 2017 defines the term ‘deemed exports” which does not include export of services. This would be relevant for extending refund benefit if allowed under section 54 of the CGST Act.

Conclusion :

Notified services included in ‘Service Exports from India Scheme’ (SEIS) specified in Foreign Trade policy be declared as ‘Export of services’ and be chargeable at zero rate as against current rate of 18% under the IGST law by adding the definition of ‘export of service’ in conformity with foreign trade policy 2015-20  or treat these services as deemed export of services under section 147 of the IGST act 2016 where only word ‘goods’ has been used:

What change is desirable ?

Present law Section 147

The Government may, on the recommendations of the Council, notify certain supplies of goods as deemed exports, where goods supplied do not leave India, and payment for such supplies is received either in Indian rupees or in convertible foreign exchange, if such goods are manufactured in India.

Modified change suggested

The Government may, on the recommendations of the Council, notify certain supplies of goods/ services as deemed exports, where goods/ services supplied do not leave India, and payment for such supplies is received either in Indian rupees or in convertible foreign exchange, if such goods / services are manufactured/rendered in India to foreign citizens..

Summary:

Deemed export of goods section 147 does not include deemed ‘export of services’ and hence the notified goods only enjoys the privileged benefit of being called as ‘deemed to be exported and thus can avail benefits under IGST even if such goods are manufactured in India although they do not leave India and payments are received in Indian rupees or convertible foreign exchange. Similar clause for notified services declared in SEIS as incorporated in Foreign Trade Policy 2015-20 is not  included in IGST law, which is the deficiency variation noticed in the Foreign Trade policy and IGST law. It in this connection can only be said that IGST law is not in tune with the foreign trade policy 2015-20, which needs modification. It is discriminatory in nature as both export of ‘goods’ and ‘services’ are earning foreign exchange for the country where the export of goods are taxed at zero rate whereas these notified services under SEIS are taxed under IGST act at 18%.

Author : CA Dr, Dilip V Satbhai- B.Com (Hons), LL.M (First rank), Ph.D. (Law), DISA (ICAI), DIRM (ICAI)

More Under Goods and Services Tax

2 Comments

    1. Chetan Soni says:

      I Think You are confused about concept…there is a concept of Deemed Export…it is not either Deemed Goods or Deemed Services…the author is arguing why there is 18% GST on export of services(Specified)!!!

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