JUNE 07, 2015

By Mradul Gupta, CA

WITH the introduction of new Foreign Trade Policy, 2015-20 (FTP) on 1st April 2015, the government seems to have revamped its Exports from India Schemes giving impetus to increasing exports of goods and services, employment generation and ultimately given a strong boost in building "Brand India". The new policy is in sync with the initiatives of "Make in India", "Digital India" and "Skill India" launched by our Prime Minister setting an export target of USD 900 billion by FY20, almost double of USD 465.9 billion achieved in 2013-14.

The policy aims to increase India's bench strength with regards to export by promoting various sectors of the Indian economy to gain global competitiveness and thereby reduce the trade imbalance.

The two new schemes launched are the "Merchandise Exports from India Scheme (MEIS)" which is aimed at boosting exports of specified goods to specified markets and the "Service Exports from India Scheme (SEIS)" aimed to increase export of notified services.

The review period for the SEIS has been scheduled in six months while the other schemes would be reviewed only after two and half years to build predictability in policy making.

Let us see one by one what the two new schemes are to offer:

Merchandise Exports from India Scheme

With 5 different old schemes merged into one, the MIES comes with a distinct advantage when compared with the predecessors in a way that the conditions attached to the scrips with respect to utilizing the scrip under the specific sector in which it was issued or by the actual user only, are being removed. There would be no conditionality attached to any scrips issued and these scrips along with goods imported against these scrips are fully transferable.

Rewards under this scheme shall be payable as percentage of realized FOB value (in free foreign exchange). Now, basic customs duty can also be adjusted as duty drawback through the transferable reward duty credit scrips. Earlier, only additional duty of customs, excise duty and service tax were allowed adjustment as CENVAT credit or duty drawback.

For grant of rewards, the countries have been categorized into 3 Groups, whereas the rates of rewards range from 2% to 5%.

Service Exports from India Scheme

Served from India Scheme(SFIS) replaced with SEIS will now apply to "Service Providers located in India" instead of "Indian Service Providers" and provides for rewards to all service providers of notified services providing such services from India regardless of their constitution or profile.

Rate of reward under SEIS would be based on net foreign exchange earned and such reward in the form of duty credit scrip would be without any actual user condition and would be freely transferable and usable for all types of goods and services tax debits on procurement of services/goods. Debits against such scrips would be eligible for CENVAT credit or drawback.

For grant of rewards, selected services would be rewarded at the rates of 3% and 5%.

Conditions to be fulfilled for utilization of the credit scrips as per the enabling notifications issued

++ The conditions (1) to (3) specified in para 2 of the Notification No. 24/2015-Customs, dated the 8th April 2015 are complied and the scrips are registered with the Customs Authority at the port of registration specified on the said scrip.

++ The holder of the scrip to whom taxable services are provided or agreed to be provided shall be located in the taxable territory.(This condition is specifically prescribed for utilization of credit scrips for service tax purpose)

++ The holder of the scrip who is either the original holder or a transferee holder shall present the scrip to the Customs Authority along with a letter and an invoice indicating details of its jurisdictional Central Excise Officer, description, quantity and value of goods/services to be cleared/provided.

++ The date of debit in the scrip shall be taken as the date of payment of duty/taxes.

++ The provisions related to interests shall also be applicable in case of the date of debit is after the due date of date of payment of duties/taxes or the duties/taxes are short paid through the utilization of scrips.

++ The holder of the scrip shall present the scrip debited by the Customs Authority within thirty days to the jurisdictional Central Excise Officer (Officer) along with an undertaking to pay such duties/taxes with interest which are short paid through scrips.

++ The Officer shall verify and validate on the reverse of the scrip the details of the duties/taxes which were debited by the Customs Authority and keep record of payment of such duty/tax and interest, if any.

++ The service provider shall retain a copy of the scrip debited by the Customs Authority and verified by the Officer and duly attested by the holder of scrip, in support of clearances/provision of taxable services.

++ The holder of the scrip shall be entitled to avail drawback or CENVAT credit against the duty/tax debited in the scrip and validated by the Officer.

Caution to be exercised by the scrip holder

++ Since, the amount of duty/tax would not be mentioned on the invoice due to the said exemption, the holder of the scrip shall exercise caution to avail CENVAT credit of duty/taxes paid through scrips within the time limit of six months from the date of invoice as per Rule 4(1) and 4(7) of the CCR, 2004.

++ Since the date of debit in the scrip shall be taken as the date of payment, the scrip holder shall be diligent in making timely debits in the scrips held towards discharging duties/taxes failure of which would lead to outflow in the form of interest or penalties.

Issues requiring consideration

++ The enabling notification exempts the value of goods/ service provided against scrip from duties/taxes. In the light of the above, what is important to note that, would such exemption of duty on goods and service tax on taxable services trigger Rule 6(3) of CENVAT Credit Rules(CCR), 2004? If that has to happen, then all the benefits that the government has tried to pour in through the new policy would be lost against in the form of reversal of CENVAT credit on such exempted clearances/output services.

The Trade expects some clarification on whether the goods/services exempted against the scrips would require the need to reverse proportionate CENVAT credit by the manufacturer/service provider.

++ Can duty credit scrip be utilized by the holder of scrip to discharge service liability under Reverse Charge Mechanism?

++ Where, at one place the FTP highlights talks about extending the benefits of MEIS and SEIS to units located in SEZs also, the FTP provisions with respect to SEIS places the export turnover of SEZ units in the ineligible category for claiming SEIS.

++ The benefit under SEIS, available on service exports made from 1-4-2015 onwards, is based on 'net free foreign exchange earned' which is defined as gross earning of foreign exchange minus total expenses/payment/remittances of foreign exchange by the IEC holder, relating to service sector in the financial year. Where 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 for service sector only. Due to different interpretations, it would pose a challenge to bifurcate expenses related to manufacturing and service sector and arrive at the figure of ‘net free foreign exchange' and this would ultimately lead to disputes.

Conclusion

With the government being unsure about the extent of impact the new SEIS (scheme) may have on its kitty and the service sector concerned and also the rates of rewards deliberately pegged down as compared to the old scheme, in the light of the same, a review of this scheme which is due could well bring in further changes keeping in view the basis of performance of the scheme in the first six months of its implementation.