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Service Exports from India Scheme & Foreign Trade Policy.

Date: 13-06-2015
Subject: Service Exports from India Scheme & Foreign Trade Policy
The Commerce & Industry Minister unveiled the new Foreign Trade Policy 2015-2020 (‘FTP/ policy’) on April 1, 2015, thus laying down a roadmap for India’s global trade engagement in the coming years. The new policy mirrors the Government’s outlook on foreign trade policy and is intended to align with its vision of ‘Make in India’, ‘Skill India’ and ‘Digital India’. It focuses on participation in global value chain through higher value-add in India and supply of high quality inputs/ intermediary goods for foreign companies.

While the new policy continues to have beneficial schemes and policy measures like subvention (explain briefly what subvention is/ its nature) and tax breaks; the Government has indicated that such subsidies need to be eventually phased out to make way for more fundamental systematic measures such as trade facilitation, measures to raise the quality standards of merchandise (for export), branding and training programmes to facilitate entry of new entrepreneurs.

The policies in the past have been focused more on merchandise exports as compared export of services. Given the significant proportion of services contribution to the GDP and trade surplus, , the Government has laid emphasis on promotion of export of services and has replaced the earlier Served from India Scheme (‘SFIS’) with the new Service Exports from India Scheme (‘SEIS’). SEIS has expanded the scope of services for which the benefit was available under the SFIS scheme. While the SFIS scheme was available only for Indian companies (not for a foreign brand), the SEIS scheme is available for all companies in India exporting services.

The benefit under SEIS scheme, would be computed as a percentage of net foreign exchange earned by the service exporter. The benefit will be granted in the form of freely tradable duty credit scrip. The rates of reward are in the range of 3 to 5 percent of the net foreign exchange earned depending upon the category/ nature of services. Though the rates seem to have declined from earlier rate of 10% under the SFIS scheme, the SEIS scheme is targeted to reach a wider section of service providers. The service classification is based on central product classification (‘CPC’) codes as used by the United Nations Statistics Division (UNSD). The UNSD serves under the United Nations Department of Economic and Social Affairs (DESA) as the central mechanism within the Secretariat of the United Nations to supply the statistical information and coordinating activities of the global statistical system.

Further, under the new FTP, the service provider definition has been specifically included and is in line with the General Agreement on Trade in Services (‘GATS’) Services should satisfy one of the following two criteria under Para 9.51 of the new FTP to be eligible for the benefit under SEIS:

• Mode 1: Cross-border - A user abroad receives services from India through its telecommunications or postal infrastructure. Such supplies may include consultancy or market research reports, tele-medical advice, distance training, or architectural drawings.

• Mode 2: Consumption abroad - Nationals of a foreign country have travelled to India as tourists, students, or patients to consume the respective services. In other words this mode of supply requires that the consumer of services move abroad.

Scrip may be utilized for payment of customs duties for import of inputs and goods, excise duty on domestic procurement of inputs and capital goods, service tax on procurement of services, customs duty in case of default in fulfilment of Export Obligation (‘EO’) for authorizations under Advance Authorization/ EPCG etc. Scrips and goods imported/ domestically procured against such Scrips shall be freely transferrable and monetization of the SEIS credit has been made simpler.

Under the earlier FTP, SFIS benefits were not available to SEZ units. Under the new FTP, SEIS benefits would be extended to SEZ units as well (DGFT Notification No.08/2015-2020 dated June 04, 2015)

Even though SEZ units are covered under the SEIS scheme, STPI/ EOU units are not eligible for this scheme. Hence, it is far more important for units who are already under the STP scheme to opt out and exit from the STP scheme to avail the benefits under SEIS scheme.

The SEIS scheme is an easily monitisable scheme for the eligible service providers. However, it would still be advisable to understand the fine print and evaluate the eligibility and value of benefit more diligently. The benefit would depend on a thorough process of identifying and complying to qualifying conditions, classifying the services under CPC, identifying mode of export, characterization of export revenue as per CPC code and mode of export, service line wise computation of net foreign exchange earnings and computation of net benefit, before applying for the benefit under the scheme. Also, the industry needs to be mindful of the fact that the benefit is dependent on classification of services as per CPC and not as how it was traditionally viewed under various other laws and regulations.

Source : moneycontrol.com

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