The Foreign Trade Policy 2015-2020 effective from 1st of April 2015 provides quite a few incentives to exporters of goods and services in India considering the “Make In India” initiative of the Central Government. Two schemes which merit attention here considering the benefits extended are MEIS i.e. Merchandise Exports from India Scheme and SEIS i.e. Service Exports from India Scheme. These schemes deal with exports of goods and services respectively from India. In this article we shall be looking at these two schemes in detail.
Chapter 3 of the Foreign Trade Policy 2015-2020 deals with both the aforesaid schemes. Both these schemes involve issue of duty credit scrips thereunder which could be utilized for payment of duty of central excise on domestic procurement of inputs and capital goods, payment of customs duties on import of inputs or capital goods, and payment of service tax on input services as the case may be. Separate set of Notifications have been issued for both these schemes under Central Excise, Service Tax and Customs respectively. While the Notifications pertaining to Central Excise and Customs deal with procurement of goods by the holder of scrip, the one pertaining to Service Tax deals with procurement of input services by the holder of the scrip.
Readers may note that procurement of goods or services would be possible against both these scrips. For instance, a holder of MEIS scrip could procure goods or services against the scrip with the holder of SEIS also having similar option. The duty benefit on imports would cover basic duty of customs apart from additional duties u/s 3 of Customs Tariff Act 1975 i.e. Counterveiling duty (CVD) and Special Additional Duty (SAD) while in respect of Central Excise, the basic duty of excise as well as special duty of excise along with additional duty of excise u/s 3 of Additional Duties of Excise (Goods of Special Importance) Act, 1957 and additional duty of excise u/s 3 of Additional Duties of Excise (Textiles and Textile Articles) Act, 1978 would be covered.
It is worthwhile noting that the benefit of procurement under the scrips extends to capital goods as well. This term has been defined in Paragraph 9.08 of the Foreign Trade Policy and would be comprehensive enough to include within its ambit, any plant, machinery, equipment or accessories required directly or indirectly for manufacture or production, or for rendering services. Goods required for replacement, modernisation, technological upgradation or expansion would also be covered along with equipment and instruments for testing, research and development, quality and pollution control. Capital goods may be for use in manufacturing, mining, agriculture, aquaculture, animal husbandry, floriculture, horticulture, pisciculture, poultry, sericulture and viticulture as well as for use in services sector.
Eligibility criterion for MEIS scrip
In order to get the scrip, the exporter would be required to export notified products to notified markets. The list of markets and products has been notified vide Public Notice 2/2015-2020 dated 01st April 2015 by Director General Foreign Trade. While a detailed list of items with reference to their HSN code has been notified, the countries notified number in excess of 200 with the countries being divided into three categories i.e. category A, B and C. Exports to category C countries would generally involve lower benefit. Category A in itself covers 30 countries and includes France, Germany, Italy, United Kingdom, United States, Denmark, Sweden, Spain, and Netherlands. Category B on the other hand consists of 139 countries and includes Asian countries like Egypt, Saudi Arabia, Japan, China, Malaysia, South Korea, Philippines, Taiwan, Thailand, and Singapore apart from African nations like Kenya, Zimbabwe, Nigeria, South Africa.
The benefit would generally be at a rate of 2-5% on the lower of realized FOB value of exports in free foreign exchange or on FOB value of exports in Shipping Bill in free foreign exchange depending on the product exported and the country to which it is exported. This would be given on the duty credit scrip which shall be issued with a single port of registration which would also be the port of export. Once registered at an EDI port, scrip can be automatically used at any EDI port for import and at any manual port under Telegraphic Release Advise (TRA) procedure.
Once the credit scrip is obtained, the same could be used by the holder to procure goods by debiting the duty against the balance on the scrip or to procure input services by debiting the service tax against the balance on the scrip. Once obtained, the scrip as well as goods imported against the same would be freely transferable going by Notification 24/2015 Cus. Dated 08th April 2015. In case of domestic procurement of goods or procurement of services, the details of jurisdictional Central Excise officer (having jurisdiction over supplier’s premises/factory) has to be furnished to the Customs Authority as following debit of duty against a scrip, an undertaking is also to be furnished to the said officer for payment of any differential duty with interest thereon. This undertaking in case of procurement of services has to be filed within thirty days of the debit to the said officer undertaking to pay differential tax with interest if any.
The duty or tax even though paid by debiting the scrip, could be availed as cenvat credit by the holder subject to such duty or tax qualifying for availment in accordance with Rules 2 and 3 Cenvat Credit Rules 2004. The option of claiming duty drawback in respect of such tax/duty would also be available in the absence of Cenvat credit availment. Readers should note that deemed exports and clearances from DTA to SEZ are not eligible for this scheme. The benefit would also not be available to EOUs and STP/EHTP/BTP units as indicated in Paragraph 3.06(i) of the Foreign Trade Policy 2015-2020. MEIS benefit could also be claimed by supporting manufacturers instead of the merchant exporter as long as a disclaimer is available from the latter who has realized export proceeds.
Exporters who desire to avail the benefit of this scheme would be required to make an online application through http://dgft.gov.in in form ANF 3A with relevant Shipping bills and e-BRC to be linked thereto with such application being made for each port of export. This application would have to be made within twelve months from the Let Export Date or within three months from the date of uploading of EDI shipping bills onto the DGFT server by Customs or printing/ release of shipping bills for Non EDI shipping bills whichever is later. Exporters would be required to furnish proof of landing where MEIS is not available for the given product to all countries. The document i.e. where a self-attested copy of the import bill of entry in the importing country is available, can either be uploaded using digital signature or the original copy filed with the Regulating Authority.
Eligibility under SEIS
Under this scheme, the service provider located in India should either provide a service notified to another country or to a consumer in another country. The service provider desiring to claim the benefit of this scrip should also have minimum net free foreign exchange earnings (i.e. gross earnings of foreign exchange minus total expenses on service sector in foreign exchange) of US$15000 in the preceding financial year. The list of notified services has been announced vide Public Notice 3/2015-2020 dated 1st April 2015 and these services could be provided to any country.
The services have been broadly categorized into professional services, research and development services, leasing services without operators, audio visual services, construction and related engineering services, educational services, environmental services, health related and social services, tourism and travel related services, recreational, cultural and sporting services, and transport services. Individual categories of services have been specified under these headings. The list is similar to the one in Appendix 41 to the Foreign Trade Policy 2009-2014. The rates vary from 3-5% of the net foreign exchange earnings of the service exporter from notified services. The scheme would not cover services provided to SEZ/STPI/EHTP/EOU/BTP or services provided by them to consumers outside India and service providers in the telecom sector.
An exporter of services who wishes to opt for the benefit has to file an application for grant of duty credit scrip for eligible services rendered which would have to be done online for a financial year on annual basis in ANF 3B using digital signature. This would have to be filed within 12 months from the end of relevant financial year of claim period. The Applicant can choose Jurisdictional RA on the basis of Corporate Office/ Registered Office/Head Office / Branch Office address endorsed on IEC for submitting application/applications under SEIS. This option needs to be exercised at the beginning of financial year. A certificate from either a Chartered Accountant/Cost Accountant or Company Secretary would also be required to be submitted along with form ANF 3B in the prescribed format.
The said scrip has to be registered with Customs Authority at the port of registration which would be indicated on the said scrip and produced before the proper officer of customs at the time of clearance for debit of the duties leviable on the goods. Where services are obtained against the scrip, an invoice, challan or bill from service provider (which should also indicate details of Central Excise officer having jurisdiction over service provider’s premises) would have to be submitted to the Customs Officer which shall be the basis for debiting service tax thereon. The holder of the scrip has to present the scrip debited by the said Customs Authority within thirty days to the said Officer i.e. central excise officer, along with an undertaking addressed to the said Officer, to pay any differential tax with applicable interest. The benefit of either cenvat credit or drawback could be claimed on the service tax so debited against the scrip.
Readers may note that the SEIS scrip could even be used to pay off excise duties and/or customs duties indicated earlier, on domestic procurements or imports of goods including capital goods as the case may be. Local procurement of goods would be subject to furnishing undertaking before Central Excise officer having jurisdiction over supplier’s factory to pay off any differential duty liability with applicable interest thereon. The said scrip and the goods imported against it would be freely transferable going by Notification 25/2015 Cus. Dated 8th April 2015. The benefit of either duty drawback or cenvat credit would be available on duty so debited against the scrip.
The scrips i.e. under MEIS and SEIS referred to above could also be used to lease capital goods. Duty Credit Scrip can be utilised / debited for payment of Custom Duties in case of EO defaults for Authorizations issued under Chapters 4 and 5 of the Policy i.e. for instance, advance authorization and EPCG schemes with the exception of interest and penalty which would have to be paid separately.
Where goods procured from abroad under the scrips are found to be defective post debit of duty against the scrip, these can be re-exported with fresh scrip being available to the extent of 98% of the duty debited, with the same port of registration.
Issue
Exporters who wish to opt for these schemes should note that while procurement of inputs and capital goods or input services by paying off the duty or service tax by debiting against the scrip would be possible, the procedural compliance requirement for procurement of goods and services from vendors/service providers in India could pose issues as undertakings have to be furnished to the jurisdictional Central Excise officer i.e. officer having jurisdiction over supplier/service provider’s premises to pay off differential duty/tax liability with interest if any. This would be a cumbersome procedure which could have been done away with.
Moreover a simple self-certification process for debiting duty against scrip followed by necessary undertakings to be submitted to Customs Authorities and periodical audit by Central Excise Authorities could have been insisted upon to make the scheme assessee friendly. Readers may also note that clarity is also needed in terms of the scope of entries in the list of services notified for SEIS to gauge the extent of benefit available and to encourage service providers to opt for this scheme.
By CA Srikantha Rao T
The author could be reached on at srikanthrao.rce@gmail.com
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