Exclusion of services, capping and reduction of benefit under SEIS scheme amenable to challenge before the Constitutional Courts
Similar to cap brought under Merchandise Exports from India Scheme (‘MEIS’) benefits for the period September to December 2020, the Central Government vide Notification No. 29/2015-20 dated September 23, 2021 (‘Notification’) has amended Foreign Trade Policy 2015-20 (‘FTP’) and capped Service Exports from India Scheme (‘SEIS’) benefit to Rs. 5 crore per Importer Exporter Code (‘IEC’) on export of services for 2019-20 (‘relevant period’). The Notification has further reduced list of eligible categories of services and reduced rates as well. There are multiple service exporters whose claim for SEIS is likely to be significantly impacted due to this amendment.
Prior to relevant period, the DGFT issued three Public Notices No. 3/2015-20 dated April 1, 2015, 45/2015-20 dated December 5, 2017, and 7/2015-20 dated May 11, 2018 (‘Public Notices’) notifying class of service and rates of SEIS benefit. The said class and rate were applicable for exports made during the period April 2015 to March 2017 and 2017-18. While the Public Notice dated December 5, 2017, provided that list of services and rate was subject to review, the same class of services and rates continued even in 2018-19. This also gave a legitimate expectation that the same class of services and rates will continue for period subsequent to the Public Notices as well.
Exclusion of services, capping and reduction of benefit
Vide Notification No. 57/2015-20 dated March 31, 2020, the DGFT extended the applicability of FTP till March 31, 2021 (which was later extended till March 31, 2022). The Notification added Para 3.08(a) to FTP which provided that service categories and rate of benefit for relevant period will be notified separately in Appendix 3X. Notable that this amendment in FTP was made subsequent to exports made during 2019-20.
On September 23, 2021, the Government amended FTP and capped SEIS benefit to Rs. 5 crore per IEC on exports made during relevant period. In addition to this, notified categories of services also underwent a reduction. Many services like Management Consulting Service, Technical Testing and Analysis Services, Transport Services etc. have been excluded from the purview of SEIS scheme. Further, there has been reduction in overall rate of benefit by 2% in relevant period vis-à-vis FY 2018-19. This change has a retrospective impact on Service Exporters who factored such costs and benefits while exporting services during relevant period.
The action of the Government excluding categories of services, capping and reduction of benefit can be challenged before the Constitutional Courts by way of Writ Petition on following grounds:
- Legitimate expectation – Since the Government did not bring any change during relevant period in which services were exported, there was legitimate expectation about availability of SEIS benefit same as FY 2018-19 and the Government cannot truncate such benefit.
- Retrospectivity – These measures will retrospectively effect export contracts entered and executed before amendment wherein exporters took SEIS benefit into account.
- Promissory estoppel – Government cannot unilaterally withdraw / curtail SEIS benefit which was promised to the exporters on notified services.
- Discrimination – Capping SEIS benefit for large exporters is discriminatory and violative of Article 14 and Article 19 of the Constitution of India.
In view of the above, service exporters whose services have been removed from eligible services or who are likely to be impacted by cap can explore challenging this action of the Government before the Constitutional Court by filing Writ Petition. Exporters should request Court to direct the Government to restore SEIS benefit (without cap and for same services as was in vogue in FY 2018-19). Notable that in the case of Man Industries Limited v. UOI, SCA No. 15716 of 2020, the Gujarat High Court accepted a challenge to cap on MEIS benefit which is pending final decision.
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