We provide consultancy services in India and abroad. We wish to import certain equipment for our office in Mumbai from where we operate. The equipment would be used for our domestic as well as export business. Can we obtain benefits under the Served From India Scheme of the Foreign Trade Policy (FTP) for importing such equipment, even if the equipment is used for our domestic business.
Served From India Scheme is applicable for Indian service providers rendering services listed in Appendix 41 of Handbook of Procedures 2009-14 (we understand that consulting services are covered under this Appendix) and having free foreign exchange earning of at least R10 lakh in the current financial year. The eligible service providers are entitled to a Duty Credit Scrip equivalent to 10% of the free foreign exchange earned during current financial year which may be used for import/domestic procurement of eligible capital goods, including spares, office equipment, professional equipment, office furniture, etc. Further, the imports of goods may relate to any service sector business of the applicant. Accordingly, you should be entitled to avail of the benefit of the Duty Scrip under the SFIS scheme for import of office equipment provided such equipment is being used for your eligible service business (irrespective of whether domestic or exports). However, we would like to highlight that a meeting of the Policy Interpretation Committee of the Directorate General of Foreign Trade was held in December 2011 wherein it was decided that benefits of SFIS are not available to brands created outside India as the objective of the FTP is to encourage only Indian Brands and not incentivize any brand created outside India. Accordingly, even though the FTP itself does not specifically debar availability of SFIS to brands created outside India, the above interpretation is likely to be followed by the authorities to deny the SFIS Scrip to non-Indian brands.
Tax on client services
We are based in Delhi and provide services to a client based in Jammu. This client does not have operations elsewhere in India. We wish to understand if our services would attract service tax post-July 1.
From July 1, the Negative List regime has been introduced under which any service provided in the taxable territory would be liable to service tax unless included in the Negative List or notified as exempt. The taxable territory includes whole of India except Jammu & Kashmir. In the present case, it would first need to be determined whether the services rendered by you qualify as a service on which service tax is applicable (the services could be in the Negative list or exempt from service tax). Assuming the services are taxable, the place of provision of such services needs to be determined as per the Place of Provision of Services Rules 2012 (PoS Rules). In case the place of provision of the service is in the taxable territory, service tax would be applicable on the services rendered by you.
As per the PoS Rules if the service provider and service recipient are located in the taxable territory, place of provision of the service would be in the taxable territory and the service would attract service tax. In the present case, since the service recipient is located in Jammu, the location of service recipient is outside the taxable territory.
In such a case, other provisions of the PoS Rules would have to be applied to determine whether the services rendered by you are deemed to be provided in the taxable territory. These provisions would differ depending upon the nature of services rendered.
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