26 Oct 2015 20:20 IST

Ever heard of the 'Served from India' Scheme?

The SFIS was introduced in 2007 in order to give a fillip to services export in order to create a ‘Served from India’ sort of a brand globally

Prime Minister Narendra Modi launched the Make in India programme on 25 September, 2014, in a function at the Vigyan Bhawan. On 29 December 2014, a workshop was organised by the Department of Industrial Policy and Promotion which was attended by the PM, his Cabinet ministers, chief secretaries of States and various industry leaders.

Make in India is an initiative programme of the Government of India to encourage Multinational Companies and domestic companies to manufacture their products in India. When such initiative was propelled for indigenous manufacture of goods, the common man remained in the dark as to what he is entitled for rendering of Services, primarily when exported: ‘SFIS – Served from India Scheme’.

Served from India

The SFIS was introduced in 2007 in order to give a fillip to services export in order to create a ‘Served from India’ sort of a brand globally. The objective of SFIS is to accelerate growth in export of services so as to create a powerful and unique ‘Served From India’ brand, instantly recognised and respected world over.

SFIS provides duty credit scrips equivalent to 10 per cent of free foreign exchange earned during the current financial year, as an incentive to eligible service providers. (Scrip is a term for any substitute for legal tender and is often a form of credit.)

These duty credits can be utilised in for importing capital goods or for payment of excise duty for domestic procurement to encourage manufacturing, value addition and employment.

Indian Service Providers, of specified services, who have free foreign exchange earning of at least Rs 10 lakhs in current financial year will be eligible for Duty Credit Scrip. For Individual Indian Service Providers, minimum free foreign exchange earnings would be Rs 5 Lakhs.

Free foreign exchange earned through International Credit Cards and / or any instrument as permitted by RBI for rendering of services shall also be taken into account for computation of Duty Credit Scrip.

Duty Credit Scrip may be used for import of any capital goods including spares, office equipment and professional equipment, office furniture and consumables which are otherwise freely importable and / or restricted. Imports shall relate to any service sector business of service provider.

Duty Credit Scrip in case of hotels, clubs having residential facility of minimum 30 rooms, golf resorts and stand-alone restaurants having catering facilities, may also be used for import of consumables including food items and alcoholic beverages.

Entitlement /goods (imported / procured) shall be non-transferable (except within the group company and managed entities) and be subject to specific condition.

Duty Credit Scrip shall be permitted to be utilised for payment of excise duty for procurement from domestic sources, in respect of items permitted for imports under SFIS Duty Credit Scrip.

Wake up call

Every benefit has its own cost of litigation. There have been quite a few perceptions about what constitutes “An Indian Brand” and who shall be considered as “Service provider promoting an Indian Brand”. The above conundrum proved a jolt to a huge number Multinational Companies who are subsidiaries of Global giants.

However, as a relief to them, the Delhi high court in January 2015 held that such companies cannot be denied the benefits of the Served from India Scheme framed under the Foreign Trade Policy (2009-14) only on the grounds that they are units of overseas entities.

The decision came on pleas by Yum Restaurants India Pvt. Ltd, the owner of KFC, Pizza Hut and Taco Bell in India; Nokia Solutions and Networks India and EI DuPont India, whose applications under the scheme had been rejected at different points of time between 2009 and 2012.

The Director General of Foreign Trade (DGFT) had denied the benefits of the scheme to these companies as according to it, they were not “Indian brands” and did not contribute in creating a powerful and unique “served from India brand”, in line with the objective of the scheme, which was to accelerate growth in export of services from India.

Impact of scrips

Terming the DGFT’s decision “unsustainable”, Justice Vibhu Bakhru had held that “the expression ‘all service providers’ cannot be interpreted to exclude service providers, which are subsidiaries of foreign entities” and the DGFT had introduced a completely new concept in the eligibility criteria of the scheme by limiting the incentives only to companies with trade names that reflect their association with India. The judgement explicitly cited that “the expression ‘served from India brand’ must be read in the context of the object to accelerate growth in export of services from India”.

However, Hon’ble Bombay High Court in the case of “ThyssenKrup Industrial Solutions” held that the object of the scheme is not to augment foreign exchange reserves but to create a powerful and unique ‘Served from India brand’. Since the petitioner had an established foreign brand prior to their entry in India, they are not eligible for SFIS benefit.

The Bombay High Court has differed with the decision of the single judge of the Delhi High Court in the case of Yum Restaurant (I) Pvt Ltd vs Co Union of India & Ors. which had allowed the benefit of SFIS.

Despite the cost of litigation, SFIS shall and will be a benefit to crave for, considering the impact such scrips bring to the reduction in the cost of operations.

(Views expressed are personal)