Deduction of State /Central Taxes collected from customers while calculating foreign earnings for SFIS/SEIS Schemes
THE CAG Audit team has during the audit of Served From India Scheme files observed that charges made on Accommodation, Services, Food etc. invariably include State/Central Taxes collected from the Customers such as VAT, Luxury Tax on sale of Food items and Service Tax and such taxes paid by the Customers to Government through the Service Provider should not have been included for issuance of SFIS.
DGFT points out that the FTP specifies that "Service providers shall be entitled to duty credit equivalent of the foreign exchange earned by them". The Handbook of Procedures also specifies that "only such foreign exchange remittances as are earned as amounts in lieu of the services rendered by the service exporter would be counted for computation of the entitlement under this scheme". The State/ Central taxes payable by the Customer to Governments are collected from the Customer by the Service Provider on behalf of the Governments concerned. Hence, such taxes are not earnings of the service provider, as per the above provisions.
In light of the CAG observation, DGFT directs calculation of the entitlement only on the basis of receipt of foreign exchange earned by exporters, which does not include the taxes collected.
DGFT Trade Notice No.11/2015-20., Dated: July 21, 2016