Engineering services exports and delayed foreign exchange receipts: SEIS duty credit scrip denial for FY 2016-17 set aside.

Denial of SEIS duty credit scrip for FY 2016-17 was held unsustainable where export of engineering services occurred in FY 2016-17 but foreign exchange was realized in FY 2017-18. Form ANB 3B permits claiming SEIS for foreign exchange earned in a financial year relating to services exported in the preceding year; hence, receipt in the subsequent year could not be the basis to refuse the FY 2016-17 claim, and the rejection was set aside. Further, exclusion of amounts attributed to travel/transport, inspection, R&D, software, and re-invoicing was erroneous because these earnings formed part of the exported engineering services and, upon foreign exchange realization, qualified for SEIS; the rejection on this ground was also set aside. The writ petition was allowed with directions.

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether SEIS benefit and issuance of Duty Credit Scrip could be denied solely because services were exported in one financial year but the related foreign exchange was realised in the subsequent financial year, when the relevant form permitted claiming for the earlier period based on realisation.

(ii) Whether the SEIS claim could be rejected for components described as travel/transport cost, inspection, R&D, software, and re-invoicing, when such receipts were asserted to be part of the engineering services exported and foreign exchange was earned therefrom.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Relevance of year of export vs. year of foreign exchange realisation for SEIS claim

Legal framework (as discussed by the Court): The Court relied on the scheme of claiming SEIS through Form ANF-3B as reflected in the record, noting that it specifically enables seeking SEIS benefit for foreign exchange earned in a particular financial year even where the services were exported in the previous financial year. The Court also treated the earning/realisation of foreign exchange (NFE earned) as the germane factor for SEIS rewards.

Interpretation and reasoning: The Court found that although engineering services were exported during the earlier financial year, the foreign exchange was realised during the subsequent financial year. In these circumstances, and in view of Form ANF-3B permitting such a claim structure, the Court held that the mere fact of export being in the earlier year could not be used to deny SEIS benefit. The Court accepted that the relevant year for the claim is the year in which the earnings/foreign exchange are realised, rather than the year in which services were exported, particularly because SEIS rewards are based on foreign exchange earnings.

Conclusion: Denial of SEIS benefit on the ground that foreign exchange was realised in a later financial year than the year of export was held erroneous. The impugned review order and rejection letter were set aside on this ground.

Issue (ii): Eligibility of receipts towards travel/transport, inspection, R&D, software, and re-invoicing as part of exported engineering services

Legal framework (as discussed by the Court): The Court addressed this as a matter of whether these categories of earnings formed part of the exported engineering services and whether foreign exchange earnings on that basis entitled the claimant to SEIS benefit.

Interpretation and reasoning: The Court held that the authorities failed to consider and appreciate that these categorised earnings pertaining to exports were part of the engineering services exported. The Court reasoned that so long as foreign exchange was earned in relation to these components as part of the exported services, the claimant would be entitled to SEIS benefit for them as well. The rejection on this ground was therefore treated as an erroneous conclusion.

Conclusion: The Court concluded that exclusion of SEIS benefit for these components was unsustainable, and this further supported quashing of the rejection and the review order.

Final reliefs granted (material to decision): The Court directed issuance of a new Duty Credit Scrip under SEIS and grant of the SEIS claim for the relevant financial year. If issuance/grant of the scrip was not possible, the authorities were directed to pay the quantified sum within three months.

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