We find that benefits under the Services Exports from India (SEIS) scheme are not available to units under the Software Technology Parks of India (STPI) scheme, whereas they are available for units in Special Economic Zones (SEZ). So, we are considering shifting from STPI to SEZ, where even income tax benefits are available. Do you see any problems?Yes. The problem is that income tax exemption is not available if the depreciated value of the used machinery that you transfer to SEZ exceeds 20 per cent of the total machinery installed in the SEZ unit. Also, if the transfer or redeployment of technical manpower from the existing unit to the new SEZ unit in the first year of commencement of business exceeds 50 per cent of the total technical manpower actually engaged in development of software or IT enabled products in the SEZ unit, then you lose the income tax exemption.
But, if you can demonstrate that the net addition of new technical manpower in your SEZ unit is at least equal to the number that represents 50 per cent of total technical manpower of the new SEZ unit in the said year, the exemption would not be denied. You may refer to explanation to Section 10AA (4) (ii) read with explanation 2 to Section 80 IA(3)(ii) of the Income Tax Act, 1961, Central Board of Direct Taxes circular no. 14/2014 dated October 8, 2014 and Ministry of Commerce Instruction no. 11 dated August 12, 2009 for more details and greater precision. If you find these conditions unworkable, you may represent to the Commerce Ministry to treat STPI units on a par with SEZ units for grant of SEIS benefits.
Para 4.20 of Foreign Trade Policy (FTP) restricts domestic sourcing under duty exemption scheme to advance authorisations (AA) and duty free import authorisation (DFIA). Does it mean that we cannot resort to domestic sourcing under annual advance authorisations (AAA)?
Conceptually, there is no reason to deny domestic sourcing for AAA holders. Para 7.02 A(a) of FTP allows deemed exports benefits to supply of goods against AA, DFIA and AAA. So, reading the provisions harmoniously, AAA holders should get the facility of domestic sourcing of inputs. However, the Director General of Foreign Trade (DGFT) must clarify the matter.
In your ‘Exim Matters’ article of June 8, 2015, you have pointed out divergence in the provisions for export oriented units under FTP and related customs/excise notifications. What should we be guided by?
You cannot ignore any provisions, as the customs/excise official will take a view adverse to you based on either the FTP or the related excise/customs notification. The best course for you is to take up the matter with the DGFT and Central Board of Excise and Customs (CBEC) through your Export Promotion Council (EPC) and demand consistency in the dispensations. Anyway, you may take note of the case of Reliance Industries Ltd. 2013 (293) E.L.T. 679 (Tri. - Mumbai), wherein it was held that the provisions of FTP shall prevail over the related notifications of the Customs authorities.