MUMBAI: The Directorate General of Foreign Trade (DGFT) has issued notices to about 100 Indian units of multinationals, demanding refund of around Rs 5,000 crore that it said they wrongly claimed since 2003 under an export promotion scheme for services.
The demand ranges from Rs 25 crore to Rs 200 crore per company, including fines and penalties. There is a possibility of the commerce ministry agency seeking refunds from more firms in the coming weeks, which could take the aggregate amount to as high as Rs 25,000 crore, people with knowledge of the matter said.
The scheme, Service from India Scheme (SFIS), was intended to promote a 'Served from India' brand for services, like 'Made in India' for goods. Under it, exporters were issued 'duty credit scrips' equivalent to certain portion of their foreign exchange earnings. They could set off these credits against import duty on capital goods.
The MNC subsidiaries that received notices were doing businesses mainly in shipping, construction, R&D, health, tourism, hotels, professional services and logistics sectors. Information technology and related sectors, which contribute close to half the total services exports, don't get these benefits.
In the notices, DGFT said that these MNC subsidiaries were "not promoting an Indian brand, but just extending interests of a foreign brand", so they weren't entitled to the benefits. ET has seen a notice.
In some cases, the Directorate of Revenue Intelligence (DRI) has even summoned senior executives of multinationals for questioning, the sources said.
The ministry of commerce and DGFT didn't respond until Thursday press time to emails sent on Tuesday seeking comment. Industry experts, meanwhile, said DGFT has started cancelling the SFIS licences to these companies.
"DGFT has started issuing letters cancelling SFIS licences issued to exporters retrospectively from 2003 on the argument that these benefits are only available for promoting Indian brands. These companies are asked to return benefits since 2003 along with duty, interest and penalties, running in to several hundred crores," said Sachin Menon, the national head on indirect tax at KPMG India.
Speaking to ET, the India head of a multinational that is required to pay Rs 75 crore, said: "We have been seeking benefits of SFIS since 2004 and this process was quite smooth for us. We will challenge this notice which in a way wants to withdraw SFIS benefits for us."
But DGFT said the foreign trade policy did not intend to incentivise any brand that was created outside India. "Your brand doesn't get instantly recognised and respected as an Indian brand and therefore the company is not eligible for SFIS benefits," said its notice to a Mumbai-based subsidiary of an MNC.
The government, meanwhile, replaced SFIS with another scheme, Service Exports from India Scheme (SEIS), in 2015.
"While the issue of foreign brands not getting SFIS scripts has eased with the move to SEIS, unresolved prior issues need to be resolved once for all as denial of export benefits hurts exporters," said MS Mani, partner, Deloitte India. "With the onset of GST, service exporters are looking forward to the modified export promotion schemes, with adequate clarity on such issues in the mid-term review of FTP expected on December 5," he added.
Industry trackers said that many MNCs may look to shut shop as the liability may be too steep for them. Some also questioned the DGFT move.
"If they were not eligible, the government should not have issued these licences for the last 12 years. The Indian brand argument to deny export benefits defies logic, as the people who are working in these companies are Indians irrespective of whether brand is Indian or MNC," said a person who works at an MNC.
Source: economictimes.indiatimes.com