Misclassification of IT Services as Consulting for SEIS Benefits: CESTAT Upholds Duty Recovery on Fraudulently Availed Scrips [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi Principal Bench, has upheld the recovery of customs duty amounting to ₹2.05 crore for fraudulently availing benefits under the Service Exports from India Scheme (SEIS) by misclassifying its services.

The appellant MetricStream Infotech (India) Pvt. Ltd engaged in providing IT and IT enabled services to its parent company abroad, had claimed SEIS benefits by classifying its services as ManagementConsulting Services. Based on investigations by the Directorate of RevenueIntelligence (DRI) it was found that the services were actually IT/ITES which were not eligible for SEIS benefits under the Foreign Trade Policy

Accordingly, the DGFT cancelled the SEIS Scrips ab initio, which were thereafter transferred to a third party who availed of it in paying the duty for imported goods.

The Appellant's argument is that there was no wilful misrepresentation and section 28AAA cannot be invoked since DGFT order of cancellation of SEIS scrips does not attract any fraud; also there is no case of penalty.

The contention of Revenue that there was deliberate mis-representation and hence, after cancelling the scrips exemption is lost and therefore recovery of duty would follow.

The Tribunal comprising Binu Tamta (Judicial Member) and Hemambika R. Priya (Technical Member) held that it is clear from the facts of the case that appellant deliberately misrepresented the nature of services for claiming SEIS benefits. Both conditions mentioned above under Section 28AAA are fulfilled in the instant case.

The Tribunal held that SEIS scrips obtained through wilful misstatement and subsequently cancelled by the DGFT are void, thereby justifying duty recovery under Section 28AAA of the Customs Act, 1962.

However, the penalty imposed on the Chief Financial Officer (CFO) was set aside

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