Export of goods and services is the most regulated transaction as it takes domestic products into the international market and brings foreign currency in India. An exporter is required to furnish various forms and documents with different authorities to substantiate that goods have been actually exported and consideration for such export is received in convertible foreign exchange.
Export of goods are easy to monitor as it involves physical movement of goods out of India and entire process of sending goods out of Indian Custom Frontiers are managed by Custom Authorities of India. However, challenges can lie when goods are exported but not in physical form rather in some digital form, e.g., Softwares. Softwares and software related exports is the most evolved domain and India is already contributing most toward exporting software outside India. In the case of export of softwares, it is not possible to track export at custom ports as no physical movement of softwares takes place. Therefore, the government has prescribed a new procedure in the form of SOFTEX Form to monitor export of softwares over digital platforms. In this article you can get an elaborate insight into “SOFTEX Form”.
1. What is Softex Form
- As per Regulation 3 of Foreign Exchange Management (Export of goods and services) Regulations, 2000, every exporter of goods or softwares, in physical form or in any other form, is required to furnish a declaration about such export with designated authorities.
- For furnishing such details following 4 forms are prescribed:
|Form GR||To be filed for export of software in physical form, otherwise than by Post,i.e. magnetic tapes/discs and paper media.|
|Form SDF||To be attached with shipping bills, for exports declared to Customs Offices which have introduced the Electronic Data Interchange (EDI) system for processing shipping bills.|
|Form PP||To be filed in case of Export through Post.|
|Form SOFTEX||To be filed for export of software otherwise than in physical form.|
- Accordingly, Form “SOFTEX” is filed when an exporter exports softwares over digital platform.
- As per Regulation 6(C) of Foreign Exchange Management (Export of goods and services) Regulations, 2000, declaration in Form SOFTEX shall be filed in respect of export of computer software and audio/video/television software. Further, such form shall be filed to the designated official of the Department of Electronics of Government of India at the Software Technology Parks of India (STPIs) or at the Free Trade Zones (FTZs) or Export Processing Zones (EPZs) in India in triplicate.
- After certifying all three copies of such form, the said designated official shall take following action:
- On realization of export proceeds, the authorised dealer shall submit the duplicate of SOFTEX Form to the RBI after due certification.
2. What is the meaning and scope of the term ‘Software’
- The term ‘software’ is defined in Regulation 2(viii) of the Foreign Exchange Management (Export of Goods and Services) Regulations, 2015 as “any computer programme, database, drawing, design, audio/video signals, or any information by whatever name called in or on any medium other than in or on any physical medium”
- The definition provided is comprehensive, encompassing all types of software that can be shared in any form other than a physical medium. Software on a physical medium is treated as a good, and the same declarations that apply to goods also apply to software on a physical form also.
3. How did SOFTEX Form come into existence and why
- In general, exporting entails shipping ‘goods and services’ to customers in other countries (those outside India’s territorial borders) for the purpose of selling. Physical products are shipped through a physical port of entry (a seaport, airport, or foreign post office) that is controlled by the Central Customs Department.
- When physical products leave the country, the exporter must disclose the value of export at the port of entry. Such declaration is done by filing GR and PP Form for non-EDI ports and SDF for EDI ports, together with an invoice and other supporting documentation.
- The GR and PP forms have recently been replaced by a new form called “Export Declaration Form” (EDF), and the SDF has been integrated with the shipping bill as part of a process simplification. [Check out the following circulars : RBI/2013-14/254 A.P. (DIR Series) Circular No.43 September 13, 2013, and RBI//2014-15/599, A.P. (DIR Series) Circular]
- At the point of shipment, the declared value must be acknowledged and validated by the customs office. This is known as “export valuation.”
- The value of an export is accepted by both RBI and its authorised dealer (the exporter’s bank) once the valuation is completed. The remittance of an equivalent value into the exporter’s bank account is then monitored by the RBI.
- A ‘Software’ exported on a medium (CD/DVD, magnetic tapes, etc.) must go through these stages because it is being shipped as physical products through a port of shipping.
- When the “Software Technology Park” (STP) concept was established in the early 1990s, the necessity to export software over data communication links arose.
- The Customs Department struggled to manage this because nothing physical was evident in the Software transmitted, and they lacked the human resources and know-how to deal with exports over telecommunications networks.
- Issue of reporting of export of Software over telecommunication network was resolved through introduction of SOFTEX form as an alternative to the GR/PP forms for software export via data communication networks.
- In place of Customs, STPI, as the administrative authority of the STP scheme, was designated as the designated authority for “Software export valuation” and certification of the SOFTEX form.
- The designated authority for SOFTEX value is currently the jurisdictional STPI Directors and SEZ Commissioners.
- The SOFTEX form has the same objective, policy, and process as the GR/PP (or new EDF) form.
- The main policy distinction between the GR/PP or EDF form and the SOFTEX form is that the GR/PP forms are submitted and valued concurrently with the actual exports from the port of shipment. The SOFTEX form, on the other hand, is a post-facto approval, given after the software has been exported.
- Before the SOFTEX form was introduced, the Software was treated in the same way as ‘goods’ in terms of international trade policy, because policymakers couldn’t imagine trading in anything that wasn’t ‘goods.’
- Even today, a non-IT services export does not require a declaration or export valuation. As a result, Software (IT and ITeS) has been accorded a distinct status in international trade, similar to that of “goods.”
4. Who is under an obligation/requirement to fill a SOFTEX Form
- Every exporter who is engaged in export of computer software and audio/video/Television software otherwise than in physical form shall be under obligation to file Form Softex. Software export through physical form can be in magnetic tapes/discs, and paper media.
- Requirement of filing SOFTEX form is applicable to all units whether located in STP, SEZ, EPZs, 100% EOU (Export Oriented Units) or DTA (Domestic Tariff Area).
- Therefore, companies located in non-STP areas and engaged in export of software are also under an obligation to file Form Softex.
5. Who is not required to fill a SOFTEX Form
- As per Regulation 4 of Foreign Exchange Management (Export of goods and services) Regulations, 2000, an exporter is not required to file Form SOFTEX where export of software is accompanied by a declaration that value of such software does not exceed INR 25,000.
- Vide Circular No. RBI/2004/35 A.P.(DIR Series) Circular No.61 Dated 31st January, 2004, such exemption limit revised from INR 25,000 to USD 25,000. Therefore, it was decided to waive the submission of SOFTEX Form where value of export of software does not exceed USD 25,000 or its equivalent.
- However, such exemption was withdrew Circular RBI/2013-14/254 A.P. (DIR Series) Circular No.43 Dated 13th September,2013 effective 1st October 2013. With effect from 1st October, 2013, all exporters of softwares are under obligation to file Form SOFTEX.
- According to international trade policy, software exporters (including IT and ITeS enterprises) that are not registered in the STP or SEZ (or other EOU schemes) scheme should also submit SOFTEX.Such exporters, often known as non-STP units, can file for SOFTEX with the STPI Director in their jurisdiction.
- Only exporters who do not export software are exempt from filing SOFTEX. Without certification of SOFTEX form, foreign remittances received as export proceeds will fall into one of two categories: general service or illicit remittance.
6. Filing of SOFTEX by Non-STP Units
- Since, SOFTEX should be filed with concerned STPI (Designated Authority), then it can be an issue for Non-STP units how they should file their SOFTEX form as they are not located in STPI.
- Accordingly, to overcome the issue of filing of SOFTEX by Non-STP units, STPI started option of registration for Non-STP unit in STPI. In order to become a NON-STP unit under STPI, the company has to get register itself with STPI on submission of application form along with the supporting documents, to the jurisdictional Director, STPI along with applicable processing fee.
- For SOFTEX Certification by STPI, exporter has to become a STP member by either registering under STP Scheme or as a non-STP unit with STP.
7. What is the periodicity and time limit for filling a SOFTEX Form
7.1 Periodicity of filing of SOFTEX Form
- Initially SOFTEX Form was required to be file for each transaction of export of software. As per SOFTEX was required to be file within 30 days from the date of Invoice.
- However, later on facility of bulk generation of SOFTEX form was provided which allowed filing of one SOFTEX form for multiple software export invoice.
- SOFTEX form should be filed on a monthly basis, i.e., details of all invoices issued for export of software should be furnished in one SOFTEX form.
7.2 Due date of filing of SOFTEX Form
- Softex Form should be filed not later than 30 days from the close of the month in which the invoice is raised
- Further, export proceeds for export of software should be released within 180 days from the date of export. And RBI may take action against any entity if export proceeds have not been received within a stipulated time period.
8. What are the obligations under FEMA for SOFTEX Form
- The export of goods and services is addressed under Section 7 of the FEMA.
- According to Section 7(3), every service exporter must submit a declaration to RBI or other authorities in the form and manner specified, stating the accurate and exact material particulars in respect to payment for such services. As a result, the Foreign Exchange Management (Export of Goods and Services) Regulations, 2015 have been formulated to specify the way and details to be contained.
- Exporters of products and services are required to declare the value of their exports to the specified authority, namely the Commissioner of Customs in the case of goods and the Director of STPI/Commissioner of SEZ in the case of software, according to Regulation 3.
- The RBI requires the specified authority to certify the value of exports in order to track their realisation, and the specified authority is in charge of this certification.
- The EDF form is used to declare the value of exported items, whereas the SOFTEX form is used to indicate software exports.
- In the case of exported goods, the declaration of the value of exported goods and its certification occurs during the export process, whereas in the case of software, the declaration of the value of exported software and its certification occurs after the export process has completed.
- Regulation 3(3) clarifies that in situations where no prescribed declarations are required for any services, the exporter may export such services without making any declaration, but must realise and repatriate any foreign exchange that becomes due or accrues on account of such export in accordance with FEMA regulations.
- Only where the regulations do not require a declaration for the services that are exported does the preceding apply. However, as previously noted, a SOFTEX declaration is required for the export of software.
- As a result, every software exporter is required to file a SOFTEX declaration. Now, let’s look at what the term “software” means in the context of FEMA regulations.
9. What are the fees for filing a SOFTEX Form
- No Legal fee is applicable or required to be deposit alongwith filing of softex form.
- However, Non-STP exporters getting registered with STPIs are required to pay service charges for certification of SOFTEX Form by STPI.
- Service Charge slabs for different export values are provided based on Export turnover of the year.
10. What is the penalty/consequences for not filing a SOFTEX Form
- If DTA units exporting software services fail to declare their software exports and get them certified in SOFTEX forms, this is a violation of the Foreign Exchange Management (Export of Goods and Services) Regulations, 2015.
- This will result in legal action under Section 13(1) of the FEMA, and a penalty of up to threefold the amount involved in the violation may be levied.
- Furthermore, the DTA Unit may be subjected to a continuous penalty of up to INR 5,000 for each day the infringement persists after the first day.
- In the absence of certified SOFTEX forms, banks will treat inbound foreign exchange remittances as proceeds realised for service exports. Accordingly, BRCs will be provided verifying that the funds were received for service exports rather than software exports.
- This will act as deterrent to the business entities in claiming that they have previous export performance for participation in tenders related to software projects