Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
ON
PREPARED BY
DIVYA THINGALAYA
1
INDEX
CONTENT
INTRODUCTION
HOW TO SET UP AN IMPORT - EXPORT
ORGANISATION
HOW ONE BEGINS TO DO EXPORT-IMPORT
IMPORT -EXPORT CONTRACT TERMS &
CONGITIONS
TERMS OF SHIPMENT
PROCESSING AN IMPORT -EXPORT ORDER
FINANCIAL RISK INVOLVED IN FOREIGN
TRADE
IMPORT - EXPORT DOCUMENTS
OCTROI
QUALITY CONTROL & PRE-SHIPMENT
INSPECTION
SHIPPING ANG CUSTOMS FORMALITIES
TAXES PROCEDURE
METHODS OF PAYMENTS AGAINST IMPORT -
EXPORTS
THE LETTER OF CREDIT
THE ECGC COVER.
INTRODUCTION
2
importing modern technology and essential inputs. Besides, the income from export
business is also exempted to the specified extent under the Income Tax Act, 1961, Refund
of Central Excise and Custom Duty on export is also made under the Duty Drawback
Scheme of the Government. There is no Sales Tax on products meant for exports.
Exports can be of goods which can be moved physically from one country
to another or can be of service rendered. Detailed list of services are given in the Foreign
Trade Policy covering more than 160 items e.g. Insurance, Hospital, Postal and
Telecommunication etc.
The government may announce from time to time the types of supplies
that may be considered as deemed export. The Foreign Trade Policy gives the list of
supplies considered under the Deemed Export Category. The policies and procedures are
different for Physical Exports and Deemed Exports as also the benefits available. In a
nutshell, Deemed Exports do not enjoy all the benefits that are available under Physical
Export. The Foreign Trade defines exports as taking out of India any goods by land, sea,
air. Although the act does not term them as Physical Exports, we have to put phrase to
distinguish it from Deemed Exports which is sales in India but considered as exports
for limited purpose.
TYPES OF EXPORTERS:
3
Exporters can be basically classified into two groups
4
Nature of regulatory framework applicable to anyone
The partnership firm can also be set up with ease and economy. Business
can take benefit of the varied experiences and expertise of the partners. The liability of
the partners though joint and several, is practically distributed amongst the various
partners, despite the fact that the personal liability of the partner is unlimited. The major
disadvantage of partnership firm of business organization is that conflict amongst the
partners is a potential threat to the business. It will not be out of place to mention here
that partnership firms are governed by the Indian Partnership Act, 1932 and, therefore
they should be formed within the parameters laid down by the Act. Company is another
form of business organization, which has the advantage of distinct legal identity and
limited liability to the share holders.
5
decided to incorporate a private limited company, the same is to be registered with the
Registrar of Companies.
Merchant Exporter i.e. buying the goods from the market or from the
manufacturer and then selling it to foreign buyers.
Sales Agent / Commission Agent / Indenting Agent i.e. acting on behalf of the
seller and charging the Commission.
Buying Agent i.e. acting on behalf of the buyer and charging Commission.
6
o Preparation of pre - shipment documents.
o Co-ordinating with clearing agents on the progress of the shipment to be
made.
o Co-ordinating with the ware house\C. excise department regarding
packing and clearance of the goods for export.
o Preparation of post shipment documents foe banks.
o Follow-up with the bank on dispatch of documents, receipt of payment,
availment of bank loans etc.
Depending upon the size of the business the numbers of personnel under
each category may increase. For example if a company is transacting substantial volume
of business in more than one product. Then it is necessary to have marketing manager for
each product so that the person can concentrate on a particular trade to enhance the
business.
7
The Customs Authorities will now allow the exporter to export or import goods into or
from India unless he holds a valid IEC number. Before applying for IEC number it is
necessary to open a bank account in the name of the company with any commercial bank
authorized to deal in foreign exchange. The duly signed application form should be
supported by the following documents.
Bank receipt ( in duplicate ) / Demand Draft for payment of the fees of Rs. 1000/-
Certificate from the banker of the applicant firm as per Annexure 1 to the form
given.
One copy of PAN number issued by Income Tax Authorities duty attested by the
applicant.
One copy of Passport Size photographs of the applicant duly attested by the
banker to the applicant.
Declaration by the applicant that the proprietor/partners/directors as the case may
be of the applicant company, are not associated as proprietor/partners/directors in
any other firm, which has been caution, listed by the RBI. Where the applicant
declares that they are associated as proprietor/partners/directors in any other firm,
which has been caution, listed by the RBI, they will be allotted IEC No. but with
an additional condition that they can export only with RBIs prior approval and
they should approach RBI for the purpose.
Each importer/exporter shall be required to file importer/exporter profile once
with the licensing authority shall enter the information furnished in Appendix 2 in
their database so as to dispense with changes in the information given in
Appendix-2, importer/exporter shall intimate the same to the licensing authority.
8
The following importer exporter is exempted from the requirement of IEC code number.
For obtaining IEC number apply in the prescribe form along with the documents listed
above to Regional Licensing Authority (Office of the Regional DGFT). The registered
office or the head office may apply for allotment of IEC No.
Whenever, there is a change in the name, address or constitution of the holder of IEC
No., such change should be intimated within 30 days to the concern authorities.
IEC certificate will be issued in the form (copy enclosed). A copy of IEC No. is also
endorsed to the concerned banker.
VALIDITY :
The IEC No allotted to a firm/company will be valid for all its branches/divisions
units/factories as indicated in the IEC No. Import/Export of any commodity by that
firm/company. There being no date of expiry, the IEC once allotted is valid till it is
revoked. But, if no import or export is effected in the previous financial year, the same
will be made inoperative. However, this can be made operative by a formal request to the
DGFT.
9
As it is not always possible for the top man or directors, promoters of the company to
visit DGFT frequently. There is a provision of issuance of identity cards to the
proprietors/partners/directors and their authorized representatives. An application of
Issuance of an identity card may be made in the form (Appendix-5) The document/
License/Certificate/Permissions may be delivered to the identity card holder and officials
of the Licensing Authority(DGFT)shall not be responsible for any loss etc. In case of loss
of an identity card a duplicate card may be issued on the basis of an FIR & affidavit. In
addition to obtaining the IEC No. the exporter is also required to obtain Business
Identification No(BIN). For this exporter is required to contact DGFT online on web site.
The licensing authority issues BIN in coordination with customs authorities. This BIN is
required to be mentioned on the shipping bills at the time of customs clearance of the
export cargo.
In order to enable the exporter to obtain benefits/concessions under the Foreign Trade
Policy, the exporter is required to register himself with an appropriate export promotion
agency by obtaining registration-cum-membership certificate. (RCMC). If the export
product is that it is not covered by any EPC, RCMC in respect thereof may be issued by
FIEO. An application for registration should be accompanied by a self certified copy of
the Importer-Exporter Code number issued by the regional licensing authority concerned
and bank certificate in support of the applicants financial soundness. The RCMC shall be
valid for 5 years ending 31st March of the licensing year.
10
Before entering into the venture of exports, one must look for the product to be exported
and the market where he intends to export.
Before selecting a product, one must simultaneously made a study and find out the
prospective market. For finding out the market for the selected product, the following
methods will help.
Get statistical information as to imports of the product by various countries
and their growth prospects in the respective countries
Approach the chamber of commerce for their guidance to find out the market.
Approach the Export Promotion Council dealing in the product of selection to
get more information.
The Preliminary
Once you are ready with the product you wish to export and have found the market for
the same, you are ready to proceed further. Following sequences can be followed:
Any one, who wishes to export, must first of all get an Importer Exporter
Code Number (IE Code).This can be obtained by making a formal
application to the office of the Regional Directorate General of Foreign
Trade (DGFT).
Get yourself registered with the related Export Promotion Council and
become a member. Also arrange to obtain Registration-Cum-Membership
Certificate (RCMC) from the council. This has twin objectives:
o Under the Foreign Trade Policy, it is mandatory that an exporter gets him
registered with the Export Promotion Council to avail of various export
facilities.
11
o Being a member, you will have access to all the information relating to the
product that could be made available by the council
o Many foreign buyers send their enquiries for the imports to the Export
Promotion Council. Hence you will have few customers interested in your
product.
If you are a manufacturer, find out the provisions under the EXIM Policy of
getting the raw materials duty free.
Get familiar with the excise formalities as goods meant for export can be cleared
without payment of C. Excise duty on the finished product subject to compliance
of certain formalities.
Understand the local government regulations in relations to the export of the
product.
Get information of the governments regulations of the importing country as to
restrictions on the quantity, product specification, packing regulations, customs
regulations, requirement of specific documents/information etc.
Availability of Vessels/Airlines, the transport charges, frequency of operation etc.,
To look for a Custom House Agent (CHA) (also know as freight forwarders or
clearing agents) for handling the documents/cargo in the customs.
If the product is covered under any quota regulation, find out the agency/council
who are handling the quota distribution for the product and the availability of
quota for exports.
FINDING A CUSTOMS
Once you have selected the market, the next step is to find a prospective customer.
This you can get
From the directory of importers of the country
By writing to the Embassy of India in that country for assistance
By writing to the chamber of commerce of that country
By means of participation in a Fair/Exhibition abroad either directly or through
the Export Promotion Council
12
By participating in international fair if organized locally
Through the personal contacts in that country. By these processes one can only
have the list of customers. One has to dialogue or correspond with these
customers by sending samples, getting feedback from the customers etc. to
ultimately select the customer with whom to deal with. It is necessary to know the
financial standing of the company which can be obtained through the bank
channel or through the office of ECGC.
NEGOTIATING CONTRACT.
Once the prospective customer is found, the business deal has to be concluded. The
following aspects may be considered before entering into a final contract with the
buyer.
Credit Worthiness of the Customer.
Availability of the Steamer/Airlines and the frequency
The freight charges
The full product specification
The quantity, Price
Terms of Payment
Type of packing and markings on the packages
Mode of shipment & Shipment schedule
Tolerance of quantity to be shipped
Documentation requirement for the customer
Documentation requirement of the government of importing country
Compliance of the local governmental rules and regulations
Before entering into contract one should take note of the above factors. While these are
indicative, the requirements will vary from country to country, product to product and
buyer to buyer.
13
EXPORT SALES & CONTRACT TERMS & CONDITIONS
Very often exporters do not enter into any formal contract and finalize the trade deal
through the exchange of letters, cable, telex etc. It is, however, expedient that the parties
(exporters & importers) incorporate all important terms & conditions of their trade deal in
a separate document or contract that will avoid disputes arising out of uncertainty or
ambiguity. Export contract may be sent in duplicate along with the Proforma Invoice to
the overseas buyer.
There are certain, peculiar characteristics of international trade contract which are not
present in those for sales of goods in the domestic market
Whereas the parties to a domestic trace contract normally needs only agree on the
elements which are necessary for their particular trade transactions like price, description,
quality and quantity of goods, delivery terms etc the situation will be quite different when
the buyer and the seller to sale/purchase contract belong to different countries. The
parties to all international trade contracts provide all their relative rights and obligations
in several ways
For example, they may agree to adopt either the Law of the country of the buyer or that
of the seller. The traders are normally reluctant to leave the determination of the rights
and obligations by implications under the legal system of eithers country. They prefer to
make explicit provisions regarding the rights and obligations by including a set of
detailed and precise terms and conditions in their contract.
EXPORT OF SAMPLES\GIFTS.
Exports of bonafide trade and technical samples of freely exportable items shall be
allowed without any limit. Goods including edible items of value not exceeding Rs.
14
100000/- in a licensing year, may be exported as a gift. However items mentioned as
restricted for exports in ITC(HS) shall not be exported as a gift without a
licence/certificate/permission, except in the case of edible items.
In order to avoid disputes, it is necessary to enter into an export contract with the
overseas buyer. For this purpose, export contract should be carefully drafted
incorporating comprehensive but in precise terms, all relevant and important conditions
of the trade deal.
There should not be any ambiguity regarding the exact specifications of goods and terms
of sale including export price, mode of payment, storage and distribution methods, type
of packaging, port of shipment, delivery schedule etc. The different aspects of an export
contract are enumerated as under:
15
Terms of Delivery
Taxes, Duties and Charges
Period of Delivery/Shipment
Packing, Labeling and Marking
Terms of Payment-- Amount/Mode & Currency
Discounts and Commissions
Licenses and Permits
Insurance
Documentary Requirements
Guarantee
Force Majeure of Excuse for Non-performance of contract
Remedies
Arbitration clause
It will not be out of place to mention here the importance of arbitration clause in an
export contract Court proceedings do not offer a satisfactory method for settlement of
commercial disputes, as they involve inevitable delays, costs and technicalities. On the
other hand, arbitration provides an economic, expeditious and informal remedy for
settlement of commercial disputes. Arbitration proceedings are conducted in privacy and
the awards are kept confidential. The Arbitrator is usually an expert in the subject matter
of the dispute. The dates for arbitration meetings are fixed with the convenience of all
concerned. Thus, arbitration is the most suitable way for settlements of commercial
disputes and it may invariably be used by businessmen in their commercial dealings.
ARBITRATION:
16
TERMS OF SHIPMENTS INCOTERMS
The INCOTERMS was first published in 1936 --- INCOTERMS 1936 --- and it is revised
periodically to keep with changes in the international trade needs. The complete
definition of each term is available from the current publication --- INCOTERMS 2000.
Under INCOTERMS 2000, the international commercial terms are grouped into E, F, C
and D, designated by the first letter of the term, relating to the final letter of the term. E.g.
EXWexworks comes under grouped E.
The purpose of Incoterms is to provide a set of international rules for the interpretation of
the most commonly used trade terms in foreign trade. Thus, the uncertainties of different
interpretations of such terms in different countries can be avoided or at least reduced to a
considerable degree. The scope of Incoterms is limited to matters relating to the rights
and obligations of the parties to the contract of sale with respect to the delivery of goods.
Incoterms deal with the number of identified obligations imposed on the parties and the
distribution of risk between the parties.
In international trade, it would be best for exporters to refrain, wherever possible, from
dealing in trade terms that would hold the seller responsible for the import customs
clearance and/or payment of import customs duties and taxes and/or other costs and risks
at the buyers end, for example the trade terms DEO (Delivery Ex Quay) and DDP
(Delivered Duty Paid)
17
Quite often, the charges and expenses at the buyers end may cost more to the seller than
anticipated. To overcome losses, hire a reliable customs broker or freight forwarder in the
importing country to handle the import routines.
Similarly, it would be best for importers not to deal in EXW (Ex Works) which would
hold the buyer responsible for the export customs clearance, payment of export customs
charges and taxes, and other costs and risks at the sellers end
Ex Works: Ex means from. Works means factory, mill or warehouse, which are the
sellers premises. EXW applies to goods available only at the sellers premises. Buyer is
responsible for loading the goods on truck or container at the sellers premises and for the
subsequent costs and risks. In practice, it is not uncommon that the seller loads sthe
goods on truck or container at the sellers pre4mises without charging loading fee. N the
quotation, indicate the named place (sellers premises) after the acronym EXW for
example EXW Kobe and EXW San Antonio.
The term EXW is commonly used between the manufacturer (seller) and export-
trader(buyer), and the export-trader resells on other trade terms to the foreign buyers.
Some manufacturers may use the term Ex Factory, which means the same as Ex Works.
Free Carrier: The delivery of goods on truck, rail car or container at the specified
point(depot) of departure, which is usually the sellers premises, or a named railroad
station or a named cargo terminal or into the custody of the carrier, at sellers expense.
The point(depot) at origin may or may not be a customs clearance centre. Buyer is
responsible for the main carriage/freight, cargo insurance and other costs and risks.
In the air shipment, technically speaking, goods placed in the custody of an air carrier are
considered as delivery on board the plane. In practice, many importers and exporters still
18
use the term FOB in the air shipment. The term FCA is also used in the RO/RO (roll
on/roll off) services
In the export quotation, indicate the point of departure (loading) after the acronym FCA,
for example FCA Hong Kong and FCA Seattle. Some manufacturers may use the former
terms FOT (Free on Trucks) and FOR (Free on Rail) in selling to export-traders.
Free Alongside Ship: Goods are placed in the dock shed or at the side of the ship, on the
dock or lighter, within reach of its loading equipment so that they can be loaded aboard
the ship, at sellers expense. Buyer is responsible for the loading fee, main
carriage/freight, cargo insurance, and other costs and risks In the export quotation,
indicate the port of origin(loading)after the acronym FAS, for example FAS New York
and FAS Bremen. The FAS term is popular in the break-bulk shipments and with the
importing countries using their own vessels.
Free on Board: The delivery of goods on the board the vessel at the named port of origin
(Loading) at sellers expense. Buyer is responsible for the main carriage/freight, cargo
insurance and other costs and risks. In the export quotation, indicate the port of origin
(loading) after the acronym FOB, for example FOB Vancouver and FOB Shanghai.
Under the rules of the INCOTERMS 1990, the term FOB is used for ocean freight only.
However, in practice, many importers and exporters still use the term FOB in the air
freight. In North America, the term FOB has other applications. Many buyers and sellers
in Canada and the USA dealing on the open account and consignment basis are
accustomed to using the shipping terms FOB Origin and FOB destination.
FOB Origin means the buyer is responsible for the freight and other costs and risks. FOB
Destination means the seller is responsible for the freight and other costs and risks until
the goods are delivered to the buyers premises which may include the import custom
19
clearance and payment of import customs duties and taxes at the buyers country,
depending on the agreement between the buyer and seller. In international trade, avoid
using the shipping terms FOB Origin and FOB Destination, which are not part of the
INCOTERMS (International Commercial Terms).
Cost and Freight: The delivery of goods to the named port of destination (discharge) at
the sellers expenses. Buyer is responsible for the cargo insurance and other costs and
risks. The term CFR was formerly written as C&F. Many importers and exporters
worldwide still use the term C&F.
In the export quotation, indicate the port of destination (discharge) after the acronym
CFR, for example CFR Karachi and CFR Alexandria. Under the rules of the
INCOTERMS 1990, the term Cost and Freight is used for ocean freight only. However,
in practice, the term Cost and Freight (C&F) is still commonly used in the air freight.
Cost, Insurance and Freight: The cargo insurance and delivery of goods to the named
port of destination (discharge) at the sellers expense. Buyer is responsible for the import
customs clearance and other costs and risks.
In the export quotation, indicate the port of destination (discharge) after the acronym CIF,
for example CIF Pusan and CIF Singapore. Under the rules of the INCOTERMS 1990,
the term CIFI is used for ocean freight only. However, in practice, many importers and
exporters still use the term CIF in the air freight.
20
CPT {+the named place of destination}
Carriage Paid To: The delivery of goods to the named port of destination (discharge) at
the sellers expenses. Buyer assumes the cargo insurance, import custom clearance,
payment of custom duties and taxes, and other costs and risks. In the export quotation,
indicate the port of destination (discharge) after the acronym CPT, for example CPT Los
Angeles and CPT Osaka.
Carriage and Insurance Paid To: The delivery of goods and the cargo insurance to the
named place of destination (discharge) at sellers expense. Buyer assumes the importer
customs clearance, payment of customs duties and texes, and other costs and risks.
In the export quotation, indicate the place of destination (discharge) after the acronym
CIP, for example CIP Paris and CIP Athens.
Delivered At Frontier: The delivery of goods to the specified point at the frontier at
sellers expense. Buyer is responsible for the import custom clearance, payment of custom
duties and taxes, and other costs and risks.
In the export quotation, indicate the point at frontier (discharge) after the acronym DAF,
for example DAF Buffalo and DAF Welland.
Delivered Ex Ship: The delivery of goods on board the vessel at the named port of
destination (discharge) at sellers expense. Buyer assumes the unloading free, import
customs clearance, payment of customs duties and taxes, cargo insurance, and other costs
and risks.
21
In the export quotation, indicate the Port of destination (discharge) after the acronym
DES, for example DES Helsinki and DES Stockholm.
Delivered Ex Quay: The delivery of goods to the Quay (the port) at the destination at
buyers expense. Seller is responsible for the importer customs clearance, payment of
customs duties and taxes, at the buyers end. Buyer assumes the cargo insurance and other
costs and risks. In the export quotation, indicate the Port of destination (discharge) after
the acronym DEQ, for example DEQ Libreville and DEQ Maputo.
Delivered Duty Unpaid: The delivery of goods and the cargo insurance to the final point
at destination, which is often the project site or buyers premises at sellers expense. Buyer
assumes the import customs clearance, payment of customs duties and taxes. The seller
may opt not to insure the goods at his/her own risks.
In the export quotation, indicate the point of destination (discharge) after the acronym
DDU for example DDU La Paz and DDU Ndjamena.
Delivered Duty Paid: The seller is responsible for most of the expenses which include
the cargo insurance, import custom clearance, and payment of custom duties, and taxes at
the buyers end, and the delivery of goods to the final point of destination, which is often
the project site or buyers premise. The seller may opt not to insure the goods at his/her
own risk. In the export quotation, indicate the point of destination (discharge) after the
acronym DDP, for example DDP Bujumbura and DDP Mbabane.
22
E-term,F-term, C-term &D-term: Incoterms 2000, like its immediate
predecessor, groups the term in four categories denoted by the first letter in the three-
letter abbreviation.
Under the E-TERM (EXW), the seller only makes the goods available to the
buyer at the sellers own premises. It is the only one of that category.
Under the F-TERM (FCA, FAS, &FOB), the seller is called upon to deliver the
goods to a carrier appointed by the buyer.
Under the C-TERM (CFR, CIF, CPT, & CIP), the seller has to contract for
carriage, but without assuming the risk of loss or damage to the goods or
additional cost due to events occurring after shipment or discharge.
Under the D-TERM (DAF, DEQ, DES, DDU & DDP), the seller has to bear all
costs and risks needed to bring the goods to the place of destination.
All terms list the sellers and buyers obligations. The respective obligations of both
parties have been grouped under up to 10 headings where each heading on the sellers
side mirrors the equivalent position of the buyer. Examples are Delivery, Transfer of
risks, and Division of costs. This layout helps the user to compare the parties respective
obligations under each Incoterms.
23
PROCESSING AN EXPORT ORDER
You should not be happy merely on receiving an export order. You should first
acknowledge the export order, and then proceed to examine carefully in respect of
Items
Specification
Pre-shipment inspection
Payment conditions
Special packaging
Marine insurance
If you are satisfied on these aspects, a formal confirmation should be sent to the buyer,
otherwise clarification should be sought from the buyer before confirming the order.
After confirmation of the export order immediate steps should be taken for
procurement/manufacture of the export goods. In the meanwhile, you should proceed to
enter into a formal export contract with the overseas buyer.
Before accepting any order necessary homework should have been done as to availability
of the production capacity, raw material e.t.c. It would be in the interest of the exporter to
look into entering into forward contract to safeguard against exchange rate fluctuations.
Ensure that the mode of payment is also agreed upon. In case of shipment against letter of
24
credit, the buyer should be advised to open the credit well in advance before effecting the
shipment.
As an exporter while selling goods abroad, you encounter various types of risks. The
major risks which you have to undergo are as follows:
Credit Risk
Currency Risk
Carriage Risk
Country Risk
You can protect yourself against the above risks by initiating appropriate steps.
Credit Risks :
You can cover your credit risk against the foreign buyer by insisting upon opening a letter
of credit in your favour. Alternatively one can avail of the facility offered by various
credit risk agencies. A specific insurance cover can also be obtained from ECGC (Exports
Credit & Guarantee Corporation) to cover your country risk besides covering credit risk.
Currency Risks:
As regards covering the currency risk, due to the exchange rate fluctuations, you can
request your banker to book a forward contract.
Carriage Risk:
25
The carriage risk can be covered by taking an appropriate general insurance policy.
Country Risk:
ECGC provides cover to protect the exporter from country risks. A detailed procedure
how an exporter can get himself protected against the above risks are given in separate
chapters later.
EXPORT DOCUMENTS
Any export shipment involved various documents required by various authorities such as
customs, excise, RBI, Inspection and according depending upon the requirements, there
are categorized into 2 categories, namely commercial documents and regulatory
documents.
26
prepared in the name of the buyer or the consignee mentioned in the letter of credit.
It is a prima facie evidence of the contract of sale or purchase and therefore, must
be prepared strictly in accordance with the contract of sale.
27
It is useful for accounting purposes to both exporters as well as importers.
28
4. Consular Invoice: Consular invoice is a document required mainly by the
Latin American countries like Kenya, Uganda, Tanzania, Mauritius, New Zealand,
Myanmar, Iraq, Australia, Fiji, Cyprus, Nigeria, Ghana, Guinea, Zanzibar, etc. This
invoice is the most important document, which needs to be submitted for
certification to the Embassy of the importing country concerned. The main purpose
of the consular invoice is to enable the authorities of the importing country to
collect accurate information about the volume, value, quality, grade, source, etc., of
the goods imported for the purpose of assessing import duties and also for statistical
purposes. In order to obtain consular invoice, the exporter is required to submit
three copies of invoice to the Consulate of the importing country concerned. The
Consulate of the importing country certifies them in return for fees. One copy of the
invoice is given to the exporter while the other two are dispatched to the customs
office of the importer's country for the calculation of the import duty. The exporter
negotiates a copy of the consular invoice to the importer along with other shipping
documents.
29
Significance of Consular Invoice for the Customs Office
The goods produced in a particular country are subject to preferential tariff rates
in the foreign market at the time importation.
The goods produced in a particular country are banned for import in the foreign
market.
(b) Certificate of Origin for availing Concessions under GSP :- Certificate of origin
required for availing of concessions under Generalised System of Preferences
(GSP) extended by certain, countries such as France, Germany, Italy, BENELUX
countries, UK, Australia; Japan, USA, etc. This certificate can be obtained from
specialised agencies, namely;
30
Commodity Boards and their regional offices.
Development Commissioner, Handicrafts.
Textile Committees for textile products.
Marine Products Export Development Authority for marine products.
Development Commissioners of EPZs
31
Packing and container description.
Total number of containers and packages.
Description of goods in terms of quantity.
Signature and initials of the concerned officer of the issuing authority.
Seal of the issuing authority.
32
Types of Bill of Lading
33
Description of goods in terms of quantity.
Container status and seal number.
Gross weight in kg. and volume in terms of cubic meters.
Amount of freight paid or payable.
Shipping bill number and date.
Signature and initials of the Chief Officer. .
It is a contract between the shipper and the shipping company for carriage of the
goods to the port of destination.
It is an acknowledgement indicating that the goods mentioned in the document
have been received on board for the Purpose of shipment.
A clean bill of lading certifies that the goods received on board the ship are in
order and good condition.
It is useful for claiming incentives offered by the government to exporters
The exporter can claim damages from the shipping company if the goods are lost
or damaged after the issue of a clean bill of lading.
34
It is useful to the shipping company for collection of transport charges from the
importer, if not collected from the exporter.
7. Airway Bill: An airway bill, also called an air consignment note, is a receipt
issued by an airline for the carriage of goods. As each shipping company has its own bill
of lading, so each airline has its own airway bill. Airway Bill or Air Consignment Note is
not treated as a document of title and is not issued in negotiable form.
35
their gross and net weight, etc. The difference between a packing note and a
packing list is that the packing note contains the particulars of the contents of an
individual pack, while the packing list is a consolidated statement of the contents of
a number of cases or packs.
9. Bill of Exchange: The instrument is used in receiving payment from the importer.
The importer may prefer Bill of Exchange to LC as it does not involve blocking of
funds. A bill of exchange is drawn by the exporter on the importer, to make
payment on demand at sight or after a certain period of time.
B/E is a means to collect payment.
B/E is a means to demand payment.
B/E is a means to extent the credit.
B/E is a means to promise the payment.
B/E is an official acknowledgement of receipt of payment.
Financial documents perform the function of obtaining the finance
collection of payment etc.
2 sets. Each one bearing the exclusion clause making the other part of the
draft invalid.
Sight B/E.
Usance B/E.
It is known as draft.
Immediate payment Sight draft.
There are two copies of draft. Each one bears reference to the other part
A&B. when any one of the draft is paid, the second draft becomes null and
void.
36
3. The payee: The person to whom payment is made, generally, the exporter /
supplier of the goods.
B Auxiliary Documents: These documents generally form the basic documents based
on which the commercial and or regulatory documents are prepared. These documents
also do not have any fixed formats and the number of such documents will wary
according to individual requirements.
1. Proforma Invoice: The starting point of the export contract is in the form of offer
made by the exporter to the foreign customer. The offer made by the exporter is in
the form of a proforma invoice. It is a quotation given as a reply to an inquiry. It
normally forms the basis of all trade transactions.
37
It forms the basis of all trade transactions.
It may be useful for the importer in obtaining import licence or foreign
exchange.
38
company in order to get the bill of lading. Bill of lading is prepared on the basis of
the mate's receipt.
Clean Mate's Receipt: - The Commanding Officer of the ship issues a clean
mate's receipt, if he is satisfied that the goods are packed properly and there is
no defect in the packing of the cargo or package.
Qualified Mate's Receipt: - The Commanding Officer of the ship issues
qualified mate's receipt, when the goods are not packed properly and the
shipping company does not take any responsibility of damage. to the goods
during transit.
39
It is an acknowledgement of goods received for export on board the ship.
It is a transferable document. It must be handed over to the shipping company
in order to get the bill of lading.
Bill of lading, which is the title of goods, is prepared on the basis of the mate's
receipt.
It enables the exporter to clear port trust dues to the Port Trust Authorities.
The goods are then loaded on board the ship for which the Mate or the
Captain of the ship issues Mate's Receipt to the Port Superintendent.
8. Bank letter for negotiation of documents: at the post shipment stage, the exporter
has to submit the documents to a bank for negotiation or discounting or collection
40
for forwarding the same to the customer and also for realization of export
proceeds. The bank letter is the set of instruction for the bank as to how to handle
the documents by them and by the bank at the buyers country which may include
1. Shipping Bill: Shipping bill is the main customs document, required by the
customs authorities for granting permission for the shipment of goods. The
cargo is moved inside the dock area only after the shipping bill is duly
stamped, i.e. certified by the customs. Shipping bill is normally prepared in
five copies :-
41
Customs copy.
Drawback copy.
Export promotion copy.
Port trust copy.
Exporter's copy.
Based on the incentives offered by the government, customs authorities have introduced
three types of shipping bills:-
Drawback Shipping Bill: - Drawback shipping bill is useful for claiming the
customs drawback against goods exported.
Dutiable Shipping Bill: - Dutiable shipping bill is required for goods which are
subject to export duty.
Duty-free Shipping Bill: - Duty-free shipping bill is useful for exporting goods
on which there is no export duty.
In order to facilitate easy recognition and quick processing, following colours have been
provided to different kinds of shipping bills :
42
Details about packages, description of goods, marks and numbers, quantity and
details of each case.
FOB price and real value of goods as defined in the Sea Customs Act.
Whether Indian or foreign merchandise to be re-exported
Total number of packages with total weight and value.
2. A.R.E. 1 form (Central excise): this form ARE-1 is prescribed under Central
Excise rules for export of goods. In case goods meant for export are cleared
directly from the premises of a manufacturer, the exporter can avail the
facility of exemption from payment of terminal excise duty. The goods may be
cleared for export either under claim for rebate of duty paid or under bond
without payment of duty. In both the events the goods are to be cleared under
form A.R.E-1 which will show the details of the goods being exported, the
relevant duty involved and if the duty is paid or goods being cleared under
bond, details of goods being sealed either by the exporter or Central Excise
officials etc.
3. Exchange Control declaration Form (GR/PP/SOFTEX): under the exchange
control regulations all exporters must declare the details of shipment for
monitoring by the Reserve Bank of India. For this purpose, RBI has
prescribed different forms for different types of shipments like GRI, PP forms
etc. These declaration forms must be presented to the customs officials at the
43
time of passing of export documentation. Under the EDI processing of
shipping bill in the customs, these forms have been dispensed with and a new
form SDF has to be submitted to the customs in the place of above forms.
4. Export Application: this is the application to be made to the customs officials
before shipment of goods. The prescribed form of the application is the
Shipping Bill/Bill of Export. Different types are required for shipment like ex-
bond, duty free goods, and dutiable goods and for export under different
export promotion schemes such as claims for duty drawback etc.
5. Vehicle Ticket/Cart Ticket/Gate Pass etc.: before the goods are being taken
inside the port for loading, necessary permission has to be obtained for
moving the vehicle into the customs area. This permission is granted by the
Port Trust Authority. This document will contain the detail of the export cargo,
name and address of the shippers, lorry number, marks and number of the
packages, drivers licence details etc.
6. Bank Certificate of Realisation: this is the form prescribed under the Foreign
Trade Policy, wherein the negotiating bank declares the fob value of exports
and for the date of realisation of the export proceeds. This certificate is
required fore obtaining the benefit under various schemes and this value of
fob is reckoned as fob value of exports.
D. Other Document:
Black List Certificate: it certifies that the ship/aircraft carrying the
cargo has not touched the particular country on its journey or that the
goods are not from the particular country. This is required by certain
nations who have strained political and economical relations with the
so called Black Listed Countries.
44
handed over to the exporter. A copy is sent along with the other
documents for realisation of export proceeds.
Freight Payment Certificate: in most of the cases, the B/L or AWB
will mention the transportation and other related charges. However if
the exporter does not want these details to be disclosed to the buyer, the
shipping company may issue a separate certificate for payment of the
freight charges instead of declaring on the main transport documents.
This document showing the freight payment is called the freight
certificate.
45
Special Provision under Uniform Customs and practice for Documentary Credit
UCP-500, for Commercial Invoice.
Pre-Shipment Documents:
Shipping bill.
Export order/Sales contract/Purchase order.
Letter of Credit
Commercial invoice.
Packing list.
Certificate of origin.
Guaranteed Remittance (G.R/SDF/PP/SOFTEX),or SDF.
Certificate of Inspection.
Various declarations required as per custom procedure.
46
Exchange Control Declaration Form: all exports to which the requirement of
declaration apply must be declared on appropriate forms as indicated below unless the
consignment is of samples and of No Commercial Value
Export declaration forms have utmost importance and are binding on the exporters. It is,
therefore, necessary that enough care is taken while declaring exports on these forms,
with special reference on the following points.
47
Under the term analysis of full export value a break up of full export
value of goods under F.O.B value, freight and insurance should be
furnished in all cases, irrespective of the terms of contract.
All documents relating to the export of goods from India must pass
through the medium of an authorised dealer in foreign exchange in
India within 21 days of shipment.
The amount representing the full export value of goods must be
realized within six months from date of shipment.
48
branch or correspondent is to be instructed to deliver the post parcel
against payment or acceptance of relevant bill, as the case may be.
(i) an irrevocable letter of credit for the full value of export has
been opened in favour of exporter and has been advised
through authorised dealer concerned; or
(ii) the full value of shipment has been received in advance by the
exporter through an authorised dealer; or
(iii) On receipt of full value of shipment declared on
this form the authorised dealer will forward to RBI the
duplicate copy along with the certified copy of shippers
invoice.
(iv) The authorised is satisfied on the basis of standing and track
record of the exporter and arrangements made for realisation of
the export proceed that he cold do so. If the authorised dealer is
not satisfied about standing etc. of the exporter, the application
is rejected. No reference is entertained by the Reserve Bank in
such cases.
The export of computer software may be undertaken in physical form i.e. software
prepared on magnetic tape and paper media as well as in non-physical form by direct data
transmission through dedicated earth stations/satellite links. The export of computer
software in physical form is subject to normal declaration on GR/PP form and regulations
49
applicable there to will also be applicable to such exports. However, export of non-
physical form should be declared on SOFTEX Form. Besides computer software, export
of video / T.V. Software and all other types of software products / packages should also
be declared on the SOFTEX forms. Since export of software is fraught with many risks
and special guidelines have been framed for handling such exports.
OCTROI
Octroi is the local tax levied by the civic body on goods entering into
the city.
There are three procedures for clearing goods which are meant for
export.
Procedure 1, Export on payment of octroi duty and refund thereof after export.
Pay the Octroi Duty and apply for refund of payment made.
50
At Octroi Naka form B is issued with cash receipt for the payment of
Octroi Duty.
Cargo is moved to the docks.
At Docks Octroi officer prepares formC & endorses Shipping Bill
Number & Steamers Name.
After shipment exporter prepares claim for refund by submitting
following documents:
Covering Letter for refund of Octroi Duty.
Original receipt of Octroi paid.
Original Form B.
Original Form C.
Invoice under which material was bought to the city.
Export invoice issued by the Exporter to the importer.
Export Promotion Copy of Shipping Bill Photo Copy.
Bill of Lading or Airway Bill Copy.
N Form Procedure.
51
Octroi officer at Docks will endorse the Shipping Bill number & shipment details
on N form.
Proof of export... N form with above endorsement to be submitted to the Head
Office along with copies of Shipping Bill, Bill of Lading, Export Invoice etc.
Procedure 3
Documents Checked
Companys Letter.
EP form.
EPC.
Bill of Lading.
Shipping Bill 6.25% Service charge.
52
Bar Coding
Goods in transit are subject to risks of loss of goods arising due to fire on the ship, perils
of sea, thefts etc. Marine insurance protects losses incidental to voyages and in land
transportation.
Marine Insurance Policy is one of the most important document used as collateral
security because it protects the interest of all those who have insurable interest at the time
of loss. The exporter is bound to insure the goods in case of CIF quotation, but he can
also insure the goods in case of FOB contract, at the request of the importer, but the
premium payment will be made by the exporter.
Specific Policy: This policy is taken to cover different risks for a single shipment. For a
regular exporter, this policy is not advisable as he will have to take a separate policy
every time the shipment is made, so this policy is taken when exports are infrequent.
53
Floating Policy: This policy is taken to cover all shipments for same months. There is no
time limit, but there is a limit on the value of goods and once this value is crossed by
several shipments, then it has to be renewed.
Open Policy: This policy remains in force until cancelled by either party, i.e. insurance
company or the exporter.
Open Cover Policy: This policy is generally issued for 12 months period, for all
shipments to one or all destinations. The open cover may specify the maximum value of
consignment that may be sent pre ship and if the value exceeded, the insurance company
must be informed by the exporter.
Insurance Premium: Differs upon from product to product and a number of other such
factors, such as, distance of voyage, type and condition of packing etc. Premium for air
consignments are lower as compared to consignments by sea.
Realizing the importance of the need for supplying quality goods as per international
standards, the Government of India has introduced Compulsory Quality Control and Pre-
Shipment Inspection of over 1050 items of export under Export (Quality Control and Pre-
Shipment Inspection) Act 1963.
54
At present, the export items that are subjected to compulsory inspection includes food
and agricultural products, chemicals, engineering, coir, jute and footwear.
Status Houses
Certification by Units IPQC approved by EIA
EUO/EPZ/SEZ
Firm Letter from the overseas buyer
Specified products such as Eng/Fishery average level of Rs.1.5 Cr.for the last
three years no compliant.
For monitoring pre-shipment inspection, Govt. of India has set up Export Inspection
Council (EIO) The EIC has set up 5 Export Inspection Agencies (EIA). The EIAs are
located one each at Mumbai, Calcutta, Cochin, Delhi and Chennai. The EIAs has a
network of nearly 60 offices throughout India. Each EIA is given certain jurisdiction
for inspection purpose. For instance, EIA of Mumbai has jurisdiction over
Maharashtra, Gujarat and Goa.
55
Systems of Quality Control:
For the purpose of pre-shipment inspection, EIC has recognized three systems of
inspection namely:
Self-Certification
In-Process Quality Control
Consignment Wise Inspection
Self-Certification:
Under this system, complete authority is given to the manufacturing units to certify
their own products and issue certificates for export. The manufacturing units which
have been recognized under this scheme have to pay a nominal yearly fee at the rate
of 0.1% of FOB price subject to minimum of Rs.2,500/- and maximum of Rs.1 lakh
in a year to the concerned EIA
In this system, companies/units adjusted as having adequate level of quality control right
from raw material stage to the finished product stage including packaging are eligible to
get the inspection certificate on a formal request by the exporter. Over 800 units all over
India are operating under this system.
Constant vigil and surveillance are kept on units approved under IPQC and self-
certification system. Units approved under the above two systems are often known as
Export worth Units, because of their consistent standards of quality.
Under this system, each and every consignment is subject to compulsory inspection. The
exporter has to follow a certain procedure such as:
56
He has to make an application to Export Inspection Agency with certain
documents.
The EIA deputes inspector to inspect the goods
After the inspection, the goods are repacked with EIA seal
The inspector then makes a report to Deputy Director of EIA
The Dy. Director of EIA then issues Inspection Certificate in triplicate if the
inspection report is favorable
If the inspection report is not favorable, a rejection note is issued.
o It is to be noted that goods marked with ISI/AGMARK/BIS14000/ISO
9000 are not required to be inspected by any agency
o Overseas buyer may depute his own inspection team to inspect the goods
o Inspection of textile goods is conducted by Textile Committee in respect
of those exporters who are registered with the textile committee.
Norms:
Fumigation: For ensuring that no insects or bacteria are carried with the export
certain types of export products are fumigated before shipment. The fumigation is
carried out in the port of shipment.
57
(As per the Prevailing Law i.e., ICA 62)
The shipment of export cargo has to be made with prior permission of, and under the
close supervision of the custom authorities. The goods cannot be loaded on board the ship
unless a formal permission is obtained from the custom authorities. The custom
authorities grant this permission only when it is being satisfied that the goods being
exported are of the same type and value as have been declared by the exporter or his C&F
agent, and that the duty has been properly determined and paid, if any.
58
Verification of Documents: The Customs Appraiser verifies the documents and
appraises the value of goods. He then makes an endorsement of Examination
Order on the duplicate copy of shipping bill regarding the extent of physical
examination of the goods at the docks. All documents are returned back to the
agent or exporter, except
Carting Order: The exporters agent has to obtain the carting order from the Port
Trust Authorities. Carting Order is the permission to bring the goods inside the
docks. The carting order is issued by the superintendent of Port Trust. Carting
Order is issued only after verifying the endorsement on the duplicate copy of
shipping bill. The Carting Order enables the exporters agent to cart goods inside
the docks and store them in proper sheds.
Storing the Goods in the Sheds: After securing the carting order, the goods are
moved inside the docks. The goods are then stored in the sheds at the docks.
Let Export Order: The Let Export Order is then shown to the Customs
Preventive Officer, along with other documents. The CPO is in charge of
supervision of loading operations on the vessel. If CPO finds everything in order,
he endorses the duplicate copy of shipping bill with the Let Ship Order This
order helps the exporter/shipper to load the goods on the ship.
59
Loading Goods: The goods are then loaded on the ship. The CPO supervises the
loading operations. After loading is completed, the Chief Mate (Cargo Officer) of
the ship issues the Mates Receipt. The Mates Receipt is sent to the Port Trust
Office. The C&F agent pays the port trust dues and collects the mates receipt.
The C&F agent then approaches the CPO and gets the certification of shipment of
goods on AR Forms and other documents
Obtaining Bill of Lading: The Mates Receipt is then handed over to the
shipping company (on whose vessel the goods are loaded). The shipping company
issues bill of lading. The Bill of Lading is issued in:
The negotiable copies have title to goods; whereas non-negotiable copies do not have
title to goods but are used for record purpose.
The common procedure of excise clearance under bond and under rebate is
discussed as follows:
Preparing of Invoice: The export goods have to be cleared from the factory
under invoice. The invoice contains details like name of the exporter, value of
goods, excise duty chargeable, etc. The invoice is to be prepared in triplicate. In
case of export under Bond, the invoice should be marked as For Export without
payment of duty. In addition to the invoice, a prescribed for ARE 1 has to be
filed in by exporter.
60
Application to Assistant Commissioner of Central Excise (ACCE): The
exporter has to make an application to ACCE regarding the removal of goods
from the factory/warehouse for export purpose.
Information to Range Superintendent of Central Excise (RSCE): The ACCE
will inform the RSCE under whose jurisdiction the goods are intended to be
cleared for export
Deputation of Inspector: The RSCE will then depute an inspector to clear the
goods, either at the factory or warehouse, and in certain cases at the port.
Processing of ARE-1 Form: The Excise Officer/Inspector will make
endorsement on all copies of ARE-1. The handling of ARE-1 Form is done as
follows:
o The inspector returns the original and duplicate copies to the
exporter
o The triplicate copy is sent to officer (ACCE or Maritime
Commissioner (MCCE) to whom bond was executed or letter of
undertaking (LUT) was given. This copy can also be handed over
to the exporter in a tamper proof sealed cover to be submitted to
ACCE/MCCE.
o The 4th copy will be retained by the excise inspector.
o The 5th copy is also handed over to the exporter.
o At the time of export, original, duplicate and the 5 th copy (optional)
will be submitted to customs officer. The customs officer will
examine these copies and then export will be allowed.
o The customs officer will then make endorsement of export on all
copies of ARE-1. He will cite shipping bill number and date and
other particulars of export on ARE-1.
o The original copy and quintuplicate (optional) will be returned to
the exporter. The duplicate copy will be sent directly to the
ACCE\MCCE i.e. excise officer with whom bond was executed
will get 2 copies, one from RSCE (or excise inspector) when goods
61
are cleared from factory and other Custom Officer after export.
This will enable him to keep track to ensure that all goods cleared
from factory or warehouse without payment of duty are actually
exported. In case of export after payment of duty, under claim of
rebate, the basic procedure is same as above, except that the
triplicate copy (by excise inspector) and duplicate copy(by customs
officer)will be sent to the officer to whom rebate claim is filed. If
claim of rebate is by electronic submission, these copies well be
sent to excise rebate audit section at the place of export.
Clearance of goods to docks: If the goods meant for export is of a small quantity
which may not be sufficient to make one full container, the cargo is said to be less
than container load (LCL) cargo. Such cargo has to be taken to the docks where the
goods will be consolidated (combining the cargo of other exporters to make up
quantity for a full container) by the agent and loaded into a container. Here the
examination of the cargo is done at the docks.(There are also inland container depots
approved by the customs where the goods can be consolidated and stuffed into the
container by the agent under the supervision of the customs officer)
If the goods meant for export is of sufficient quantity to make up a full container, the
exporter has the option to take the goods to the docks and get them examined and
stuffed into a separate container. An exporter gets the benefit on the freight amount
for a full container. (Generally called box rate)
62
Alternatively, he can have a container allotted to him and get the same to his Mills
Premises. The goods meant for exports can be stuffed into the container under the
supervision of the regional Central Excise Authority. Here the exporter has to
Obtain permission from the Customs for getting the container to his mills
premises for stuffing (House Stuffing)
Inform the C.Excise Authorities at least 24 hours before bringing the
container for loading.
The C.Excise Authority will supervise the loading, seal the container and certify the
invoice as directed in the permission given by the custom authorities. A special Lock is
used to lock the doors of the container. Samples from the goods will be drawn, if
necessary, as required under the customs permission. Such samples will be sealed and
forwarded along with the container. The examiner in the docks may arrange to send the
sample for testing. Then the container is moved to the dock for loading. Generally, such
containerized goods are not subject to further examination in the customs. They will be
directly taken for loading.
63
SALES TAX EXEMPTION PROCEDURE
Export good are exempted from the payment of sales tax. The exporter can claim
exemption from sales tax (on purchases or sales for export purpose), provide the exporter
is registered with the Sales-Tax Department. If the exporter is not registered with the
sales tax department, he cannot utilize the facility of sales tax exemption. Therefore, it is
necessary for the exporter to get his organization registered with sales tax department.
I Registration Procedure
Application: The exporter must apply to the Sales Tax Officer (STO) under whose
jurisdiction the head/ registered office of the exporter is located.
Deputation of Inspector: The STO may depute an inspector to visit the office of
the exporter and inspect:
Inspection: The inspector visits the office of the exporter and inspects the
necessary books and other documents.
Report by Inspector: The Sales Tax Inspector makes a report to the STO for
registration or otherwise. The STO verifies the inspector report. The STO, before
granting the ST Reg. Number may cal the exporter for necessary clarifications, if
required.
Security Bond: The STO normally requires the exporter to provide a security
bond from another firm which is registered with the Sales Tax Department.
Granting of Sales Tax Reg. Number: After completing necessary formalities, the
STO grants Sales Tax Reg. Number to the exporter.
64
II. Exemption Procedure
Obtaining Form H: the registered exporters need to apply to the concerned STO
for obtaining Form H. the exporter should submit:
o A copy of Letter of Credit
o A copy of Letter of Credit /Export Order.
o Copy of the Invoice , where goods are already purchased for export
purchase.
o A copy of shipping bill duty certified by customs.
The exporter has to affix the prescribed court fee stamp on each of the Form H issued.
The STO then affixes the exporters company stamp on the Form H.
Filling the details in Form H: After export of goods, the exporter fills the
relevant details in Form H. The Form H needs to be prepared in triplicate.
The exporter retains one copy, and other two copies are sent to the seller from whom the
exporter purchased the goods for export purpose. The seller than sends on copy of Form
H to STO along with the Return of Sales Tax. The other copy is retained by seller. The
STO may issue refund order to the exporter.
65
METHODS OF RECEIVING PAYMENT AGAINST EXPORTS
Before we proceed to understand the concept of Letter of Credit, let us understand the
various types of payment methods available against export.
METHODS OF PAYMENT
There are three methods of payment depending upon the terms of payment, and each
method of payment involves varying degrees of risks for the exporter. The methods are:
Payment in advance
Documentary Bills
Letter of Credit
Open Account
Counter Trade
A. PAYMENT IN ADVANCE
This method does not involve any risk of bad debts, provided entire amount has been
received in advance. At times, a certain per cent is paid in advance, say 50% and the rest
on delivery. This method of payment is desirable when:
The financial position of the buyer is weak or credit worthiness of the buyer is
not known.
The economic/ political conditions in the buyers country are unstable.
The seller is not willing to assume credit risk, as un the case of open account
method.
However, this is the most unpopular methods as a foreign buyer would not be willing to
pay advance of shipment unless:
66
B. DOCUMENTARY BILLS:
Under this method, the exporter agrees to submit the documents to his bank along with
the bill of exchange. The minimum documents required are
Documents against payment (D/P): The documents are released to the importer against
payment. This method indicates that the payment is made against Sight Draft. Necessary
arrangements will have to be made to store the goods, if a delay in payment occurs.
The risk involved that the importer may refuse to accept the documents and to pay
against them. The reason for non-acceptance may be political or commercial ones. In
India, ECGC covers losses arising out of such risks. Under this system, as compared to
D/A, the exporter has certain advantages:
The document remain in the hands of the bank and the exporter does not lose
possession or the ownership of goods till payment is made,
Other reason may include that the exporter may not be able to allow credit and
wait for payment.
Documents Against acceptance (D/A): The document are released against acceptance
of the Time Draft i.e. credit allowed for a certain period, say 90 days. However, the
exporter need not wait for payment till bill is met on due date, as he can discount the bill
with the negotiating bank and can avail of funds immediately after shipment of goods.
67
In case of D/A as compared to D/P bills, the risk involved is much grater, as the
importer has already taken possession of goods which may or may not be in his custody
on the maturity date of the bill. If the importer fails to pay on due date, the exporter, will
have to start civil proceedings to receive his payment, if all other alternatives fails. The
risk involved can be insured with ECGC.
This method of payment has become the most popular form in recent times, it is more
secured as company to other methods of payment (other than advance payment).
68
THE LETTER OF CREIDT
Introduction
The cycle of a business transaction can be said to be complete prima facie when the buyer
has received the product he desires to buy and the seller gets his payment in due
consideration of the product supplied.
While the seller is keen to receive the payment for his supplies, the buyer is equally keen
that he gets what he wants by the paying for the same.
Tough there are many merit and demerits in each of the different mode of payments we
have discussed earlier, in relation either to the buyer or to the seller, we shall now deal in
detail about the mode of payment under the Documentary Credit.
Generally, though exporters are complacent once they get the letter of Credit on hand
feeling that their payment is secured, let me say it is as much a dubious instrument as is a
safe instrument.
If one does not understand the implications of the terms and condition of a letter of credit,
the provisions under UCP 500, how co-operative are the exporters bank and how good
are the L/C opening bank and the reimbursement bank, he is sure to land in trouble at
once stage or another.
There are ample cases of frauds under the Letter of Credit. More and more ingenious
methods are adopted to circumvent the provisions of UPC 500 by fair or foul means.
Hence, even the safety and security under the Letters of Credit may prove to be no better
than a mirage for a man in the desert.
Hence, sufficient care is to be taken by the exporter to ensure that instrument is received
in order and the conditions of the L/C can be well complied with, and there are no clauses
of ambiguity.
69
What is a Documentary Credit?
To say in simple language, this is an Undertaking by a Bank associated with the buyer to
make the payment for the supply of goods by a seller subject to compliance of various
requirements that may be specified in the document of undertaking by the Bank. This
document is known as Documentary Credit. A Documentary Credit is also called a Letter
of Credit (L/C).
A letter of credit is an important instrument in realizing the payment against exports. So,
needless to mention that the letter of credit when established by the importer must contain
all necessary details which should take care of the interest of Importer as well as
Exporter. Let us see shat a letter of credit should contain in the interest of the exporter.
This is only an illustrative list.
70
Reimbursement clause
The following are the step in the process of opening a letter of credit:
Exporters Request: The exporter requests the importer to issue LC in his favor.
LC is the most secured form of payment in foreign trade.
Importers Request to his Bank: The importer requests his bank to open a L/C. He
May either pay the amount of credit in his current account with the bank.
Issue of LC: The issuing bank issues the L/C and forwards it to its correspondent
bank with also request to inform the beneficiary that the L/C has been opened.
The issuing bank may also request the advising bank to add its confirmation to the
L/C, if so required by the beneficiary.
Receipt of LC: the exporter takes in his possession the L/C. He should see it that
the L/C is confirmed.
Shipment of Goods: Then exporter supplies the goods and presents the full set of
documents along with the draft to the negotiating bank.
Scrutiny of Documents: The negotiating bank then scrutinizes the documents and
if they are in order makes the payment to the exporter.
Negotiation: The exporters bank negotiates the document against the letter of
credit and forwards the export documents to the L/C opening bank or as per their
instructions.
Realization of payment: The issuing bank will reimburse the amount (which is
paid to the exporter) to the negotiating bank.
Document to Importer: the issuing in turn presents the documents to the importer
and debits his account for the corresponding amount.
In order to have uniformity and to avoid disputes, the ICC Paris has evolved uniform
customs and practices of documentary credit (UCPDC), in short known as UCP 500
effective from 1-1-96. These are rules have been adopted by more than 150 countries.
71
They provide the comprehensive and practical working aid to banker, lawyer, importers,
exporters, Exporters, transporters, executives involved in international trade.
Note: as soon as an L/C is received ensure that the same is authenticated. Meaning that
the genuineness of the L/C is certified by the Advising Bank by an endorsement with the
marking AUTHENTICATED OR ELSE THE L/C IS OF NO USE.
There are various types of Documentary Credit opened by a bank in favour of its
customer depending upon the requirement. Let us talk about few types of Documentary
Credit which are in common use.
72
practical/procedural difficulty in negotiating the document. It is suggested to have
an unrestricted L/C or L/C which may be restricted to the bank of the
beneficiarys choice.
73
exporter to pay the amount along with the interest, which it has
already paid to the beneficiary.
o Without (Sans) Resource LC: In the case of sans (without) resource
letter of credit, the negotiating bank has no recourse to the exporter,
but only to the issuing bank or to the confirming bank.
For e.g. an exporter enters into a contract for supply of 5000 pairs of Trousers
valued approx.US.$.75,000/- to be shipped every month. The buyer can open an
L/C for a value of US.$.75000/- with validity for 12 months stipulating shipment
every month for a value of US$. 75000/-and by adding a clause to make 12
shipment of like value the L/C stands replenished for the full value of the L/C
after each shipment is made the documents are negotiated for which payment are
74
also made immediately for the value of the shipment. The main benefit in this L/C
is that the buyer, the bank and the exporter are saved from the routine of opening
one L/C every month, the anxiety of non-receipt of the L/C on time, the
amendments that may be warranted every time, the bank charges for opening
number of L/Cs etc.,. A revolving Documentary Credit may have cumulative
effect i.e. if a particular shipment is not made, then the value is added to the value
for future utilization. In an automatic Revolving Credit, the bank is liable for the
total amount covering the entire shipment and where it is non-automatic its
responsibility is restricted to the value of one shipment. In automatic Revolving
Credit the value of the credit is automatically replenished by an amendment.
Where there are continuous shipments like the one stated above one can call for a
Revolving Letter of Credit.
Assignable Documentary Credit: In this type of L/C the benefit is shared between
the first beneficiary and the parties whose names are assigned on the L/C. The
assignee is not a party to the letter of credit but he only derives the benefit as per
the L/C. this is more beneficial to the assignee because he receives his part of the
money once the documents are negotiated by the first beneficiary in whose name
the L/C is opened. Calls for an L/C as necessary.
Stand by Letter of Credit: This is aimed at providing a security to a seller in case
the buyer fails to perform his part. Thus this L/C is used in case of non-
performance while the other types of L/Cs are generally for some performance.
Such credits are paying on first presentation and the only document required
therein is a simple declaration of non-performance along with the statement of
claim. This type of L/C is mainly common in U.S.A.
75
Red Clause LC: The red clause LC is the usual irrevocable LC with further
authorities the negotiating bank to make advance to the beneficiary for the
purpose of processing the export goods. Thus, the red LC enables the exporter to
obtain packing credit facility for the purpose of processing the goods. It is called a
red-cause LC because it is generally printed/ typed in red ink.
Green Clause LC: The Green LC in addition to permitting packing credit advance
also provides for the storing facilities at the port of shipment. Green LCs is
extensively used in Australian wool creditors.
Documentary LC: Most of the L\C is documentary L\C. Payment is being made
by the bank against delivery of the full set of documents as laid down by the terms
of credit. The important documents required to be submitted by the exporter under
documentary LC includes the following:
76
o Bill of Exchange
o Any other document if required.
A letter of credit may call for some or most of the above documents and may also call for
some other documents specific to the shipment.
payment at Sight: In this mode, the payment is made by the L/C opening bank or
its nominated bank or by a confirming bank on presentation of the documents in
full conformity with the L/C. The L/C may or may not call for draft at sight for
the full value of the documents.
Deferred Payment Scheme: In this case the payment is to be made at a future date
as stipulated in the L/C. Here, generally NO draft is required as the due date of
payment is defined in the L/C. In case of a confirmed L/C, the final payment is
made by the confirmed bank on due date and by the issuing bank or its nominated
bank if the L/C is not confirmed.
Acceptance Credit : This type of credit requires a usance draft to be drawn on a
nominated or accepting bank. The payment is made by the nominated/accepting
bank on the due date as per instructions of the negotiating bank. In case of a
confirmed L/C the payment on due date is made by the negotiating bank
(confirming bank).
77
Negotiation Credit: Here the payment is made by the negotiating bank upon
negotiation of the documents if it prepares to take the risk and will recourse to the
beneficiary. If the credit is confirmed, then the negotiation bank is obliged to
make the payment upon submission of a clean document by the beneficiary.
Expect in the case of confirmed L/C there is always a time lag between the date of
negotiation of the document and the date of receipt of the payment. This is a grey area. If
the bank acts swiftly and without prejudice, one gets payment within a weeks time. If the
payment is delayed beyond this time, though an exporter has every right to ask for
compensation, in actual practice, no justice is done to the exporter for the delayed
payment. Very rarely, on persistent approach by the exporter/their banker, does a
defaulting bank comes forward to compensate for the delayed payment. Generally the
exporter has to forego lot of money in correspondence through the negotiating bank
because every communication of the bank is charged to the exporter. It is no surprise
many exporter suffer this loss silently.
A documentary credit is a document in writing issue by the bank on behalf of its customer
(The Buyer). Documentary Credit must stipulate the Type of Credit as detailed above and
inter alia will also stipulate the
Following details :
the name of the Bank issuing the Documentary Credit.(The L/C Opening Bank)
the name and address of the buyer on whose behalf the credit is Issued.(The
Applicant)
the name and address of a bank in the country of the seller the credit through
Whom the L/C is to be advised to the seller.
The name and address of the Seller (Beneficiary)
The Maximum Value the opening bank undertakes to pay to the Beneficiary.
The date of issue of the credit.
78
The Expiry Date of the L/C
The Validity Date for shipment.
The Details of the product to be shipped.(Description)
Details of document required for claiming the payment from the Opening bank.
The name and address of the bank authorized to negotiate the documents.
The Reimbursement Clause.
As soon as an L/C is received ensure that the L/C is authenticated. If the L/C received in
mail the signatures are got to be verified by the advising bank. In case of telex/swift the
bank should endorse on the document authenticated and then only the L/C is a valid
document.
While the above details are the minimum that a Documentary Credit may have in actual
practice there can be other stipulations mutually agreeable to the buyer, seller and the
opening bank as also the negotiating bank.
The guidelines for the interpretation and usage of Letter of Credit are governed by the
UCP 500 (Uniform Customs Practice for Documentary Credit) published by the
International Chamber of Commerce (ICC). The UPC 500 covers all the procedural
aspects relating to the transactions under a Letter of Credit. Hence one is suggested to be
familiar with all the 49 Articles as detailed in the UCP 500 of 1994.
While all the elements and events that one may encounter in each and every organization
can not be explained, the UCP 500 has attempted to take care most of the queries that one
may encounter normally.
The ICC Uniform Customs and Practice was first published in 1993. Taking into the
consideration of the various developments in the transactions under the Documentary
Credit the ICC has been reviewing these rules and updating the same. As time changes
and the international transactions faces new aspects, attempts will be made to get the
UCP 500 revised.
79
Scrutiny of letter of credit
Mere receipt of letter of credit is no guarantee of payment. There are many ifs and buts
before the documents are submitted to the bank against the letter of credit for realization
of proceeds from the opening bank. As soon as the letter of credit is received a through
scrutiny is to be undertaken to ensure that
First and foremost that the credit is properly authenticated by the advising bank.
The letter of credit has been opened in accordance with the terms of the contract.
The name and address of the beneficiary has been spelt properly.
The details of product description, quality, and value are in order.
The validity of shipment and expiry are correct.
The documents that are required can be submitted.
There is sufficient % of tolerance of quantity and value.
The unit price and the terms of contract are correct.
The terms and conditions stipulated can be complied with.
That the credit is available for negotiation without restriction.
In case of exports requires the credit to be confirmed by the local, then necessary
clause is incorporated by the opening bank on the credit.
Last but not the least; the credit has a reimbursing clause enabling the negotiation
bank to get reimbursement of the money paid to the exporter against the
documents.
There are only few suggestions. The requirement may differ for different exporter and the
scrutiny has be done relative to the requirement.
80
On scrutiny of the letter of credit, if the exporter finds that some change are required to
be made in the credit, he should immediately request the buyer to make necessary change
in the letter of credit and the opening bank issued necessary amendment in this respect.
Any oral and written agreement by the importer about change in the credit directly to the
exporter should not be accepted as it is not valid under the credit. Any change must be
advised by the importer through the opening bank only as a sort of amendment to the
original credit.
Of all the various type of payments, the most safest as far as the exporter is concerned is
to get an advance payment in full for the value of shipment to be effected. Obviously, this
puts the buyer totally at the mercy of the seller and unless the buyer feels unavoidable he
will not be prepared to make advance payment. Hence, of the rest of the modes of
payment, the best is calling for a Documentary Credit for any shipment. Now let us see
how we can take care of the interest of the exporter while an L/C is established.
It is suggested that the exporter gives the full details as to the various requirements to the
buyer for incorporation in the L/C. this will avoid the necessary of asking for
amendments and will save both time and money. Bear in mind every amendment costs
you badly. Care are should be taken to ensure that there are NO spelling mistakes,
omission and commission of , or, or such small things. A discrepancy is a discrepancy
and there is nothing like minor discrepancy or major discrepancy as far as the bank is
concerned. A bank strictly deals in documents and the documents are expected to be cent
percent in line with details give in the Documentary Credit. Ensure that the Validity for
shipment and for negotiation of documents can be complied with. If not possible, call for
amendment extending the validity as required.
Unless the L/C specifies the tolerance for the quantity and value, the exporter should
follow the quantity and value as stipulated in the L/C. There is provision for a tolerance
of the quantity up to 5 percent more or less than stipulated in the L/C even if the L/C does
81
not specify tolerance exclusively and unless tolerance is prohibited 0 specifically.
However, the value of documents, on no account, could exceed the limits of the L/C.
Check the description of the product properly, the rates if specified, and quantity of each
of the items. Ask for amendment where you cannot copy with the terms. Make sure that
all the documents as called for by the Credit can be submitted without any exception.
The last but not the least is the Reimbursement clause (Getting the funds for the shipment
made). An L/C without this clause is no L/C. if there is no provision as to from where the
exporter is going to get paid for, the whole exercise of the L/C is futile. The opening bank
may specify the reimbursement clauses as follows:
The negotiating bank to send the documents to the opening bank who will, upon
receipt of the documents, arrange for reimbursement as claimed by the negotiation
bank.
The negotiating bank can claim reimbursement directly from a nominated bank
(say ABC Bank, New York) either upon negotiation of documents or after a
period of days of negotiation subject to the documents being submitted by the
beneficiary is strictly in conformity with terms and condition of the letter of
credit.
I for one prefer the reimbursement clause as in b) so that on one hand my bank sends the
documents to the opening bank and at the same times claims the reimbursement from
nominated bank.
These are some of the aspects one should take care to ensure that the L/C established in
his favor is in order and that he can comply with all the provision thereof. However, one
is advised to make a checklist and take a note of each and every condition of the L/C for
compliance at the right time.
82
Issuing Bank: importers bank who issues the L/C.
Beneficiary: the party to whom the L/C is addressed. The seller or supplier of
goods.
Advising Bank: issuing banks branch or correspondent bank in the exporters
country to which the L/C is sent for onward transmission to the beneficiary.
Confirming Bank: the bank in beneficiarys country which guarantees the credit
on the request of the issuing bank. (Many a times the advising bank and
confirming bank are one and the same).
Negotiation Bank: the bank to whom the beneficiary present his documents for
Payment u Under L/C.
Reimbursing Bank: the bank which will reimburse the negotiating bank for the
value of the credit.
Where an L/C stipulates that the Negotiation is restricted to a specific bank which is not
the Advising Bank or Where the L/C is not restricted, and the seller desires to negotiate
the document which is not the advising bank, then we have a separate Negotiating Bank.
Where the opening bank prefers to advise the L/C through its own branch in the
beneficiary country or through another bank of its choice, then the L/C may be advised to
the beneficiary directly by this bank or if it instructed to advise the L/C through the
buyers nominated bank then it does so. Here, we have two advising bank.
As far as possible, one should restrict the involvement of the number of the banks to the
minimum. More the number of the banks, more the time in the transmission of the L/C, in
addition to multiplicity of bank charges.
SPECIAL NOTE
Though one may strongly feel that a Letter of Credit is the safest mode of payment, one
will face innumerous practical difficulties in so far as compliance with the terms and
conditions of the L/C. since several documents are involved, there are every possible of
discrepancy in the documents either between different documents or between the
83
document or between the document and the L/C. the Negotiating bank soft pedal some of
the discrepancies which they feel may not be pointed out by the opening bank as
discrepancy to favour its customer. In the like manner the opening bank, to safeguard the
interest of the buyer, would like to ensure that the document submitted against a Letter of
Credit are strictly in full conformity of the L/C.
For mastery of the operation under the Letter of Credit one is advised to completely study
the various articles of the UCP 500 so that one can be clear in his mind as to the various
provisions available under the Documentary Credit which will stand good while
negotiating the documents with the bank. While the articles of UCP 500 come safeguard
the interest of both the buyer and the seller, there are certain elements which may be
outside the definition of the UPC 500. Also there is certain flexibility provisions in the
UPC 500 which one might like to exploit to his favour.
So, in spite of the L/C being the safest method to ensure the payment, unless both the
buyer and the seller follow the business ethics there is every chance that one gets cheated
by the other. As a prudent exporter one should be very careful in selecting his customer
apart from taking other safety measures.
If the customer is too good, and you have been dealing with them for a long time, one
may relax and term the L/C as the best method to receive payment. If the customer turns
out to be unscrupulous then he can play havoc. This is applicable to both the seller and
the buyer. There are books on fraudulent us of the Documentary Credits. Sometimes it
may be the buyer who is at the receiving end and some time it may be the other way.
A study of such book as above may help one to take adequate care. But, the brain is
always working in multi directions. It will be no surprise if one comes across newer and
newer dubious methods being adopted by the contracting parties.
84
The Buyer makes an application to his bank to open an L/C.
Opening bank establishes the L/C.
Opening bank advises the L/C through his associate or through the bank.
Nominated by the beneficiary.
The Bank in the beneficiary country which receives the L/C sends the Original
L/C to the customer either directly or through the bank Specified in the L/C.
The buyer complies with the L/C requirements and submits the relevant
documents. To the bank for claiming reimbursement.
The negotiating bank negotiates and sends the documents to the opening bank or
as Directed. Meantime pays the beneficiary.
Advises the opening bank or the reimbursement bank the details of his Accounts
and the nominated bank where the proceeds are to be credited.
Once the credit is received, the nominated bank advises the negotiating bank of
the credit. Thus the negotiating bank gets the credit for the L/C documents.
All the steps from 1to6 as far as the beneficiary are concerned since the payment is made
to the beneficiary without recourse. However, the negotiating bank may have to follow
the subsequent steps since he has to receive his money from the opening bank.
85
PREPARATION AND SUBMISSION OF DOCUMENTS FOR
BANK NEGOTTIATION /PURCHASE
Approaching a Bank: After dispatch of the goods, either by sea, or by air, the
exporter should approach his bank (authorized dealer) with a formal request to
realize sale proceeds from the foreign buyer. It is obligatory to submit the
shipping documents to an authorized dealer within 21 days of the date of
shipment (subject to certain exceptions). In India, the exporters have to realize the
full value of exports within 180 days from the date of shipment, (unless the
payment terms offered are deferred payment terms). Where it is not possible to
realize the sale proceeds within the prescribed period, the exporter should apply
for extension in prescribed form ETX (in duplicate) to RBI.
Submission of Documents to the Bank: The exporter should submit the following
documents
86
o Bill of Exchange
o Full set of Bill of Lading
o Commercial Invoice Copies
o Certificate of Origin
o Insurance Policy
o Inspection Certificate
o Packing List
o GR (duplicate copy to forward it to RBI)
o Bank Certificate
o Other relevant documents.
Letter of Indemnity: If the exporter wants immediate payment from his bankers,
then his bankers may provide advance payment only when the exporter signs an
indemnity letter. The implications of an indemnity letter is that in the event of
refusal of payment by the issuing bank in respect of LC, then the negotiating bank
can ask the exporter to pay back the money advanced along with necessary
charges.
o Credit Expired
87
o Late shipment
o Presented after permitted time from date of issue of shipping
documents
o Short Shipment
o Credit Amount Exceeded
o Underinsured
o Description of goods on invoice differ from that of credit
o Mark and numbers differ between documents
o Bill of lading, Insurance documents, Bill of Exchange not endorsed
correctly
o Absence of Documents called for under credit.
o Insurance certificate submitted instead of policy.
o Weight in different document differs.
o Class of Bill of lading no acceptable-charter party or House B/L.
o Insurance cover expressed in currency other than that of credit.
o Absence of signature, where required on documents.
o Bill of exchange not drawn as per tenor stated in credit.
o Bill of exchange drawn on wrong party.
o Insurance risks covered not being those specified in credit.
o Absence of freight paid statement on B/L in CFR of CIF shipment.
o Bill of lading doses not carry shipped on broad stamp.
o Amount shown on invoice and bill of exchange differ.
o Shipment not make to port specified.
o Transshipment/part shipment undertaken where expressly forbidden.
Discounting of bills: the bank may discount or negotiate the bills drawn against
LC, and make immediate payment to the exporter, if so required.
Dispatch of documents: before the submission of documents for
negotiation/collection, the bank examines them thoroughly with reference to the
terms and conditions of the buyers order. Letter of credit and the laws relating to
88
foreign exchange control. If any scrutiny, the documents are in order, the bank
dispatches them to its overseas branch/correspondent branch as early as possible.
The overseas branch of the bank then submits the document to the importers
bank, and the importers bank hands it over to the importer.
In addition to the exporter by sea, air, rail or road, exports are also allowed by courier
under the courier imports or exporters (clearance) Regulation Act, 1998.
These regulations shall apply for clearance of goods carried by authorized courier on
outgoing flights on behalf of exports. Consigner for a commercial consideration.
89
CUSTOM PROCEDURE FOR EXPORT UNDER EDI
SYSTEM
It is brought to the notice of all exporters, importers, CHAs, Trade and General Public
that the computerized processing of Shipping Bills under the Indian Customs EDI
(Electronic Data Interchange) System (Exports), will commence w.e.f.1`5-09-2004. The
computerized processing of shipping bills would be in respect of the following
categories:
The procedure to be followed in respect of filing of shipping bills under the Indian
customs EDI System-Exports at CFS-Mulund shall be as follows:
90
2. DATA ENTRY FOR SHIPPING BILLS
2.3 The formats should be duly completed in all respects and should be signed
by the exporter or his authorized CHA . Forms, which are incomplete or
unsigned will not be accepted for data entry
2.4 Initially, data entry for Shipping Bills will be allowed to be made only at
the Service centre. After the exporters/CHAs become conversant with the
EDI procedures, the option of Remote EDI System would also be made
available. In the Remote EDI system (RES) Exporters/CHAs can
electronically file their shipping bills from their offices.
2.5 The schedule of charges to be levied for data entry at the Service Centre is
as follows:
91
2.6 The Service Centre operators shall carefully enter the data on the basis of
declarations made by the CHAs/Exporters. After completion of data entry,
the checklist will be printed by the Data Entry Operator and shall be
handed over to the Exporters/CHAs for confirmation of the correctness.
Thereafter, the CHA/Exporters will make corrections, if any, in the
checklist and return the same to the operator duly signed. The operator
shall make the corresponding corrections in the date and shall submit the
shipping bill. The operator shall not make any amendment after generation
of the checklist and before submission in the system unless the corrections
made by the CHAs/Exporters are clearly indicated on the checklist against
the respective fields and duly authenticated by CHA/Exporters signature.
2.7 The system automatically generates the S/Bill Number. The operator shall
endorse the same on the checklist in clear and bold figures. It should be
noted that no copy of the S/Bill would be available at this stage.
2.8 The declarations would be accepted at the service centre from 10.00 hrs to
16.30 hrs. Declarations received up to 16.30 hrs will be entered in the
computer system on the same day.
2.9 The validity of the S/Bill in EDI System is fifteen days only. After expiry
of fifteen days from the date of filing of shipping bill, the exporter has to
file the declaration afresh.
92
to operate through different banks for the purpose, a certificate would have
to be obtained from each of the banks. The certificates would be submitted
to customs and registered in the system. These would have to be submitted
once a year for confirmation or whenever the bank is changed.
3.3 In the declaration form to be filled by the exporters for the electronic
processing of export documents, the exporters would need to mention the
name of the bank and the branch code as mentioned in the certificate from
the bank. The customs will verify the details in the declaration with the
information captured in the system through the certificates registered
earlier.
3.4 In the case of S/Bs processed manually, the existing arrangement of filing
GR-1 forms would continue.
93
Silk Board and the All India Handicraft Board should also be obtained on the invoice.
Similarly, the no objection of the Asst. Drug Controller and of the Archaeological of
Survey India would be obtained on the Invoice.
The exporters would have to make use of export invoice or such other documents as
required by the Octroi Authorities for the purpose of octroi exemption.
1. ARRIVAL OF GOODS AT EXPORT EXAMINATION SHEDS IN CFS
The existing procedure of permitting entry of goods, brought for the purpose of
examination (and subsequent: Let export Order) in the CFS on the strength of S/B shall
be discontinued. The CONCOR will permit entry of the goods on the strength of the
checklist, the date entry form and the declaration. The CONCOR would endorse the
quantity of goods entering the CFS on the reverse of the checklist
The goods should be brought for examination within 15 days of filing of declaration in
the Centre. In case of delay, a fresh declaration would need to be filed
If at any stage subsequent to the entry of goods in CFS it is noticed that the declaration
has not been registered in the system, the exporters and CHAs will be responsible for the
delay in shipment of goods and any damage, deterioration or pilferage, without prejudice
to any other action that may be taken.
2. PROCESSING OF SHIPPING BILLS
The S/B shall be processed by the system on the basis of declaration made by the
exporter. However, the following S/B shall require clearance of the Assistant
Commissioner/Dy. Commissioner (AC/DC Exports):
94
Subject to the provisions of para 20.3 of this PN the following categories of S/Bills shall
be processed buy the Appraiser (Export Assessment) first and then by the Asstt/Dy.
Commissioner:
DEEC
DEPB
DFRC
EOU
EPCG
Apart from verifying the value and other particulars for assessment, the AO / AC / DC
may call for the sample s for confirming the declared value or the checking classification
under the drawback schedule / DEEC / DEPB / DFRC / EOU etc., He may also give
special instruction for examination of goods.
If the S/B falls in the categories indicted in para 6.1 above, the exporter should check up
with the query counter at the Centre, whether the S/B has been cleared by Asstt.
Commissioner /Dy. commissioner, before the goods are taken for examination. In case
AC / DC raises any query, it should be replied through the Service Centre or, in case of
EDI connectivity, through terminals of the Exporter / CHA. After all the queries have
been satisfactorily replied to, AC / DC will pass the S/B
3. CUSTOMS EXAMINATION OF EXPORT CARGO
On receipt of the goods in the Export Shed in the CFS, the exporter will contact the
system examining officer (SEO)and present the checklist with the endorsement of
CONCOR on the declaration, along with all original documents such as Invoice, Packing
List, ARE-1(AR-4)etc. He will also present additional particulars in the prescribed form.
SEO will verify the quantity of the goods actually received against that entered in the
system. He will enter the particulars in the system. The system would identify the
Examining Officer (if more than one are available)who would be carrying out physical
examination of goods. The system would also indicate the packages(the quantity and the
serial numbers) to be subjected to examination. SEO would write this information on the
checklist and hand it over to the exporter. He would hand over the original documents to
95
the Examining Officer. No examination order shall be given unless the goods have been
physically received in the Export Shed. It may, however, be clarified that Customs may
examine all the packages/goods in case of any discrepancy.
The Examining Officer may inspect and/or examine the shipment, as per instructions
contained in the checklist and enter the examination report in the system. There will be
no written examination report. He will then mark the Electronic S/B and forward the
checklist along with the original documents to the Appraiser/Supdt. in Charge. If the
Appraiser/Supdt. is satisfied that the particulars entered in the system conform to the
description given in the original documents (including AEPC quota and other
certifications) and the ;physical examination, he will proceed to give :Let Export order
for the shipment and inform the exporter. The Appraiser/Supdt. would retain the
checklist, the declaration and all original documents with him.
In case of any variation between the declaration in S/B and the documents or physical
examination report, the Appraiser/Supdt. will mark the electronic S/B to AC/DC Exports.
He will also forward the documents to AC/DC and advise the exporters to meet the
AC/DC for further action regarding settlement of dispute. In case the Exporter agrees
with the views of the Department, the S/B would be processed finally. Where the exporter
disputes the views of the Department, the case would be adjudicated following the
principles of natural justice.
4. GENERATION OF SHIPPING BILLS
As soon as the Shed Appraiser/Supdt.gives Let Export order, the system would print 6
copies of the S/B in case of Free and scheme S/B. In case of DEPB there are 7 S/B. If
the S/B (DEPB) is assessed provisionally, then EP copy will be generated only after
AC/DC finalises the assessment. On the examination report the Appraiser/Shed Supt.will
sign. On all the copies, the Appraiser/Shed Supdt., Examination Offer as well as
exporters representative/CHA will sign. Name and ID Card number of the Exporters
representative/CHA should be clearly mentioned below his signature.
The distribution of S/Bills is as follows:
96
2. Customs Copy 2. Customs copy
3. Exchange Control Copy 3. ExchangeControl Copy
4. Scheme Bill Copy 4. E.P.Copy
5. E.P.Copy 5. TR-1. TR-2 Copies
6. TR-1, TR-2 Copies
The original AEPC quota and other certificates will be retained with the S/Bills and
recorded in the Export Shed.
5. PAYMENT OF MERCHANT OVERTIME (MOT)
For the time being the present manual system for payment of Merchant Overtime (MOT)
charges will continue.
MOT charges will be required to be paid by exporter when the goods are examined by
Customs for allowing Let Export beyond the normal office hours. No charges would
be required to be paid on normal working days when the examination itself is being done
for Let Export upto 05.oo PM. In addition, no charges would be required to be paid if
the exporter wants the goods to be entered in CONCOR (CFS) only for meeting the quota
deadlines.
6. DRAWAL OF SAMPLES
Where the Appraiser of Customs orders for samples to be drawn and tested, the
Examining Officers will proceed to draw two samples from the consignment and enter
the particulars thereof along with name of the testing agency in the system. No registers
will be maintained for recording dates of samples drawn. Three copies of the test memo
will be sprepared and signed by the Examining Officer, the Appraiser and Exporter. The
disposal of the three copies would be as follows:
97
Triplicate to be handed over to the exporter.
AC/DC may, if he deems necessary, order for sample to be drawn for purposes other than
testing such as visual inspection and verification of description, market value enquiry etc.
11 QUERIES
With the discontinuation of the assessment of S/B in the Export Department, there should
not be any queries. The exporter, during examination, can clarify doubts, if any. In case
where the need arises for the detailed answer from the exporter, a query can be raised in
the system buy the Appraiser, but would need prior approval of AC/DC (Exports) The
S/B will remain pending and cannot be printed till the exporter replies to the query to the
satisfaction of the Assistant Commissioner/Dy. Commissioner
12 AMENDMENTS:
Corrections/amendments in the checklist can be made at the service centre provided the
system has not generated the S/B number. Where corrections are required to be made
after the generation of the S/B No. or, after the goods have been brought in the
docks/CFS, amendments will be carried out in the following manner.
If the goods have not yet been allowed Let Export, Assistant
Commissioner/Dy. Commissioner may allow the amendment.
Where the Let Export order has been given, the Addl./Joint Commissioner
(Exports) would allow the amendments
In both the cases, after the permission for amendments has been granted, the
Asstt./Dy. Commissioner(Exports) will approve the amendments on the
system. Where the print out of the S/B has already been granted, the exporter
will surrender all copies of the S/Bill to the Appraiser for cancellation before
amendment is approved in the system.
98
AC/DE (Export) will give permission for issue of short shipment certificate, shut out or
cancellation of S/B, on the basis of an application made by the exporter. The S/B
particulars would need to be cancelled /modified in the system before granting such
permission. AC/DC should check the status of the goods, before granting permission.
99
17.1 For export items, which are subject to export cess the corresponding serial
number of the Cess Schedule should be clearly mentioned. A printed
challan generated by the system would be handed over to the exporter. The
cess amount indicated should be paid in the Bank of India, Extension
Branch of CFS, under a receipt.
18.2 In respect of goods to be exported under claim for drawback, the exporters
will file declaration in the form. The declaration in the form would also be
required to be filed when the export goods are presented at the Export
Shed for examination & Let Export
18.3 The exporters who intend to export the goods through CFS under claim for
drawback are advised to open their account with the Bank of India branch
situated at CFS-Mulund. This is required to be done to enable direct credit
of the drawback amount to the exporters account, obviating the need for
issue of separate cheque by post. The exporters are required to indicate
their account number opened with the Bank of India branch at CFS-
Mulund. It would not be possible to accept any shipment for export under
claim for drawback in case the account number of the exporter in the bank
is not indicated in the declaration form.
18.4 The exporters are also required to give their account number along with
the details of the bank through which the export proceeds are to be
realized.
18.5 Export declarations involving a drawback amount of more than rupees one
lakh will be processed on screen by the AC/DC before the goods can be
brought for examination and for allowing Let Export:
100
18.6 The drawback claims are sanctioned subject to the provisions of the
Customs Act 1962, the Customs and Central Excise duties drawback rules
1995 and conditions prescribed under different sub-headings of the All
Industry rates as per notification number 26/2003-Cus(NT) dated 1.4.2003
as amended by notification number 12/2004-Cus(NT) dated 29-01-04.
18.7 After actual export of the goods, the drawback claims will be processed
through EDI system by the officers of drawback branch on first come first
serve basis. There is no need for filing separate drawback claim. The
claims will be processed, based on the Train Summary/Inward way bill,
submitted by CONCOR. The status of the S/Bill and sanction of
drawback claim can be ascertained from the query counter set up at the
service centre. If any query has been raised or deficiency noticed, the same
will be shown on the terminal and a printout of the query/deficiency may
be obtained by the authorized person or the exporter from the service
centre. The exporters are advised to reply to such queries expeditiously
and such replies shall be got entered in the EDI system at the service
centre . The claim comes in queue of the EDI system after reply to
queries/deficiencies is entered by the service centre.
18.8 Shipping Bills in respect of goods under claim for drawback against brand
rates would also be processed in the same manner, except that drawback
would be sanctioned only after the original band rate letter is produced
before the designated customs officer in the office of Asstt/Dy.
Commissioner (Export) and is entered in the system. The exporter should
specify the SS No. of drawback as 98.01 for provisional drawback.
18.9 All the claims sanctioned in a particular day will be enumerated in a scroll
and transferred to the Bank through EDI. The bank will credit the
drawback amount in the Account of the exporter on the next day and will
handle accounts of the exporters as per their instructions. Bank will also
send a fortnightly statement to the exporters about the payments of their
drawback claims.
101
19. EXPORT OF GOODS UNDER DEPB
While filing information as per the format, exporters are required to ensure that correct
Group Code No. of the goods being exported and the item No. of relevant Group is
clearly mentioned (item-wise details). The exporters/CHAs are advised to fill Item No, in
the same manner as given in the Public Notices issued by DGFT.
DEPB Credit in respect of items like formulations, injections etc. of group code No.62
(Chemicals) are at a specific percentage of credit rate for the relevant bulk drug. For
proper calculations of DEPB rate, exporters/CHAs are advised to claim export under the
specific Sl.No. if they are exporting injections and thereafter mention Sl.No. of Group
Code 62 of the bulk drug of which such injections have been made. The system will
calculate the said specific percentage of the DEPB rate of such bulk drugs, formulations
of which are being exported.
All the DEPB S/Bills having FOB value less than Rs.5 lakhs and/or DEPB rates less than
20% will be assessed by Appraiser/Supdt. (DEPB Cell) However, the S/Bill having FOB
value more than Rs.5 lakhs and/or credit rate 20% or more will be assessed by AC/DC
(Export) . Any query at the time assessing by Appraiser (DEPB cell) or AC/DC (Export)
may be obtained from the service centre and reply to the query has to be furnished
through service centre.
If the group code No., Item No. and FOB value declared is accepted by the
Appraiser/Supdt (DEPB Cell) or Asstt./Dy. Commissioner(Export), goods may be
brought and entered in the system. The examining officer will feed the examination
report and Let Export order will be given by Appraiser/Supdt. in the EDI system. Seven
copies of S/Bill will be printed for the purposes mentioned against each as under :
Customs Copy For record of Customs
Exporters copy For record of Exporters
E.P.Copy For office of DGFT
DPB copy For use in the import cell of ICD Bangalore for
registration of licence.
Exchange Control Copy For negotiating the export documents in bank
TR-1TR-2 copies
There is a provision for changing the Group Code No./Item No./Value for DEPB credit
purposes and such changes will be reflected in the print out of the S/Bill. Such charges
may be done by Appraiser/Supdt. (DEPB Cell) AC/DC(Export) as well as by
102
Appraiser/Supdt.(Exam.) The credit will be allowed by the DGFT at the rate/value (for
credit purposes only) as approved by Customs. The EP copy of the shipping bill shall be
used by the Exporters to obtain DEPB licence from DGFT.
In case, for credit purposes, the exporter accepts the lower value as determined by
customs, such lower value will be entered by Appraiser (DEPB Cell) AC/DC (Export) or
by Appraiser (Exam) for each item(s) Printout of S/Bill at item level will indicate for
FOB value as well value for DEPB credit purposes. Exporters are required to apply for
the DEPB Licence at the B value accepted by Customs and not the value declared by
them. However, as DEPB is issued on the basis of exchange rate applicable on the date of
Let Export, exporters are advised to apply for DEPB Licence at the value accepted by
Customs at the time of export multiplied by exchange rate on the date of Let
Export(LEO) (As per para 4.43 of EXIM Policy 2003 edition)
In case the exporter does not accept the value determined by the customs, the exports will
be allowed provisionally after taking samples for market enquiry. The words NOT
VALID FOR DEPB will be printed on all the copies of S/Bill and the exporters will be
not be eligible for DEPB licence against provisionally assessed S/Bills. In such cases, EP
copy of S/Bill will not be printed and only 6 copies will be printed. However, market
enquiries about value will be conducted in such cases and either after issue of the Show
Cause Notice the market value will be determined or may be accepted by the Exporters
on his own. In such cases where samples are drawn subject to market enquiry the copy of
the S/Bill for claiming DEPB will be generated after determination of value on the basis
of market enquiry and handed over to the exporters duly signed by Appraiser/Supdt. of
Customs. In such cases wherever market value has been found to be less than twice the
credit claimed, the market value will be mentioned in the EP copy of S/Bill as under :
Sample may also be drawn for the other purposes such as Chemical test,.
DEPB entitlement etc. The procedure of Provisional Assessment shall be
applicable mutates mutandis to above cases as well and the cases will be
103
finalized after necessary reports etc. arte received and unprinted copy of
S/Bill meant for DEPB Licence shall be released thereafter for printing.
The DEPB Licence in respect of exports made from this customs station
will be required to be registered at the same station. Before registration,
the concerned officer will verify the S/Bill(s) in the Licence from the
computer ensure that exports have been affected and value mentioned is as
determined by customs at the time of export. In cases of S/Bills assessed
provisionally, the verification will not be possible because S/Bill will not
be in the verification queue. The exporters are advised to obtain licences
for the items exported un DEPB scheme and not for non-DEPB items. If
the lower value for credit purposes has been accepted at the time of export,
the licenses shall be obtained only for such lower value and not for FOB
value declared in S/Bill or as per Bank realisation certificate. Similarly in
cases where market value of the goods is less than twice the credit availed,
the licence shall be obtained for 50% of the present market value of the
goods. The computer at the time of registration of licence will calculate
admissible credit on the basis of exchange rate on the date of realisation of
export proceeds (as per bank realisation certificate) for DEPB items only
and at customs approved value at the time of export. If the amount of
licence is more than the amount of credit calculated by the system, it will
not be possible to register a licence and reference will be made to DGFT
for correction of amount of credit. If the amount of credit as per customs
computer matches with the credit as per DEPB licence, computer will
generate printout regarding verification of the exports giving details like
S/Bill No. date , rate of credit, FOB value as approved by customs and
104
amount of credit etc. DEPB licence will be registered on the basis of
printout of verification report duly signed by AC/DC (Export). If a DEPB
Licence is having S/Bills exported from other ports in the same city the
exporters can get the licence registered at any of the ports from where he
intends to import the goods in the city after verification about exports from
other ports from where exports were affected. The same procedure will be
followed for DFRC Licences also.
20.1 The exporters can get the export goods examined by Central
Excise/Customs Officer at the factory even prior to filling of S/Bill. Self
sealing facility is also available. He shall obtain the examination report in
the form to this Public Notice duty signed and stamped by the examining
officer and supervision officer at the factory. The export invoice shall also
be signed and stamped by both the officers at the factory. Thereafter the
goods shall be brought to the concerned customs warehouse for the
purpose of clearance and subsequent Let Export. The exporters/CHA
shall present the goods for registration along with Examination Report,
ARE-1, Export Invoice duly signed by the Examining Officer and
supervising officer at the factory, check list, declaration in form and other
documents such as document of transportation, ARE-1, etc., to the
examiner in the concerned shed. After registration of goods, the shipping
bill will be marked to an examiner for verification of documents and seal.
If seal is found intact the S/Bill will be recommended for LEO, which will
be given by the shed appraiser. However if seal is not found intact, the
goods will be marked for examination and LEO will be given if the goods
are found in order.
105
21.1 All the exporters intending to file shipping bills under the EPCG scheme should
first get their EPCG licence registered with the Export section. For registration of EPCG
licence, the exporter/CHA shall produce the Xerox copy of EPCG licence to the service
centre for data entry. A printout of the relevant particulars entered will be given to the
exporter/CHA for his confirmation. After verifying the correctness of the particulars
entered, the said printout will be signed by the exporter. Thereafter, the original EPCG
licence along with the attested copy of the licence and the signed printout of the
particulars shall be presented to the Appraiser/Supt (EPCG Cell)The Appraiser/Supdt.
(EPCG Cell) would verify the particulars entered in the computer with original licence
and register the same in EDI system. The registration number of the EPCG Licence
would be furnished to the exporters/CHA, who shall note the same carefully for future
reference. The said registration number would need to be mentioned against respective
item on the declaration form filed for data entry of the s/bill, at the time of export of
goods. All the EPCG S/Bill would be processed on screen by the Appraiser/Supdt.(EPCG
Cell) and the AC/DC (Export). After processing of the EPCG S/Bill by the Appraiser
EPCG Cell and AC/DC Export, the goods can be presented at the Customs warehouse for
registration, examination and Let Export as in the case of other export goods. After
train summary is submitted to CONCOR, the S/Bill will be put to Appraiser queue for
logging/printing of ledger. After logging/printing of ledger, the EPCG bill will be moved
to history tables.
22.1 Only shipping bills pertaining to DEEC books issued on or after 1.4.95 will be
processed on the EDI system.
22.2 All the exporters intending to file s/bills under the DEEC scheme including those
under the claim for drawback should first get their DEEC Book registered with the CFS
Mulund. The registration can be done in the service centre.
The original DEEC book would need to be produced at the service centre for data entry.
A print out of the relevant particulars entered will be given to the exporter/CHA. The
106
DEEC Book would need to be presented to the Appraiser/Supdt., DEEC Cell, who would
verify the particulars entered in the computer with the original DEEC and register the
same in the EDI system. The registration No. of the DEEC Book would be furnished to
the exporter/CHA, which would need to be mentioned on the declaration forms at the
CFS for export of goods It would not be necessary thereafter for the exporter/CHA to
produce the original DEEC book for processing of the export declarations
22.3 Each book will be allotted a Registration No. should be indicated on the shipping
bills in the relevant columns.
22.4 Exporters/CHAs that will be filling S/Bills for export of goods under the DEEC
Scheme would be required to file additional declarations regarding
availment/non-availment of MODVAT or regarding observance/non-observance
of specified procedures prescribed in the Central Excise 1944 in the form. The
declaration should be supported by necessary certificates (ARE-1 or for non-
availment of MODVAT) issued by the jurisdiction Central Excise authorities. Let
Export would be allowed only after verification of all these certificates at the
time of examination of goods. The fact that the prescribed DEEC declaration is
being made should be clearly stated at the appropriate place in the declaration
being filled in the service centre or through RES-Mode.
22.5 All the export declarations for DEEC would be processed on screen by the
Appraiser/Supdt., Export Department and the AC/DC Exports. The said
processing would be akin to the processing of Bill of Entry on the EDI System
with provisions for query/reply. After the declarations have been so processed and
accepted, the goods can be presented at the Export Shed along with DEEC Books
registered in the4 EDI System so that the export declarations are processed
expeditiously.
22.6 Further, exporters availing of DEEC benefits in terms of various notifications
should file the relevant declarations.
22.7 It is further clarified as follows:
107
While giving details relating to DEEC operations in the form the exporters/CHAs
should indicate the S.No. of the goods being exported in the column titled ITEM
S.NO.IN DEEC BOOK PART E
If inputs mentioned in DEEC Import book only have been used in the
manufacture of the goods under export, in column titled Item Sr.No. in DEEC
Book Part C the exporters/CHAs are required to give S.No. of inputs in Part-C of
the DEEC Book and Exporters need not fill up column titled DESCRIPTION OF
RAW MATERIALS
If some inputs which are not in Part-C of the DEEC Book have been used in the
manufacture of the goods under export and the exporter wants to declare such
inputs, he shall give the description of such inputs in column titled
DESCRIPTION OF RAW MATERIALS
In the Col. IND/IMP, the exporters are required to write N, if the inputs used
are indigenous and M. if the inputs used are imported.
In column titled Cess Schedule Sl.No. the relevant Sl.No. of the Schedule
relating to Cess should be mentioned.
The details pertaining to export products i.e. input materials utilized as per SION should
be clearly mentioned in the declaration mentioned at Annexure A at the time of filing.
108
The Asstt. Commissioner/ Dy. Commissioner of Customs, CFS-Mulund may be
approached by exporters or their CHAs for settlement of any problems faced at any stage
of the export clearance.
The abbreviated form for Export Credit and Guarantee Corporation is ECGC. As the
name indicates this is a sort of guarantee or a sort of cover for the exporter. Let us now
see what this is all about.
Needless to say that an exporter before entering into a contract with the overseas buyer
for making any supply, takes care to ensure that the customer with whom he is dealing
have some credit worthiness. This he may be able to do either through the local agent
who is in a better position to know about the customer or through a bank or through any
of the exporters associates if happens to be in the area of the customer etc., But, in a
business things may change. The financial status of a customer may take drastic turn and
an established customer may go bankrupt within a short period of time.
Moreover, the buyer may be willing to make the payment, but there are other
environment which prevents him from effecting the transfer of funds through the bank.
For e.g., there could be break out of war, the balance of payment position of the country
may become unfavourable, there may be some coup of the government etc., and all
transactions could be sealed.
These are the risk factors for the exporters. What is the guarantee that he will get paid for
the supplies he has made?
109
With a view to provide support to Indian exporters, the Govt. of India set up the Export
Risk Insurance Corporation (ERIC) in 1957. This was transformed into Export Credit &
Guarantee Corporation Ltd. in 1964. In order to give the Indian identity a sharper focus
the name was again changed to Export Credit & Guarantee Corporation of India Ltd., in
1983. This is a company wholly owned by the Govt. of India and functions under the
administrative control of the Ministry of Commerce and managed by the Board of
Directors representing Government, Banking, Insurance, Trade, Industry etc.
Though one may insist for a Letter of Credit, still there could be some elements of risk
which we will study later here. Except getting an advance payment for the full value of
the supplies, any other mode of payment will have some risk.
Take the case of an exporter who has made supplies and before the payment is received
the buyer goes bankrupt or there comes some new provision or policy of Government of
the importing country preventing repatriation of the funds to other countries what
recourse the exporter has to recover his dues. The litigation procedure might be time
consuming and the exporter can never be sure of getting his full payment. An ECGC
cover a safeguard his interest to a great extent.
An exporter can either agree for sight payment or can made shipment on credit terms for
say 60 days, 90 days etc., In project exports the period of payment may extend to some
years. Longer the period of cre3dit given to the customer, more will be the risk factor for
the exporter.
In respect of sight bill, there is almost no risk because the customer has to make payment
first before he retires the documents. Therefore, before the title of the goods is passed on
to the customer, the importer makes the3 payment. However, in respect of usance bill
(credit bills) the buyer retires the documents by accepting the usance draft and takes
delivery of the goods. In case the customer goes bankrupt or become insolvent, before the
due date of payment, the exporter is totally at a loss. While big units may be able to
absorb the one time loss, small exporters will get broke even with one such transaction.
Here the ECGC comes into picture. It takes up the responsibility of paying the funds to
110
the exporter and makes all efforts including legal proceedings to recover the dues from
the customer, provided the exporter has taken an ECGC cover.
ECGC offers various types of insurance cover to protect the exporters interest. For each
type of cover an exporter has to take Policy specific to the respective requirements. The
Policy that is most commonly taken by the exporters is the Standard Policy or otherwise
called the Shipments (Comprehensive Risks) Policy.
For exporters with an annual export turnover in excess of Rs.50 lakhs, the Shipments
(Comprehensive Risks) Policy is the one intended for covering shipments on cash basis
or on short-term credit basis. (Credits not exceeding 180 days)
The risks covered this Policy is as follows effective from the date of shipment.:
Commercial Risks
Political Risks
111
Interruption or diversion of voyage outside India resulting in payment of
additional freight or insurance charges which cannot be recovered from the
buyer.
Any other cause of loss neither occurring outside India nor normally insured
by general insurers and beyond the control of both the e porters and the buyer.
The Standard Policy does not cover losses on account of following risks:
Shipments Covered
The Standard Policy is meant to cover all the shipments that may be made by an exporter
during a period of 24 months ahead. The policy cannot be issued for selected shipments,
112
selected buyer or selected markets. For specific requirements an exporter can opt for
different policy from the various services offered by the corporation
Exclusions:
However, shipments against confirmed L/C may be covered for political risks only. The
premium for cover under political risks will be less than that under the comprehensive
policy. ECGC may also agree to exclude certain items if the exporter is dealingt in
different distinct products.
Shipments to Associates:
Shipments to buyers i.e. the foreign buyers in whose business the exporter has financial
interest, are normally excluded from the Policy. However such shipments can be covered
against political risks.
Shipments by Air
Since the buyer is able to take delivery of the goods even without retiring the bank
documents, shipments by air are not covered under the policy. However, the exporter may
cover such shipments for payments under open terms. The exporter can have cover for
such shipments, if he has obtained Credit Limit on such buyers on open delivery terms
and also pays the premium at rates applicable to open delivery terms.
113
An exporter desiring to get the ECGC cover has to approach the office of the ECGC
making a Proposal. He must make his home work and be clear as to what will be his total
turnover during a year ad what will be the maximum amount he expects to be outstanding
from various buyers at a given point of time. Once this is clear he can apply for an Open
Policy for the maximum amount that he expects to be outstanding at a given point of
time. Suppose, he expects that at any given time his outstanding will be say Rs.50/- lakhs
then he can apply for a policy for this amount. After verification of the details of the
exporter, the ECGC may issue a open policy for Rs.50 lakhs with a validity of say 2
years. This is the first step.
Once the open policy is taken, as a next step the exporter must make out the list of the
customers to whom he expects to make shipment. For each and every customer he has
to apply to the ECGC to have a limit of liability fixed. That is to say, he has to declare the
maximum amount of bills he expects to be outstanding from each customer at a given
point of time. Based on the value of business dealing, suppose the exporter expects that
from customer A the outstanding may be Rs.10 lakhs. Then the exporter has to apply to
ECGC in the prescribed form for getting limit fixed for the customer. On receipt of the
application, ECGC will check for the credit worthiness of the customer either through
their own net work of offices globally, or through the customers bank or through some
reputed independent agency. Based on the credit report, ECGC will determine the limit
that can be fixed for the customer. If it feels that a limit of Rs.10 lakhs is in order, it will
advise the exporter of the same. Similarly, the exporter can have the limit fixed to all his
customers.
Once the limit is taken from ECGC, the exporter is free to make his shipments to the
various customers. If shipment for any customer is made before getting the limit fixed by
ECGC, no risk will be covered for that shipment.
114
For the risk the ECGC takes, it charges a premium on the value of the shipments actually
made. This is calculated as per the table to be supplied by ECGC which shows the
premium per Rs.100 of exports.
This table which gives the premium amount payable is framed based on the following.
The various countries around the globe are divided into different groups and are
classified as A1, A2, B1, B2, C1,C2 & D. The countries are grouped according to
their economic standard. For e.g. USA. Canada, UK are grouped in category A. The
premium amount will be less for group A countries and will be increased gradually to
group B, C & D countries.
The premium for group D countries will be more because they are all economically
weaker countries and payment risks are high
Again the premium table is based on the period of credit. The slab is for credits up to 90
days, 120 days, 180 days etc. Longer the credit period greater is the premium.
Thus, the premium will be least for group A countries and for the shorter credit
period and will be maximum for group D countries and for maximum credit period
The exporter has to send a monthly return in the prescribed form to ECGC declaring the
list of various shipments made and the amount of premium payable as per the premium
table. The exporter has to work out the total premium applicable on the shipment effected
and make payment to the ECGC
The exporter is also expected to file a Monthly Return in a separate form listing all the
Bills which are not paid on due date, if any, so that ECGC is periodically aware of the
defaulters.
In case of any eventuality when the buyer goes bankrupt, he may prefer a claim with
ECGC for payment.
115
The policy that is issued for shipment not covered under L/C is called Comprehensive
Policy meaning that the policy will cover both the commercial and political risks. While
commercial risk is that of the buyer going bankrupt, the political risk relates to the
countrys policies which may prevent the repatriation of funds or there could be outbreak
of war preventing financial transactions etc.
All the above relates to shipments not covered under L/C. However, an exporter can have
a separate ECGC Policy for shipments under L/C. Here the exporter will have the policy
covering only the political risk since under L/C, the bank stands as a guarantor and there
is no commercial risk.
An exporter must cover all his exports under ECGC, including bills on sight basis, and
are NOT under L/C. He cannot be selective to certain countries or certain buyer. The
cover is on whole turnover basis.
For all shipments under L/C, the buyer may take a separate policy to cover the political
risks. The premium for L/C shipments will be relatively less than that on comprehensive
policy.
Note: ECGC cover is not for non-payment on account of dispute on quality, damages to
the goods, theft, pilferage etc.
The cover is only when the party goes insolvent or there are some political risk due to
which the exporter is not in a position to get the payment immediately or on due date.
This cover must be distinguished from the general insurance.
1. STANDARD POLICY
An exporter whose annual export turnover is more than Rs.50 lakhs is eligible for this
policy
116
Exclusions permitted: Export to Associates
Letters of Credit
Consignment Exports
Political Risks
Highlights
117
Exclusions Permitted: Exports to Associates
Letters of Credit
Consignment Exports
Political Risks
Highlights
Highest coverage/compensation
Lowest premium rate
NCB of 5% every year
Discrepancy cover for LC
118
Automatic approval for resale/shipment upto 25% of GIV
Increased discretionary limit
These policies can be availed of by exporters who do not hold our Standard Policy or by
exporters having standard policy, in respect of shipment permitted to be excluded from
the purview of the standard policy. Exporters can pick and choose the contract/shipment
to be covered and indicate the type of cover required.
Period of Policy :
The policy would be valid for shipment(s) made from the date of the policy upto last date
allowed under the relevant contract for shipment.
Risk Covered:
Commercial Risks
Political risks
LC Opening Bank Risk
Insolvency risk on agent on conditions
119
Highlights:
The specific buyer policy provides cover for shipments made to a particular buyer or set
of buyers. An exporter not holding the standard policy can avail of this to cover their
shipments to one or more buyers. Exporters holding Standard Policy can also avail this
Policy for covering shipments to individuals Buyers, if all shipments to such buyers have
been permitted to be excluded from the purview of the Standard Policy.
Political Risks
Highlights:
120
1 Selective buyer can be insured
2 Option to exclude LC exports
3 Premium rate can be reduced proportionately
Turnover Policy is for the benefit of large exporters who contribute not less than Rs.10
lakhs per annum towards premium. The policy envisages projection of the export
turnover of the policyholder for a year and the initial determination on the premium
payable on that basis, subject to adjustment at the end of the year based on actual.
Political Risks
Highlights:
121
1. Simplified procedure for payment of premium
2. 10% of projected premium is waived when exports increase beyond
projection
3. Increased discretionary limit
The Buyer Exposure Policy is to insure the exporters having large number of shipments
with simplified procedure and rationalized premium. An exporters can chose to obtain
exposure based cover on the selected buyer. The cover would be cover against
commercial and political risk. The option to exclude LC shipment is available. If the
exporter has opted for commercial and political risks cover, failure of LC opening bank
with World Rank up to 25,000 as per latest Bankers Almanac is available. If exporters
opts for only political risks for LC exports premium at a less rate is offered
Political Risks
Percentage of Cover: 90% for Standard policyholder and 80% for others
122
Highlights:
Some exporters export to large number of buyers. The number of shipments made by
them is also quite high. In order to meet the needs of such exporters, Multi buyer
exposure policy is introduced. Cover would be available for exports to the buyers in
countries listed under open cover category as long as the buyer is not in default buyers
list maintained by the Corporation and available on its website www.ecgcindia.com. If
the transaction is on LC terms, failure of the LC opening bank in respect of exports
against LC will also covered, For banks with World Rank upto 25000 as per Latest
Bankers Almanac Cover in respect of exports to restricted over countries would not be
available under this policy
Political Risks
123
Important Obligations of the Exporters:
Highlights:
Economic liberalization and gradual removal of international barriers for trade and
commerce are opening up various new avenues of exports opportunities to Indian
exporters of quality goods. A method increasingly adopted by Indian exporters is
consignment exports where goods are shipped and held in stock overseas ready for sale to
overseas buyers, as and when orders are received. Thus separate Credit Insurance Policy
is introduce to cover exclusively shipments on consignment basis taking into account
their special features, providing adequate incentives and simplifying procedures
considerably
124
Risks covered:
Percentage of Cover: 90% for Standard Policyholders and 80% for others
Highlights:
A method adopted by India exporters is consignment exports where goods are shipped to
their own branch office overseas ready for sale to overseas buyers, as and when orders
are received. Thus separate credit insurance policy is introduce to cover exclusively
shipments by the exporters to their branches overseas on consignment basis taking into
account their special features, providing adequate incentives and simplifying the
procedures considerably.
125
Period of the Policy: 12 Months
Risks covered:
Percentage of Cover: 90% for Standard Policyholders and 80% for others
Highlights:
Services Policies offer protection to Indian firms against payments risks involved in
rendering services to foreign parties. A wide range of services, hiring or leasing can be
covered under these policies. The exporters can opt for whole Turnover Services Policy
or for Specific Services Policy depending on the nature of services provided. The
premium rates applicable. To standard policy will be applied for whole turnover services
126
policy and specific shipment policy (SSP-ST) premium rates will be applied for Specific
Service Policy.
Risks covered:
Percentage of Cover: 90% for Standard Policyholders and 80% for others
Highlights:
7. MATURITY FACTORING
The Maturity Factoring scheme, as designed by ECGC has unique features and does not
exactly fit into the conventional mould of maturity factoring. The changes devised are
intended to give the clients the benefits of full factoring services through the maturity
127
factoring scheme, thus effectively addressing the needs of exporters to avail of pre-
finance (advance) on the receivable, for their working capital requirements. One
important feature is the very role and special benefits envisaged for banks under the
scheme.
Benefits:
Exporters Obligations:
128
129