1.

1 INDUSTRY- Automobile Manufacturing

1.1.1 Introduction: Accounting for 7.1% of India’s GDP (Gross Domestic Product),
the Indian automobile industry stands amongst the largest industries in the world. The
industry accounts for 7.1 per cent of the country's Gross Domestic Product (GDP). The
leader of the industry being the two-wheeler segment constituting 80% of the total share
in market the major consumer is large young population and increasing working middle
class people. Furthermore, the sector’s growth can also be credited to company’s
growing interest towards tapping into the yet not much explored rural markets. The PV
(Passenger Vehicle) holds about 14% of the total share in the market.
In terms of the automobile exporting, India is one of the prominent figures and is
expecting even more rise in exports in coming future. The year on year growth in
exports of automobiles was 15.81% for Apr-Feb 2017-2018. Also, to add to it, there
have been numerous initiatives have been taken by GOI and many major players of the
industry with the aim of making India a market leader by 2020.

1.1.2 Performance for the year 2016-2017:

▪ Production- The vehicle production in total was 25,316,044 units for the year 2016-17
including all categories such as 3 wheelers, 2 wheelers, commercial and passenger
vehicles which was 24,016,599 in the year 2015-16. Hence there is a growth of about
5.4% since last year.
▪ Domestic Sales- For the year Apr-Mar, 17 passenger vehicle sales saw a growth of
9.23% over last year’s growth.
Following are the category and sub-category wise domestic sales growth for the
vehicles:

1
 Category Sales Growth %
Passenger Vehicles 9.23%
Passenger Cars 3.85%
Utility Vehicles 29.91%
Vans 2.37%
Commercial Vehicles 4.16%
Medium and Commercial 0.04%
Heavy Vehicles
Light Commercial Vehicles 7.41%
Three Wheelers -4.93%
Passenger Carrier -8.83%
Goods Carrier 12.75%
Two Wheelers 6.89%
Scooters 11.39%
Motorcycles 3.68%
Mopeds 23.02%
Fig. 1.1 - Sales Growth Table

9.23
10 Sales Growth
8 6.89

6
4.16
4

0
Passenger Vehicles Commercial Vehicles Three Wheelers Two Wheelers
-2

-4
-4.93
-6
Sales Growth

Fig. 1.2 – Sales Growth Graph

2
▪ Exports- Overall exports of automobiles saw a declination of 4.50% (i.e. -4.50%
growth) for the period Apr-Mar17.
Following is the category wise export growth for the vehicles:

Category Export Growth%

Passenger Vehicles 16.20%
Commercial Vehicles 4.99%
Three Wheelers -32.77%
Two Wheelers -5.78%
Fig. 1.3- Export Growth Table

20 Export Growth
16.2
10
4.99

0
Passenger Vehicles Commercial Vehicles Three Wheelers Two Wheelers
-5.78
-10

-20

-30
-32.77
-40
Export Growth

Fig. 1.4 - Export Growth Graph

3
1.1.3 Highlights of the market
Key Players (In terms of the units sold):

Fig. 1.5 - Market Share

Carmaker Units sold in FY 2017-18 Market share

Maruti Suzuki 1643467 49.98%

Hyundai Motor India 536241 16.30%

Mahindra & Mahindra 248859 7.56%

Tata Motors 210200 6.39%

Honda Cars India 170026 5.17%

Toyota Kirloskar 140645 4.27%

Ford India 90061 2.73%

4
India’s largest automaker Maruti Suzuki continues its strong domination on the Indian
car market and sold a total of over 1.64 million vehicles in the domestic market bringing
its market share very close to 50 percent. The company has not only managed to sustain
its huge sales but have also increased its market share in both urban and rural buyers.
New car launches like Maruti Suzuki Dzire, all-new Swift along with the constant
demand of Maruti Suzuki Baleno and Vitara Brezza helped the company to achieve this
huge growth. Maruti Suzuki Alto continues to remain the most sold car in India. The
company also exported about 1.23 lakh units to its export markets.

Indian-arm of the Korean carmaker, Hyundai Motor India has also grown by over 5
percent in India and overall managed to sell over 5.36 lakh cars and grabbing a market
share of 16.30 percent in India. The launch of facelifts of Hyundai Grand i10 and
Hyundai i20 along with all-new Verna backed by strong sales of Hyundai Creta has
seen its manufacturing units in Chennai running full houses to cope up with the
increasing demand. The company also exported over 1.53 lakh cars to various countries
especially middle-east.
Indian automakers, Mahindra & Mahindra and Tata Motors too have increased its
market share in India. While for Mahindra it was a year of consolidation and despite no
all-new launches by the company, it secured the number 3 spot in the Indian market by
selling over 2.48 lakh cars and a market share of over 7.56 percent. Mahindra will
launch a range of new vehicles this year which will further see more sales in India. Tata
Motors’ aggression and launching new products like Tigor and Neon has proved to be
extremely successful with Tata Tiago sales reaching all-time high, Tata
overtook Honda Cars India to become the fourth largest automaker in India. The
company has sold 210,200 cars in the recently concluding fiscal.
Other Japanese automakers including Honda Cars India and Toyota Kirloskar has seen
some decline in its sales over last few months. However, Honda Cars India finished the
year at industry growth rate and sold 170,026 units and the launch of its Honda WR-V
SUV played a crucial role for the company to sustain sales. The company will launch
its new Honda Amaze in May 2018 and will be followed by the return of Honda Civic
and Honda CR-V SUV.

5
Toyota in India sold about 1,40,645 units last year and expect it to gain market share
by launching the new Toyota Yaris that will take on the likes of Maruti Suzuki
Ciaz, Honda City and Hyundai Verna. Toyota owns about 4.27 percent market share in
India.

Renault’s sales in India has dropped by a massive 25 percent but still recorded a sales
of over a lakh cars which is more than what Nissan and Volkswagen sold in India.
Renault’s market share stands at 3.10 percent.
Ford India’s sales are reported at 90,061 units declining marginally by about 1.4
percent. However, Ford’s exports have gone up by 15 percent and the company
exported over 1.81 lakh cars out of India overtaking Hyundai to become the number 1
exporter in the financial year 2017-18.

Over 7 carmakers in India including the likes of Fiat Chrysler India, Nissan India,
Volkswagen India, Skoda Auto India, General Motors (sales before stopping domestic
operations) Force Motors and Isuzu combined together have a market share of 4.41
percent. Strong sales of Jeep Compass SUV helped FCA India to sell over 19,358 units.
With no new products, Nissan-Datsun and Volkswagen sales in India continue to
decline and stood at 52,796 units and 45,329 units respectively. Skoda Auto’s sales in
India has gone up by over 21 percent at 17,387 units.

The outlook for FY2019 is not all good for the auto industry. As per RBI survey,
consumer confidence in top cities has seen a decline, 20-top cities that contribute to
about 50% of the sales have shown slow growth in the last 3-4 years; however, the rural
growth story will continue to support the industry in FY19. Price of all main commodity
used in vehicle manufacturing has increased sharply in last one year.
While most of the automakers have announced price hikes, expect the prices of the
cars/SUVs to further rise in coming months. Vehicles finance rates are still high and as
India and automakers get ready to face the BS-VI transition in 2020 will see many
postponing buying of new vehicles. SIAM expects growth would also be mildly
supported by public spending in rural regions.

6
For the financial year 2017, Maruti Suzuki emerged to be the market leader in the
passenger vehicles category holding 49.98% of the share in the market. During financial
year 2017-2018, the company sold 1,779,574 units i.e. 13.4% increase in the sales from
last year. On the other hand, for the commercial vehicle’s category, TATA Motors
turned out to be the leader for financial year 2017 with 42% market share. For the 2
wheelers, Honda and Hero MotoCorp are the major players with 29.81% and 38.33%
holding in the market share respectively as of Feb, 18. For passenger carriers, Bajaj
auto is at the top with holding in the market share of 59.9% while for the goods carrier,
Piaggio leads having a market share of 49.7% in the financial year 2017.

1.2 ABOUT THE COMPANY

1.2.1 Brief History of HICL

Honda Cars India Ltd is an automobile manufacturing company based in Greater Noida,
India. Established in Dec,95, it was earlier known as Honda Siel Cars India Ltd, having
changed its name in Sept,2012. It functions as a subsidiary the well-established
Japanese firm Honda Motor Co., Ltd.

Honda Siel Cars India Ltd., (HSCI) started its operations as a combined undertaking
between Honda Motor Co. Ltd., Japan and Siel Ltd, a Siddharth Shriram Group
company. Its objective was to provide Honda’s modern car models and technologies to
Indian consumers. The company has invested a total Rs.2400+ crore in India till date
in its 2 manufacturing facilities, Rs.1620 crores in Greater Noida facility and Rs.784
crores in Tapukara, Rajasthan plant.

In 1997, HCIL’s first hi-tech manufacturing plant was established in Greater Noida,
Uttar Pradesh. This project with a land area of 150 acre has an annual production
capacity of 1 Lakh units. The initial capacity of the second plant is situated at Tapukara
60,000 units per annum. This plant started its operation in Sept, 2008.

In India, Honda has two manufacturing facilities: Greater Noida, Uttar Pradesh and
Tapukara, Rajasthan.

7
 Address Greater Noida Plant-

1.2.2 Brief outlook of various operations (or products/services) in the

company

Along with the primary function of Honda Cars Ltd. i.e. to manufacture and sell
passenger cars, HCIL also offers other services such as exchange services for the
consumers looking to upgrade their old car with a new one. It also offers sales and after
sales services like repair and maintenance services, spare parts etc. through a wide
network of distribution that includes (authorized) official dealership facilities
throughout the country. Following are the major products of the company:

• Honda Accord
• Honda Civic
• Honda City
• Honda Jazz
• Honda Amaze
• Honda Brio
• Honda CR-V

The cars that are manufactured/ assembled at Greater Noida plan are Accord, City, Jazz
and Civic, while models such as CR-V are exported as “Completely built units” from
Japan. Automobiles from Honda are known for their superior and innovative design,
cutting- edge technology, and various other proven advantages such as dependability,
energy efficiency and endurance.

8
1.2.3 Future Plans

Honda has tasted success with a lot of cars in India recently with the WR-V and of
course, we cannot forget the City's contribution to the company's growing pie in India.
However, the Japanese Car maker wants to make big strides in the country and it will
be launching 6 new cars in the Indian market in the next three years. For this, it will be
making a significant investment in the Indian market. HONDA has seen its share fall
from 7 percent back in 2014 to about 5 per cent in 2017 and the company has lost out
to new car launches in new segments by companies like Maruti Suzuki and even
Hyundai.

In the fiscal year 2018-19, Honda will launch 3 new cars in India and this includes the
new CR-V, the Civic and even the new-age Amaze. Considering that the annual
passenger vehicle sales in India crossed 3 million units last year, Honda really has to
make a mark in the country and with the next generation of the Amaze it plans to do
exactly that.

Yochiro Ueno, Managing Director, Honda Cars India said, "With the Amaze, we will
tap the volumes market and we are sure that the car will be successful because of the
package on offer." But the Amaze is not the only car that will bring in all the moolah.
The Civic badge makes a return to India after 4 years and it's because of public demand
more than a portfolio addition. "Our customers have been asking for the Civic in India
and we actually have no option but to respectfully accept their demand and that's why
the badge makes a return to India."

However, given the fact that the company is utilising only 70 percent of its annual
production capacity of 300,000 units in India, there need to be additions made to the
portfolio to drive the demand and of course the production too. The company's global
line-up is different and hence it's a bit difficult for the carmaker to bring all those cars
here and now considering that the tax on CKD units has gone up, well, it's left with
little choice.

To become a big player in the market, Honda will have to improve its market share
significantly and it's poised to do so, "We are looking at new products for India and of
course, the feasibility of global products to come here. We have a plan in place and
9
there are significant investments that we are making in that direction." With the new
investment and products, Honda plans to double its share in the Indian market. It won't
be easy though, given the fact that Kia Motors is waiting in the wings to launch its new
products and both Hyundai and Maruti are eyeing new segments.

1.2.4 HONDA COMPANY: A SWOT ANALYSIS

Honda motor company is not just an average Japanese car manufacturer. Originally
known for motorcycles, Honda has managed to elude the dominate keiretsu system in
Japan and become one of the dominant auto-mobile manufactures in the world

1.2.4.1 STRENGTHS

• Honda has a reputation for producing high quality products from cars to
motorcycles to lawn mowers.
• They are the largest manufacturer of motorcycles in the world.
• Honda has won many awards for initial quality and customer satisfaction.
• Their research has afforded them competitiveness in innovative products.
• They were a pioneer in engineering low emissions internal combustion and hybrid
technology.
• Honda is the only other manufacturer outside of Mitsubishi to branch out into many
other areas outside of automobiles, like motorcycles, scooters, power equipment
(generators), Asimo Robot.

1.2.4.2 WEAKNESSES

• Due to the latest technology being used in Honda products it is difficult to keep the
prices low.
• Intense competition in the automobile segment means limited market share growth.
• Honda had to recall a few of their models for corrective measures which caused a
lot of hue and cry.

10
1.2.4.3 OPPORTUNITIES

• To continue progressing low emission vehicles and alternative power sources.

• Another area of opportunity would be developing nations like China and India.
These are large markets, and cheap dependable transportation would be a hot seller.
• Developing hybrid Honda cars and fuel-efficient cars for the future.
• Tapping emerging markets across the world and building a global brand.
• Fast growing automobile market can be used by Honda to increase their business.

1.2.4.4 THREATS

• Too many competitors in automotive industry.

• Expanding market size of compact cars (currently it is around 76%)
• Regaining the lead of low emissions is a risky proposition as other companies are
coming out with new and cost-effective ideas of producing low emission vehicles.
• Increasing steel prices will make it difficult for the companies to continue the
current pricing strategy.

1.2.5 Business Management Division

➢ Business Management Division- Departmental structure

Gaku Nakanishi
San
Director-BMD-
Finance

Mayush Jain San

Operating Head

Gaurav Agarwal
R. Duggal San Ajay Arora San K.L Gupta San Vaibhav Jain San
San
Accounts Costing MIS Taxation Finance and
Banking:
Vaibhav Jain
San (Export
Incentive)

Fig. 1.6 - Departmental structure

11
 ➢ BMD Departmental structure: -

Business
Management
Division (BMD)

Accounts Finance and

Accounts Payable Costing Taxation
Receivable Banking

Non OE Direct tax

OE Indirect tax

Export Refund

Fixed Assets

Fig. 1.7 –BMD Department

1.3 ABOUT THE TOPIC

With the emerging international markets and increasing interdependence of the

countries on each other for various resources, almost every industry is relying on the
international trade. These narrowing trade barriers have resulted in an era where the
business knows no boundaries and the number of foreign players entering into the
Indian market is increasing rapidly. Exports and exports play a very crucial role in
determining the state of any economy and maintaining an optimal level of both becomes
a major concern for the country. An imbalance in these foreign trades can result in
deficit or surplus in the trade balance which can further impact the overall state of the
economy.

Regardless of the dependence on foreign trade, most developing countries are sceptical
about their trade relations with developed countries because of their belief that in the
fulfilment of the personal interest of the developed country, the interests of the
12
developing country may get overlooked. Since India being a developing country, it
becomes a matter of utmost importance for the authorities to carefully formulate and
design the foreign trade policy of the country in order to protect the interest of the nation
from being exploited in the international market.

This process of foreign trading i.e. exporting and exporting is very complex and
systematically regulated by the government hence it becomes essential for any company
to have organised methodology for overseeing the processes and to account for the
same. Honda Card India ltd is such company which is involved in large scale foreign
trades for its major activity i.e. car manufacturing.

This project is carried out at Honda Cars India ltd. Greater Noida on the topic “A
STUDY ON THE PROCESS OF EXPORT INCENTIVE REFUND”.

This topic is selected to understand the accounting systems in a company which is

involved in global transactions. Export accounting includes processes such as
validating, recording, accounting all the transactions for every export incentive to be
received (DBK or MEIS) by the company so that they can claim drawback on exported
goods used in the manufacture of export goods and funds are utilised efficiently or
refund the excessive DBK and MEIS received with interest.

This report includes a detailed explanation of how the accounting is carried out starting
from receiving various documents, verification, booking etc. to how much incentive is
to be received through duty drawback or how much custom duty is to paid after
deducting MEIS incentive or how much is to be refunded to govt. for receiving
excessive or discrepancy export incentive with interest.

1.3.1 MEIS Scheme: Govt incentives for Export of Goods

The Merchandise Export from India Scheme (MEIS Scheme) is a newly launched
scheme launched as a part of the new Foreign Trade Policy and is applicable from 2015
to 2020. This new scheme replaces the 5 similar incentive schemes available earlier
under Foreign Trade Policy 2014-2019 and rationalises the incentives given under these
schemes. Under the MEIS Scheme – the Govt has allocated more than 22,000 crore per

13
annum for exports. The following are the 5 Schemes which have now been replaced by
the MEIS Scheme:-

1. Focus Product Scheme (FPS)

2. Market Linked Focus Product Scheme (MLFPS)
3. Focus Market Scheme (FMS)
4. Agriculture Infrastructure Incentive Scrip (AIIS)
5. Vishesh Krishi Gramin Upaj Yojana (VKGUY)

The new Foreign Trade Policy for 2015-2020 has not only revamped the incentives and
rewards for Merchandise Exporters but also for Service Exporters through the SEIS
Scheme.

1.3.2 Duty Credit Scrips issued under MEIS Scheme

The incentives awarded to exporters under this scheme are issued in the form of Duty
Credit Scrips. These Duty Credit Scrips are freely transferable and can be used for the
payment of Customs Duty. In case the holder of such Duty Credit Scrips wishes to sell
these scrips, he can easily sell them to anyone as these scrips are freely transferable.

Application for obtaining Duty Credit Scrips under MEIS shall be filed within a period
of: -

1. 12 months from the Let Export Order (LEO) date, or

2. 3 months from the date of:
o Uploading of EDI Shipping Bills onto the DGFT Server by Customs
o Printing/ Release of Shipping Bills for Non-EDI Shipping Bills
(whichever is later)

1.3.2.1 Validity Period and Revalidation of Scrips

• Duty Credit Scrip to be valid for a period of 18 months from the date of issue
and must be valid on the date on the date on which actual debit of duty is made.

14
 • Revalidation of Duty Credit Scrip shall not be permitted unless the validity has
expired while in the custody of Customs Authority/ RA.

1.3.2.2 Facility for Splitting of Scrips

• Duty Credit Scrips shall be issued on request subject to a minimum of Rs. 5

Lakh each and multiples thereof may also be issued at the time of application.
• In case of EDI enabled ports = Split certificates shall be permitted with the same
port of Registration as appearing on the original scrip after issuance.
• In case of export through non-EDI Ports – Facility of split not allowed after
issue of Scrip.

1.3.2.3 Commodities for which such Incentives under MEIS are awarded

The commodities for which such incentives under the MEIS Scheme are awarded are
classified into various different product groups based on the following: -

1. Highest Rewards for Agricultural and Village industry products; Value added
and packages products; Eco-friendly and green products; Labour Intensive
Products and Products with large no. of producers and/or exporters, Industrial
Products from potential winning sectors and Hi-tech products
2. First time support provided for export of Fruits, Vegetables, Dairy Products, Oil
Meals, Ayush & Herbal Products, Paper, Paper Board Products.
3. Global support provided to Fruits, Flowers, Vegetables, Tea, Coffee, Spices;
Cereals Preparation, Shellac, Essential Oils, Processed Foods, Eco Friendly
Products that add value to waste; Marine Products; Handloom, Coir, Jute
Products and Technical Textiles, Carpets Handmade; Other Textiles and
Readymade Garments supported in the market in the European Union, USA,
Canada and Japan; Handicraft, Sports Goods and Furniture, wood articles;
4. Support to major markets given to Pharmaceuticals, Herbals, Surgicals;
Industrial Machinery, IC Engine, Machine Tools, Parts, Auto Components/
Parts; Hand Tools, Pumps of all types; automobiles, two-wheelers, bicycles,
ships, planes, chemicals, plastics, rubber, ceramic and glass, Leather Garments,

15
 Saddlery Items, Footwear, Steel Furniture, Prefabs, Lighters, Wood, Paper,
Stationary; Iron, Steel and Base Metals, Product.

1.3.2.4 Procedure for filing Application under MEIS Scheme

1. Application for claiming incentives under the MEIS Scheme shall be filed
online in the specified format i.e. ANF-3A using Digital Signature.
2. The application for export of goods shall be filed with the concerned Regional
Authority of DGFT on DGFT Website.
3. Separate application shall be filed for each port of export.
4. An application can be filed with up to a maximum of 50 shipping bills
5. In case of exports through the EDI Port – the hard copy of the application,
shipping bill, e-BRC and RCMC are not required to be submitted. However, the
proof of landing is required to be submitted.
6. Relevant EDI shipping bill and e-BRC to be linked with the online application.
7. In case of exports through non-EDI-port, the hard copy of the export promotion
copy of non-EDI shipping bills and proof of landing in the prescribed manner
is required to be submitted. But the hard copies of applications to DGFT,
electronic bank realisation certificate (e-BRC) and RCMC is not required to be
submitted. Scanned copies of any other prescribed documents for claiming scrip
are required to be submitted.
8. The documents which are not required to be submitted (in original), are required
to be retained by the applicant for a period of 3 years from the date of issuance
of scrip. The licensing authority may call for such documents in original at any
time within 3 years.
9. In case of failure to submit the original documents when demanded by the
licensing authority, the rewards granted are required to be refunded along with
interest.
10. No manual feeding is allowed for EDI Shipments to the applicants in the online
system.

16
 11. “Let Export Date” to be taken as the relevant date for determination of eligibility
of product, corresponding ITC (HS) code, and markets for claiming rewards
under MEIS.

The above procedure is to be followed for claiming incentives under the MEIS Scheme
in all cases except in case of export of goods through e-commerce.

1.3.2.5 Procedure for claiming Incentives under MEIS for Export through e-
commerce

In case of export of goods through courier or foreign post office using e-commerce,
incentives under this scheme are awarded for FOB Value upto Rs. 25,000 per
consignment. In case the FOB Value is more than Rs. 25,000, the rewards are limited
on value limited to Rs. 25,000 only.

The following procedure is to be followed for claiming incentives under the MEIS
Scheme for export of Goods through Courier or Foreign Post Office using e-commerce:

1. Application to be filed online using Digital Signature in Form ANF-3D

2. For proof of landing, the exporter may submit express operator landing
certificate online web tracking print out indicating airway bill no.
3. Separate application to be filed for each port of export
4. The submitted documents shall be examined manually by the RA before grant
of scrip.

1.3.2.6 Determination of Jurisdictional Officer of DGFT

• The applicant shall have the option to choose the Jurisdictional RA on the basis
of Corporate Office/ Registered Office/ Head Office/ Branch Office address
endorsed on the IEC for submitting the application.
• Option need to be exercised at the beginning of the financial year
• Once an option is exercised, no change would be allowed for claims relating to
that year.

17
1.3.2.7 Re-export of Defective/ Unfit Goods

• Goods exported which are found defective or unfit for use, may be re-exported,
as per DoR guidelines.
• In case the Duty Credit Scrip has been used for Imports, the Customs shall issue
a certificate containing the particulars of scrips used, date of import of re-
exported goods and the amount debited while importing such goods.
• Based on this certificate, upon application, a fresh scrip shall be issued by
concerned RA to the extent of 98% of debited amount, with the same port of
registration and valid for a period equivalent to balance period available on date
of import of the defective/ unfit goods.

1.3.3 Risk Management System for checking Authenticity

A Risk Management system is in operation whereby every month the Computer System
in DGFT office, on random basis, selects 10% of cases for each RA where scrips have
already been issued, under each RA Scheme. RA in turn may call for original
documents in all such selected cases for further examination in detail.

In case any discrepancy and/or over claim is found on such examination, the applicant
shall be under obligation to rectify such discrepancy and/or refund over claim in cash
with interest. The original holder of scrip, however, may refund such over claim by
surrendering the same scrip whether partially issued or fully unutilized, without interest.

The Regional Authority may also ask for original proof of landing certificate, annexures
attached to ANF’s or any other document, which has been uploaded digitally at any
time within 3 years from the date of issue of scrip.

Failure to submit such documents in original would make the applicant liable to refund
the rewards granted with interest. It would be the responsibility of the applicant to
maintain such documents, certificate etc. for a period of at least 3 years from the date
of issuance of scrips.

18
1.3.4 Other Salient Features of MEIS Scheme

1. FOB Value means the price of goods at the time of loading at the domestic port
and do not include loading, shipment and insurance costs.
2. SEZ units and EOU/ STP/ BTP/ EHTP units not availing Direct Tax Exemption
also are also eligible to claim benefit under this scheme.
3. There is no conditionality attached to these Duty Credit Scrips.
4. The exporter shall mention the following declaration on all categories of
Shipping Bills in order to be eligible for claiming rewards under MEIS – “We
intent to claim rewards under Merchandise Exports from India Scheme (MEIS)”
5. The Free foreign exchange earned through International Credit Cards and other
Instruments as permitted by RBI shall also be taken into account for
computation of value of exports.

1.3.5 MEIS (Merchandise Exports from India Scheme)

Merchandise Exports from India Scheme (MEIS) under Foreign Trade Policy of India
(FTP 2015-20) is one of the two schemes introduced in Foreign Trade Policy of India
2015-20, as a part of Exports from India Scheme. (The other scheme is SEIS, Service
Exports from India Scheme).

Merchandise Exports from India Scheme (MEIS) under Foreign Trade Policy of India
(FTP 2015-20) is one of the two schemes introduced in Foreign Trade Policy of India
2015-20, as a part of Exports from India Scheme.

This scheme aims at making India’s products more competitive in the global markets,
the scheme provides incentive in the form of duty credit scrip to the exporter to
compensate for his loss on payment of duties. The incentive is paid as percentage of the
realized FOB value (in free foreign exchange) for notified goods going to notified
markets. With the aim in making India’s products more competitive in the global
markets, the scheme provides incentive in the form of duty credit scrip to the exporter
to compensate for his loss on payment of duties. The incentive is paid as percentage of
the realized FOB value (in free foreign exchange) for notified goods going to notified
markets.
19
Honda deals in exporting two things a) Cars and b) Parts. So, the company receives
incentives on both types of the export. This incentive given by government is not in
cash form instead they provide a document called “MEIS License”. The job of Account
Executive is to record this incentive amount in the Books of the company.

1.3.5.1 MEIS Calculation

The License is recorded in the following format in MS Excel:

License Number -

License Date -

License Amount -

MEIS
S. No. Shipping Bill No. Shipping Date Utilised FOB Amt.

- - - - -

- - - - -

Fig. 1.8 – Licence Format

All the things except MEIS Amount is given in the License provided by the
government. MEIS Amount is calculated by the Executive through a formula.

After recording these licenses, the next step is Reconciliation of the MEIS amounts with
that of the government amount or incentive.

The process for this is explained in the later part of the Report.

20
 For example

Claim Meis interest

Exchang Deposit Meis
S. No. SB No. SB Date SB value Utilised FOB Meis % MEIS incentive
e rate date days
(USD) (to be refunded)

15.7.201
1 1234 14.02.2016 20,762,900 415,258 66.54 490 882 2% 32,604 11,818
8
15.07.20
2 1235 05.09.2018 25,784,250 515,685 65.89 820 678 2% 54,030 15,054
18
15.7.201
3 1236 14.02.2017 30,805,600 616,112 65.24 1150 474 2% 75,456 18,290
9
15.07.20
4 1237 05.09.2019 35,826,950 716,539 64.59 1480 270 2% 96,882 21,526

21
19
15.7.201
5 1238 14.02.2017 40,848,300 816,966 63.94 1810 66 2% 118,308 24,762
9

Fig. 1.9- MEIS Table

15.07.20
6 1239 05.09.2019 45,869,650 917,393 63.29 2140 -138 2% 139,734 27,998
19
15.7.202
7 1240 14.02.2018 50,891,000 1,017,820 62.64 2470 -342 2% 161,160 31,234
0
15.07.20
8 1241 05.09.2020 55,912,350 1,118,247 61.99 2800 -546 2% 182,586 34,470
20
15.7.202
9 1242 14.02.2018 60,933,700 1,218,674 61.34 3130 -750 2% 204,012 37,706
0
15.07.20
10 1243 05.09.2020 65,955,050 1,319,101 60.69 3460 -954 2% 225,438 40,942
20
1.3.5.2 DBK (Duty Drawback)

Duty drawback (DBK) incentive schemes are issued by the Directorate of Drawback.
DBK is the rebate of any duty that is chargeable on exported or excisable materials that
you use to manufacture or process goods that you then export from India. Duty
drawback is the sum of the following amounts:

Drawback, also known as Duty Drawback is defined by the United States Customs
and Border Protection (CBP) as the refund of certain duties, internal and revenue taxes
and certain fees collected upon the importation of goods.

Customs duty that is paid on exported input goods. This includes Special Addition Duty
(SAD)

Excise duty that is paid on indigenous input goods

Duty that is paid on packing material

If customs or excise duty is paid for a portion of the input goods, only that portion is
eligible for duty drawback. Input goods that you obtain without paying customs or
excise duty are not eligible for DBK.

Rate types for duty drawback include the following:

All Industry Rates – These rates apply to various product categories as a percentage
of the Free on Board (FOB) price of the exported products. A value cap is applied to
certain product categories.

Brand Rate – This rate pertains only to special products.

Special Brand Rate – A company can apply for this rate if the actual duty that is paid
on the input goods is higher than the All Industry Rate that is fixed for the product.

1.3.5.3 Calculating duty drawback

Allowed duty drawback is calculated based on the following factors:

The minimum percent of duty drawback

The minimum amount of duty drawback

22
The duty drawback amount

You set the minimum percent of duty drawback and the minimum amount of duty
drawback in the DBK area in the Incentive scheme parameters form. The following
conditions are applied to these values to determine the amount of duty drawback that is
allowed.

Allowed duty
Condition
drawback

The duty drawback amount is greater than the minimum percent of Duty
duty drawback and greater than the minimum amount of duty drawback
drawback. amount

The duty drawback amount is less than the minimum percent of 0 (zero)
duty drawback and less than the minimum amount of duty
drawback.

If the duty drawback amount is greater than or equal to the Duty

minimum amount of duty drawback, the following condition drawback
applies: amount

The drawback amount is greater than or equal to (export value) *

(minimum percent of duty drawback/100)

If the duty drawback amount is less than or equal to the minimum 0 (zero)
amount of duty drawback, the following condition applies:

The drawback amount is less than (export value) * (minimum

percent of duty drawback/100)

23
Examples of calculations for allowed duty drawback

The following examples illustrate various duty drawback calculations. In these

examples, the following values remain constant:

ASSUMED: EXPORTED GOODS IN PCS 80 DRAWBACK IS IN (%) =7%

FOB VALUE IN SHIPPING BILL IS =1,25,000

DRAWBACK WILL BE =RS. 8750.00 (125000*7%) =RS.8,750

IF VALE CAP ON THIS ITEM IS =RS.1500 PER PIECE

THEN FOB VALUE WILL BE =1500*80= RS. 1,20,000

THEN DRAWBACK WILL BE RS. 8400 BUT DRAWBACK WILL BE

ADMISSIBLE FOR RS. 8,400

Minimum amount for duty drawback = 500.00

Minimum percent for duty drawback = 1.00

Example 1

The duty drawback amount is greater than the minimum amount for duty drawback and
the minimum percent for duty drawback.

Drawback amount = 509.25

509.25 > 500.00 and 509.25 > 5.00

Allowed duty drawback = 509.25

Example 2

The duty drawback amount is greater than or equal to the minimum amount for duty
drawback.

Drawback amount = 6,208.00

Export value = 64,000.00

24
64,000.00 * (1.00)/100) = 640.00

6,208.00 ≥ 640.00

Allowed duty drawback = 6,208.00

EXPORT INCENTIVE ACCOUNTING

Discrepancy/
Over claimed

DBK MEIS

Refund Refund MEIS+

DBK+INTEREST INTEREST

TO DGFT

Fig. 1.10 – Incentive Accounting

25
INCENTIVE RATE: -

EXPORT
INCENTIVE
ACCOUNTING

CAR PARTS

DBK MEIS

BANK LICENCE- 2%

CAR PARTS

MT- 3% AT- 3.7% MT- 1.5% AT- 2%

Fig. 1.11 – Incentive Rate

26
2.1 Objectives

1. To learn the flow of work in the export accounting system.

2. To have a complete idea of cost break-up by the company.
3. To ensure the incentives received from MEIS License provided by government are
properly recorded.
4. To ascertain and report DBK or MEIS interest that has to be refunded to the govt.
(DGFT) for discrepancy or over claim of incentive issued under RA scheme.

2.2 Research Design:

Research design is a conceptual structure within which research is conducted.

“A Research design is the arrangement of conditions for collection and analysis of

data in a manner that aims to combine relevance to the research purpose with economy
in procedures.”

Research design can be of various types.

• Descriptive.
• Exploratory.
• Experimental.
• Analytical.

❖ Research Design of my study is DESCRIPTIVE.

Descriptive research is defined as a research method that describes the
characteristics of the population or phenomenon that is being studied. This
methodology focuses more on the “what” of their search subject rather than the
“why” of their search subject.

The topic for the research study is MEIS Export Incentive Refund of HCIL and the
nature of the topic is theoretical and descriptive. So, the conduct the research study the
type of research suitable is descriptive research only. The data are collected from import

27
 & export records, past records of the companies performing in export sector. The
descriptive research has met the requirement of study

2.3 Sources of Data

For the study purpose secondary data was used. The secondary data collected from
records of the company’s import and export. The data of past sales also have been
collected. The secondary data have been collected to cover every aspect of the study.
The secondary data shows the sales of the company Shipping bill wise. These data used
in combination as per need of the study. These data having different merits and demerits
and have serves our purpose of the study. These are explained below:

2.3.1 Secondary data:

Secondary Research is a common research method; it involves using information that

others have gathered through primary research.

➢ Advantages of secondary data:

• The primary advantage of secondary data is that it is cheaper and faster to access.

• Secondly, it provides a way to access the work of the best scholars all over the world.

• Thirdly, secondary data gives a frame of mind to the researcher that in which direction
he/she should go for the specific research.

• Fourthly secondary data save time, efforts and money and add to the value of the
research study.

➢ Purpose:

This technique is performed in order to:

▪ Assess easy, low-cost and quick knowledge;

▪ Clarify the research question;
▪ Help align the focus of primary research in a larger scale and can also help to identify
the answer; and

28
▪ Rule out potentially irrelevant project proposals (ex. The proposed work may have
already been carried out).

➢ Variations:

There are two types of Secondary Research hence two types of data collected from this
technique:

➢ Internal Secondary Data consists of information gathered within researcher’s firm (i.e.

customers databases and reports from past primary research)

➢ External Secondary Data consists of information gathered outside of researcher’s firm

(i.e. government statistics and information from media sources)

Using the Technique:

Secondary Research can happen at any stage of the creative process. Each Secondary
Research process involves 4 steps that can be repeated as necessary:

1. Identifying the subject domain and where to acquire the information;

2. Gathering existing data;
3. Comparing data from different sources, if necessary and if feasible; and
4. Analysing the data.

1. IDENTIFYING WHAT & WHERE

Before starting any Secondary Research, it is helpful to define the research

topic/domain. Next, the researcher would prepare a list of questions to be solved by the
end of the process.

This step helps narrow down the topic and also allows researcher to have an active role
in conducting the research. After identifying the research domain, the researcher would
look at various sources of information and decide where to get necessary data.

29
 Good sources of information include:

▪ Internal data such as databases, sale reports, past primary researches;

▪ Government statistics and information from government agencies.
▪ Information resources companies (ex. Passport GMID or Datamonitor360); and
▪ Different media such as articles from respected magazines and newspaper, reports from
university research centres or non-profit agency.

2.GATHERING EXISTING DATA

At this step, researcher looks at the topic and breaks it down in to keywords and their
synonyms. For example, when looking at the topic: “What are the trends in woman
clothing market?” the keywords would be “clothing”, “women” and “trend”.
Accordingly, their synonyms would be “apparel”, “female” and “fashion”. Using these
words to search can save researcher a lot of time in finding valuable data and also
warrant no important information to be missed out.

3. NORMALIZING DATA IF NEEDED

Sometimes researchers would want to normalize the data to make it easier to analyse
later. By comparing different Companies data.

4. ANALYZING DATA

At this final step, the researcher should seek actionable findings to move the project
forward. It is important to look back at the list of research questions from the first step
and ask if they have all been answered and if there is any new question been raised. The
most important goal is to come up with future actions for the project.

30
 Inputs:

▪ Most of the time, Secondary Research would start during or after brainstorming
process. Brainstorming brings in ideas or concepts/themes that would become the topic
of secondary research.
▪ Topic for secondary research can also come from different stages of the creative
process; basically, anytime a new question arises in the creative process, secondary
research can be used to find the answer.

Outputs:

▪ Secondary Research provides answers to the uncertainties and questions, and will
narrow down the subject domain making it easier for primary research to be conducted
later on.

31
 3.1 IMPORTANT DOCUMENTS REQUIRED FOR
RECONCILIATION PROCESSING:

3.1.1 Export control sheet:

Export control sheet is an excel database which is prepared by recording all the exported
transactions and various other expenses incidental to these transactions for the purpose
of having a complete cost break-up of the export by the company and also as a control
system to ensure that all the expenses of any particular shipment have been recorded
and accounted for.

A.) LOT No.: A unique internal identification number allotted to every shipment for
identification of various costs associated with it. It is also intimation from the EXIM
department to the BMD department that the shipment has arrived for clearance.

Lot Consists of:

1. Commercial Invoice- It is primarily required in international shipping. It differs from

any standard invoice in the fact that it contains thorough and in-depth information of
the shipments. In addition to the general details such as the information of receiver
(purchaser), shipper (supplier or seller), it also contains shipment specific details like
what are the sale/purchase terms, payment terms, date; volume/weight and quantity (in
terms of no. of pieces). Other important information like description of the goods as
well as packaging, per unit and total value along with various costs such as shipping
and insurance charges is also included in it.

2. Shipping Invoice- Goods that are being sent from one entity (company) to another are
generally accounted for in the shipping invoice. Basic information such as the sender’s
name and address as well as receiver’s name and address are mentioned in the shipping
invoice. The details of the items – no. of items with cost of each and the total cost of
the shipment including discounts, various applicable taxes is also included.

3. Bill of Lading: It is a document that is issued either by the carrier company or its
representative. This document acts as a contract between shipper and the carrier to
32
 transport the goods to a defined destination. In addition to its role as a receipt of the
goods to be transported, it is required to be presented at destination to take the delivery
of the goods. The form of the issued bill of lading is either negotiable or non-negotiable.
Various compensation claims in case of disputes regarding ownership, delay in
delivery, damage etc. require bill of lading. Either Hague rule or the newer Hague-
Visby rule govern the responsibilities/obligations, rights and liabilities of the shipper
and the carrier stated in the bill of lading. Following details are mentioned in the bill of
lading apart from the general other details:
• Name of the consignee and the consignor
• Departure as well as arrival port name
• Departure and arrival dates
• Container’s name
• Packing list (list of transported items)
• Cargo’s volume and/or weight
• Rate of freight and total amount

4. Packing List: Document that states the list of all the contents of the shipment is called
a packing list. The main purpose of a packing list is to declare to the various concerned
bodies such as government authorities, transportation agency about the shipment
contents so that the package is handled accordingly. It is prepared by the selling party
to be sent to the location of the items to be shipped in order to accurately ship only the
listed items in right quantity. Once the items as per the list are ready to be shipped, the
list is forwarded along with them to their destination for further reference.
Packing list contains the following:
• Quantity details
• Detail description of items in the shipment
• Weight of the shipment (Net and gross)
• Does not include the pricing of the items

33
5. Bill of entry: It is a document that is prepared by a qualified customs agent/broker to
declare in preciseness the nature and quantity of the goods that are being exported or
exported along with their value. Custom authorities duly examine the bill of entry to
ensure that the information in accurately represented and it confirms with the
regulations and tariff.
The form of the bill of entry is prescribed under the Bill of Entry Regulations-1971 and
it serves as foundation on the basis of which the goods can be cleared. The bill of entry
is prepared in three copies. Following are the three types of bill of entry:
• Bill of entry for home consumption used when the duty is paid to the customs
department before the delivery of the goods.
• Bill of entry for warehousing which is used when goods are to be kept in the custom
bonded warehouse
• Bill of for ex-bond clearance for home consumption is the third kind of bill of entry
required for the clearance of the goods from custom bonded warehouse on the payment
of the custom duty.

Goods are categorised into three classes namely: goods that are not a subject to custom
duty i.e. free goods; goods that are for the purpose of self-consumption i.e. goods for
home consumption and the last category that is subjected to the custom duty where
goods are kept in bond until the duty has been paid i.e. bonded goods. For HCIL the
goods exported are the goods for home consumption. Apart from the various details
that are already mentioned in the bill of lading and invoices, bill of entry contains
information such as export licence number, name of clearing port, rate of payable duty
and the final duty amount etc.

6. INCOERMS: ‘Incoterms’ stands for International Commercial Terms. These terms are
recognised internationally for trading and are stated in the sales contract. The purpose
of these terms is to make the seller and the buyer, aware of the below stated:
▪ Their share of the costs involved in the transportation such as freight, taxes, insurance
▪ The pickup location as well as the destination (drop point) of the shipment with respect
to the seller and buyer.
▪ Their responsibility of the goods at each stage of transportation

34
 Following is the current set of Incoterms used:
• EXW (‘Ex Works’): The seller makes the goods available to be collected at their
premises and the buyer is responsible for all other risks, transportation costs, taxes and
duties from that point onwards. This term is commonly used when quoting a price.
• FCA (‘Free Carrier’): The seller gives the goods, cleared for export, to the buyer’s
carrier at a specified place. The buyer is then responsible for getting transported to the
specified place of final delivery. This term is commonly used for containers travelling
by more than one mode of transport.
• CPT (‘Carriage Paid To’): The seller pays to transport the goods to the specified
destination. Responsibility for the goods transfers to the buyer when the seller passes
them to the first carrier.
• CIP (‘Carriage and Insurance Paid’): The seller pays for insurance as well as transport
to the specified destination. Responsibility for the goods transfers to the buyer when
the seller passes them to the first carrier. CIP (‘Carriage and Insurance Paid’) is
commonly used for goods being transported by container by more than one mode of
transport. If transporting only by sea, CIF is often used.
• FOB (‘Free on Board’): The seller must get the goods ready for export and load them
onto the specified ship. The buyer and seller share the costs and risks when the goods
are on board. This term is not used for goods transported in containers by more than
one mode of transport (FCA is usually used for this).
• CFR (‘Cost and Freight’): The seller must pay the costs of bringing the goods to the
specified port. The buyer is responsible for risks when the goods are loaded onto the
ship.
• CIF (‘Cost, Insurance and Freight’): The seller must pay the costs of bringing the goods
to the specified port. They also pay for insurance. The buyer is responsible for risks
when the goods are loaded onto the ship.
• DDP/DTP (‘Delivered Duty Paid’): The seller is responsible for delivering the goods
to the named destination in the buyer’s country, including all costs involved.

35
 3.2 PROCESS

Receiving and
recording of lots

Payment and
Bank Reconciliation settlement of
custom duty

Recording and
MEIS Licence
payment of various
Reconciliation
intermediaries

RECONCILIATIONS

Fig. 3.1- Complete Process

1.) RECEIVING AND RECORDING OF LOTS:

A lot contains various documents (refer: Important documents-Lot). The information
from these documents is recorded into the database called the Export Control Sheet
(ECS).
➢ PROCESS NARRATIVE-Export Invoice Processing:

▪ P1: Invoice and Bill of Lading of the shipment order is received lot wise by an executive
in the Finance and Accounts department from the Export department.

36
▪ P2: Invoices are updated model and variant wise for KD parts in the ICS (Export
Control Sheet) after referring the ‘Tracking chart’ provided by the Purchase department
(PPC). In other cases, details of the shipment are captured through the invoice and the
Bill of Lading.
▪ P3: Exchange rate for the conversion of the foreign currency into Indian rupee is picked
through SAP as per the shipment date in the Bill of Lading.
o Entry can be parked through win shuttle by uploading excel file in the SAP by executive
(F&A) which is further posted by the authorised personnel after verification.

Information Information captured from

captured from bill of lading
invoices
Lot no. Bill of lading date
Invoice no. Gross weight (Chargeable
Invoice date weight)
Sale terms Shipment mode
sale terms Name of shipping/airlines
Supplier details Buyer source
Source country
Quantity(No.of
No. and size of containers in
pieces)
case the shipment mode is
Cost amount
sea.
Foreign currency

Fig. 3.2 – SB Information

37
2.) PAYMENT AND SETTLEMENT OF CUSTOM DUTY:

Following documents are sent to the CHA by the exporter:

a) Invoice
b) Sales contract
c) Packing list
d) Bill of lading
e) Pre-shipment inspection certificate
f) Certificate of origin
g) Bond copy
h) Insurance certificate

➢ PROCESS NARRATIVE-Export Custom duty:

▪ P1: The shipment (goods) are received at the Indian sea port/airport
▪ P2: The shipment is then moved to ICD for custom clearance
▪ P3: CHA prepares bill of entry and sends it to the receiving company (HCIL-EXIM
Department) as a checklist for verification and approval.
▪ P4: After approval, the CHA files Bill of entry in customs department
▪ P5: After filing the bill is send to EXIM department and after deducting meis incentive
custom duty is due for payment.
▪ P6: EXIM department generates and submits the payment request form to the finance
department
▪ P7: Finance department verifies the custom duty from the custom department’s site and
payment is released i.e. duty is paid
▪ P8: After the payment, the payment request form is forwarded to the account’s division
for recording

3.) RECORDING AND PAYMENT OF VARIOUS INTERMEDIARIES:

➢ PROCESS NARRATIVE-:
▪ P1: Submission of the invoices by vendor to the Exim department after completion of
work.
38
▪ P2: Verification of work and validation of the rates by Exim department
▪ P3: Preparation of payment request form by Exim department and submission of
payment request form with invoices to the designated approving authority
▪ P4: Submission of the duly approved payment request form with invoices to BMD
department
▪ P5: Second level of verification of the work and rate by the BMD department
▪ P6: Recording of the invoices in ICS and booking of invoices in accounting software-
SAP
▪ P7: Preparation of payment of booked invoices
▪ P8: Submission of payment vouchers with invoices to the designated approving
authority
▪ P9: Final payment is made by the bank as per the payment sheet sent to them by the
BMD (Banking team)

39
Fig. 3.3 – MEIS Recording

40
Fig. 3.4 – MEIS Mastersheet

41
4). RECONCILIATIONS
Reconciliation is one of the oldest and most reliable technique for identifying errors
and taking corrective actions. In Export accounting also reconciliation is used to
identify errors at various different levels of accounting. Reconciliation is a crucial
control activity to be performed internally and it is requirement for the firms that are
public to perform reconciliation as a constituent of the financial close.
Major reconciliations used at Honda Cars India Ltd. Are:
▪ Bank Reconciliation
▪ MEIS Licence Reconciliation

Inventory Account- Dr. 1

There can be several reasons for such discrepancies. Following are mentioned some of
the most common reasons:

▪ Manual punching errors- Since the entries in the system are made manually, there are
chances that the date is not entered correctly which results in gaps.
▪ Tax credit calculations error
▪ Exchange rate gaps
▪ All expenses not booked and transferred in time
▪ Wrong calculation of provisions- Expenses that constitute a large portion of the landed
cost need to be booked at the time of the receiving of the goods even if the bills/ invoices
are not received. In this case when the actual amount of the invoice is not accurately
known, the most probable amount derived from the contractual cost is considered for
booking. When the actual invoice in received and difference is found in the booking
amount and the invoice amount, reconciliation is done to rectify the gaps.

4A. MEIS Licence Reconciliation-

Merchandise Exports from India Scheme (MEIS) under Foreign Trade Policy of India
(FTP 2015-20) is one of the two schemes introduced in Foreign Trade Policy of India
2015-20, as a part of Exports from India Scheme.

42
This scheme aims at making India’s products more competitive in the global markets,
the scheme provides incentive in the form of duty credit scrip to the exporter to
compensate for his loss on payment of duties. The incentive is paid as percentage of the
realized FOB value (in free foreign exchange) for notified goods going to notified
markets. With the aim in making India’s products more competitive in the global
markets, the scheme provides incentive in the form of duty credit scrip to the exporter
to compensate for his loss on payment of duties. The incentive is paid as percentage of
the realized FOB value (in free foreign exchange) for notified goods going to notified
markets.

Since the MEIS Licence account is maintained by both the CHA as he utilizes it for
clearing the goods as well as by HCIL, there might be some gap in the MEIS Licence
account balances of these two accounts. Hence reconciliation is required to make sure
that there are no differences in the balances of the two accounts.

HCIL

Scrip No. Value Utilization License Balance

3310024251 100 50 50

510369194 200 200 0

3310028054 500 350 150

800 600 200

Fig. 3.5 – MEIS Scrip Table

43
 CHA

Scrip No. Value Utilization LICENCE BALANCE

3310024251 100 40 60

510369194 200 200 -

3310028054 500 400 100

800 640 160

Fig. 3.6 – Meis Scrip of cars/parts exported to China

DUTY SCRIP SCRIP RECONCILIATION WITH CHA

LICENCE NO. BALANCE AS PER HCIL BALANCE AS PER CHA DIFF REMARKS

3310024251 50 60 -10

510369194 - - -

3310028054 150 100 50 B/E or Inform not Received

TOTAL 200 160 40

Fig. 3.7 – Incentive Reconciliation Scrip of cars/parts exported to China

4B.) Bank Reconciliation

Bank reconciliation is the oldest kind of reconciliation used by the organisation for
tracking the status of receipt and payment. Ideally, the balance of the organisation book
and the bank balance of the organisation should be same. However, in practical
scenario, there are differences in these two accounts and hence reconciliation is required
to identify the reason of the difference and to take corrective actions.

44
Following table represents a bank reconciliation case:

RECONCILIATION ABC BANK TILL 30.04.2018

DESCRIPTION USD REMARKS

BALANCE AS PER HCIL 8500

Add: Debited by ABC Bank not Credit By HCIL

123E 29-Apr-18 750 To be booked by HCIL

123F 30-Apr-18 1000 To be booked by HCIL

Add: Debited by HCIL not Credit By ABC Bank

Less: Credited by ABC Bank not Debited by HCIL

Less: Credited by HCIL but not Debited by ABC Bank

BALANCE AS PER ABC Bank 10250

Fig. 3.8 – Incentive Reconciliation Table

45
 Possible reasons for the differences in the account balance:

▪ One of the major reasons for the difference is the deduction of bank charges from the
bank account. These charges are not reflected in the company books on real time basis
and hence the difference occurs.
Every foreign transaction requires bank charges. Two types of bank charges are
applicable on foreign transactions:
i. Normal bank transaction charges
ii. Foreign currency conversion charges
▪ Check issued by HCIL but not yet cashed in by the supplier/ service provider
▪ Check directly deposited by the customer but not yet informed to HCIL
▪ Payment entries made in the company books but payment not yet actually made. The
whole process from making of payment entries to the actual payment requires
approximately 2 days of time.

Fig. 3.9 – MEIS Incentive Reconciliation Working

46
Fig. 3.10 – DBK Incentive Reconciliation Working

47
4.1 LIMITATOINS

1. Manual entry of data.

2. Requires at least 2 months of data processing time.
3. Access to information was restricted.
4. Change in government policy as the MEIS is still getting updated
new according to the situations.

48
 5.1 CONCLUSION

In this changing business environment, the fast growth in technology and infrastructure
along with the government, the companies are more and more relying upon
international markets for their resources.

Every company that is involved in trading with other countries for daily operations
(importing and exporting) faces great complexity in accounting for these transactions.
Since the whole procedure of exporting in itself is very time consuming and completely
processing a single shipment may take up to months also there are various costs
involved with a single shipment at various levels of the process, it becomes necessary
for the company to efficiently record all the details related to an order including various
relevant dates, documents, cost break-up, etc. so as to keep a track of all the details for
the purpose of making and/or receiving payment from various bodies involved from the
point of when an order is placed until the order is received and payments have been
finally made.The whole process flow has to be smooth, on time and efficient as any
error at any point may lead to wrong accounting and wrong payments which will
ultimately be a loss for the company.

Key Learning Points

1. Organisational culture and functioning of various departments.

2. Execution of export accounting process.
3. Impact of various cost drivers on the final cost
4. Operating accounting software SAP.
5. Government regulations and statutes on the international trades
6. Understanding the Export Incentive accounting process, the various bodies and
documents involved in the export process.
7. Verification of various invoices and other documents.
8. Record the details of the invoices in the export control sheet.
9. Analyse the incentive to be received in the export.
10. Verify these costs and arrive at a final incentive to company for each exported shipment.
11. Account for the costs in the company books.
12. Reconciliation of accounts.

49
5.2 RECOMMENDATIONS

As the invoice processing involves large amount of manual entries in the database, the
chances of errors are more. It is recommended that a common invoice raising software
is used by all the vendors/ service providers so that there is a common format for all
invoices and hence they can be digitally processed.

The MEIS reconciliation is not considered until the notice from RA office, the
excessive incentive received by the company should be self-analysed to have timely
processing of incentive refund.

50
 BIBLIOGRAPHY
1.) https://www.hondacarindia.com/about/honda-motor-co-founder
2.) https://www.scribd.com/doc/27867083/Summer-Report-on-Export-Export-Procedure
3.) http://www.siamindia.com/statistics.aspx?mpgid=8&pgidtrail=9
4.) https://www.ibef.org/industry/india-automobiles.aspx
5.) https://iccwbo.org/
6.) https://www.eepcindia.org/MEIS/about-MEIS-scheme.aspx
7.) http://dgft.gov.in/policies/merchandise-exports-india-schememeis
8.) https://www.charteredclub.com/meis-exporters/
9.) https://www.indiafilings.com/learn/merchandise-exports-from-india- scheme-meis/
10.) http://pib.nic.in/newsite/PrintRelease.aspx?relid=148539

51