100 Marks Project on Export Procedure and Documentation Finally Completed

October 12, 2017 | Author: santosh12jan1986 | Category: Services (Economics), Trade, Business, Economies, Shipping Service
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EXPORT PROCEDURE AND DOCUMENTATION PROJECT REPORT ON EXPORT PROCEDURE & DOCUMENTATION

PREPARED BY DIVYA THINGALAYA

UNDER THE GUIDANCE OF Prof. MONA

SUBMITTED TO UNIVERSITY OF MUMBAI IN PARTIAL FULFILLMENT OF THE REQUIREMENT

FOR THE AWARD OF BACHELOR OF MANAGEMENT STUDIES

ACADEMIC YEAR 2006 - 2007

1

EXPORT PROCEDURE AND DOCUMENTATION

DECLARATION

I Miss. DIVYA THINGALAYA OF VIVEK COLLEGE OF COMMERCE OF T.Y.B.M.S. (SEMESTER VI) HEREBY DECLARE THAT I HAVE COMPLETED THIS PROJECT ON EXPORT PROCEDURE AND DOCUMENTATION IN THE ACADEMIC YEAR2006 – 2007. THE INFORMATION SUBMITTED IS TRUE AND ORIGINAL TO THE BEST OF MY KNOWLEDGE.

DATE: PLACE:

(SIGNATURE OF THE STUDENT)

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EXPORT PROCEDURE AND DOCUMENTATION

CERTIFICATE

I Prof. MONA HERBY CERTIFY THAT Miss. DIVYA THINGALAYA OF VIVEK COLLEGE OF COMMERCE OF T.Y.B.M.S. (SEMESTER VI) HAS COMPLETED THE PROJECT ON EXPORT PROCEDURE AND DOCUMENTATION IN THE ACADEMIC YEAR 2006 – 2007. THE INFORMATION SUBMITTED IS TRUE, ORIGINAL AND AUTHENTIC TO THE BEST OF MY KNOWLEDGE.

SIGNATURE OF PRINCIPLE

SIGNATURE OF PROJECT

GUIDE (Prof. SUNIL .B. MANTRI)

(Prof. MONA)

3

EXPORT PROCEDURE AND DOCUMENTATION

ACKNOWLEDGEMENT IT IS THE MATTER OF GREAT PLEASURE AND PRIVILEGE TO BE ABLE TO PRESENT THIS PROJECT REPORT ON EXPORT PROCEDURE AND DOCUMENTATION. THE COMPILATION OF THE PROJECT IS A MILESTONE IN THE LIFE OF THE MANAGEMENT STUDENT AND ITS EXECUTION IS INEVITABLE WITH THE CO-OPERATION OF THE PROJECT GUIDE. I WISH TO RECORD A DEEP SENSE OF RESPECT AND GRATITUDE TO MY PROJECT GUIDE, PROF. MONA FOR HER ENCOURAGEMENT TO COURSE OF MY WORK. IT IS DUE TO THE ENDURING EFFORT AND GUIDANCE OF MY GUIDE THAT ULTIMATELY MADE IT SUCCESS. I ALSO TAKE THIS OPPORTUNITY TO EXPRESS MY DEEP REGARDS AND GRATITUDE TO THE PRINCIPLE SUNIL MANTRI AND WOULD LIKE TO THANK THE HEAD OF B.M.S. DEPARTMENT PROF. MONA WHO GAVE US GUIDANCE TO TAKE UP AND PURSUE THE PROJECT I CANNOT JUST CONDONE THE VALUABLE OPPORTUNITY GIVE TO ME BY THE UNIVERSITY OF MUMBAI FOR COMPILING AND SUBMITTING THE PROJECT, WHICH I FEEL IS AN OPPORTUNITY TO EXPRESS MY VIEWS ABOUT EXPORT PROCEDURE AND DOCUMENTATION. I ACKNOWLEDGE MY INDEBTNESS TO VARIOUS AUTHORS FOR MAKING USE OF VALUABLE INFORMATION LIBERALLY. IT IS MY PROUD PRIVILEGE TO EXPRESS MY DEEP SENSE OF APPRECIATION AND GRATITUDE TO MY PARENTS AND FRIENDS FOR THEIR SUPPORT AND CO-OPERATION IN THE COURSE OF THE PROJECT EITHER DIRECTLY OR INDIRECTLY INVOLVED IN TIME WITH THEIR VALUABLE CONTRIBUTION. 4

EXPORT PROCEDURE AND DOCUMENTATION

INDEX SERIAL NUMBER

CONTENT

1 2 3 4

INTRODUCTION HOW TO SET UP AN EXPORT ORGANISATION HOW ONE BEGINS TO DO EXPORT EXPORT SALES & CONTRACT TERMS &

PAGE NUMBE R 6 8 14 17

5 6 7

CONGITIONS TERMS OF SHIPMENT – INCOTERMS. PROCESSING AN EXPORT ORDER FINANCIAL RISK INVOLVED IN FOREIGN

20 27 28

8 9 10

TRADE EXPORT DOCUMENTS OCTROI QUALITY CONTROL

PRE-SHIPMENT

29 53 57

11 12 13

INSPECTION SHIPPING ANG CUSTOMS FORMALITIES SALES TAXES EXEMPTION PROCEDURE METHODS OF RECEIVING PAYMENTS

60 66 68

14 15

AGAINST EXPORTS THE LETTER OF CREDIT PREPARATION AND

71 88

&

SUBMISSION

OF

DOCUMENTS FOR BANK NEGOTIATIONOR 16 17

PURCHASE SHIPMENT THROUGH COURIERS CUSTOM PROCEDURE FOR EXPORT UNDER

91 92

18

EDI SYSTEM THE ECGC COVER.

112

INTRODUCTION India has a mission to capture 2% of the global share of trade by 2010, up from the present level of less than 1%. Export is one of the lucrative business activities in India. The government also provides various promotional schemes to the exporters for 5

EXPORT PROCEDURE AND DOCUMENTATION earning valuable foreign exchange for the country and for meeting their requirements for 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. TWO CLASSES OF EXPORTS: Physical Exports: If the goods physically go out of the country or services are rendered outside the country then it is called as physical export. Deemed Exports: Where the goods do not go out of the country physically they can be termed as deemed exports. This will be subject to certain conditions as prescribed by the DGFT. Under Deemed Exports, the goods may be supplied to the manufacturer exporter who ultimately export a finished product of which this supply forms a part and ultimately go out of the country. E.g. Supply of fabrics to the garment exporter who exports the garments made out of the said fabric. 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.

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EXPORT PROCEDURE AND DOCUMENTATION TYPES OF EXPORTERS: Exporters can be basically classified into two groups •

Manufacturer Exporter: As the exporter has the facility to manufacturer the product he intends to export and hence he exports the products manufactured by him.



Merchant Exporter: An exporter who does not have the facility to manufacture an item. But, he procures the same from other manufacturers or from the market and exports the same. An exporter can be both a manufacturer exporter as well as a merchant

exporter, he can export product manufactured by him or he can export items bought from the market. Once it is decided to export, it is mandatory on your part to follow certain procedures, rules and regulations as prescribed by various regulatory authorities such as DGFT, RBI, and Customs. These procedures, rules and regulations are laid down in the Exim Policy 2004-09, Exchange Control Manual, Customs Act etc. Accordingly Export documents are required to be prepared keeping in view of the requirement of the foreign buyers and our regulatory authorities.

HOW TO SET UP AN EXPORT ORGANISATION The proper selection of organization depends upon •

Ability to raise finance.



Capacity to bear the risk. 7

EXPORT PROCEDURE AND DOCUMENTATION •

Desire to exercise control over the business.



Nature of regulatory framework applicable to anyone If the size of the business is small, it would be advantageous to form a sole

proprietary business organization. It can be set up easily without much expenses and legal formalities. It is subjected to only few governmental regulations. However, the biggest disadvantage of sole proprietorship business is limited ability to raise funds which restricts the growth. Besides the owner has unlimited personal liabilities. In order to avoid this disadvantage, it is advisable to form a partnership firm. 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. It can be a private limited company or a public limited company. A private limited can be formed by just two persons subscribing to its share capital. However, the number of its shareholders cannot exceed 50, public cannot be invited to subscribe to its capital and the members right to transfer their share is restricted. On the other hand, a pubic limited company has a minimum of seven members. There is no limit on the maximum number of its members. It can invite the public to subscribe to its capital and permit the transfer of share. A public limited company offers enormous potential for growth because of access to substantial funds. The liquidity of investment is high because of easiness of transfer of shares. However its formation can be recommended only when the size of the business is large. For small business, a sole proprietary concern or a partnership firm will be the most suitable form of business organization. In case it is

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EXPORT PROCEDURE AND DOCUMENTATION decided to incorporate a private limited company, the same is to be registered with the Registrar of Companies. CHOOSING APPROPRIATE MODE OF OPERATIONS: You can choose any of the following modes of operations •

Merchant Exporter i.e. buying the goods from the market or from the manufacturer and then selling it to foreign buyers.



Manufacturer Exporter i.e. manufacturing the goods yourself for export.



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.



Service provider i.e. providing service from India to another country.

NAMING THE BUSINESS Whatever form of business organization has been finally decided, naming the business is an essential task for every exporter. The name and style should be soft, attractive, short and meaningful. Open a current account in the name of the organisation in whose name you intend to export. It is advisable to open the account with a bank which is authorised to deal in Foreign Exchange.

STRUCTURE OF AN EXPORT ORGANISATION •

marketing manager for generating sales



Commercial manager for looking activities of the execution of the orders.



staff personnel for carrying out the day-to-day activities namely

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EXPORT PROCEDURE AND DOCUMENTATION 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 for banks. o Follow-up with the bank on dispatch of documents, receipt of payment, availment of bank loans etc. •

To look into the requirement of licenses, claiming of export benefits fiiling of documents with the Government Authorities in Discharge of Export Obligations, if any, filing of returns to the various Government Agencies which are mandatory, prepare and keep an information bank of various transaction of the company, their domestic as well as international competitors.



An office boy for doing leg work.



A clearing and forwarding agent to handle the documents and the goods in the customs premises\ in the ports of lading. 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.

REGISTRATION WITH REGIONAL LICENCING AUTHORITIES OBTAINING IMPORTER EXPORTER CODE (IEC) NUMBER. 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 10

EXPORT PROCEDURE AND DOCUMENTATION 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 RBI’s 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.

IEC EXEMPT CATEGORIES. The following importer exporter is exempted from the requirement of IEC code number. •

Ministries \ Department of Central or State Government. 11

EXPORT PROCEDURE AND DOCUMENTATION •

Person importing or exporting goods for their personal use not connected with trade or manufacture or agriculture.



Persons importing\exporting goods from\to Nepal & Myanmar provided the CIF value of single consignment does exceed Indian Rs. 25000\-.

APPLICATION FOR OBTAINING AN IEC 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.

IDENTITY CARD (For conducting transactions with the office of DGFT): 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

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EXPORT PROCEDURE AND DOCUMENTATION 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. RCMC (Registration-Cum-Membership Certificate) – REGISTRATION WITH EXPORT PROMOTION COUNCILS – 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. REGISTRATION WITH SALES TAX AUTHORITIES: Goods that are to be shipped out of the country for export are eligible for exemptions from both Sales Tax and Central Sales Tax. For this purpose, exporter should get himself registered with the Sale Tax Authority of is state after following the procedures prescribed under the Sales Tax Act applicable to his state.

HOW ONE BEGINS TO DO EXPORT Before entering into the venture of exports, one must look for the product to be exported and the market where he intends to export.

13

EXPORT PROCEDURE AND DOCUMENTATION

In case of a manufacturer, obviously he would like to export the product he manufactures as is or with possible modification as may be required by the market. However, in case of a merchant exporter or a trader, one has to identity the product to export. If the exporter is already in the trade in the domestic market and is familiar with the product it would be an advantage to export the said product of which he has reasonable knowledge. Before selecting a product, one must simultaneously make 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. o Being a member, you will have access to all the information relating to the product that could be made available by the council

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EXPORT PROCEDURE AND DOCUMENTATION 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 government’s 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



By participating in international fair if organized locally

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EXPORT PROCEDURE AND DOCUMENTATION •

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.

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EXPORT PROCEDURE AND DOCUMENTATION

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. NATURE OF INTERNATIONAL TRADE CONTRACTS. 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 either’s 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. 100000/- in a licensing year, may be exported as a gift. However items mentioned as

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EXPORT PROCEDURE AND DOCUMENTATION 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. STANDARD CONTRACT FORMS: Notwithstanding the efforts made by various national/international organizations like the United Nations Commission on the International Trade Law, there is still no perfection or a device which would give the parties an accurate and complete idea of each others understanding of various trade terms, the commercial practices and the rights and the obligations vis-à-vis each other so that the misunderstandings are practically eliminated. Nevertheless, the Indian Council of Arbitration published in 1966 a booklet on “Standard Contract Forms and Model Arbitration Clause for use in Foreign Trade Contracts”. It was revised and reprinted in 1969 and 1977. It can be referred to by exporter for various clause to be incorporated in the Export Contract. ENTERING INTO AN EXPORT CONTRACT 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: •

Product, Standards and Specifications



Quantity



Inspection



Total Value of Contract



Terms of Delivery

18

EXPORT PROCEDURE AND DOCUMENTATION •

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: Arbitration clause recommended by the Indian Council of Arbitration:”All disputes or differences whatsoever arising between the parties out of / relating to the meaning, construction and operation or effect of this contract or the breach thereof shall be settled by arbitration in accordance with the rules of Arbitration of the Indian Council of Arbitration and the award made in pursuance thereof shall be binding on the parties” (or any other arbitration clause that may be agreed upon between the parties).

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EXPORT PROCEDURE AND DOCUMENTATION

TERMS OF SHIPMENTS – INCOTERMS The INCOTERMS (International Commercial Terms) is a universally recognized set of definition of international trade terms, such as FOB, CFR & CIF, developed by the International Chamber of Commerce(ICC) in Paris, France. It defines the trade contract responsibilities and liabilities between buyer and seller. It is invaluable and a cost-saving tool. The exporter and the importer need not undergo a lengthy negotiation about the conditions of each transaction. Once they have agreed on a commercial terms like FOB, they can sell and buy at FOB without discussing who will be responsible for the freight, cargo insurance and other costs and risks. 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. EXW—exworks 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 buyer’s end, for example the trade terms DEO (Delivery Ex Quay) and DDP (Delivered Duty Paid)

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EXPORT PROCEDURE AND DOCUMENTATION Quite often, the charges and expenses at the buyer’s 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 seller’s end MORE CLARIFICATION ON INCOTERMS EXW {+the named place} Ex Works: Ex means from. Works means factory, mill or warehouse, which are the seller’s premises. EXW applies to goods available only at the seller’s 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 the goods on truck or container at the sellers premises 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 exporttrader(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. FCA {+the named point of departure} 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 21

EXPORT PROCEDURE AND DOCUMENTATION 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. FAS {+the named port of origin} 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 seller’s 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. FOB {+the named port of origin) Free on Board: The delivery of goods on the board the vessel at the named port of origin (Loading) at seller’s 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 buyer’s premises which may include the import custom

22

EXPORT PROCEDURE AND DOCUMENTATION clearance and payment of import customs duties and taxes at the buyer’s 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). CFR {+the named port of destination} 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. CIF {+named port of destination} Cost, Insurance and Freight: The cargo insurance and delivery of goods to the named port of destination (discharge) at the seller’s 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.

23

EXPORT PROCEDURE AND DOCUMENTATION 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. CIP {+ the named place of destination) Carriage and Insurance Paid To: The delivery of goods and the cargo insurance to the named place of destination (discharge) at seller’s 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. DAF {+ the names point at frontier} 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. DES {+named port of destination} 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.

24

EXPORT PROCEDURE AND DOCUMENTATION In the export quotation, indicate the Port of destination (discharge) after the acronym DES, for example DES Helsinki and DES Stockholm. DEQ {+ the named port of destination 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. DDU {+ the named point of destination} 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 N’djamena. DDP {+ the named point of destination) 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.

25

EXPORT PROCEDURE AND DOCUMENTATION “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 threeletter abbreviation. •

Under the “E”-TERM (EXW), the seller only makes the goods available to the buyer at the seller’s 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 seller’s and buyer’s obligations. The respective obligations of both parties have been grouped under up to 10 headings where each heading on the seller’s 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.

26

EXPORT PROCEDURE AND DOCUMENTATION

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



Labeling and marketing requirements



Shipment and delivery date



Marine insurance



Documentation requirement etc.

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 credit, the buyer should be advised to open the credit well in advance before effecting the shipment.

27

EXPORT PROCEDURE AND DOCUMENTATION

FINANCIAL RISKS INVOLVED IN FOREIGN TRADE 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: The carriage risk can be covered by taking an appropriate general insurance policy. Country Risk:

28

EXPORT PROCEDURE AND DOCUMENTATION 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. A. Commercial Documents. : - Commercial documents are required for effecting physical transfer of goods and their title from the exporter to the importer and the realisation of export sale proceeds. Out of the 16 commercial documents in the export documentation framework as many as 14 have been standardised and aligned to one another. These are proforma invoice, commercial invoice, packing list, shipping instructions, intimation for inspection, certificate, of inspection of quality control, insurance declaration, certificate' of insurance, mate's receipt, bill of lading or combined transport document, application for certificate origin, certificate of origin, shipment advice and letter to the bank for collection or negotiation of documents. However, shipping order and bill of exchange could not be brought within the fold of the Aligned Documentation System, 1.

Commercial Invoice:

Commercial invoice is an important and basic export

document. It is also known as a 'Document of Contents' as it contains all the information required for the preparation of other documents. It is actually a seller's bill of merchandise. It is prepared by the exporter after the execution of export order giving details about the goods shipped. It is essential that the invoice is 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.

29

EXPORT PROCEDURE AND DOCUMENTATION Contents of Commercial Invoice •

Name and address of the exporter.



Name and address of the consignee.



Name and the number of Vessel or Flight.



Name of the port of loading.



Name of the port of discharge and final destination.



Invoice number and date.



Exporter's reference number.



Buyer's reference number and date.



Name of the country of origin of goods.



Name of the country of final destination.



Terms of delivery and payment.



Marks and container number.



Number and packing description.



Description of goods giving details of quantity, rate and total amount in terms of internationally accepted price quotation.



Signature of the exporter with date. Significance of Commercial Invoice



It is the basic document useful in preparation of various other shipping documents.



It is used in various export formalities such as quality and pre-Shipment inspection excise and customs procedures etc.

2



It is also useful in negotiation of documents for collection and claim of incentives.



It is useful for accounting purposes to both exporters as well as importers. Inspection Certificate: The certificate is issued by the inspection authority such as the export inspection agency. This certificate states that the goods have been inspected before shipment, and that they confirm to accepted quality standards.

30

EXPORT PROCEDURE AND DOCUMENTATION 3

Marine insurance policy: Goods in transit are subject to risk of loss of goods arising due to fire on ship, perils of sea, theft 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. There are different types of policies such as •

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 a shipment is made, so this policy is taken when exports are in frequent.



Floating Policy: This is taken to cover all shipments for some 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 more destinations. The open cover may specify the maximum value of consignment that may be sent per ship and if the value exceeded, the insurance company must be informed by the exporter.



Insurance Premium: Differs upon product to product and a number of such other factors, such as, distance of voyage, type and condition of packing, etc. Premium for air consignments are lowered as compared to consignments by sea.

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

31

EXPORT PROCEDURE AND DOCUMENTATION 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. Significance of Consular Invoice for the Exporter •

It facilitates quick clearance of goods from the customs in exporter's as well as importer's country.



Certification' of goods by the Consulate of the importing country indicarer that the importer has fulfilled all procedural and licensing formalities for import of goods.



It also assures the exporter of the payment from the importing country.

Significance of Consular Invoice for the Importer •

It facilitates quick clearance of goods from the customs at the port destination and therefore, the importer gets quick delivery of goods.



The importer is assured that the goods imported are not banned for imported in his country.

Significance of Consular Invoice for the Customs Office •

It makes the task of the customs authorities easy.



It facilitates quick calculation of duties as the value of goods as determine by the Consulate is considered for the purpose.

32

EXPORT PROCEDURE AND DOCUMENTATION

Certificate of Origin: The importers in several countries require a certificate of

5.

origin without which clearance to import is refused. The certificate of origin states that the goods exported are originally manufactured in the country whose name is mentioned in the certificate. Certificate of origin is required when:• 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. Types of the Certificate of Origin (a) Non-preferential Certificate, of Origin: - Non-preferential certificate of origin is required in general by all countries for clearance of goods by the importer, on which no preferential tariff is given. It is issued by: ¬ •

The authorised Chamber of Commerce of the exporting country.



Trade Association. Of the exporting country.

(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; •

Export Inspection Agencies.



Jt. Director General of Foreign Trade..



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

33

EXPORT PROCEDURE AND DOCUMENTATION (c)

Certificate for availing Concessions under Commonwealth Preferences (CWP): Certificate of origin for the purpose of Commonwealth Preference is also known as 'Combined Certificate of Origin and Value'. It is required by two member countries, i.e. Canada and New Zealand of the Commonwealth. For concession under Commonwealth preferences, the certificates or origin have to be submitted in special forms obtainable, from the High Commission of the country concerned.

(d)

Certificate for availing Concessions under other Systems of Preference:Certificate of origin is also required for tariff concessions. under the Global System of Trade Preferences (GSTP), Bangkok Agreement(BA) and SAARC Preferential Trading Arrangement (SAPTA) under which India grants and receives tariff concessions On imports and exports. Export Inspection Council (EIC) is the sole authority to print blank Certificates of Origin under BA, SAARC and SAPTA which can be issued by such agencies as EPCs, DCs of EPZs, EIC, APEDA, MPEDA, FIEO, etc...

Contents of Certificate of Origin •

Name and logo of chamber of commerce.



Name and address of the exporter.



Name and address of the consignee.



Name and the number of Vessel of Flight



Name of the port of loading.



Name of the port of discharge and place of delivery.



Marks and container number.



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.

34

EXPORT PROCEDURE AND DOCUMENTATION Significance of the Certificate of Origin •

Certificate of origin is required for availing of concessions under Generalised System of Preferences (GSP) as well as under Commonwealth Preferences (CWP).



It is to be submitted to the customs for the assessment of duty clearance of goods with concessional duty.



It is required when the goods produced in a particular country are banned for import in the foreign market.



It helps the buyer in adhering to the import regulations of the country.



Sometimes, in order to ensures that goods bought from some other country have not been reshipped by a seller, a certificate of origin IS required.

Bill of Lading:

6.

The bill of lading is a document issued by the shipping

company or its agent acknowledging the receipt of goods on board the vessel, and undertaking to deliver the goods in the like order and condition as received, to the consignee or his order, provided the freight and other charges as specified in the bill have been duly paid. It is also a document of title to the goods and as such, is freely transferable by endorsement and delivery. Bill of Lading serves three main purposes: •

As a document of title to the goods;



As a receipt from the shipping company; and



As a contract for the transportation of goods.

Types of Bill of Lading •

Clean Bill of Lading: - A bill of lading acknowledging receipt of the goods apparently in good order and condition and without any qualification is termed as a clean bill of lading.

35

EXPORT PROCEDURE AND DOCUMENTATION •

Claused Bill of Lading: - A bill of lading qualified with certain adversere marks such as, "goods insufficiently packed in accordance with the Carriage of Goods by Sea Act," is termed as a claused bill of lading.



Transhipment or Through Bill of Lading: - When the carrier uses other transport facilities, such as rail, road, or another steamship company in addition to his own, the carrier issues a through or transhipment bill of lading.



Stale Bill of Lading: - A bill of lading that has been held too long before it is passed on to a bank for negotiation or to the consignee is called a stale bill of lading.



Freight Paid Bill of Lading: - When freight is paid at the time of shipment or in advance, the bill of landing is marked, freight paid. Such bill of lading is known as freight bill of lading.



Freight Collect Bill of lading :- When the freight is not paid and is to be collected from the consignee on the arrival of the goods, the bill of lading is marked, freight collect and is known as freight collect bill of lading

Contents of Bill of Lading •

Name and logo of the shipping line.



Name and address of the shipper.



Name and the number of vessel.



Name of the port of loading.



Name of the port of discharge and place of delivery.



Marks and container number.



Packing and container description.



Total number of containers and packages,



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.

36

EXPORT PROCEDURE AND DOCUMENTATION •

Shipping bill number and date.



Signature and initials of the Chief Officer. .

Significance of Bill of Lading for Exporters •

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.

Significance of Bill of Lading for Importers •

It acts as a document of title to goods, which is transferable endorsement and delivery.



The exporter sends the bill of lading to the bank of the importer so as to enable him to take the delivery of goods.



The exporter can give an advance intimation to the foreign buyer about the shipment of goods by sending him a non-negotiable copy of bill of lading

Significance of Bill of Lading for Shipping Company •

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

37

EXPORT PROCEDURE AND DOCUMENTATION 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. Contents of Airway Bill •

Name of the airport of departure and destination.



The names and addresses of the consignor, consignee and the first carrier.



Marks and container number.



Packing and container description.



Total number of containers and packages.



Description of goods in terms of quantity.



Container status and seal number.



Amount of freight paid or payable.



Signature and initials of the issuing carrier or his agent. Importance of Airway Bill: It is a contract between the airlines or his agent to carry goods to the destination. It is the document of instructions for the airline handling staff. It acts as a customs declaration form. Since, it contains details about freight it also represents freight bill.

7.

Shipment Advice to Importer:- After the shipment of goods, the exporter intimates the importer about the shipment of goods giving him details about the date of shipment, the name of the vessel, the destination, etc. He should also send one copy of non-negotiable bill of lading to the importer.

8.

Packing List: The exporter prepares the packing list to facilitate the buyer to check the shipment. It contains the detailed description of the goods packed in each case, 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 38

EXPORT PROCEDURE AND DOCUMENTATION 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.

Parties to bill of exchange. 1. The drawer: The exporter / person who draws the bill. 2. The drawee: The importer / person on whom the bill is drawn for payment. 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.

39

EXPORT PROCEDURE AND DOCUMENTATION 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. Contents of Proforma Invoice •

Name and address of the exporter.



Name and address of the importer.



Mode of transportation, such as Sea or Air or Multimodal transport.



Name of the port of loading.



Name of the port of discharge and final destination.



Provisional invoice number and date.



Exporter's reference number.



Buyer's reference number and date.



Name of the country of origin of goods.



Name of the country of final destination.



Marks and container number. .



Number and packing description.



Description of goods giving details of quantity, rate and total amount in terms of internationally accepted price quotation.



Signature of the exporter with date.

Importance of Proforma Invoice •

It forms the basis of all trade transactions.



It may be useful for the importer in obtaining import licence or foreign exchange.

40

EXPORT PROCEDURE AND DOCUMENTATION 2.

Intimation for Inspection: Whenever the consignment requires the preshipment inspection, necessary application is to be made to the concerned inspection agency for conducting the inspection and issue of certificate thereof.

3.

Declaration of Insurance: Where the contract terms require that the insurance to be covered by the exporter, the shipper has to give details of the shipment to the insurance company for necessary insurance cover. The detailed declaration will cover: •

Name of the shipper \ exporter.



Name & address of buyer.



Details of goods such as packages, quantity, value in foreign currency as well as in Indian Rs. Etc.



Name of the Vessel \ Aircraft.



Value for which insurance to be covered.

4. Application of the Certificate Origin: In case the exporter has to obtain Certificate of Origin from the concerned authorities, an application has to be made to the concerned authority with required documents. While the simple invoice copy will do for getting C\O from the chamber of commerce, in respect of obtained the same from the office of the Textile Committee or Export Promotion Council, the documents requirement are different. 5. Mate's Receipt: Mate's receipt is a receipt issued by the Commanding Officer of the ship when the cargo is loaded on the ship. The mate's receipt is a prima facie evidence that goods are loaded in the vessel. The mate's receipt is first handed over to the Port Trust Authorities. After making payment of all port dues, the exporter or his agent collects the mate's receipt from the Port Trust Authorities. The mate's receipt is freely transferable. It must be handed over to the shipping company in order to get the bill of lading. Bill of lading is prepared on the basis of the mate's receipt. Types of Mate's Receipts

41

EXPORT PROCEDURE AND DOCUMENTATION •

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. Contents of Mate's Receipt •

Name and logo of the shipping line.



Name and address of the shipper.



Name and the number of vessel.



Name of the port of loading.



Name of the port of discharge and place of delivery.



Marks and container number.



Packing and container description.



Total number of containers and packages.



Description of goods in terms of quantity.



Container status and seal number.



Gross weight in kg. and volume in terms of cubic meters.



Shipping bill number and date.



Signature and initials of the Chief Officer.

Significance of Mate's Receipt •

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.

42

EXPORT PROCEDURE AND DOCUMENTATION •

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. Obtaining Mate's Receipt 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. 6. Shipping order: it is issued by the Shipping/Conference Line intimating the exporter about the reservation of space for shipment of cargo which the exporter intends to ship. Details of the vessel, poet of the shipment, and the date on which the goods are to be shipped are mentioned. This order enables the exporter to make necessary arrangements for customs clearance and loading of the goods. 7. Shipping Instructions: at the pre-shipment stage, when the documents are to sent to the CHA for customs clearance, necessary instructions are to be give with relevance to • The export promotion scheme under which goods are to be exported. • Name of the specific vessel on which the goods are to be loaded. • If goods are to be FCL or LCL. • If freight amount are to be paid / collected. • If shipment are covered under A.R.E.-1 procedure. • Instructions for obtaining Bill of Lading etc. 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 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 buyer’s country which may include 43

EXPORT PROCEDURE AND DOCUMENTATION • Name and address of the buyer. • Details of various documents being sent and the number of the copies thereof. • Name and address of the buyer’s bank if available. • If the documents are sent L/C or on open terms. • If the proceeds are to adjusted against any pre-shipment packing credit loan. • If the bill amount is to be adjusted against any forward exchange cover. • In case of credit bill who has to bear the interest, either exporter or if the same is to be collected from the buyer. • Instructions in case non-acceptance/non-payment by the buyer. C. Regulatory Document: Regulatory pre-shipment export documents are prescribed by the different government departments and bodies in order to comply with various rules and regulations under the relevant laws governing export trade such as export inspection, foreign exchange regulation, ex port trade control, customs, etc. Out of 9 regulatory documents four have been standardised and aligned. These are shipping bill or bill of export, exchange control declaration (GR from), export application dock challan or port trust copy of shipping bill and receipt for payment of port charges. 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 :•

Customs copy.



Drawback copy.



Export promotion copy.



Port trust copy.



Exporter's copy.

Types of Shipping Bill

44

EXPORT PROCEDURE AND DOCUMENTATION 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 : Types of goods Drawback shipping bill Dutiable shipping bill Duty-Free shipping bill

By Sea Green Yellow White

By Air Green Pink Pink

Contents of Shipping Bill •

Name and address of the exporter.



Name and address of the importer.



Name of the vessel, master or agents and flag.



Name of the port at which goods are to be discharged.



Country of final destination.



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.

Significance of Shipping Bill

45

EXPORT PROCEDURE AND DOCUMENTATION a) Shipping bill is the main customs document, required by the customs authorities for granting permission for the shipment of goods. b) The cargo is moved inside the dock area only after the shipping bill is duly stamped, i.e. certified by the customs. c) Duly endorsed shipping bill is also necessary for the collection of export incentives offered by the government. d) It is useful to the Customs Appraiser while determining the actual value of goods exported. 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 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-

46

EXPORT PROCEDURE AND DOCUMENTATION 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, driver’s 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”.



Language Certificate: Importers in the European Community require a language certificate along with the GSP certificate in respect of handloom cotton fabrics classifiable under NAMEX code 55.09. Generally four copies of language certificate are prepared by the concerned authority who issues GSP certificate. Three copies are 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

47

EXPORT PROCEDURE AND DOCUMENTATION 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. •

Insurance Premium Certificate: this is the certificate issued by the Insurance Company as acknowledgement of the amount of premium paid for the insurance cover. This certificate is required by the bank for arriving at the fob value of the goods to be declared in the bank certificate of realisation.



Combined Certificate of Origin and Value: this certificate is required by the Commonwealth Countries. This certificate is printed in a special way by the Commonwealth Countries. This certificate should contain special details as to the origin and value of goods, which are useful for determining import duty. All other details are generally the same as that of Commercial Invoice, such as name of the exporter and the importer, quality and quantity of the goods etc.



Customs Invoice: this is required by the countries like Canada, USA for imposing preferential tariff rates.



Legalized Invoice: this is required by the certain Latin American Countries like Mexico. It is just like consular invoice, which requires certification from Consulate or authorised mission, stationed in the exporter’s country.

Special Provision under Uniform Customs and practice for Documentary Credit UCP-500, for Commercial Invoice. •

Article-37: Commercial Invoice

48

EXPORT PROCEDURE AND DOCUMENTATION o Must appear on their face to be issued by the beneficiary named in the credit. o Must be made out in the name of the applicant. o Need not be signed •

Banks may refuse Commercial Invoice issued for amounts in excess of the amount permitted by the credit except otherwise stated.



The description of the goods in the commercial invoice must correspond with the description of the credit. In all other documents the goods may be described in the General in general terms not inconsistent with description in the credit. In all documents goods may be described in general terms not inconsistent with the Description of the goods in the credit.

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.

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’

49

EXPORT PROCEDURE AND DOCUMENTATION •

GR FORM: to be completed in duplicate for exports otherwise than by post including export of software in physical form i.e. magnetic tape/discs and paper media.



SDF FORM: to be completed in duplicate and appended to the Shipping Bill for export declare to the customs offices notified by the Central Government which have introduced EDI system for processing Shipping Bill.



PP FORM: to be completed in duplicate for export by post.



SOFTX: to be completed in triplicate for export of software otherwise than in the physical form i.e. magnetic tapes/discs and paper media.

These forms are available for sale in Reserve Bank of India 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. •

Name and address of the authorised dealer through whom proceeds of exports have been or will be realized should be specified in the relevant column of the form.



Details of commission and discount due to foreign agent or buyer should be correctly declared otherwise difficulties may arise at the time of remittance of such commission.



It should be clearly indicated in the form whether the export is on ‘outright sale basis’ or ‘on consignment basis’ and irrelevant clauses must be stuck out



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. 50

EXPORT PROCEDURE AND DOCUMENTATION •

The amount representing the full export value of goods must be realized within six months from date of shipment.

Disposal of Copies of Export Documentation Form •

GR forms covering export of goods other than jewellery should be completed by the exporter in duplicate and both the copies should be submitted to customs at the port of Shipment. Customs will give their running serial number on both the copies of the GR forms after verifying the particulars and admitting the corresponding shipping bill. The value declared by the exporter will also be verified by the customs and they will also record the assessed value. Duplicate copy will be returned to the exporter and the original will be remained by the customs for onward submission to the Reserve Bank. Duplicate form of the GR form will again be presented to the customs at the time of actual shipment. After examination of goods and certifying the quantity passed for shipment the duplicate copy will again be returned to exporter for submission to an authorised dealer. However, an exception to submission of GR forms to the Customs authorities have been made in case of deep sea fishing.



(a) PP forms are to be first presented to an authorised dealer for countersignature. The form will be countersigned by the authorised dealer only if the post parcel is addressed to his branch or correspondent bank in the country or import. The concerned overseas branch or correspondent is to be instructed to deliver the post parcel against payment or acceptance of relevant bill, as the case may be. (b)

For post parcel addressed directly to the consignee, the

authorised dealer will countersign the form, provided —

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EXPORT PROCEDURE AND DOCUMENTATION (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 shipper’s 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. (c)

The original PP form countersignature will be returned to the exporter by the authorised dealer and the duplicate will be retained by him. Original PP form should then be submitted to the post office along with the parcel. The post office through the goods have been dispatched will forward the original to RBI.

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 applicable there to will also be applicable to such exports. However, export of nonphysical 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.

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EXPORT PROCEDURE AND DOCUMENTATION

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. •

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 form”C” & endorses Shipping Bill Number & Steamers Name. 53

EXPORT PROCEDURE AND DOCUMENTATION •

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.

Procedure – 2, Export without payment of Octroi Duty. N Form Procedure. •

Prepares form N in 3 copies.



Checking of documents Shipping Bill, Carting order, Export Invoice by Octroi officer.



Under taking that the goods will be cleared for export within 7 days of clearance through the octroi post.



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

54

EXPORT PROCEDURE AND DOCUMENTATION E.P (Export Promotion) Form. •

Registration form + IEC / RCMC + CA Certificate.



Number will be allotted.



Fees Rs. 500/-

Documents Checked •

Factory Challan cum Invoice.



ARE –1.



EP forms 3 copies.



Export order.



Shipping Bill.

Consignment Removed to Docks and Proof of Export to be given to Octroi authorities. •

Company’s Letter.



EP form.



EPC.



Bill of Lading.



Shipping Bill – 6.25% Service charge.

Bar Coding •

It is the endeavor of the Central Government to enhance export competitiveness of the Indian products and to promote substantially.



Compliance with prevalent international best practices.



National task force has recommended adoption of Bar-coding for all Indian products within five years. 55

EXPORT PROCEDURE AND DOCUMENTATION •

Bar coding, using International Symbologies / Numbering, systems would enable timely and accurate capture of product information and its communication across the supply chain ahead of physical product flow.



With the ultimate objective of facilitating adoption of Bar-coding for all products using international Symbologies numbering systems all exports of finished and packaged items meant for retail sale shall incorporate barcodes from a date to be notified by DGFT.

MARINE INSURANCE POLICY 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. There are different types of policies such as 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. 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.

56

EXPORT PROCEDURE AND DOCUMENTATION 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. The Insurance Policy Normally Contains: •

The name and address of the insurance company.



The name of the assured & description of the risk covered.



A description of the consignment.



The sum insured & the date of issue.



The place where claims are payable together with details of the agent to whom claims may be directed & Any other details, as applicable.

QUALITY CONTROL AND PRE-SHIPMENT INSPECTION Realizing the importance of the need for supplying quality goods as per international standards, the Government of India has introduced Compulsory Quality Control and PreShipment Inspection of over 1050 items of export under Export (Quality Control and PreShipment Inspection) Act 1963. At present, the export items that are subjected to compulsory inspection includes food and agricultural products, chemicals, engineering, coir, jute and footwear. Compulsory Pre-shipment Inspection: •

Foods and Agriculture & Fishery



Mineral & Ore



Organic & Inorganic Chemicals 57

EXPORT PROCEDURE AND DOCUMENTATION •

Refectories & Rubber Products



Foot wear & Foot wear components



Ceramic Products & Pesticides



Light Eng. Products



Steel ;Products



Jute Products



Coir & Coir Products

Exemption from compulsory Pre-shipment Inspection: •

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. 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

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EXPORT PROCEDURE AND DOCUMENTATION 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-Process Quality Control (IPQC): 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. Consignment wise Inspection: Under this system, each and every consignment is subject to compulsory inspection. The exporter has to follow a certain procedure such as: •

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.

59

EXPORT PROCEDURE AND DOCUMENTATION 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: •

Adequate Testing Facility



Raw Material Testing & Process Control



After Sales Services & Maintaining Product Quality



Control on bought out components



Meteorological Control & PKG.



Independent Quality Audit & Houses.

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.

SHIPPING AND CUSTOMS FORMALITIES (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. The custom procedure can be briefly explained as follows: 60

EXPORT PROCEDURE AND DOCUMENTATION •

Submission of Documents: The exporter or his agent submits the necessary documents along with the shipping bill to the Custom House. The documents include: o ARE-1 (Original and duplicate) o Excise gate pass (Original and duplicate transporters’ copy o Proforma Invoice o Packing List o GRI form (Original and duplicate) o Customs Invoice (where required in the importing country) o Original letter of credit/contract o Declaration form in triplicate o Quality Certificate o Purchase memo o Labels o Licence (if any required) including advance licence copy o Railway receipt/lorry way bill o Inspection Certificate by Export Inspection Agency



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 o Original Copy of GR to be forwarded to RBI o Original copy of shipping bill o One copy of commercial invoice

61

EXPORT PROCEDURE AND DOCUMENTATION •

Carting Order: The exporter’s 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 exporter’s 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.



Examination of Goods: The exporter’s agent then approaches the customs examiner to examine the goods. The customs examiner examines the cargo and records his report on the duplicate copy of the shipping bill. The customs examiner then sings the “Let Export Order”



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.



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 “Mate’s Receipt”. The Mate’s Receipt is sent to the Port Trust Office. The C&F agent pays the port trust dues and collects the mate’s 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 Mate’s 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: o 3 negotiable copies of Bill of Lading

62

EXPORT PROCEDURE AND DOCUMENTATION o 10 to 12 Non-negotiable copies of Bill of Lading. The negotiable copies have title to goods; whereas non-negotiable copies do not have title to goods but are used for record purpose. PROCEDURE OF EXCISE CLEARANCE: 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.



Filling up of ARE-1 form (Annexure-20): The ARE-1 form needs to be filled in four copies. A fifth (Optional) may be filled in by the exporter, which can be used at the time of claiming other export incentives. The ARE-1 copies have distinct color for the purpose of verification and processing.



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: 63

EXPORT PROCEDURE AND DOCUMENTATION 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 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.



Refund or Release of Bond: The exporter should make an application to the excise officer for refund or release of bond. The application must be supported by

64

EXPORT PROCEDURE AND DOCUMENTATION original copy of ARE-1 form. The excise officer crosschecks the original copy of ARE-1 form and the duplicate and triplicate copies of ARE-1 form, which he had received earlier. If the copies match, then refund is given or the bond is released. FACTORY STUFFING OF CARGO 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) 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

65

EXPORT PROCEDURE AND DOCUMENTATION 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.

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.

66

EXPORT PROCEDURE AND DOCUMENTATION •

Deputation of Inspector: The STO may depute an inspector to visit the

office of the exporter and inspect: o Relevant books showing sales/ purchases. o Partnership Deed or Memorandum and Articles of Association along with Incorporation Certificate. o Other Relevant documents. •

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.

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.

67

EXPORT PROCEDURE AND DOCUMENTATION The exporter has to affix the prescribed court fee stamp on each of the Form ‘H’ issued. The STO then affixes the exporter’s 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.

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:

68

EXPORT PROCEDURE AND DOCUMENTATION •

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 buyer’s 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: •

The goods are specifically designed for the customer, and



There is heavy demand for the goods (a seller’s market situation).

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 •

full set of bill of lading



commercial Invoice



Marine Insurance policy and other document, if required.

69

EXPORT PROCEDURE AND DOCUMENTATION There are two main types of documentary bills: •

Documents against Payment,



Documents against Acceptance.

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. 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. C.

LETTER OF CREDIT (L/C):

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EXPORT PROCEDURE AND DOCUMENTATION 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). A letter of credit can be defined as “ an undertaking by importer’s bank stating that payment will be made to the exporter if the required documents are presented to the bank within the variety of the L/C”.

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. 71

EXPORT PROCEDURE AND DOCUMENTATION 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 exporter’s 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.

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). 72

EXPORT PROCEDURE AND DOCUMENTATION CONTENTS OF A LETTER OF CREDIT 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. •

name and address of the bank establishing the letter of credit



letter of credit number and date



The letter of credit is irrevocable



Date of expiry and place of expiry



Value of the credit



Product details to be shipped



Port of loading and discharge



Mode of transport



Final date of shipment



Details of goods to be exported like description of the product, quantity, unit rate, terms of shipment like CIF, FOB etc.



Type of packing



Documents to be submitted to the bank upon shipment



Tolerance level for both quantity and value



If L/C is restricted for negotiation



Reimbursement clause

PROCEDURE INVOLVED IN THE LETTER OF CREDIT The following are the step in the process of opening a letter of credit: •

Exporter’s Request: The exporter requests the importer to issue LC in his favor. LC is the most secured form of payment in foreign trade.

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EXPORT PROCEDURE AND DOCUMENTATION •

Importer’s 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 exporter’s 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. 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. Different Type of Documentary Credits.

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EXPORT PROCEDURE AND DOCUMENTATION There are various types of Documentary Credit opened by a bank in favour of it’s customer depending upon the requirement. Let us talk about few types of Documentary Credit which are in common use. •

Revocable / Irrevocable Documentary Credit :A Revocable Documentary Credit can be revoked (cancelled) by the buyer at his own discretion and this does not require the consent of the seller. The risk factor here is that the L/C may be cancelled even after the shipment is done and before the beneficiary present the documents to the bank for claiming the reimbursement. Hence, a revocable L/C is as goods as no L/C. obviously, no seller will entertain a revocable L/C. Contrary to this, an Irrevocable Documentary Credit once established and advised to the beneficiary, cannot be revoked or cancelled unilaterally by the buyer without the consent of the beneficiary (Seller).A Seller must always ask for an Irrevocable Letter of Credit.



Restricted/ Unrestricted Documentary Credit: A Documentary Credit stipulates the name of the bank who is authorized to negotiate the document for claming the reimbursement. In this case the beneficiary is obliged to negotiate the documents only through the specified bank i.e. Negotiation of document is restricted to that particular bank. On the contrary if no specific bank is nominated for negotiation, it may say ‘Negotiation by any bank’ which means the beneficiary is free no negotiate the document through the bank of his choice. This is beneficial because he can negotiate the documents through his own bank where he is having an account. Since the bank is not alien to him, he will not face any 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 beneficiary’s choice.



Confirmed/Unconfirmed Documentary Credit: Confirmed Documentary Credit is one in which the beneficiary has the option to have the L/C confirmed by a bank in the beneficiary country i.e. the bank who confirms the L/C takes the

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EXPORT PROCEDURE AND DOCUMENTATION responsibility of making the final payment to the beneficiary upon negotiation of the document in strict compliance with the terms and conditions of the Letter of Credit. By this process the final payment will be made in the beneficiary’s country by the bank which confirms the L/C immediately upon negotiation of the documents. The beneficiary do not stand the risk of waiting for the document to reach the opening bank who will have the final say so to the compliance under the L/C before making the payment. Further, the payment is also made immediately after negotiation and without recourse to the beneficiary i.e. the payment once made by the confirmed bank cannot be revoked. Moreover, if the importing country’s regulation changes and the money is not allowed to be repatriated, this will eliminate the risk. On the contrary, in an unconfirmed L/C, the negotiating bank only accepts the documents and pays for the same with recourse i.e. if as and when the documents reach the opening bank, and the opening find some discrepancy in the documents it may refuse to make the payment or seek clarification for the applicant before reimbursement. The beneficiary is fully at the mercy of the opening bank for payment. It is suggested to ask for a Confirmed L/C. •

With Resource and Without (Sans) Resource Letter of Credit: The revocable or irrevocable LC can further be classified as with resource and without resource LC. o With resource LC: In this type the exporter is held liable to the paying/ negotiating bank, if the draft drawn against LC is not honored by the importer/issuing bank. The negotiating bank can make the 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. Normally, the negotiating bank makes advance payment to the exporter in resource of letter of credit either by discounting bills against letter of credit or by

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EXPORT PROCEDURE AND DOCUMENTATION purchasing the bills of exchange. In such an instance, if the issuing bank fails to make payment or dishonor the letter of credit, then the negotiating bank cannot get the money back from the exporter or hold him liable to pay the amount. However, in the case of with resource letter of credit, the negotiating bank can ask the exporter to pay back the money along with certain other expenses. For the exporter, sans Resource letter of credit is more safe as compared to With Resource letter of credit. •

Transferable/Non-transferable Documentary Credit: In a transferable L/C, the beneficiary can transfer the L/C opened in his name in favor of a third party who may effect the shipment and negotiate the documents and claim payment under the said L/C.



Revolving Documentary Credit: Where an exporter is having a regular shipment for a particular customer and the value of each shipment may also be of more or less equal value, and then one can call for a Revolving Documentary Credit. The salient feature of this L/C is that the buyer opens an L/C which can take care of shipments, say, may be for a period of one year on a monthly basis. 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 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 77

EXPORT PROCEDURE AND DOCUMENTATION 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 nonperformance 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. A standby Documentary Credit is generally common on open account trading where the seller may expect some security for getting his payment. This is not permitted in India.



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.

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EXPORT PROCEDURE AND DOCUMENTATION •

Back-to-Back LC: Back-to Back LC is a domestic letter of credit. It is a ancillary credit created by a bank based on a confirmed export LC received by the direct exporters. The direct exporter keep the original LC (received from issuing bank) with the negotiating or some other bank in India, as a security, and obtains another LC in favour of domestic supplier. Through this route the domestic supplier gains direct access to a pre-shipment loan based on the receipt of domestic or back-to-back LC.



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: o Bill of Lading /Airway Bill or any other transport document o Commercial Invoice o Insurance Policy o Shipping Bill o Certificate of Origin o Combined Invoice and Certificate of Value and Origin o GSP/CWP certificate o Packing List o Certificate of Quality Inspection 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. •

Traveler’s LC: Traveler’s LC is issued to the person who intends to make a journey abroad. The correspondent/ agent of the bank honors all the cheques drawn on this credit by its holder up to the amount mentioned in LC. Traveler’s

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EXPORT PROCEDURE AND DOCUMENTATION LC has more advantages as compared to traveler’s cheques. In case of cheque, the holder can withdraw up to the amount of the cheque. Again, he has to carry a number of cheque. In case of traveler’s LC, the holder can draw any amount up to the limit mentioned in the LC, and he need to carry only one paper of LC.

Types of Payments under a Documentary Credit. Payment under a documentary credit can be of the following types: •

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).



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 week’s time. If the payment is delayed beyond this time, though an exporter has every right to ask for

80

EXPORT PROCEDURE AND DOCUMENTATION 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.

Feature of a Documentary Credit 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.



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 81

EXPORT PROCEDURE AND DOCUMENTATION 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.

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

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EXPORT PROCEDURE AND DOCUMENTATION •

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. AMENDMENTS TO THE CREDIT 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. DOCUMENTARY CREDIT IN GENERAL

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EXPORT PROCEDURE AND DOCUMENTATION 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 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:

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EXPORT PROCEDURE AND DOCUMENTATION •

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 ¾ 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. PARTIES TO LETTER OF CREDIT •

Applicant: the buyer or importer of goods.



Issuing Bank: importer’s 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 bank’s branch or correspondent bank in the exporter’s country to which the L/C is sent for onward transmission to the beneficiary.



Confirming Bank: the bank in beneficiary’s 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.

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EXPORT PROCEDURE AND DOCUMENTATION •

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 buyer’s 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 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

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EXPORT PROCEDURE AND DOCUMENTATION 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. TOTAL OPERATION UNDER THE LETTER OF CREDIT. The Unconfirmed L/C. •

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.

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EXPORT PROCEDURE AND DOCUMENTATION •

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.

The Confirmed L/C. 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.

PREPARATION AND SUBMISSION OF DOCUMENTS FOR BANK NEGOTTIATION /PURCHASE Document against exports should normally be realized through an authorized dealer foreign exchange. However payment of export can be received directly from the overseas buyer in the form of bank draft, pay order, banker’s cheque, personal cheque foreign 88

EXPORT PROCEDURE AND DOCUMENTATION currency notes, foreign currency traveler’s cheque, etc. Without any monetary limit provided the exporter’s track record is good, he is a customer of the authorized dealers through whom documents are to be negotiated and prima facie the instrument of payment represents export proceeds realization. Take care to submit various documents in a proper manner and within the prescribed time schedule. Apply to the Reserve Bank for extension of time in case you feel there is likely to be a delay in realizing export proceeds. The following are the steps in realizing export proceeds: •

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 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.

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EXPORT PROCEDURE AND DOCUMENTATION The above documents need to be submitted in two complete sets, because it is customary to dispatch two sets of documents, one after the other. This is because, if one set is misplaced or delayed in transit, the importer can get at least the other set and clear the goods. •

Verification of Documents: The bank will verify the documents to find o Whether the required documents are in order. o Whether the required documents are attested by customs and other authorities.



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. Common Document Discrepancies o Credit Expired 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. 90

EXPORT PROCEDURE AND DOCUMENTATION 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 buyer’s order. Letter of credit and the laws relating to 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 importer’s bank, and the importer’s bank hands it over to the importer.

SHIPMENT THROUGH COURIERS

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EXPORT PROCEDURE AND DOCUMENTATION 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. Export Terms & conditions: Export of any item can be affected by courier, except the following. •

Goods which are subject to cess.



Goods proposed to be exported with claim of duly drawback.



Goods proposed to be exported under DEPB, EPCG, AL (Advance License)



Where the value of goods is more than Rs. 25,0000/-



Goods where weight of individual packet is more than 32 kg.

92

EXPORT PROCEDURE AND DOCUMENTATION

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: •

Duty Free white shipping bills



Dutiable shipping bills (Cess)



DEEC Shipping Bills



EPCG Shipping Bills



DEPB Shipping Bills



DFRC Shipping Bills



100% EOU Shipping Bills



Re export, Jobbing Shipping Bills



Drawback Shipping Bills



Other NFEI Shipping Bills

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: 2.

DATA ENTRY FOR SHIPPING BILLS 2.1

Exporters/CHAs are required to register their IE codes, CHAs Licence Nos, and the Bank A/C No.(for credit of Drawback amount) in the Customs Computer Systems before an EDI Shipping Bill is filed.

2.2

Exporters/CHAs would be required to submit at the SERVICE CENTRE the following documents.

93

EXPORT PROCEDURE AND DOCUMENTATION •

A declaration in the specified format



SDF declaration



Quota/Inspection Certificate



Drawback/DEEC/DFRC/DEPB Declarations etc., as applicable

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:

2.6

Charges for S/Bills having up to five items

...

Rs.60/-

Charges for additional block of five items

...

Rs.10/-

Amendment fees (for a block of five items) ...

Rs.10/-

Printing of a S/Bill for Remote EDI System ...

Rs.20/-

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 94

EXPORT PROCEDURE AND DOCUMENTATION 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.

3

PROCEDURE FOR GR-1 3.1

Under the revised EDI procedure there would be no GR-1 Procedure. Exporters(including CHAs) would be required to file a declaration in the form SDF. It would be filed at the stage of “goods arrival” One copy of the declaration would be attached to the original copy of the S/Bill generated by the system and retained by the customs.The second copy would be attached to the duplicate S/B (the exchange control copy) and surrendered

by

the

exporter

to

the

authorized

dealer

for

collection/negotiations. 3.2

The exporters are required to obtain a certificate from the bank through which they would be realizing the export proceeds. If the exporter wishes 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

95

EXPORT PROCEDURE AND DOCUMENTATION 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.



OCTROI PROCEDURES, QUOTA ALLOCATION AND OTHER

CERTIFICATION. The processing of S/Bs involving allocation of ready-made garments quota by the Apparel Export Promotion Council (AEPC) will change with the introduction of the system. The quota allocation label will be pasted on the export invoice instead of S/B. Allocation number of AEPC would be entered in the system at the time of S/B data entry. The quota certification on export invoice should be submitted to Customs along with other original documents at the time of examination of export cargo. As a transitional measure, AEPC certification even on S/B form would be accepted. However, in these cases, S/B number should be indicated on the invoice when goods are presented for examination. This transitional facilitation measure will be available for a period of two months i.e., upto 30th November 2004. For determining the validity date of the quota, the relevant date would be the date on which the full consignment is presented for examination and the date to recorded in the system. The certificate of other agencies, such as, the Cotton Textiles Export Promotion Council; the Wildlife Inspection Agency under CITES; the Engineering Export Promotion Council; the Agricultural Produce Export Development Agency (APEDA), the Central 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 transitional arrangements would be the same as in the case of AEPC certification.

96

EXPORT PROCEDURE AND DOCUMENTATION 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): •

Duty free S/B for FOB value above Rs.10 lakh



Free Trade Sample S/B for FOB value above Rs.25,000



Drawback S/B where the drawback exceeds Rs. One lakh

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

97

EXPORT PROCEDURE AND DOCUMENTATION •

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 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

98

EXPORT PROCEDURE AND DOCUMENTATION 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 exporter’s 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: DEPB Scheme S/Bills

Other Scheme S/Bills



1. Exporter’s copy

1.

Exporters copy



2. Custom’s Copy

2.

Customs copy



3. Exchange Control Copy

3.



4. Scheme Bill Copy

4.

E.P.Copy



5. E.P.Copy

5.

TR-1. TR-2 Copies



6. TR-1, TR-2 Copies

ExchangeControl Copy

The original AEPC quota and other certificates will be retained with the S/Bills and recorded in the Export Shed. 99

EXPORT PROCEDURE AND DOCUMENTATION 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: •

Original to be sent along with the sample to the testing agency



Duplicate copy to be retained with the second sample



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 100

EXPORT PROCEDURE AND DOCUMENTATION 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. 13. SHORT SHIPMENTS, SHUT OUT, CANCELLATION AND BACK TO TOWN PERMISSIONS. 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. 14.

AMENDMENT OF FREIGHT AMOUNT

14.1

If the freight/insurance amount undergoes a change before “Let Exports” is given, corresponding changes would also need to be made in the S/B with the approval of AC/DC Exports. But if the change has taken place after the “Let Exports” Order, approval of Additional/Jt.Commissioner 101

EXPORT PROCEDURE AND DOCUMENTATION would be required. Non-intimation of such changes would amount to misdeclaration and may attract penal action under Customs Act 1962. 15.

RECONSTRUCTION OF LOST DOCUMENTS:

15.1

Duplicate print out of EDI S/B cannot be allowed to be generated if it is lost, since extra copies of S/B are liable to be misused. However, a certificate can be issued by the Customs stating that “Let Exports” order has been passed in the system to enable the goods to be accepted by the Shipping Line, for export. Drawback will be sanctioned on the basis of the “Let Export” order already recorded on the system.

16

RE-PRINT OF SHIPPING BILL: 16.1 Similarly, reprints can be allowed where there is a system failure, as a result of which the print out(after the “Let Export” order) has not been generated or there is a misprint. Permission of AC/DC (exports) would be necessary for the purpose. The misprint copy shall be cancelled before such permission is granted

17 17.1

EXPORT OF GOODS UNDER CESS 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.

EXPORT OF GOODS UNDER CLAIM FOR DRAWBACK

18.1

The scheme of computerized processing of drawback claims under the Indian Customs EDI system-Exports will be applicable for all exports through CFS.

102

EXPORT PROCEDURE AND DOCUMENTATION 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 CFSMulund. 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”:

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

103

EXPORT PROCEDURE AND DOCUMENTATION 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.

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.

104

EXPORT PROCEDURE AND DOCUMENTATION 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 Exporter’s copy E.P.Copy DPB copy

For record of Customs For record of Exporters For office of DGFT For use in the import cell of ICD Bangalore for registration of licence. For negotiating the export documents in bank

Exchange Control Copy 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 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)

105

EXPORT PROCEDURE AND DOCUMENTATION 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 : “Market value of the goods is Rs………..and credit not to exceed 50% of the market value” 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 finalized after necessary reports etc. arte received and unprinted copy of S/Bill meant for DEPB Licence shall be released thereafter for printing.

Registration of DEPB Licence: 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

106

EXPORT PROCEDURE AND DOCUMENTATION 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 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.

EXPORT OF GOODS UNDER 100% EOU SCHEME 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 107

EXPORT PROCEDURE AND DOCUMENTATION 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. 21.

EXPORT OF GOODS UNDER EPCG SCHEME

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 108

EXPORT PROCEDURE AND DOCUMENTATION 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

EXPORT OF GOODS UNDER THE DEEC SCHEME

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 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 nonavailment of MODVAT) issued by the jurisdiction Central Excise authorities. “Let Export” would be allowed only after verification of all these certificates at 109

EXPORT PROCEDURE AND DOCUMENTATION 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: 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.

23.

EXPORT OF GOODS UNDER DFRC SCHEME: 110

EXPORT PROCEDURE AND DOCUMENTATION 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. 24.

EXPORT GENERAL MANIFEST:

All the steamer agents shall furnish the Export General Manifest, House Bill of Landing wise, t the Customs electronically. In the beginning, the steamer agents are required to enter the manifest in the Customs Computer System through the Service Centre on payment of the prescribed fee. (In due course, arrangements will be made for the electronic delivery of Export General Manifest through EDI Service Providers. Till such time, all the EGMs will have to be entered at the Customs Computer System only.) 25.

GRIEVANCE HANDLING

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 ECGC COVER 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 exporter’s associates if happens to be in the area of the customer etc., But, in a

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EXPORT PROCEDURE AND DOCUMENTATION 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? 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

112

EXPORT PROCEDURE AND DOCUMENTATION 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 the exporter and makes all efforts including legal proceedings to recover the dues from the customer, provided the exporter has taken an ECGC cover. WHAT ECGC OFFERS FOR PROTECTION OF EXPORTER’S INTEREST ? ECGC offers various types of insurance cover to protect the exporter’s 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. SHIPMENTS (COMPREHENSIVE RISKS) POLICY also called STANDARD 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 Insolvency of the buyer Failure of the buyer to make payment within a specified period. 113

EXPORT PROCEDURE AND DOCUMENTATION Buyer’s failure to accept the goods subject to certain conditions. Political Risks •

Imposition of restrictions by the Govt. of the buyer’s country or any government action which may block or delay the transfer of payment made by the buyer.



War, civil war, revolution or civil disturbances in the buyer’s country



New import restrictions or cancellation of a valid import licence



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.

Risks not covered under the Policy The Standard Policy does not cover losses on account of following risks: •

Commercial disputes including quality disputes raised by the buyer unless the exporter obtains a decree from a competent court of law in the buyer’s country in his favour



Causes inherent in the nature of the goods



Buyer’s failure to obtain necessary import or exchange control clearance from authorities concerned



Insolvency or default of the agent of the exporter or of the collecting bank



Loss or damage to goods which can be covered by general insurers.

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EXPORT PROCEDURE AND DOCUMENTATION •

Exchange rate fluctuations



Failure of the exporter to fulfill the terms of the export contract or negligence on his part.

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, selected buyer or selected markets. For specific requirements an exporter can opt for different policy from the various services offered by the corporation Exclusions: Shipments made against advance payments received or shipments against confirmed letters of credit which has the confirmation from the bank in India may be excluded. 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 on Consignment basis: Shipments on consignment basis can be covered only 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 115

EXPORT PROCEDURE AND DOCUMENTATION 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. HOW TO GET ECGC COVER Step 1.

Open Policy:

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.

Step 2. -

Credit Limit on Individual Buyer

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 customer’s 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

116

EXPORT PROCEDURE AND DOCUMENTATION 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. Step 3 – Payment of Premium and filing of monthly returns 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 FILING OF MONTHLY RETURNS: 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

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EXPORT PROCEDURE AND DOCUMENTATION 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. 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 country’s 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.

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EXPORT PROCEDURE AND DOCUMENTATION 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. VARIOUS POLICIES OFFERED BY ECGC: 1. STANDARD POLICY An exporter whose annual export turnover is more than Rs.50 lakhs is eligible for this policy Period of the Policy:

24 Months

Exclusions permitted:

Export to Associates Letters of Credit Consignment Exports

Risk Covered:

Commercial Risks Political Risks LC Opening Bank Risks

Percentage of Cover:

90%

Minimum Premium:

Rs.10, 000/- adjustable

Important Obligations of the Exporter •

Obtaining valid credit limit on buyers and banks



Monthly Declaration of shipments and payment of premium



Declaration of payment overdue by more than 30 days



Filing of claim within 24 months



Sharing of recovery

Highlights 119

EXPORT PROCEDURE AND DOCUMENTATION •

Lowest Premium Rate



NCB OF 5% every year



Discrepancy cover of LC



Automatic Approval fort resale/shipment upto 25% of GIV



Increased discretionary limit

2.

SMALL EXPORTERS POLICY

Period of the Policy:

12 Months

Exclusions Permitted:

Exports to Associates Letters of Credit Consignment Exports

Risk Covered:

Commercial Risks Political Risks LC Opening Bank Risks

Percentage of Cover:

95% for commercial risks 100% for political risks

Minimum Premium :

Rs.2, 000 adjustable

Important Obligations of the Exporter: •

Obtaining valid credit limit on buyers and banks



Quarterly Declaration of shipment and payment of



Declaration of payment overdue by more than 30 days

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premium.

EXPORT PROCEDURE AND DOCUMENTATION •

Filing of claim within 24 months



Sharing of recovery.

Highlights

3.



Highest coverage/compensation



Lowest premium rate



NCB of 5% every year



Discrepancy cover for LC



Automatic approval for resale/shipment upto 25% of GIV



Increased discretionary limit

SPECIFIC SHIPMENT POLICIES – SHORT TERM (SSP-ST)

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

Percentage of Cover:

80%

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EXPORT PROCEDURE AND DOCUMENTATION Important Obligations of the exporters: •

Upfront premium payment



Statement of shipment made



Payment Advice slip



Statement Of Overdue



Filing of Claim within 12 months from due date



Sharing of recovery

Highlights:

4.



Selection for Insurance cover



Other exports not to be declared



“Add on” Marine Insurance Cover



Premium rate reduced proportionately on higher share of loss to exporter. EXPORTS (SPECIFIC BUYERS) POLICY

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. Period of the Policy: Risk Covered:

12 Months Commercial Risks Political Risks Insolvency or default of LC Opening Bank

Percentage of Cover:

80%

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EXPORT PROCEDURE AND DOCUMENTATION Important Obligation of the Exporters: 1. Deposit Premium on Quarterly in advance 2. Submission of shipment declaration quarterly 3. Declaration of payment overdue for more than 30 days 4. Filing of the within 12 months from due date 5. Sharing of recovery Highlights: 1

Selective buyer can be insured

2

Option to exclude LC exports

3

Premium rate can be reduced proportionately

5. EXPORTS TURNOVER POLICY 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.

Period of the Policy : 12 Months Risk covered:

Commercial Risks Political Risks LC Opening Bank Risks

Percentage of Cover:

90%

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EXPORT PROCEDURE AND DOCUMENTATION Important Obligation of the Exporter 1.

Premium will be payable in four equal quarterly installments in advance

2.

Submission of quarterly statement of shipments

3.

Declaration of overdue payments

4.

Filling of claim within 24 months from due date

5.

Sharing of recovery

Highlights: 1.

Simplified procedure for payment of premium

2.

10% of projected premium is waived when exports increase beyond projection

3.

Increased discretionary limit

6. BUYER EXPOSURE POLICY : 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 Period of the Policy: Risk covered:

12 months Buyer Risk LC Opening Bank Risks Political Risks

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EXPORT PROCEDURE AND DOCUMENTATION Percentage of Cover: 90% for Standard policyholder and 80% for others Important Obligations of the Exporter: 1

Premium Payable in advance

2

Option to pay the premium quarterly in advance is available

3

Premium non refundable

4

Obtaining approval for extension in due date beyond 180 days

5

Declaration of overdue payments

6

Filing of claim within 12 months from due date

7

Sharing of recovery

Highlights: 1.

5% discount premium if paid in advance

2.

Declaration procedure waived

3.

Exporter to approach only for default in claim

4.

One Policy for one buyer

7. MULTI-BUYER EXPOSURE POLICY 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

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EXPORT PROCEDURE AND DOCUMENTATION Bankers Almanac Cover in respect of exports to restricted over countries would not be available under this policy Period of Policy:

12 Months

Risk Covered:

Buyer Risks Political Risks LC Opening Bank Risks

Percentage of Cover:

80%

Important Obligations of the Exporters: 1. Premium payable in advance 2. Option to pay the premium quarterly in advance is available 3. Premium non refundable 4. Obtaining approval for extension is due date beyond 180 days 5. Declaration of overdue payments 6. Filing of claim within 12 months from due date 7. Sharing of recovery

Highlights: 1. Policy is best suited for exporters who make frequent shipments 2. Reduced premium rates available on conditions 3. 5% reduction on total premium on lump sum payment 4. No declaration required 5. All buyers in open countries covered on conditions 6. Protection up to Aggregate Loss Limit and Individual buyer up to 10% of All. 8. CONSIGNMENT EXPORTS POLICY (STOCKHOLDING AGENT) 126

EXPORT PROCEDURE AND DOCUMENTATION 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 Period of the Policy:

12 Months

Risks covered: •

Commercial Risks on stockholding agent and/or ultimate buyer



Political Risks

Percentage of Cover:

90% for Standard Policyholders and 80% for others

Important obligations of Exporters: •

Advance deposit of premium in advance on quarterly or monthly basis



Obtaining credit limit on ultimate buyers beyond the discretionary limit



Quarterly/Monthly statement of actual exports



Overdue declaration



Filing of claim



Sharing of recovery

Highlights: •

Covers only the consignments exports



Rationalized premium for 360 days



Automatic cover for ultimate buyers upto discretionary limit



Commercial risks on agents covered 127

EXPORT PROCEDURE AND DOCUMENTATION •

Extended period for realization upto 360 days

9

CONSIGNMENT EXPORTS POLICY (GLOBAL ENTITY)

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. Period of the Policy:

12 Months

Risks covered: •

Commercial Risks on overseas branch on conditions

Percentage of Cover:

90% for Standard Policyholders and 80% for others

Important obligations of Exporters: •

Advance deposit of premium in advance on quarterly or monthly basis



Obtaining credit limit on ultimate buyers beyond the discretionary limit



Quarterly/Monthly statement of actual exports



Overdue declaration



Filing of claim



Sharing of recovery

Highlights: •

Covers only the consignments exports



Rationalized premium for 360 days



Automatic cover for ultimate buyers upto discretionary limit

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EXPORT PROCEDURE AND DOCUMENTATION •

Commercial risks on agents covered



Extended period for realization upto 360 days

10. SERVICES POLICIES 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 policy and specific shipment policy (SSP-ST) premium rates will be applied for Specific Service Policy. Period of the Policy:

12/24 Months

Risks covered: •

Commercial Risks on ultimate buyers



Political Risks



LC Opening Bank Risks

Percentage of Cover:

90% for Standard Policyholders and 80% for others

Important obligations of Exporters: •

Advance deposit of premium in advance to cover premium



Obtaining credit limit on services receiver



Monthly statement of actual service provided



Overdue declaration



Filing of claim



Sharing of recovery

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EXPORT PROCEDURE AND DOCUMENTATION Highlights: •

Option to select the type of cover.

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 factoring scheme, thus effectively addressing the needs of exporters to avail of prefinance (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: •

100% credit guarantee protection against had debts



Sales register maintenance in respects of factored transaction



Regular monitoring of outstanding credits, facilitating collection of receivable on due date, recovery, at its own cost, of all recoverable had debts

Setting up Charges and Factoring Charges •

The factoring application fee payable initially is Rs.10,000/- For setting up permitted limits on each of the overseas customers, the exporter will have to pay a processing fee equal to 0.05% of the permitted limit sought subject to minimum of Rs.2000/- after of this, the factoring charges payable as and when an exports bill is to be factored depends on the country to which the exports is made and the credit period.

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EXPORT PROCEDURE AND DOCUMENTATION Exporters Obligations: •

Registration and obtaining permitted limit on the buyer



Payment of factoring charges with statement of exports made



Inform developments

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