material - shri ajit shah 19.4.2014.pdf

7/25/2019 Material - Shri Ajit Shah 19.4.2014.pdf

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Intensive Study Course on FEMA

TOPIC

Import and Export of Goods and Services

ORGANISED BY

THE CHAMBER OF TAX CONSULTANTS

302, K K Square

470, Cardinal Gracious Road,

Chakala, Andheri (E),

Mumbai - 400 099.

********************************************

DATE: 19th

April 2014(Saturday)

TIME: 09.30AM TO 11.30AM

At

West End Hotel ,Terrace HallNext to Bombay Hospital,

New Marine Lines,

Mumbai 400 020.

********************************************

FACULTY

AJIT SHAH B.Com, LL.B, D.IE.M

501,Topiwala Center,5th

Floor,

Next to Municipal Market,Near Railway Station,

Goregaon-(West)

Mumbai-400062

Mob:9004663068

Email:asktoajs @yahoo.com


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Master Circular No.14

Dated: July 01, 2013

On

Exportsof Goods andServices


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A. Introduction

banks may conduct export transactions in conformity with the Foreign TradePolicy. Foreign Exchange Management Act, 1999 and the Foreign ExchangeManagement (Export of Goods and Services) Regulations, 2000

In terms of Regulation 4 of the Foreign Exchange Management (Guarantees)Regulations, 2000, notified vide Notification No. FEMA 8/2000-RB datedMay 3, 2000, banks have been permitted to issue guarantees on behalf ofexporter clients on account of exports out of India.

There is no restriction on invoicing of export contracts in Indian Rupees interms of the Rules, Regulations, Notifications and Directions framed underthe Foreign Exchange Management Act 1999. Further, in terms of Para 2.40

of the Foreign Trade Policy (August 27, 2009 - March 31, 2014), All exportcontracts and invoices shall be denominated either in freely convertiblecurrency or in Indian Rupees but export proceeds shall be realized in freelyconvertible currency. However, export proceeds against specific exportsmay also be realized in rupees provided it is through a freely convertibleVostro account of a non-resident bank situated in any country, other than amember country of the ACU or Nepal or Bhutan. Indian Rupee is not a

freely convertible currency, as yet.

The requirement of declaration of export of goods and software in theprescribed form will not apply to the cases indicated in Regulation 4 ofNotification No. FEMA 23/2000-RB dated May 3, 2000 (Annex 2). Theexporters shall, however, be liable to realize and repatriate export proceeds

Banks may consider requests for grant of EDF/SDF waiver from exportersfor export of goods free of cost, for export promotion up to 2 per cent of theaverage annual exports of the applicant during the preceding three financialyears subject to a ceiling of Rs.5 lakhs. For status holder exporters, the limit

as per the present Foreign Trade Policy is Rs.10 lakhs or 2 per cent of theaverage annual export realization during the preceding three licensing yearswhichever is higher.

Export of goods not involving any foreign exchange transaction directly orindirectly requires the waiver of EDF/SDF procedure from the ReserveBank. (B.1)


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The amount representing the full export value of the goods exported shallbe received through a Bank in the manner specified in the ForeignExchange Management (Manner of Receipt & Payment) Regulations, 2000in the following manner:

a. Bank draft, pay order, banker's or personal cheques.b. Foreign currency notes/foreign currency travellers cheques from the buyerduring his visit to India.c. Payment out of funds held in the FCNR/NRE account maintained by the buyerd. International Credit Cards of the buyer.

All transactions between a person resident in India and a person resident in

Nepal or Bhutan may be settled in Indian Rupees. However, in case ofexport of goods to Nepal, where the importer has been permitted by the

Nepal Rashtra Bank to make payment in free foreign exchange, suchpayments shall be routed through the ACU mechanism.

Processing of export related receipts through Online Payment GatewayService Providers (OPGSPs) of value not exceeding USD 10,000

In order to facilitate transactions / settlements, effective January 01, 2009,participants in the Asian Clearing Union will have the option to settle theirtransactions either in ACU Dollar or in ACU Euro.

In view of the difficulties being experienced by importers/exporters inpayments to / receipts from Iran, it has been decided that with effect fromDecember 27, 2010, all eligible current account transactions includingtrade transactions with Iran should be settled in any permitted currencyoutside the ACU mechanism, until further notice.

Third party payments for export / import transactions

With a view to further liberalizing the procedure relating to payments forexports/imports and taking into account evolving international trade practices, ithas been decided to permit third party payments for export / import transactionssubject to conditions as under:

Export Transactions:


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a. Firm irrevocable order backed by a tripartite agreement should be in place;b. Third party payment should come from a Financial Action Task Force (FATF)compliant country and through the banking channel only;c. The exporter should declare the third party remittance in the Export DeclarationForm;d. It would be responsibility of the Exporter to realize and repatriate the export

proceeds from such third party named in the EDF;In case of shipments being made to a country in Group II of Restricted Cover

Countries, (e.g. Sudan, Somalia, etc.), payments for the same may be receivedfrom an Open Cover Country. (B.2)(Circular no:70 dated 8/11/2013 and circularno:100 dated:4/2/2014)

It is obligatory on the part of the exporter to realize and repatriate the full

value of goods or software to India within a stipulated period from the dateof export, as under:

By Units in Special Economic Zones (SEZs): Within a period of twelvemonths from the date of export;

By Status Holder Exporters Within a period of twelve months from the dateof export;

By 100 % EOUs and units set up under Electronic Hardware TechnologyParks , Software Technology Parks and Biotechnology Parks schemes :Within a period of twelve months from the date of export .

Goods exported to a warehouse established outside India: As soon as it isrealized and in any case within fifteen months from the date of shipment ofgoods; and

In all other cases: With effect from April 01, 2013 this period of realization

and repatriation to India has been brought down to nine months from thedate of export.(B.3)

Participants in international exhibition have been granted general permissionfor opening a temporary foreign currency account abroad. Exporters maydeposit the foreign exchange obtained by sale of goods at the international


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exhibition and operate the account during their stay outside India. thebalance in the account is to be repatriated within a period of one month fromthe date of closure of the exhibition .

Reserve Bank may consider applications from exporters having good trackrecord for opening a foreign currency account with banks in India andoutside India.

An Indian entity can also open, hold and maintain a foreign currencyaccount with a bank outside India, in the name of its overseas office/branch,

by making remittance for the purpose of normal business operations of thesaid office/branch or representative .

A unit located in a Special Economic Zone (SEZ) may open, hold andmaintain a Foreign Currency Account with a bank in India .

A person resident in India being a project / service exporter may open, holdand maintain foreign currency account with a bank outside or in India, (B.4)

A person resident in India may open with, an bank in India, an account in

foreign currency called the Exchange Earners Foreign Currency (EEFC)Account,

This account shall be maintained only in the form of non-interest bearingcurrent account. No credit facilities, either fund-based or non-fund based,shall be permitted against the security of balances held in EEFC accounts bythe banks.

All categories of foreign exchange earners are allowed to credit 100% oftheir foreign exchange earnings to their EEFC Accounts

a) The sum total of the accruals in the account during a calendar monthshould be converted into Rupees on or before the last day of the succeedingcalendar month after adjusting for utilization of the balances for approved

purposes or forward commitments. Further, in case of requirements, EEFC


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account holders are permitted to access the forex market for purchasingforeign exchange.

b) The facility of EEFC scheme is intended to enable exchange earners to save onconversion/transaction costs while undertaking forex transactions.

The eligible credits representa. Inward remittance received through normal banking channel, other than theremittance received pursuant to any undertaking given to the Reserve Bank orwhich represents foreign currency loan raised or investment received from outsideIndia or those received for meeting specific obligations by the account holder.

b. Payments received in foreign exchange by a unit in Domestic Tariff Area (DTA)for supplying goods to a unit in Special Economic Zone out of its foreign currencyaccount.

banks may permit their exporter constituents to extend trade related loans /advances to overseas importers out of their EEFC balances without anyceiling .

banks may permit exporters to repay packing credit advances whetheravailed in Rupee or in foreign currency from balances in their EEFC accountand / or Rupee resources to the extent exports have actually taken

place.(B.6)

B.7 Setting up of Offices Abroad and Acquisition of Immovable Property forOverseas Offices

At the time of setting up of the office, banks may allow remittances towardsinitial expenses up to fifteen per cent of the average annual sales/income orturnover during the last two financial years or up to twenty-five per cent ofthe net worth, whichever is higher.

For recurring expenses, remittances up to ten per cent of the average annualsales/income or turnover during the last two financial years may be sent for

the purpose of normal business operations of the office (trading / non-trading) / branch or representative office outside India subject to thefollowing terms and conditions:

a. The overseas branch/office has been set up or representative is posted overseasfor conducting normal business activities of the Indian entity;


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b. The overseas branch/office/representative shall not enter into any contract oragreement in contravention of the Act, Rules or Regulations made there under;c. The overseas office (trading / non-trading) / branch / representative should notcreate any financial liabilities, contingent or otherwise, for the head office in Indiaand also not invest surplus funds abroad without prior approval of the ReserveBank. Any funds rendered surplus should be repatriated to India.

The details of bank accounts opened in the overseas country should bepromptly reported to the bank.

Banks may also allow remittances by a company incorporated in Indiahaving overseas offices, within the above limits for initial and recurringexpenses, to acquire immovable property outside India for its business andfor residential purpose of its staff.

The overseas office / branch of software exporter company/firm mayrepatriate to India 100 per cent of the contract value of each off-sitecontract.

In case of companies taking up on site contracts, they should repatriate the

profits of such on site contracts after the completion of the said contracts.

An audited yearly statement showing receipts under off-site and on-sitecontracts undertaken by the overseas office, expenses and repatriationthereon may be sent to the banks.(B.7)

Where an exporter receives advance payment (with or without interest),from a buyer outside India, the exporter shall be under an obligation toensure that

I. The shipment of goods is made within one year from the date of receipt of

advance payment;

II. The rate of interest, if any, payable on the advance payment does not exceedLondon Inter-Bank Offered Rate (LIBOR) + 100 basis points; and

III. The documents covering the shipment are routed through the bank throughwhom the advance payment is received.


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Provided that in the event of the exporters inability to make the shipment, partly

or fully, within one year from the date of receipt of advance payment, noremittance towards refund of unutilized portion of advance payment or towards

payment of interest, shall be made after the expiry of the said period of one year,without the prior approval of the Reserve Bank.

banks may allow exporters to receive advance payment for export of goodswhich would take more than one year to manufacture and ship and where theexport agreement provides for shipment of goods extending beyond the

period of one year from the date of receipt of advance payment subject to thefollowing conditions:-

banks may allow the purchase of foreign exchange from the market forrefunding advance payment credited to EEFC account only after utilizing the

entire balances held in the exporters EEFC accounts maintained at differentbranches/banks. (B.8)

Organizations participating in Trade Fair/Exhibition abroad can take/exportgoods for exhibition and sale outside India without the prior approval of theReserve Bank. Unsold exhibit items may be sold outside the exhibition/tradefair in the same country or in a third country. Such sales at discounted valueare also permissible. It would also be permissible to `gift unsold goods up

to the value of USD 5000 per exporter, per exhibition/trade fair. banks mayapprove EDF/SDF Form of export items for display or display-cum-sale intrade fairs/exhibitions outside India subject to the following:

i. The exporter shall produce relative Bill of Entry within one month of re-importinto India of the unsold items.

ii. The sale proceeds of the items sold are repatriated to India.iii. The exporter shall report to the bank the method of disposal of all itemsexported, as well as the repatriation of proceeds to India.

iv. Such transactions approved by the banks will be subject to 100 per cent audit bytheir internal inspectors/auditors.(B.9)

banks may consider request from exporters for granting EDF/SDF approvalin cases where goods are being exported for re-import after repairs /


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maintenance / testing / calibration, etc., subject to the condition that theexporter shall produce relative Bill of Entry within one month of re-importof the exported item from India.

Where the goods being exported for testing are destroyed during testing,banks may obtain a certificate issued by the testing agency that the goodshave been destroyed during testing, in lieu of Bill of Entry for import.(B.10)

When goods have been exported on consignment basis, the bank, whileforwarding shipping documents to his overseas branch/ correspondent,should instruct the latter to deliver them only against trustreceipt/undertaking to deliver sale proceeds by a specified date within the

period prescribed for realization of proceeds of the export. This procedure

should be followed even if, according to the practice in certain trades, a billfor part of the estimated value is drawn in advance against the exports.

The agents/consignees may deduct from sale proceeds of the goods expensesnormally incurred towards receipt, storage and sale of the goods, such aslanding charges, warehouse rent, handling charges, etc. and remit the net

proceeds to the exporter.

The account sales received from the Agent/Consignee should be verified bythe banks. Deductions in Account Sales should be supported by bills/receiptsin original except in case of petty items like postage/cable charges, stampduty, etc.

In case of goods exported on consignment basis, freight and marineinsurance must be arranged in India.( B.12)

banks may grant permission for opening / hiring warehouses abroad.

. Applicants export outstanding does not exceed 5per cent of exports madeduring the previous financial year.

. Applicant has a minimum export turnover of USD 100,000/- during the lastfinancial year.

All transactions should be routed through the designated branch of theBanks.


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. The above permission may be granted to the exporters initially for a period

of one year. (B.13)

banks should normally dispatch shipping documents to their overseasbranches/correspondents expeditiously. However, they may dispatchshipping documents direct to the consignees or their agents resident in thecountry of final destination of goods in cases where:

a. Advance payment or an irrevocable letter of credit has been received for the fullvalue of the export shipment and the underlying sale contract/letter of credit

provides for dispatch of documents direct to the consignee or his agent resident inthe country of final destination of goods.

b. The banks may also accede to the request of the exporter provided the exporter

is a regular customer and the bank is satisfied, and arrangements have been madefor realization of export proceeds.c. Documents in respect of goods or software are accompanied with a declaration

by the exporter that they are not more than Rs. 25,000/- in value and not declaredon EDF/SDF form.

banks may also permit `Status Holder Exporters and units in SpecialEconomic Zones to dispatch the export documents to the consignees outsideIndia subject to the terms and conditions that:

banks may regularize cases of dispatch of shipping documents by theexporter direct to the consignee or his agent resident in the country of thefinal destination of goods, up to USD 1 million or its equivalent, per exportshipment, subject to the following conditions:

a) The export proceeds have been realized in full.b) The exporter is a regular customer of bank for a period of at least six months.c) The exporters account with the bank is fully compliant with the Reserve Banks

extant KYC / AML guidelines.d) The bank is satisfied about the bonafides of the transaction. (B.14)

For long duration contracts involving series of transmissions, the exportersshould bill their overseas clients periodically, i.e., at least once a month oron reaching the milestone. The last invoice / bill should be raised not laterthan 15 days from the date of completion of the contract. It would be inorder for the exporters to submit a combined SOFTEX form for all the


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invoices raised on a particular overseas client, including advance remittancesreceived in a month.

Contracts involving only one-shot operation, the invoice/bill should beraised within 15 days from the date of transmission.

The exporter should submit declaration in Form SOFTEX in quadruplicatein respect of export of computer software and audio / video / televisionsoftware to the designated official concerned at STPI / EPZ /FTZ /SEZ forvaluation / certification not later than 30 days from the date of invoice / thedate of last invoice raised in a month, as indicated above. The officer mayalso certify the SOFTEX Forms of EOUs, which are registered with them.

The invoices raised on overseas clients will be subject to valuation of exportdeclared on SOFTEX form by the designated official concerned.(B.15)

When part of a shipment covered by an EDF/SDF form already filed withCustoms is short-shipped, the exporter must give notice of short-shipment tothe Customs in the form and manner prescribed. In case of delay inobtaining certified short-shipment notice from the Customs, the exportershould give an undertaking to the AD banks to the effect that he has filed theshort-shipment notice with the Customs and that he will furnish it as soon asit is obtained.

Where a shipment has been entirely shut out and there is delay in makingarrangements to re-ship, the exporter will give notice in duplicate to theCustoms in the form and manner prescribed, attaching thereto the unusedduplicate copy of EDF/SDF form and the shipping bill. The Customs willverify that the shipment was actually shut out, certify the copy of the noticeas correct and forward it to the Reserve Bank together with unused duplicatecopy of the EDF/SDF form. In this case, the original EDF/SDF formreceived earlier from Customs will be cancelled. If the shipment is madesubsequently, a fresh set of EDF/SDF form should be completed(B.16)

Prior approval of the Reserve Bank is required for export of machinery,equipment, etc., on lease, hire basis under agreement with the overseaslessee against collection of lease rentals/hire charges and ultimate re-import.(B.18)


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Exporters intending to export goods on elongated credit terms may submittheir proposals giving full particulars through their banks for considerationto the Regional Office concerned of the Reserve Bank. (B.19)

Units in SEZs are permitted to undertake job work abroad and export goodsfrom that country itself subject to the conditions that:

Processing / manufacturing charges are suitably loaded in the exportprice and are borne by the ultimate buyer. ii. The exporter has madesatisfactory arrangements for realization of full export proceeds subjectto the usual EDF/SDF procedure.

Banks may permit units in DTAs to purchase foreign exchange formaking payment for goods supplied to them by units in SEZs.

Export of Services by SEZs to DTA UnitBanks are permitted to sell foreign exchange to a unit in the DTA for

making payment in foreign exchange to a unit in the SEZ for the servicesrendered

It must be ensured that in the Letter of Approval issued to the SEZ theprovisions pertaining to the goods / services supplied by the SEZ unit to theDTA unit and for payment in foreign exchange for the same should bementioned. (B.20)

Export of engineering goods on deferred payment terms and execution ofturnkey projects and civil construction contracts abroad are collectivelyreferred to as Project Exports.

Indian exporters offering deferred payment terms to overseas buyers andthose participating in global tenders for undertaking turnkey/civilconstruction contracts abroad are required to obtain the approval of the

banks/ EXIM Bank/ Working Group at post-award stage before undertakingexecution of such contracts. Regulations relating to Project Exports and

Service Exports are laid down in therevised Memorandum of Instructions

on Project and Service Exports (PEM- October 2003 .

Exporters may use the machinery / equipment for performing any othercontract secured by them in any country.


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Working Group may permit exporters to open, maintain and operate one ormore foreign currency account/s in a currency(ies) of their choice with inter-

project transferability of funds in any currency or country.

They should, repatriate the profits of on-site contracts after completion ofthe contracts.(B.21)

The EDF will replace the existing GR form used for declaration of export ofGoods at Non-EDI ports. The procedure relating to the exports of goodsthrough EDI ports will remain the same and SDF form will be applicable ashitherto.

i. EDF forms should be completed by the exporter in duplicate and both the copiessubmitted to the Customs at the port of shipment along with the shipping bill.

ii. Customs will give their running serial number on both the copies after admittingthe corresponding shipping bill. The Customs serial number will have ten numeralsdenoting the code number of the port of shipment, the calendar year and a six- digitrunning serial number.

iii. Customs will certify the value declared by the exporter on both the copies ofthe EDF form at the space earmarked and will also record the assessed value.

iv. They will then return the duplicate copy of the form to the exporter and retainthe original for transmission to the Reserve Bank.

v. Exporters should submit the duplicate copy of the EDF form again to Customsalong with the cargo to be shipped.

vi. After examination of the goods and certifying the quantity passed for shipmenton the duplicate copy, Customs will return it to the exporter for submission to the

banks for negotiation or collection of export bills.

vii. Within 21 days from the date of export, exporter should lodge the duplicatecopy together with relative shipping documents and an extra copy of the invoicewith the banks named in the EDF form.

viii. After the documents have been negotiated / sent for collection, the banksshould report the transaction to the Reserve Bank in statement ENC under cover ofappropriate R-Supplementary Return.


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ix. The duplicate copy of the form together with a copy of invoice etc. shall beretained by the banks and may not be submitted to the Reserve Bank.

x. In the case of exports made under deferred credit arrangement or to jointventures abroad against equity participation or under rupee credit agreement, thenumber and date of the Reserve Bank approval and/or number and date of therelative RBI circular should be recorded at the appropriate place on the EDF form.

xi. Where Duplicate copy of EDF form is misplaced or lost, banks may acceptanother copy of duplicate EDF form duly certified by Customs.( C.3A)

The following system may be followed in case of SDF:

The SDF should be submitted in duplicate (to be annexed to the relativeshipping bill) to the Commissioner of Customs concerned.

After verifying and authenticating the declaration in SDF, the Commissionerof Customs will hand over to the exporter, one copy of the shipping billmarked Exchange Control Copy to which form SDF has been appended for

being submitted to the banks within 21 days from the date of export.

The banks should accept the Exchange Control (EC) copy of the shippingbill and SDF appended thereto, submitted by the exporter forcollection/negotiation of shipping documents.

The manner of disposal of EC copy of Shipping Bill (and form SDFappended thereto) is the same as that for EDF/SDF forms. The duplicatecopy of the form together with a copy of invoice etc. shall be retained by the

banks and may not be submitted to the Reserve Bank. In cases where ECGC and private insurance companies regulated by

Insurance Regulatory and Development Authority (IRDA) initially settlesthe claims of exporters in respect of exports insured with them and

subsequently receives the export proceeds from the buyer/buyers countrythrough the efforts made by them, the share of exporters in the amount soreceived is disbursed through the bank which had handled the shippingdocuments. In such cases, ECGC and private insurance companies regulated

by IRDA will issue a certificate to the bank, which had handled the relevantshipping documents after full proceeds have been received. The certificatewill indicate the number of declaration form, name of the exporter, name of


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the banks, date of negotiation, bill number, invoice value and the amountactually received by ECGC and private insurance companies regulated byIRDA. (C.4)

A software exporter, whose annual turnover is at least Rs. 1000 crore or whofiles at least 600 SOFTEX forms annually, will be eligible to submit astatement in excel format, giving all particulars along with quadruplicate setof SOFTEX form to the nearest STPI.

STPI will then verify the details and decide on a percentage sample check ofthe documents in details. Software companies will submit all the documentson demand to STPI within 30 days of their advice or anyreasonable/extended time at the discretion of the Director, STPI, at therequest from the exporter.

STPI will thus certify the statement and SOFTEX forms in bulk on the Top

Sheet regarding the values etc. and will thereafter forward the first copy ofthe revised SOFTEX format to the concerned Regional Office of RBI, theduplicate copy along with bulk statement in excel format to AuthorizedDealers for negotiation / collection / settlement, the third copy to theexporter and the last copy will be retained by STPI for its own record. Underthe revised procedure, the exporters, however, will have to provideinformation about all the invoices including the ones lesser than US$25000,in the bulk statement in excel format

A common SOFTEX Form has been devised to declare single as well as

bulk software exports. C.5)

Consolidation of Air Cargoi. Where air cargo is shipped under consolidation, the airline companys Master

Airway Bill will be issued to the Consolidating Cargo Agent. The Cargo agent inturn will issue his own House Airway Bills (HAWBs) to individual shippers.ii. banks may negotiate HAWBs only if the relative letter of credit specifically

provides for negotiation of these documents in lieu of Airway Bills issued by theairline company.

Consolidation of Sea Cargoi. banks may accept Forwarders Cargo Receipts (FCR) issued by IATA

approved agents, in lieu of bills of lading, for negotiation / collection ofshipping documents, in respect of export transactions backed by letters ofcredit, if the relative letter of credit specifically provides for negotiationof this document, in lieu of bill of lading even if the relative sale contract


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with the overseas buyer does not provide for acceptance of FCR as ashipping document, in lieu of bill of lading.

ii. Further, authorized dealers may, at their discretion, also accept FCR issued byShipping companies of repute/IATA approved agents (in lieu of bill of lading), for

purchase/discount/collection of shipping documents even in cases, where exporttransactions are not backed by letters of credit, provided their 'relative salecontract' with overseas buyer provides for acceptance of FCR as a shippingdocument in lieu of bill of lading. However, the acceptance of such FCR for

purchase/discount would purely be the credit decision of the bank concerned who,among others, should satisfy itself about the bona fides of the transaction and thetrack record of the overseas buyer and the Indian supplier since FCRsare not negotiable documents. It would be advisable for the exporters to ensure duediligence on the overseas buyer, in such cases. (C.8)

In cases where exporters present documents pertaining to exports after theprescribed period of 21 days from date of export, banks may handle themwithout prior approval of the Reserve Bank, provided they are satisfied withthe reasons for the delay. (C.9)

The duplicate copies of EDF/SDF forms and shipping documents, oncesubmitted to the banks for negotiation, collection, etc., should not ordinarily

be returned to exporters, except for rectification of errors and resubmission.(C.11)

Banks may deliver one negotiable copy of the Bill of Lading to the Masterof the carrying vessel or trade representative for exports to certainlandlocked countries if the shipment is covered by an irrevocable letter ofcredit and the documents conform strictly to the terms of the Letter of Creditwhich, inter alia, provides for such delivery.( C.12)

Occasionally, exporters may approach banks for reduction in invoice value on

account of cash discount to overseas buyers for prepayment of the usance bills.banks may allow cash discount to the extent of amount of proportionate interest onthe unexpired period of usance, calculated at the rate of interest stipulated in theexport contract or at the prime rate/LIBOR of the currency of invoice where rate ofinterest is not stipulated in the contract. (C.15)


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If, after a bill has been negotiated or sent for collection, its amount is to bereduced for any reason, banks may approve such reduction, if satisfied aboutgenuineness of the request, provided:

a. The reduction does not exceed 25 per cent of invoice value:b. It does not relate to export of commodities subject to floor price stipulationsc. The exporter is not on the exporters caution list of the Reserve Bank, andd. The exporter is advised to surrender proportionate export incentives availed of,if any.

In the case of exporters who have been in the export business for more thanthree years, reduction in invoice value may be allowed, without any

percentage ceiling, subject to the above conditions as also subject to theirtrack record being satisfactory, i.e., the export outstanding do not exceed 5

per cent of the average annual export realization during the preceding three

financial years.

For the purpose of reckoning the percentage of export bills outstanding tothe average export realizations during the preceding three financial years,outstanding of exports made to countries facing externalization problemsmay be ignored provided the payments have been made by the buyers in thelocal currency. (C.16)

banks may remit export claims on application, provided the relative exportproceeds have already been realized and repatriated to India and the exporteris not on the caution list of the Reserve Bank.

In all such cases of remittances, the exporter should be advised to surrenderproportionate export incentives, if any, received by him. (C.17)

Prior approval of the Reserve Bank is not required if, after goods have beenshipped, they are to be transferred to a buyer other than the original buyer inthe event of default by the latter, provided the reduction in value, if any,involved does not exceed 25 per cent of the invoice value and the realization

of export proceeds is not delayed beyond the period of 12 months from thedate of export. (C.18)

For export proceeds due within the prescribed period during a financial yearall exporters (Including Status Holder exporters) have been allowed to write-off (including reduction in invoice value) outstanding export dues and


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extend the prescribed period of realization beyond 12 months or furtherperiod as applicable, provided

(a) The aggregate value of such export bills written-off (including reduction ininvoice value) and bills extended for realization does not exceed 10 per cent of theexport proceeds due during the financial year; and(b) Such export bills are not a subject to investigation by Directorate ofEnforcement / Central Bureau of Investigation or any other Investigating Agencies.

Exporters dealing with more than one bank can avail of this facility througheach bank, i.e., the limit of 10 per cent for self write-off (including reductionin invoice value) and extension of time for realization of export proceedswould be applicable for export bills lodged for realization with that banks.

Exporters operating under a consortium of banks or with multiple banks willalso have the option of computing the 10 per cent limit on an aggregate basis

with all the banks, provided the lead bank of the consortium or in case ofmultiple banking, a nodal bank, undertakes to verify the exporters annual

performance on behalf of all the banks.

Within a month from the close of the financial year, exporters should submita statement, giving details of export proceeds due, realized and not realizedto the banks concerned.

The banks will be required to verify the statement with their records andreview the export performance of the exporter during the financial year toascertain that in cases where the 10 per cent limit of self extension, write-off(including reduction in invoice value) and non-realization has been

breached, the exporter has sought necessary approval for write-off, reductionin invoice value or extension of time, as the case may be, for the excess overthe 10 per cent limit before the end of the financial year. Export bills due inthe financial year for which the exporter has extended the period ofrealization on his own (within the 10 per cent limit) or sought

extension of time from the banks but unrealized as at the end of financial year willbe computed for export proceeds due in the following financial year.

In cases where exporters have failed to comply with the above requirement,banks may promptly advise the exporter concerned to seek extension oftime/reduction in invoice value/write-off in respect of non-realization inexcess of the 10 per cent limit, failing which, the banks may inform theexporter about the withdrawal of this facility of self write-off / extension of


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time, within a month, under advice to the Regional Office concerned of theReserve Bank. (C.19)

The Reserve Bank of India has permitted the banks to extend the period ofrealization of export proceeds beyond 12 months from the date of export, upto a period of six months, at a time, irrespective of the invoice value of theexport subject to the following conditions:

a. The export transactions covered by the invoices are not under investigation byDirectorate of Enforcement / Central Bureau of Investigation or other investigatingagencies,

b. The bank is satisfied that the exporter has not been able to realize exportproceeds for reasons beyond his control,c. The exporter submits a declaration that the export proceeds will be realizedduring the extended period,

d. While considering extension beyond one year from the date of export, the totaloutstanding of the exporter does not exceed USD one million or 10 per cent of theaverage export realizations during the preceding three financial years, whichever ishigher.e. All the export bills outstanding beyond six months from the date of export may

be reported in XOS statement. However, where extension of time has been grantedby the banks, the date up to which extension has been granted may be indicated inthe Remarks column.f. In cases where the exporter has filed suits abroad against the buyer, extensionmay be granted irrespective of the amount involved / outstanding.

(ii) In cases where an exporter has not been able to realize proceeds of a shipmentmade within the extended period for reasons beyond his control, but expects to beable to realize proceeds if further extension of the period is allowed to him, as wellas in respect of cases not covered under Para (i) above necessary application (induplicate) should be made to the Regional Office concerned of the Reserve Bankin form ETX through his bank with appropriate documentary evidence. (C.20)

An exporter who has not been able to realize the outstanding export dues

despite best efforts, may either self write off or approach the banks, who hadhandled the relevant shipping documents, with appropriate supportingdocumentary evidence with a request for write off of the unrealized portionsubject to the fulfillment of stipulations regarding surrender of incentives

prior to write-off


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After liberalizing and simplifying the procedure, limits prescribed forwrite-offs of unrealized export bills are as under:

a. Self write-off by an exporter (Other than Status Holder Exporter) 5%*b. Self write-off by Status Holder Exporters 10%*c. Write-off byAuthorized Dealer Bank- 10%* *of the total export proceedsrealized during the previous calendar year.

The above limits will be related to total export proceeds realized during theprevious calendar year and will be cumulatively available in a year.

The above write-off will be subject to conditions that the relevant amounthas remained outstanding for more than one year, satisfactory documentaryevidence is furnished in support of the exporter having made all efforts torealize the dues, and the case falls under any of the undernoted categories:

a) The overseas buyer has been declared insolvent and a certificate from the

official liquidator indicating that there is no possibility of recovery of exportproceeds has been produced.b) The overseas buyer is not traceable over a reasonably long period of time.c) The goods exported have been auctioned or destroyed by the Port / Customs /Health authorities in the importing country.d) The unrealized amount represents the balance due in a case settled through theintervention of the Indian Embassy, Foreign Chamber of Commerce or similarOrganization;e) The unrealized amount represents the undrawn balance of an export bill (notexceeding 10% of the invoice value) remaining outstanding and turned out to beunrealizable despite all efforts made by the exporter;f) The cost of resorting to legal action would be disproportionate to the unrealizedamount of the export bill or where the exporter even after winning the Court caseagainst the overseas buyer could not execute the Court decree due to reasons

beyond his control;g) Bills were drawn for the difference between the letter of credit value and actualexport value or between the provisional and the actual freight charges but theamount has remained unrealized consequent on dishonor of the bills by theoverseas buyer and there are no prospects of realization.

iv) The exporter has surrendered proportionate export incentives, if any, availed ofin respect of the relative shipments. The banks should obtain documentsevidencing surrender of export incentives availed of before permitting the relevant

bills to be written off.


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v) In case of self write-off, the exporter should submit to the concerned AD bank, aChartered Accountants certificate, indicating the export realization in the

preceding calendar year and also the amount of write-off already availed of duringthe year, if any, the relevant EDF/SDF Nos. to be written off, Bill No., invoicevalue, commodity exported, country of export. The CA certificate may alsoindicate that the export benefits, if any, availed of by the exporter have beensurrendered.

vi) However the following would not qualify for the write off facility:a. Exports made to countries with externalization problem i.e. where the overseas

buyer has deposited the value of export in local currency but the amount has notbeen allowed to be repatriated by the central banking authorities of the country.b. EDF/SDF forms which are under investigation by agencies. The outstandingbills which are subject matter of civil / criminal suit.

Cases not covered by the above instructions / beyond the above limits, may bereferred to the concerned Regional Office of Reserve Bank of India. (C21)

Write off in cases of Payment of Claims by ECGC and private insurancecompanies.

(i) banks shall, on an application received from the exporter supported bydocumentary evidence from the ECGC and private insurance companiesconfirming that the claim in respect of the outstanding bills has been settled bythem, write off the relative export bills.

(ii) Such write-off will not be restricted to the limit of 10 per cent.

(iii) Surrender of incentives, if any, in such cases will be as provided in the ForeignTrade Policy. (C.22)

Cases which are not covered by the above instructions will require priorapproval from the Regional Office concerned of the Reserve Bank. C.23

As announced in the Foreign Trade Policy (FTP), 2009-14, realization ofexport proceeds shall not be insisted upon under any of the ExportPromotion Schemes under the said FTP, subject to the following conditions:

i. The write off on the basis of merits is allowed by the Reserve Bank or by bank.


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ii. The exporter produces a certificate from the Foreign Mission of Indiaconcerned, about the fact of non-recovery of export proceeds from the buyer; and

iii. This would not be applicable in self write off cases.The above relaxation is applicable for the exports made with effect from August27, 2009.The banks are advised not to insist on the surrender of proportionate exportincentives, other than under the Duty Drawback Scheme. The drawback amounthas to be recovered even if the claim is settled by the ECGC or the writeoff isallowed by the Reserve Bank. (C. 24)

When shipments from India for which payment has not been received eitherby negotiation of bills under letters of credit or otherwise are lost in transit,the banks must ensure that insurance claim is made as soon as the loss is

known.

In cases where the claim is payable abroad, the banks must arrange to collect thefull amount of claim due on the lost shipment, through the medium of theiroverseas branch/correspondent and release the duplicate copy of EDF/SDF formonly after the amount has been collected.

A certificate for the amount of claim received should be furnished on the reverse ofthe duplicate copy.

Banks should ensure that amounts of claims on shipments lost in transit which arepartially settled directly by shipping companies/airlines under carriers liability

abroad are also repatriated to India by exporters. (C.25)

Banks may allow requests received from exporters for netting off of

export receivables against import payments for units located in SpecialEconomic Zones subject to the following:

(i) The netting off of export receivables against import payments is in respect of

the same Indian entity and the overseas buyer / supplier (bilateral netting) and thenetting may be done as on the date of balance sheet of the unit in SEZ.

(ii) The details of export of goods are documented in EDF/SDF while details ofimport of goods / services are recorded through A1 / A2 form. The relativeEDF/SDF forms will be treated as complete by the designated banks only after theentire proceeds are adjusted / received.


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(iv) The export / import transactions with ACU countries are kept outside thearrangement. (C.26-A)

Set-off of export receivables against import payables: (effective fromNovember 17, 2011)

Banks may deal with the cases of set-off of export receivables againstimport payables, subject to following terms and conditions:

a. The import is as per the Foreign Trade Policy in force.b. Invoices/Bills of Lading/Airway Bills and Exchange Control copies of Bills ofEntry for home consumption have been submitted by the importer to theAuthorized Dealer bank.c. Payment for the import is still outstanding in the books of the importer.

e. The relative EDF/SDF forms will be released by the AD bank only after theentire export proceeds are adjusted / received.f. The set-off of export receivables against import payments should be in respectof the same overseas buyer and supplier and that consent for set-off has beenobtained from him.g. The export / import transactions with ACU countries should be kept outside thearrangement.h. All the relevant documents are submitted to the concerned bank. C.26 (B)

banks may allow payment of commission, either by remittance or bydeduction from invoice value subject to the following conditions:

a. Amount of commission has been declared on EDF/SDF/SOFTEX form andaccepted by the Customs authorities.In cases where the commission has not been declared on form, remittancemay be allowed after satisfying the reasons adduced by the exporter for notdeclaring commission on Export Declaration Form, provided a validagreement/written understanding between the exporters and/or beneficiaryfor payment of commission exists.

b. The relative shipment has already been made. (C.27)

Banks, through whom the export proceeds were originally realized mayconsider requests for refund of export proceeds of goods exported from Indiaand being re-imported into India on account of poor quality. While

permitting such transactions, banks are required to :


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(i) Exercise due diligence regarding the track record of the exporter

(ii) Verify the bonafides of the transactions

(iii) Obtain from the exporter a certificate issued by DGFT / Custom authoritiesthat no incentives have been availed by the exporter against the relevant export orthe proportionate incentives availed, if any, for the relevant export have beensurrendered

(iv) Obtain an undertaking from the exporter that the goods will be re-importedwithin three months from the date of remittance and(v) Ensure that all procedures as applicable to normal imports are adhered to.(C28)

****


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Master Circular No.13

Dated: July 01, 2013

On

Import of Goods and Services

*********


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Introduction

Import and Export are two main activities involved in international trade

In these activities ,there is an involvement of foreign exchange. One ofthe prime function of Reserve Bank of India is to monitor foreignexchange.

After obtaining importer exporter code number , one can enter in tointernational business. Ministry of Finance and Ministry of Commerceand Industries are closely connected with international trade.

DGFT ,ECGC, Customs, Shipping lines ,Air lines, Custom brokers,Chamber of Commerce, Inspection Agency, etc are organizations withwhom the exporter/importer is required to interact during the business.

Every year ,on the first day of July, RBI publishes Master circulars onseveral subjects by compiling all different circulars issued during theprevious year on the said subject. This facilitates exporter, importer,bank and all the persons who are connected with exports and imports.

This Master Circular consolidates the existing instructions on thesubject.

Master Circular is being issued with a sunset clause of one year. Thiscircular will stand withdrawn on July 1, next year and be replaced by anupdated Master Circular on the subject.

The system of issuing Master circular is well appreciated.

******


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Rules and regulations to be followed by banks from the foreign exchangeangle while undertaking import payment transactions on behalf of theirclients are set out in this master circular

Where specific regulations do notexist banks may be governed by normaltrade practices.

Banks must adhere to KYC guidelines issued by Reserve Bank.(B.1.)

Applications by persons, firms and companies for making payments,exceeding USD 5000 or its equivalent, towards imports into India must

be made in Form A-1

If the amount does not exceed USD 5000 or its equivalent and the payment

is made by a cheque drawn on the applicant's bank account or by a Demand Draftthen a simple letter is sufficient.(B.2)

Except for goods included in the negative list which require license underthe Foreign Trade Policy in force, banks may freely open letters of creditand allow remittances for import.

While opening letters of credit, the For Exchange Control purposes copy of

the license should be called for and special conditions, if any, attached tosuch licenses should be adhered to. (B.3.)

any person acquiring foreign exchange is permitted to use it either for thepurpose mentioned in the declaration made by him to a bank , or to use itfor any other purpose for which acquisition of foreign exchange is

permissible .

Where foreign exchange acquired has been utilized for import of goodsinto India, the bank should ensure that the importer furnishes evidence of import

viz., ExchangeControl copy of the Bill of Entry, Postal Appraisal Form or Customs AssessmentCertificate, etc., and satisfy himself that goods equivalent to the value ofremittance have been imported.

Payment for import can also be made by way of credit to non-resident account ofthe overseas exporter maintained with a bank in India. B.4.


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remittances against imports should be completed not later than six

months from the date of shipment, except in cases where amounts arewithheld towards guarantee of performance, etc.

(ii) banks may permit settlement of import dues delayed due to disputes, financialdifficulties, etc.Interest in respect of delayed payments, usance bills or overdue interest for a

period of less than three years from the date of shipment may be permitted in termsof the directions in para C.2.(B.5.1.)

Deferred payment arrangements, including suppliers and buyers credit, providingfor payments beyond a period of six months from date of shipment up to a period

of less than three years, are treated as trade credits for which the proceduralguidelines laid down in the Master Circular for External Commercial Borrowingsand Trade Credits may be followed.(B.5.2.)

A person may

send into India without limit foreign exchange in any form other than currencynotes, bank notes and travelers cheques;

bring into India from any place outside India, without limit ,subject to thecondition that such person makes, on arrival in India, a declaration to the CustomAuthorities at the Airport in the Currency Declaration Form .

it shall not be necessary to make such declaration where the aggregate value of theforeign exchange in the form of currency notes, bank notes or travelers cheques

brought in by such person at any one time does not exceed USD10,000 or itsequivalent and/or the aggregate value of foreign currency notes (cash portion)alone brought in by such person at any one time does not exceed USD 5,000 or itsequivalent.(B.6.1.)

Any person resident in India who had gone out of India on a temporaryvisit, may bring into India at the time of his return from any place outsideIndia (other than from Nepal and Bhutan), currency notes of Governmentof India and Reserve Bank notes up to an amount not exceedingRs.7,500/- per person.(B.6.2.)


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bank may allow advance remittance for import of goods without anyceiling subject to the following conditions:

(a) If the amount of advance remittance exceeds USD 200,000 or its equivalent, anunconditional, irrevocable standby Letter of Credit or a guarantee from aninternational bank of repute situated outside India or a guarantee of a bank in India,if such a guarantee is issued against the counter-guarantee of an international bankof repute situated outside India, is obtained.

(b) In cases where the importer (other than a Public Sector Company or aDepartment/Undertaking of the Government of India/State Government/s) isunable to obtain bank guarantee from overseas suppliers and the bank is satisfiedabout the track record and bonafides of the importer, the requirement of the bank

guarantee / standby Letter of Credit may not be insisted upon for advanceremittances up to USD 5,000,000 (US Dollar five million).

(c) A Public Sector Company or a Department/Undertaking of the Government ofIndia / State Government/s which is not in a position to obtain a guarantee from aninternational bank of repute against an advance payment, is required to obtain aspecific waiver for the bank guarantee from the Ministry of Finance, Governmentof India before making advance remittance exceeding USD 100, 000.(C.1.1.)

Bank may allow advance remittance for import of services without anyceiling subject to the following conditions:

(a) Where the amount of advance exceeds USD 500,000 or its equivalent, aguarantee from a bank of international repute situated outside India, or a guaranteefrom an bank in India, if such a guarantee is issued against the counter-guaranteeof a bank of international repute situated outside India, should be obtained from theoverseas beneficiary.

(b) In the case of a Public Sector Company or a Department/ Undertaking of the

Government of India/ State Governments, approval from the Ministry of Finance,Government of India foradvance remittance for import of services without bank guarantee for an amountexceeding USD 100,000 or its equivalent would be required.


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(c) banks should also follow-up to ensure that the beneficiary of the advanceremittance fulfils his obligation under the contract or agreement with the remitterin India, failing which, the amount should be repatriated to India.(C.1.4.)

bank may allow payment of interest on usance bills or overdue interest for aperiod of less than three years from the date of shipment at the rateprescribed for trade credit from time to time.

In case of pre-payment of usance import bills, remittances may be made only afterreducing the proportionate interest for the unexpired portion of usance at the rate atwhich interest has been claimed or LIBOR of the currency in which the goods have

been invoiced, whichever is applicable. Where interest is not separately claimed orexpressly indicated, remittances may be allowed after deducting the proportionateinterest for the unexpired portion of usance at the prevailing LIBOR of the

currency of invoice.C.2.

Where goods are short-supplied, damaged, short-landed or lost in transit andthe Exchange Control copy of the import license has already been utilized tocover the opening of a letter of credit against the original goods which have

been lost, the original endorsement to the extent of the value of the lostgoods may be cancelled by the bank and fresh remittance for replacementimports may be permitted ,provided the insurance claim relating to the lostgoods has been settled in favour of the importer. It may be ensured that theconsignment being replaced is shipped within the validity period of thelicense.C.3.

In case replacement goods for defective import are being sent by theoverseas supplier before the defective goods imported earlier are reshippedout of India, banks may issue guarantees at the request of importer client fordispatch/return of the defective goods, according to their commercial

judgment.(C.4.)

Bank may allow BPO companies in India to make remittances towards the

cost of equipment to be imported and installed at their overseas sites inconnection with the setting up of their International Call Centres (ICCs) .

The banks should also obtain a certificate as evidence of import from the ChiefExecutive Officer (CEO) or auditor of the importer company that the goods forwhich remittance was made have actually been imported and installed at overseassites.(C.5)


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Import bills and documents should be received from the banker of the

supplier by the banker of the importer in India. bank should not,

therefore, make remittances where import bills have been received

directly by the importers from the overseas supplier, except in the

following cases:

(i) Where the value of import bill does not exceed USD 300,000.

(ii) Import bills received by wholly-owned Indian subsidiaries of foreigncompanies from their principals.

(iii) Import bills received by Status Holder Exporters as defined in the ForeignTrade Policy, 100% Export Oriented Units / Units in Special Economic Zones,Public Sector Undertakings and Limited Companies.

(iv) Import bills received by all limited companies viz. public limited, deemedpublic limited and private limited companies.(C.6.1. )

At the request of importer clients, bank may receive bills directly from theoverseas supplier as above, provided the bank is fully satisfied about thefinancial standing/status and track record of the importer customer.

(ii) Before extending the facility, the bank should obtain a report on eachindividual overseas supplier from the overseas banker or a reputed overseas creditagency. However, such credit report on the overseas supplier need not be obtainedin cases where the invoice value does not exceed USD 300,000 provided the bankis satisfied about the bonafides of the transaction and track record of the importerconstituent.(C.6.3.)

In case of all physical imports, where value of foreign exchange remitted/paid for import into India exceeds USD 100,000 or its equivalent, it isobligatory on the part of the bank through whom the relative remittance wasmade, to ensure that the importer submits :-

(a) The Exchange Control copy of the Bill of Entry for home consumption,or(b) The Exchange Control copy of the Bill of Entry for warehousing, in case of100% Export Oriented Units,or(c) Customs Assessment Certificate or Postal Appraisal Form, as declared by theimporter to the Customs Authorities, where import has been made by post, as


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evidence that the goods for which the payment was made have actually beenimported into India.(ii) In respect of imports on D/A basis, bank should insist on production ofevidence of import at the time of effecting remittance of import bill. However, ifimporters fail to produce documentary evidence due to genuine reasons such asnon-arrival of consignment, delay in delivery/ customs clearance of consignment,etc., AD bank may, if satisfied with the

genuineness of request, allow reasonable time, not exceeding three months fromthe date of remittance, to the importer to submit the evidence of import. (C7.1)

bank may accept, in lieu of Exchange Control copy of Bill of Entry for homeconsumption, a certificate from the Chief Executive Officer (CEO) orauditor of the company that the goods for which remittance was made haveactually been imported into India provided :-

(a) the amount of foreign exchange remitted is less than USD 1,000,000 or itsequivalent,(b) the importer is a company listed on a stock exchange in India and whose networth is not less than Rs.100 crore as on the date of its last audited balance sheet,or, the importer is a public sector company or an undertaking of the Government ofIndia or its departments.

(ii) The above facility may also be extended to autonomous bodies, includingscientific bodies/academic institutions, such as Indian Institute of Science / IndianInstitute of Technology, etc. whose accounts are audited by the Comptroller andAuditor General of India (CAG). bank may insist on a declaration from theauditor/CEO of such institutions that their accounts are audited by CAG.(C.7.2.)

Where imports are made in non-physical form, i.e., software or data throughinternet / datacom channels and drawings and designs through e-mail/fax, acertificate from a Chartered Accountant that the software / data / drawing/design has been received by the importer, may be obtained.

(ii) bank should advise importers to keep Customs Authorities informed of the

imports made by them under this clause.(C.7.3)

bank should acknowledge receipt of evidence of import e.g. ExchangeControl copy of the Bill of Entry, Postal Appraisal Form or CustomsAssessment Certificate, etc., from importers.(C.8.)


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banks are permitted to issue guarantee on behalf of their importer customersin terms of Notification No. FEMA 8/2000-RB dated May 3, 2000, asamended from time to time.(C.11.)

C.

C.16. Merchanting Trade

bank may take necessary precautions in handling bonafides merchantingtrade transactions or intermediary trade transactions to ensure that:

(a)Goods involved in the transactions are permitted to be imported into Indiaand all the rules, regulations and directions applicable to export (exceptExport Declaration Form) and import (except Bill of Entry) are compliedwith for the export leg and import leg, respectively.

RBI circular number 115 dated 28thMarch 2014 provides revised guidelinesfor Merchanting Trade Transaction.

***

Attention of Authorized Dealer Category-I (AD Category-I) banks is invited toA.P. (DIR Series)Circular Nos.106&4dated June 19, 2003 and July 19, 2003 respectively, containing directionsrelating to merchanting trade transactions. Further, in terms ofA.P. (DIR Series) Circular No. 95dated January 17, 2014the existing guidelines were reviewed in the light of the

recommendations of the Technical Committee on Services / Facilities to Exporters (Chairman:Shri G. Padmanabhan) to further liberalize and simplify the procedure.

2. In view of suggestions received from merchanting traders and trade bodies, the guidelines onmerchanting trade transactions have been further reviewed. Accordingly, it has been decided toissue revised guidelines as under:

i. For a trade to be classified as merchanting trade following conditions should be satisfied ;a. Goods acquired should not enter the Domestic Tariff Area and

b. The state of the goods should not undergo any transformation ;ii. Goods involved in the merchanting trade transactions would be the ones that are

permitted for exports / imports under the prevailing Foreign Trade Policy (FTP) of India,as on the date of shipment and all the rules, regulations and directions applicable toexports (except Export Declaration Form) and imports (except Bill of Entry), arecomplied with for the export leg and import leg respectively ;

iii. AD bank should be satisfied with the bonafides of the transactions. Further, KYC andAML guidelines should be observed by the AD bank while handling such transactions ;

iv. Both the legs of a merchanting trade transaction are routed through the same AD bank.The bank should verify the documents like invoice, packing list, transport documents and
http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=1222&Mode=0http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=1222&Mode=0http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=1222&Mode=0http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=1222&Mode=0http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=1269&Mode=0http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=1269&Mode=0http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=1269&Mode=0http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=8698&Mode=0http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=8698&Mode=0http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=8698&Mode=0http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=8698&Mode=0http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=8698&Mode=0http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=8698&Mode=0http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=1269&Mode=0http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=1222&Mode=0http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=1222&Mode=0


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insurance documents (if originals are not available, Non-negotiable copies dulyauthenticated by the bank handling documents may be taken) and satisfy itself about thegenuineness of the trade ;

v. The entire merchanting trade transactions should be completed within an overall periodof nine months and there should not be any outlay of foreign exchange beyond four

months ;vi. The commencement of merchanting trade would be the date of shipment / export legreceipt or import leg payment, whichever is first. The completion date would be the dateof shipment / export leg receipt or import leg payment, whichever is the last ;

vii. Short-term credit either by way of suppliers' credit or buyers' credit will be available formerchanting trade transactions, to the extent not backed by advance remittance for theexport lag, including the discounting of export leg LC by an AD bank, as in the case ofimport transactions ;

viii. In case advance against the export leg is received by the merchanting trader, AD bankshould ensure that the same is earmarked for making payment for the respective importleg. However, AD bank may allow short-term deployment of such funds for the

intervening period in an interest bearing account ;ix.

Merchanting traders may be allowed to make advance payment for the import leg ondemand made by the overseas seller. In case where inward remittance from the overseasbuyer is not received before the outward remittance to the overseas supplier, AD bankmay handle such transactions by providing facility based on commercial judgement. Itmay, however, be ensured that any such advance payment for the import leg beyond USD200,000/- per transaction, the same should be paid against bank guarantee / LC from aninternational bank of repute except in cases and to the extent where payment for exportleg has been received in advance ;

x. Letter of credit to the supplier is permitted against confirmed export order keeping inview the outlay and completion of the transaction within nine months ;

xi. Payment for import leg may also be allowed to be made out of the balances in ExchangeEarners Foreign Currency Account (EEFC) of the merchant trader ;

xii. AD bank should ensure one-to-one matching in case of each merchanting tradetransaction and report defaults in any leg by the traders to the concerned Regional Officeof RBI, on half yearly basis in the format asannexed,within 15 days from the close ofeach half year, i.e. June and December ;

xiii. The names of defaulting merchanting traders, where outstandings reach 5% of theirannual export earnings, would be caution-listed.

3. The merchanting traders have to be genuine traders of goods and not mere financialintermediaries. Confirmed orders have to be received by them from the overseas buyers. ADbanks should satisfy themselves about the capabilities of the merchanting trader to perform theobligations under the order. The overall merchanting trade should result in reasonable profits tothe merchanting trader.

4. It is clarified that the contents of this circular would come into effect in respect of merchantingtrade transactions initiated after January 17, 2014.
http://rbidocs.rbi.org.in/rdocs/content/pdfs/AP115DI28032014_A.pdfhttp://rbidocs.rbi.org.in/rdocs/content/pdfs/AP115DI28032014_A.pdfhttp://rbidocs.rbi.org.in/rdocs/content/pdfs/AP115DI28032014_A.pdfhttp://rbidocs.rbi.org.in/rdocs/content/pdfs/AP115DI28032014_A.pdf


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5. Reporting for merchanting trade transactions for compilation of R-return should be done ongross basis, against the undernoted codes:

Trade Purpose Code underFETERS

Description

Export P0108 Goods sold under Merchanting /receipt against exportleg of Merchanting trade

Import S0108 Goods acquired under Merchanting /payment againstimport leg of Merchanting trade

6. AD Category-I banks may bring the contents of this circular to the notice of their constituentsconcerned and note the guidelines for strict compliance.

7. The directions contained in this circular have been issued under sections 10(4) and 11(1) ofthe Foreign Exchange Management Act (FEMA), 1999 (42 of 1999) and are without prejudice topermissions / approvals, if any, required under any other law.

AJIT SHAH501,Topiwala Center,5thFloor,

Next to Municipal Market,Near Railway Station,

Goregaon-(West)Mumbai-400062

Mob:9004663068

Email:[email protected]

*********************************************************

Information contained herein is of a general nature and is not intended to address the circumstances of any particularindividual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee thatsuch information is accurate as of the date it is received or that it will continue to be accurate in the future. No oneshould act on such information without appropriate professional advice after a thorough examination of particular
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