Professional Documents
Culture Documents
Agenda
gNBC
Documentation: Overview Commercial and Regulatory documents Understanding - Invoice, Packing List, Inspection Certificate, Certificate of Origin, Shipping Bill, ARE-1, Mate Receipt, GR/SDF, Bill of exchange, Bank Realisation Certificate, Bill of Lading and Airway Bill, Bill of Entry etc. Incoterms Terms of payment Letter of credits - Concept, Types of L/C, Parties to L/C, L/C mechanism.
Agenda
gNBC
Export Procedures Import Procedure Export Promotion Schemes under Foreign Trade Policy
U N D E R S T A N D I N G
P O L I C Y
Understanding Policy
gNBC
Foreign Trade Policy :
Drafted by Director General of Foreign Trade under the Ministry of Commerce. Implemented with the help of various other Departments mainly Customs, Excise and RBI. In order to understand the co-relation, one must get familiar with the various laws and functions of various departments. As far as implementation is concerned, the co-relation of Foreign Trade Policy with the following Acts, Laws and Regulations must be taken into account :
Understanding Policy
gNBC
Foreign Trade Policy :
Customs Act, 1962 Customs Tariff Act, 1975 Foreign Exchange Management Act, 1999 Central Excise Act, 1944 Excise Tariff Act, 1985 Industrial Policy Resolution, 1956. Industries Development and Regulation Act, 1951 Laws of Weights and Measures
While some of these laws would be specific in nature for certain commodities, the generic understanding should be based on the following :
Ministry of Finance
gNBC
Customs Coverage Validity of imports and exports Assessment and valuation Export Under bond clearance of excisable goods for export under bond Rebate of excise duty post exports where exports have been effected after payment of excise duty Monitoring factory stuffed containers in certain cases Import Monitoring CENVAT
C o n t d
Excise Coverage
Determination of import / export duty applicable Collection of duty Inspection and supervision of cargo Examining co-relation and compliance with other laws
gNBC
Governing Acts/Laws/Manual 1. Customs Act, 1962 2. Customs Tariff Act, 1975 3. Customs Law Manual Tools : i) Notifications ii) Public Notices iii) Customs Circular iv) General Exemption Notifications Governing Acts/Laws/Manual 1. Central Excise Act, 1944 2. Central Excise Tariff Act, 1985 3. Central Excise Law Manual Tools : i) Notifications ii) Central Excise Circulars iii) General Exemption Notifications
RBI
gNBC
Coverage Monitoring Foreign Exchange Inflow on account of exports of goods and services Outflow on account of imports of goods and services Governing Acts/Laws/Manual 1) Foreign Exchange Management Act 1999 2) Foreign Exchange Manual Tools: Master Circulars FEMA Notifications A.P. (DIR. Srs.) Circulars
gNBC
In order to understand full implications of Foreign Trade Policy one must get himself familiarized with all the above mentioned departments and their working
Purview of Export-Import
FLOW CHART I
Knowledge of Market Knowledge of Product Knowledge of Incentives Product Costing
gNBC
Proforma Invoice
Sample if necessary
Payment terms
Scrutiny of L/C
Amendments if Necessary
Continued.
gNBC
Pre Shipment Post Shipment
Payment Realisation
Realisation of Benefits
Statutory Records
Overview of Documentation
Significance of Documentation
gNBC
Documents are important for the following reasons:
(a) as an evidence of shipment and title of goods; (b) for obtaining payment; (c) to provide a specific and complete description of the goods; (d) for assessment of correct Duty for clearance purpose; (e) for obtaining Export Licences; (f) for obtaining export finance; (g) for completing Pre-shipment Inspection; (h) for claiming export benefits like Duty Drawback, etc.
gNBC
Commercial set of documents are mainly used for Commerce. In other words these are documents normally exchanged between buyer and seller. Regulatory documents are required in dealing with various regulatory authorities such as customs, RBI, Excise, Licencing authorities Inspection and other Export Promotion bodies for availing incentives etc.
gNBC
RBI Declaration Forms (GR/PP) Application for remittance of currency Various Licences Bill of Entry
gNBC
Referring Principal Commercial set of Auxiliary to the documents, it may 1. Commercial Invoice 1. Proforma of documents are please be observed that these set Invoice prepared from other set of documents (some of these 2. Inspection Certificate 2. Intimation for Inspection only). These are known as auxiliary documents.
3. Insurance Certificate 3. Declaration for Insurance 4. Certificate of Origin These documents may not 4. Application forby the foreign be required Certificate of Origin buyer, but these are must for preparation of main 5. Bill documents, known Mate Principle Commercial 5. as Receipt export of Lading Documents. Advice 6. Shipment 6. Shipping order 7. Packing List 8. Bill of Exchange 7. Shipping Instructions 8. Letter to Bank for negotiation of documents
Export Documentation
Export Sales Contract Pre-shipment Documents Post-shipment Documents
Standard Export Sales Contract forms are also available. These can be used as it is or with some modification as per individual need.
Pre-shipment Documents
gNBC
Documents at pre-shipment stage are those documents, which are required to be made, till the consignment is presented to the customs department for clearance. The following documents can, therefore, be treated as pre-shipment documents: Proforma Invoice Confirmed order or contract Letter of Credit Pre-shipment Inspection Certificate Packing list Shipping Bill Export Declaration Forms (GR/SDF) ARE
Post-shipment Documents
gNBC
Documents at Post-shipment stage are naturally those which are prepared after the shipment. These documents include the following: Mate Receipt Bill of Lading Airway Bill Roadway/Railway Bill Post Parcel/ Courier Receipt Invoices (including consular invoice) Certificate of Origin Insurance Certificate or Policy Bill of Exchange BRC
gNBC
Documents are also divided, depending upon, whether the benefit has to be claimed prior to exports or after the exports. For claiming benefits one has to make different applications with various government authorities.
Contd.
gNBC
gNBC
Import Documentation
Important DocumentsImports
gNBC
Invoice Packing list Bill of Lading or Delivery Order/Airway Bill GATT declaration form duly filled in Importers/CHAs declaration Licence/Authorisations in original wherever necessary Letter of Credit/Bank Draft/wherever necessary Insurance document Import license Industrial License, if required Test report in case of chemicals Catalogue, Technical write up, Literature in case of machineries, spares or chemicals as may be applicable Separately split up value of spares, components, machineries Certificate of Origin, if preferential rate of duty is claimed under PTAs/FTAs etc. No Commission declaration
Understanding Documents
Understanding Documents
gNBC
All documents whether it is for export or import transaction generally contain following information
Name and address of the exporter and importer Document No. and date. Order No. and date Port of discharge Port of destination Country of origin Description of Goods Marks and nos., model nos. [if any] Weight ITC HS Code No. Value Currency Terms of payment Terms of shipment etc.
Understanding Documents
gNBC
However, depending upon the nature of the document, specific information is to be mentioned. For e.g. apart from the above details, Shipping Bill will include what export benefit is being claimed against that particular shipment, etc. Similarly, Packing List will give information about how goods are packed. Let us now study each document in depth.
Invoice
gNBC
It is itemized statement prepared and issued by a seller at the time of dispatching the goods to the buyer. It helps the Customs Authorities to:
ensure that goods shipped are permitted by the export policy. compute the customs duty, if any, payable on the export or the import. check the quantity of goods. They generally open a few packages at random and check the veracity of details in the invoice. check if there is any over-invoicing or under-invoicing (that may be resorted to by the importer to reduce the import duty payable).
Invoice
gNBC
Invoices are often called bills. Various types of invoices used in International Trade are
Proforma Invoice Commercial Invoice Consular Invoice Leagalized Invoice Customs Invoice
Packing List
gNBC
It is a consolidated statement in a prescribed format detailing how goods are packed, marked and numbered including weight and dimensions of each package. It is useful for customs at the time of examination and warehouse keeper of buyer to maintain inventory record and to effect delivery. It have many details common from invoice but it does not indicate unit rate value of goods. The exporter or his/her agent, the customs broker or the freight forwarder, reserves the shipping space based on the gross weight or the measurement shown in the packing list.
Packing List
gNBC
Customs uses it as a check-list to verify:
the outgoing cargo (in exporting) and the incoming cargo (in importing).
Inspection Certificate
gNBC
Certificate of Inspection is issued by the Inspection Agency concerned certifying that the consignment has been inspected before shipment as per the requirements of the Exports (Quality Control and Inspection) Act, 1963. It satisfies the conditions relating to quality control and inspection as applicable to it and is certified export worthy. This certificate is required: by customs before allowing shipment of goods or by a banker to negotiate the documents. This certificate bears cross references of invoice or contract number.
Inspection Certificate
gNBC
Inspection can be done by Inspection Agency appointed by the Government of India, i.e. Export Inspection Agency, Textile Committee, Central Silk Board etc. Inspection Agency may also be nominated by importing countries Government i.e. SGS and OMIC by some African Countries. Sometimes buyer himself appoints an independent private inspector to inspect the goods. If an inspection is a part of transaction, then exporter is required to arrange for necessary inspection. It can be a certificate of quality, weight, analysis, or the like.
Certificate of Origin
gNBC
These are often required:
to meet Customs requirements in the importing state to comply with Banking requirements for other official and commercial reasons.
Shipping bill
gNBC
Shipping Bill is an important document required to seek permission of customs to export goods by Sea/Air. It is prepared by the exporter and submitted to the Customs. The exporter of any goods has to file a SHIPPING BILL as an entry for the purpose of export by air or sea and a BILL OF EXPORT in respect of export by land. Cargo will be allowed to be carted to Dock/Port sheds only after stamping and passing of the shipping bill by customs authorities. The exporter has to sign a declaration in the Shipping Bill regarding the truth of its contents.
Shipping bill
gNBC
Shipping Bill normally contains:
the name and address of the importer/consignee and exporter, invoice number and date, name of vessel carrying the goods, name of master or agents, port at which goods are to be discharged, country of final destination, description of goods, quantity details of each case, value of the goods as defined in the Sea Customs Act, number of packages with total weight, marks and numbers, etc.
Shipping bill
gNBC
Types of Shipping Bills: FREE SHIPPING BILL: Used for export of goods which neither attract any Export duty/cess nor entitled to any Duty Drawback DUTIABLE SHIPPING BILL: Used when export goods are subject to Export Duty/Cess. Duty is charged either on quantity basis (Fixed amount per kg. or per Metric tonne) or on certain percentage of assessable value. DRAWBACK SHIPPING BILL: Used when Duty Drawback is to be claimed. SHIPPING BILL FOR SHIPMENT EX-BOND: Used when the goods are to be exported which have been imported earlier and kept in bond prior to re-export.
Shipping bill
gNBC
Types of Shipping Bills:
DEPB SHIPPING BILL: When DEPB benefit is to be claimed. DEEC SHIPPING BILL: This shipping bill is used for export of goods under Advance Authorisation (Duty exemption scheme). DEEC CUM DRAWBACK SHIPPING BILL: This shipping bill is used for export of goods where both the schemes Duty Exemption as well as Drawback are to be taken into account.
Shipping bill
gNBC
Shipping bill is required to be submitted in quadruplicate. If Drawback/DEPB claim is to be made, one additional copy should be submitted. Copies of Shipping Bill are as under:
Customs Copy: For record of Customs Exporters Copy: For record of Exporters/ Exporter may forward it to shipping company. Export Promotion Copy: For office of DGFT. This copy is the most important document for claiming duty Neutralisation/Exemption benefits plus export incentives wherever applicable. Exchange Control Copy: For negotiating the export documents in bank. It is Proof of export for exchange purposes. DEPB Copy: For use in the import cell of customs for registration of licence.
ARE
gNBC
ARE stands for application for removal of excisable goods for exports by Air/Sea/ Post/Land. Goods which are sold overseas are exempted from payment of excise duty or entitled for Rebate of Excise Duty, if excise paid goods are exported. Under both these circumstances, the document to be used is ARE. When goods are removed without payment of duty for the purpose of export, they will get covered under the provisions of Rule 19 of the Central Excise Rules.
ARE
gNBC
When excise paid goods are exported and rebate of Excise Duty is to be claimed, they will get covered under Rule 18 of Central Excise Rules. ARE is prepared before clearance of goods from the factory gate. ARE will specify whether goods are exported under Rule 19 or under Rule 18.
ARE
There are three types of ARE: a) ARE 1: is used for physical export of goods.
gNBC
b) ARE 2: is used when goods are removed for manufacture and packing of the goods to be exported. c) ARE 3: is used when goods are supplied as deemed exports.
Mate Receipt
gNBC
Mates receipt is a receipt issued by the Master or Mate of the vessel stating that certain goods have been received on board his vessel. It is prima-facie evidence that the goods are loaded in the vessel. It contains: the name of shipping line and vessel, port of loading, port of discharge and place of delivery, marks and numbers, number and kind of packages, gross weight, description of goods, container status/seal number, shipping bill number and date and condition of cargo at the time of its receipt on board the vessel. It is serially numbered.
Mate Receipt
gNBC
Port authorities recover port dues from exporter on production of this receipt. On payment of Dock dues, the exporter or his agent collects the receipt from the Port-Trust authorities and hands over to shipping company for preparing Bill of Lading. Bill of Lading is prepared on the basis of Mates Receipt. It is of a transferable nature. In case of ascertaining the exact date of shipment, the mates receipt date is also very important. Normally, the date of Export is regarded as the date of Mate Receipt or the date of Bill of Lading, whichever is later.
SDF Form
Bill of Exchange
gNBC
Bill of Exchange [BE] is a document drawn and is an order by the exporter to the buyer to pay the money in specified exchange. It is also known as a draft. A bill of exchange is accompanied by commercial documents which are presented by a bank and released to the buyer either against payment (at sight) or against a signature for payment on a specified future date. It is an unconditional written order.
Bill of Exchange
gNBC
When a BE is drawn on foreign firm it is termed as a foreign draft or bill of exchange. It is prepared either in an international currency or Indian rupees depending on the terms of the contract. Accordingly, the bill is known by the name of currency in which it is drawn. e.g. a bill drawn in US dollars is known as a Dollar Bill and when drawn in Rupees, it is termed as Rupees Bill.
Bill of Exchange
gNBC
The most common versions of a bill of exchange are: A) Sight Draft When the drawer (exporter) expects the drawee (importer) to make payment immediately upon the draft being presented to him. Unless and until the Draft is received, the Negotiating/ Collecting Bank does not hand over the Shipping documents and the buyer cannot take delivery of goods.
Bill of Exchange
gNBC
B) Usance Draft When draft is drawn for payment at a date later than the date of presentation. It may be a fixed future (specific) date or determinable date according to the period of credit viz. 30 days, 60 days or 90 days etc. It is presented to the drawee (importer) who will retire the documents by accepting the draft by putting his signature and date.
Bill of Exchange
gNBC
When the payment is received in advance no Bill of Exchange is required to be drawn. Parties to a bill of exchange i. Drawer who makes the order for making payment. ii. Drawee whom the order to pay is made. iii. Payee whom the payment is to be made.
Bill of Exchange
gNBC
Features of a Bill of Exchange: A bill must be in writing, duly signed by its drawer, accepted by its drawee and properly stamped. It must contain an order to pay. Words like please pay US $ 5,000 on demand and oblige are not used. The order must be unconditional. The sum payable mentioned must be certain or capable of being made certain. The parties to a bill must be certain.
Bill of Entry
gNBC
The document on the strength of which clearance of imported goods can be affected is known as Bill Entry, the form of which has been standardized by the Central Board of Excise and Customs. Every importer has to submit it under section 46 of the Customs Act, 1962. Under EDI system, Bill of Entry is actually printed on computer in triplicate only after out of charge order is given. Duplicate copy is given to importer.
Bill of Entry
gNBC
Salient features of a Bill of Entry which is to be presented for clearance of goods for home consumption are mentioned below:
Origin & Vessels Particulars Particulars of the Goods Value Duties Leviable Code Declaration of Importers/Clearing Agents
Bill of Entry
gNBC
BILL OF ENTRY FOR HOME CONSUMPTION - When the imported goods are to be cleared on payment of full duty. Home consumption means use within India. BILL OF ENTRY FOR WAREHOUSING - If the imported goods are not required immediately, importer may like to store the goods in a warehouse without payment of duty under a bond and then clear from warehouse when required on payment of duty. This will enable him to defer payment of customs duty till goods are actually required by him. It is also called Into Bond Bill of Entry as bond is executed for transfer of goods in warehouse without payment of duty. BILL OF ENTRY FOR EX-BOND CLEARANCE - It is used for clearance from the warehouse on payment of duty.
Bill of Entry
gNBC
Documents required by customs authorities are required to be submitted to enable them to (a) check the goods (b) decide value and classification of goods and (c) to ensure that the import is legally permitted. Documents presented to customs along with the Bill of Entry generally include:
Invoice, Packing List, Bill of Lading or Delivery Order, Import Licence(s) / Customs Clearance Permit, Letter of Credit / Bank Draft wherever necessary Insurance Policy, Certificate of Origin etc. GATT declaration form duly filled in Importers / CHAs declaration duly signed
INCOTERMS 2000
INCOTERMS 2000
gNBC
INTRODUCTION In their sales contract buyer and seller agree on the conditions of sale : payment on the one hand and delivery on the other. These terms determine at what precise location the ownership of the goods is transferred from seller to buyer and when/how payment will be done. In international trade a universal set of rules on delivery has been developed over the years. It is called INCOTEMRS.
Incoterms 2000 Group E Departure EXW Ex Works Free Carrier Free alongside ship Free on board Cost and Freight Cost, Insurance, Freight Carriage Paid to Carriage and Insurance Paid to Delivered Delivered Delivered Delivered Delivered at Frontier Ex Ship Ex Quay Duty Unpaid Duty Paid
gNBC
Group F FCA Main carriage unpaid FAS FOB Group C Main carriage paid CFR CIF CPT CIP DAF DES DEQ DDU DDP
Group D Arrival
(Note, that when the Incoterms indicate a certain Point or .., the point of destination or origin must be mentioned)
INCOTERMS 2000
gNBC
The Incoterms divide costs and risks The Incoterms of trade have been designed to clarify obligations of both parties, the buyer and the seller. Principally, these are: The seller must: The buyer must: Provide the goods Pay the price as agreed according to the contract upon
Contd.
INCOTERMS 2000
gNBC
In order to finalise the transaction, both parties will have to perform certain tasks, like:
Arrange for licences, Authorisation and formalities Arrange for shipment Arrange for delivery Bear the risks for his activities Arrange for licences, Authorisation and formalities Arrange for shipment Accept delivery Bear the risks involved in his contractual activities.
INCOTERMS 2000
gNBC
EXW = EX WORKS ( named place) Cost of Goods plus cost of Export packing and marking In this term the seller delivers the goods by keeping it ready in deliverable state at the seller's place or another named place. This named place can be factory/godown or manufacturing unit. In this term seller does not clear the goods for exports nor goods are loaded on vehicle. FCA = FREE CARRIER ( named place) Cost of Goods plus cost of Getting goods to railway station or truck for transportation to port This term refers to seller's responsibility to deliver the goods, cleared for export, to the carrier appointed by the buyer at the named place. In this term the place of delivery is very important. If the delivery is at sellers place's then he is responsible for loading. If the delivery occurred at any other place, the seller is not responsible for unloading. This term can be used for all modes of transport as well as multimodal.
INCOTERMS 2000
gNBC
FAS = FREE ALONGSIDE SHIP (named port of shipment) Cost of Goods plus cost of Transport to port and getting goods alongside ship In this term when the goods are placed alongside the vessel at the named port of shipment it will be considered that the seller has completed the delivery. The buyer has to bear all risks of loss or damage to the goods and all costs from this point of time. However the seller must clear the goods for the purpose of export. This term can be used only for inland waterway transport or shipment by sea. It is not used when it is air shipment.
INCOTERMS 2000
gNBC
FOB = FREE ON BOARD ( named port of shipment) Cost of Goods plus cost of Getting goods on board and preparing shipping documents This is the most popular term and is widely in use. FOB means that the seller delivers when the goods pass the ship's rail at the named port of shipment. Under this term the buyer has to bear all costs and risk of loss of damage to the goods from that point. This term requires the seller to clear the goods for exports. This term is used only for sea or inland waterway transport. It is not suitable for shipment by air.
INCOTERMS 2000
gNBC
CFR = COST AND FREIGHT ( named port of destination) Cost of Goods plus cost of Freight cost (port to port) Earlier this term was popularly known as C&F or CNF. CFR means the seller must pay the cost and the freight necessary for the goods to reach at the named destination. However, the risks of loss or damage to the goods after the time of the delivery is on buyers account. The seller is required to clear the goods for exports. This term can be used only for sea and inland waterway transport.
INCOTERMS 2000
gNBC
CIF = COST INSURANCE AND FREIGHT ( named port of destination) Cost of Goods plus cost of Marine Insurance Cost, Insurance and Freight means that the seller, delivers when the goods pass the ships rail in the port of shipment. The CIF price refers that it covers the cost of the goods, freight necessary to bring the goods to the named port of destination and also marine insurance. Compared to the previous term, CFR the seller contracts for the insurance and pay the insurance premium. It will be essential for the buyer to know that under the CIF term the seller is required to obtain the insurance only on minimum cover. If the buyer wishes to have more protection then he should make his own insurance arrangement extra or should specify to the seller at the time of contract. In this term the seller must clear the goods for exports and the buyer must arrange necessary clearance for import. This term can be used only for sea and inland water transport.
INCOTERMS 2000
gNBC
CPT = CARRIAGE PAID TO ( named place destination) Carriage Paid To means the seller delivers the goods to the carrier nominated by him but the seller must in addition pay the cost of carriage necessary to bring the goods to the named destination. This refers to the fact that all the risks and any other cost occurring after the goods have been delivered will be on buyers account. This term is used for all modes of transport including multimodal transport. CIP = CARRIAGE AND INSURANCE PAID TO (named place of destination) Carriage and Insurance Paid To means that the seller delivers the goods to the carrier nominated by him, but the seller must in addition pay the cost of carriage necessary to bring the goods to the named destination. This means that the buyer bears all risks and any additional costs occurring after the goods have been so delivered. However, in CIP the seller also has to procure insurance against the buyer's risk of loss of or damage to the goods during the carriage.
INCOTERMS 2000
gNBC
DAF = DELIVERD AT FRONTIER ( named place) This term is used when goods are to be delivered at land frontier, irrespective of the mode of transport. "Delivered At Frontier" means the seller delivers when the goods are placed at the disposal of the buyer on the arriving means of transport not unloaded, cleared for exports but not cleared for import at the named point and place at the frontier, but before the customs border of the adjoining country. DES = DELIVERD EX SHIP Cost of Goods plus cost of Putting goods at disposal of customer on board vessel at port of destination Delivered Ex Ship means that the seller delivers when goods are place at the disposal of the buyer on board ship not cleared for import at the named port of destination. In this term all the cost and risk in bringing the goods to the named port of destination before discharge is on seller. This term can be used only when the shipment is by sea or inland waterway or multimodal transport in the vessel at the port of destination.
INCOTERMS 2000
gNBC
DEQ = DELIVERED EX QUAY ( named port of destination) Cost of Goods plus cost of Unloading charges at port of destination Delivered Ex Quay means that the seller delivers when the goods are placed at the disposal of the buyer not cleared for, import on the quay (wharf) at the named port of destination. The seller has to bear costs and risks involved in bringing the goods to the named port of destination and discharging the goods on the quay (wharf). The DEQ term requires the buyer to clear the goods for import and to pay for all formalities, duties, taxes and other charges upon import.
INCOTERMS 2000
gNBC
DDU = DELIVERED DUTY UNPAID Delivered Duty Unpaid means that the seller delivers the goods to the buyer, not cleared for import, and not unloaded from any arriving means of transport at the named place of destination. The seller has to bear the costs and risks involved in bringing the goods thereto other than where applicable any duty for import in the country of destination. Such duty has to be borne by the buyer as well as any costs and risks caused by his failure to clear the goods for import in time.
INCOTERMS 2000
gNBC
DDP = DELIVERED DUTY PAID (named place of destination) Cost of Goods plus cost of Payment of duties and transport to customer Delivered Duty Paid" means that the seller delivers the goods to the buyer, cleared for import, and not unloaded from any arriving means of transport at the named place of destination. The seller has to bear all the costs and risks involved in bringing the goods thereto including, where applicable, any duty for import in the country of destination.
gNBC
INCOTERMS 2000
gNBC
Incoterms 2000 an example A customer in Hanover, Germany, asks for a quotation for 3000 pairs of shoes, to be delivered DDP at his warehouse. You have decided on a unit selling price of $2, giving a total nominal price of $ 6000 for the goods when sold domestically. For export you will have to calculate with an additional set of costs which are involved in making them physically available to your customer. What are the additional costs of getting the goods from your factory in (e.g.) Agra, India, to the customer? How (*) is your quotation affected by the terms of delivery? (*) In this calculation example, all costs are hypothetical.
INCOTERMS 2000
gNBC
Incoterms 2000 an example
If you Your price quote: include: EXW should Additional costs: Your total price is: 6300
Ex-works Agra 300 Export packing, marking crates with shipping marks Free on Carrier at Agra 100 station. Carriage and insurance for delivery to railway station by road transport including insurance
FCA
6400
INCOTERMS 2000
gNBC
Incoterms 2000 an example
FAS Free alongside ship at 310 JNPT port. Rail transport to port (including insurance) and getting goods on the quay alongside ship. Free on board JNPT 100 Port. Dock dues, loading goods on board ship. Preparing shipping documents 6710
FOB
6810
INCOTERMS 2000
gNBC
Incoterms 2000 an example CFR 875 Cost and Freight. Sea Freight to Hamburg (nearest port to Hanover) Cost, insurance, 100 freight. Sea freight + marine insurance (port to port) Delivered ex ship at 90 Hamburg. Landing charges at Hamburg port. 7685
CIF
7785
DES
7875
INCOTERMS 2000
gNBC
Incoterms 2000 an example DDP Delivery duty Paid at 1200 customers warehouse in Hanover. Import duties for 3000 pairs of shoes Transport by rail 150 Hamburg to Hanover The buyer pays **
(**) = availability price.
9075
9225
actually 1350
9225
Terms of Payment
Terms of Payment
gNBC
Types of International Trade Settlement:
Advance Payment Open account Bills on collection basis Documents against Acceptance Documentary Credits (Letters of credit) Standby letter of Credit
Advance Payment
gNBC
Seller may insist for advance payment :
When he is not confident on the buyers financial position When the buyers Country is not stable.
Under this method seller is able to secure his commercial risk on the buyer by receiving the advance payment for his supply. While agreeing for advance payment buyer is exposed to a risk on the seller and his capacity to supply the materials. In a competitive buyers market seller may not be able to receive advance payment. If it is the sellers market and if the seller has monopoly in certain items, seller can insist for advance payment.
Open account
gNBC
It is an arrangement between the buyer and the seller that seller delivers the goods to the buyer directly or to his order and the buyer agrees to pay on an agreed date. Under this method, the goods are with the buyer on trust and the buyer is expected to pay the seller on the due date. Seller is exposed to a high degree of risk since the goods are under the control of the buyer. This type of trading requires a high degree of trust between buyer and seller and this method is more advantageous to the buyer. This method is also known as consignment sale or on account sales.
Letters of Credit
gNBC
What is Letter of Credit [LC]?
Under letter of credit mechanism the Bank lends its name to the buyers reputation by undertaking on buyer's behalf that it will pay the seller provided seller presents its claim/documents strictly in terms of the undertaking given by the Bank on behalf of buyer. As per the UCPDC 600 definition of LC is given as under Credit means any arrangement, however name and described, that is irrevocable and thereby constitutes a definite undertaking of the issuing bank to honour a complying presentation.
Letters of Credit
gNBC
What is Letter of Credit [LC]?
Honour means: a. To pay at sight if the credit is available by sight payment. b. To incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment. c. To accept a bill of exchange (draft) drawn by the beneficiary and pay at maturity if the credit is available by acceptance. Presentation means either the delivery of documents under a credit to the issuing bank or nominated Bank or the documents so delivered.
Letters of Credit
gNBC
Why an exporter should insist on LC as a payment term?
LC open doors to international trade by providing a secure mechanism for payment upon fulfillment of contractual obligations. A bank is substituted for the buyer as the source of payment for goods or services exported. The issuing bank undertakes to make payment, provided all the terms and conditions stipulated in the LC are complied with.
Letters of Credit
gNBC
Why an exporter should insist on LC as a payment term?
Financing opportunities, such as pre-shipment finance secured by a LC and/or discounting of accepted drafts drawn under LC, are available in many countries. Bank expertise is made available to help complete trade transactions successfully. Payment for the goods shipped can be remitted to your own bank or a bank of your choice.
Letters of Credit
gNBC
How it is beneficial to the importer?
Payment will only be made to the seller when the terms and conditions of the letter of credit are complied with. The importer can control the shipping dates for the goods being purchased. Cash resources are not tied up.
Letters of Credit
gNBC
Who are the parties to the LC?
Applicant/Buyer - on whose behalf LC is opened [importer] Beneficiary/Seller - in whose favour the LC is opened [exporter] Opening Bank - which opens/establishes the LC Advising Bank - which advises the LC Confirming Bank - which confirms the LC Negotiating Bank - normally beneficiary's bank Reimbursing Bank - which normally maintains nostro account of the opening bank and reimburses the negotiating bank.
Letters of Credit
gNBC
Types of LC:
Irrevocable LC: Cannot be amended or cancelled without the consent of the issuing bank, the confirming bank, if any, and the beneficiary. Confirmed Credit: When a confirming bank has added its confirmation by way of an additional undertaking to make payment at the specific request of the Issuing Bank, it becomes a confirmed credit. All credits need not be confirmed credits.
Letters of Credit
gNBC
Types of LC:
Unconfirmed credit: An unconfirmed LC is one to which the bank does not add its confirmation, and thereby, does not accept liability to make payment under the LC. Transferable credit: A LC is transferable only if the Issuing Bank expressly designates it. The Beneficiary in such credit has the right to request the nominated bank to transfer the credit in full or parts in favour of one or more second beneficiaries if partial shipment is permitted.
Letters of Credit
gNBC
Types of LC:
Back-to-Back Credit: In case if the exporter is not the actual manufacturer and he gets his work done by the sub-suppliers and if the subsuppliers demands LC in their favour, the exporter who has received a letter of credit for export, approaches his banker to establish second set of letters of credit on the basis of the export letter of credit received by him. The second set of Credit opened by a bank at the request of the exporter is known as back-to-back credit. The beneficiary of the original letter of credit will become the applicant for the second set of credit.
Letters of Credit
gNBC
Types of LC:
Revolving Credit: In a Revolving Credit the amount of drawing is re-instated and made available to the beneficiary again unto the agreed period of time on notification of payment by the applicant or merely on submission of documents. The maximum value and period unto that the Credit can be revolved will be specified in the Revolving Credit. The re-instatement clause and the maximum amount of drawings under the credit should always be incorporated in Revolving credit.
Letters of Credit
gNBC
Types of LC:
Deferred Payment Credits and Acceptance Credits: Under Deferred Payment Credit the amount is payable in installments for a stipulated longer period. Usually a part is paid in advance and the balance is payable in agreed installments in terms of conditions of the LC.
Letters of Credit
gNBC
STANDBY LETTER OF CREDIT:
Standby credit is payable only on default of the buyer. Undertaking of the bank will specifically commit payment only in case of the default of the buyer. It can be treated as a guarantee for payment only in case the buyer fails to pay. Standby credits are useful not only in trade related transactions but in any of transactions where there is a possibility of default like loan repayment.
Procedure
gNBC
Buyer and seller agree to conduct business. The seller wants a letter of credit to guarantee payment. Buyer applies to his bank for a letter of credit in favor of the seller. Buyer's bank approves the credit risk of the buyer, issues and forwards the credit to its correspondent bank (advising or confirming). The correspondent bank is usually located in the same geographical location as the seller (beneficiary).
Procedure
gNBC
Advising bank will authenticate the credit and forward the original credit to the seller (beneficiary). Seller (beneficiary) ships the goods, then verifies and develops the documentary requirements to support the letter of credit. Documentary requirements may vary greatly depending on the perceived risk involved in dealing with a particular company. Seller presents the required documents to the advising or confirming bank to be processed for payment. Advising or confirming bank examines the documents for compliance with the terms and conditions of the letter of credit.
Procedure
gNBC
If the documents are correct, the advising or confirming bank will claim the funds by:
Debiting the account of the issuing bank. Waiting until the issuing bank remits, after receiving the documents. Reimburse on another bank as required in the credit.
Advising or confirming bank will forward the documents to the issuing bank. Issuing bank will examine the documents for compliance. If they are in order, the issuing bank will debit the buyer's account. Issuing bank then forwards the documents to the buyer.
Import Procedure
Sr. No.
Particulars Basic Cost (A) Basic Customs Duty (B) (A + B) = C Rate of Excise (CVD) (a) Rate of Education cess 2% on CVD (b) Rate of High & Sec. Edu. Cess 1% on CVD (b1) Rate of Excise cess (Additional Duty) (a+b+b1) =D (C+D) Total Total Customs Duty Edu. Cess 2% on Total Customs Duty Higher & Sec. Cess @ 1% on Total Customs Duty AV
Amount in Rs. 100.00 110.00 15.4 0.308 0.154 15.862 125.862 25.862 0.51724 0.25862
1 2 3 4 5 6 7 8
gNBC 10.00
9 10 11 12
26.63786 126.63786
Additional Customs Duty @4% Grand DutyTotal After Adding Cus. Duty @ 4%
5.0655144 31.7033
and gNBC
CUSTOMS ACT, 1962 CUSTOMS TARIFF ACT, 1975 COMPUTERS (ADDITIONAL DUTY) RULES, 2004 CUSTOMS (IMPORT OF GOODS AT CONCESSIONAL RATE OF DUTY FOR MANUFACTURE OF EXCISABLE GOODS) RULES, 1996 RE-EXPORT OF IMPORTED GOODS (DRAWBACK OF CUSTOMS DUTIES) RULES, 1995 CUSTOMS (PROVISIONAL DUTY ASSESSMENT) REGULATIONS, 1963 CUSTOMS AND CENTRAL EXCISE DUTIES DRAWBACK RULES, 1995 CEGAT (COUNTERVAILING DUTY AND ANTI-DUMPING DUTY) PROCEDURE RULES, 1996 BILL OF ENTRY (FORMS) REGULATIONS, 1976 BILL OF ENTRY (ELECTRONIC DECLARATION) REGULATIONS, 1995 UNCLEARED GOODS (BILL OF ENTRY) REGULATIONS, 1972
and gNBC
COURIER IMPORTS AND EXPORTS (CLEARANCE) REGULATIONS, 1998 CUSTOMS HOUSE AGENTS LICENSING REGULATIONS, 2004 CUSTOMS REFUND APPLICATION (FORM) REGULATIONS, 1995 CUSTOMS VALUATION (DETERMINATION OF PRICE OF IMPORTED GOODS) RULES, 1988 BAGGAGE RULES, 1998 PROJECT IMPORTS REGULATIONS,1986 CUSTOMS (ADVANCE RULINGS) RULES, 2002 IMPORT MANIFEST (AIRCRAFT) REGULATIONS, 1976 IMPORT MANIFEST (VESSELS) REGULATIONS, 1971 CUSTOMS (SETTLEMENT OF CASES) RULES, 1999
gNBC
To get an entry inward the Master of the Vessel or his agent is required to submit to the proper officer in the Custom House a document called Import General Manifest or Import Manifest in a prescribed form. The manifest is nothing more than a list of all goods carried on board including those meant for other ports in India or abroad with all details like number of packages, marks and numbers, description of the goods and the importers name. Except with the permission of the proper officer, no import goods can be unloaded at any Customs Station unless they are mentioned in the aforesaid import manifest for being unloaded at that Customs Station.
A signed paper copy of the declaration is taken by the service centre operator for non-repudiability of the declaration.
Continues.
After verification, the data is submitted to the system by the Service Centre Operator and system then generates a B/E Number, which is endorsed on the printed checklist and returned to the importer/CHA. No original documents are taken at this stage.
Continues.
In case assessing officer needs any clarification he raises query, which is printed at the service centre and importer has to reply such queries through service centre.
Continues.
Checklist
gNBC
While filing of Bill of Entry, one must always comply with following details: HS Code proper classification Declarations Valuation as per CUSTOMS VALUATION (DETERMINATION OF PRICE OF IMPORTED GOODS) RULES, 1988 Authorisation No. & Date Customs Notifications No. & Date Rate of Duty and Duty calculations Foreign Exchange Rate Country of Origin IGM No. & Date Container No.
gNBC
gNBC
gNBC
gNBC
gNBC
gNBC
Contd
gNBC
Export Documents to be sent along with the Cargo : Invoice Packing List Excise Invoice SDF Form Shippers Declaration Form Inspection Certificate / Test Report Export Licence if any Copy Of Export Contract / Letter of Credit / Export Order ARE-1 ( 4 Copies ) (Mentioning LUT reference no. if cleared under LUT/ or RG entry no. if duty is debited)
Contd
gNBC
Physical Inspection of container by Excise Superintendent & Inspector or under specific Circumstances, only inspector can also sign the documents under specific permission of AC/DC of Central Excise: They emphasize on the following points: Goods are Exportable in accordance of law (not prohibited or restricted for Exports ) Check for the identity of Goods Verify the Quantity being Exported, is properly accounted in Daily Stock Register [DSR] Assess duty (paid/payable) Verify Duty Exemption Scheme and check for correct Licence No. For FCL they Check for Container No. and Seal No. on the documents and put Bottle Seal / One time lock on the Container. For LCL they use wire & Lead Seals for Sealing Monitor loading of Cargo Contd
gNBC
Under Excise Supervision Self Sealing by the Manufacturer Exporter Obtain permission from Excise Authorities having the Jurisdiction.
Obtain Factory stuffing permission from Customs, if factory is located at more than one places combined permission can be obtained with the endorsement of factory addresses. Copy of the permission is forwarded to the respective Excise Authorities having the Jurisdiction.
Bulletin It is verification of Signatures of Authorised persons at DGFT who has issued the Licence / Authorisation. Details of Licence to be registered in the EDI system, so that it reflects the same at the time of generation of Shipping bill.
gNBC
Authority Owner, Working Partner, Managing Director or the company secretary, or a person who is permanent employee of the company and holding reasonably high position authorised by the Owner/working partner/ Board of Director has Authority to certify the Export Documents and Seal the Cargo
Contd
gNBC
Valid Authority letter To check description of goods Verify whether the Quantity being Exported is properly accounted in DSR. If cleared against LUT, check for the validity of the same If under Duty Exemption Scheme check for correct Licence No. Consumption Register [Appendix-23] is maintained and proper accounting of duty free material has been done. For FCL Excise Authorities check for Container No. and Seal No. on the documents and put Bottle Seal / One time lock on the Container. For LCL Excise Authorities use Wire & Lead Seals for Sealing Monitor the loading of Cargo Contd
gNBC
All export documents are to be sent along with the cargo for custom clearance, similar to loading of cargo under excise supervision. Only difference here will be that documents will not be certified by the Excise Superintendent, hence there is chance of opening the container at the port by Custom Authorities.
Once the cargo is moved to port exporter has to send the relevant documents together with Third & Forth copy of ARE to the Excise Superintendent or Inspector having jurisdiction over the Factory within 24 hours of removal of goods.
Contd
gNBC
Excise Inspector shall verify the correctness of documents, if he is satisfied, will endorse his signatures on the ARE and forward Third copy to the officer with whom rebate claim is to be filled either by post or by handing over to the exporter in the temper proof sealed cover.
gNBC
Processing Of Shipping Bill . Draft of Shipping Bill is known as Checklist of Shipping Bill (Familiar word in Customs), this can be done much prior to the physical movement of cargo from the Factory gate. Timely generation of Checklist helps avoid the problems. Following are the documents required by CHA at this stage: 1) Invoice 2) Packing List
Contd
gNBC CHA has to do proper planning for the target vessel, check for the Cut
off time and accordingly advice the exporter to load the cargo. Before the Cargo leaves from factory gate, CHA should take the Container No. & Bottle Seal No. CHA has to punch these two particulars to generate the Shipping bill No. By the time cargo reaches at the Port Gate CHA should be ready with the Shipping Bill (not the Checklist). If the shipping bill is ready at the time cargo reaches at port gate, CHA can immediately let the cargo get into the container yard of the shipping liner. This can avoid demurrage/ detention of trailor and additional cost of Buffer yard. Contd
gNBC
CHA receives the following Export Documents along with the Cargo: Invoice Packing List Excise Invoice Shipping Bill (Exchange Control Copy ) SDF Form Shippers Declaration Form Inspection Certificate / Test Report Export Licence if any ARE (Original White & Duplicate - Buff colored) (Mentioning LUT reference no. if cleared under LUT/ or RG entry no if duty is debited) Copy Of Export Contract / Letter of Credit / Export Order Customs generally is not much bothered about last two points
Contd
Customs Appraiser, examines the export documents, particularly the Shipping bill & ARE gNBC
Cargo cleared form factory under Excise supervision : Customs Appraiser normally check for Signature of Excise superintendent / Inspector and confirms the Container no. and bottle seal no. on the Shipping Bill & ARE. As all other aspects has already been checked by Excise.
Cargo Cleared from factory under Self-Sealing: Customs appraiser makes an endorsement of examination indicating the extent of examination necessary at docks.
Contd
Customs officer makes endorsement of the Examination order and instructs for the payment of Export Duty / Cess (If Applicable). gNBC
Once appraiser approves the Shipping bill, CHA approaches to Port Authorities for Carting order, given by the Superintendent of Port Trust.
CHA approaches docks appraiser for physical examination of cargo. CHA has to present all export documents. Physical verification is done as per Examination report of Customs Appraiser. Customs examiner if satisfied records manually on the shipping bill as well as in the System and passes LET EXPORT ORDER. For the purpose of claim of Export benefits like Excise rebate Claim, the date on which LET EXPORT ORDER is passed is known as date of Exports. Contd
CHA has to further approach to Preventive Officer, if everything in order will pass LET SHIP ORDER
he finds
gNBC
Physical Loading of Cargo at docks takes place after obtaining LET SHIP ORDER, and Bill of Lading can be issued by the shipping liner on the same day when the Vessel is sailed.
After the Vessel is sailed respective shipping company has to file EGM (Export General Manifest) with the Customs maximum within 7 days of sailing the vessel.
EGM is a container-wise/shipper-wise/Shipping Bill no.-wise list of cargo loaded into a particular vessel. CHA can obtain a copy of EGM from the System. Contd
CHA gets the Mate Receipt only after the EGM is filed with Customs. CHA has to NBC again approach to the Customs Appraiser with all export documents together with Mate Receipt & the copy of EGM for his signatures on the following documents :
EP copy of the shipping bill Required for DGFT as proof of completion of Export Obligation. ARE Original (White) Copy of the shipping Bill Required for filing the Rebate claim to the Excise Authorities. ARE Duplicate (Buff) Required for claiming Rebate claim benefit / as a proof of Export to Excise Authorities. It is handed over by Customs in Tamper proof sealed cover, which is to be submitted as it is to Excise Authorities. Exporter must insist CHA to get the above said documents maximum within 30 days so as to close the Advance Authorisation and claim Export benefits like DEPB/DFIA/Duty Drawback at DGFT & Excise Rebate Claim from Excise Dept.
Contd
Check Sheets
gNBC While filing of Shipping bill one must always comply following details:
HS Code proper classification Declarations Licence No. & Date Customs Notifications No. & Date Terms of Payment Foreign Exchange Rate Country of Origin
Export House
Export Performance based Scheme. Merchant, Manufacturer, Service Provider, EOUs, EHTPs, STPs, BTPs, SEZs, AEZs can apply for Star Export House Certificate. The applicant has to make application depending on his total FOB/FOR export performance during the current plus the previous three years (taken together) upon exceeding limit [given in the table at right]. For Export House (EH) Status, export Performance is necessary in at least two out of four years (i.e., Current plus previous three years). The criteria is
gNBC
Export House
gNBC
Export House
gNBC
Enhancement in normal repatriation period from 180 days to 360 days; Exemption from furnishing of BG in Schemes under FTP; and SEHs and above shall be permitted to establish Export Warehouses, as per DoR guidelines.
Maintenance of Accounts:
True and proper account of exports and imports are to be maintained during the validity period and three years thereafter.
gNBC
Exemption from payment of duty on inputs-prior or after to Exports/ Deemed Exports Remission of duty on inputs Post-Exports by way of Duty Credit Entitlement
DEPB Scheme
Duty Drawback
gNBC
The Duty Exemption Scheme enables duty free import of inputs required for export production. Duty Exemption Scheme consists of:
Advance Authorisation Scheme Duty Free Import Authorisation Scheme [DFIA]
gNBC
The facility of Advance Authorisation entitles exporter to import required inputs for export production without payment of duty subject to export obligation to be completed within prescribed time. This scheme reduces burden of customs duties on the inputs and thereby facilitates costcompetitiveness. The facility of newly introduced Duty Free Import Authorisation entitles exporter to avail the benefit of duty free import of inputs plus transferability after the exports have been completed. The Scheme has been operationalized by issue of Customs Ntfn No. 40-Cus. Dtd. 01.05.2006.
Advance Authorisation
Advance Authorisation
gNBC
SION/Adhoc Norm: Ratio of input and output which permit allowable wastages mainly related to production process. Wastage: Recoverable/Non-recoverable effect of wastage in fixing of norms. Value addition: Positive Value Addition Value addition is a concept where it is expected that the exports against Advance Authorisation should result in additional earning of foreign exchange.
Advance Authorisation
gNBC
Exemption from payment of Basic Customs Duty Additional Customs Duty Education Cess Anti-dumping Duty if any Safeguard Duty if any
Advance Authorisation
gNBC
Advance Authorisation can be issued either to a manufacturer exporter or merchant exporter tied to supporting manufacturer(s): i) for Physical exports (including exports to SEZ); and/or ii) for Intermediate supplies; and /or iii) for deemed exports iv) supply of ship stores on board of the foreign going vessel/aircraft subject to the condition that there is specific SION in respect of the item(s) supplied. Subject to actual user condition
Advance Authorisation
gNBC
Transferability:
Advance Authorisation and/or materials imported there under will be with actual user condition. It will not be transferable even after completion of export obligation.
Advance Authorisation
gNBC
Export Obligation [EO]:
EO is imposed to Safeguard Revenue foregone by way of giving exemption. Two limiting factors Quantity and Value. To be fulfilled in 24 months Any shortfall is required to be regularized by paying applicable duty plus interest on unutilised inputs and penalty if any.
Import Entitlement:
Limited by Quantity and Value. Import is to be completed in 24 months. Actual User Condition applied.
Advance Authorisation
gNBC
Port of Registration:
To facilitate accounting of duty exempted. Authorisation need to be registered at the specified port The authorisation holder is permitted to import only through registered port unless permission [TRA] is taken from the Customs Authority. Exports can take place from any port. Port of registration is specified in Para 4.19 of the HBP.
Advance Authorisation
gNBC
Enhancement or Reduction in the Authorisation Value:
The reason of Enhancement sudden increase in export order Reduction - Export order may get cancelled Provision is made for enhancement or reduction on pro-rata basis
Contd
Advance Authorisation
gNBC
Extension of Export Obligation Period [EOP]:
1st Extension for 6 months subject to payment of composition fees of 2% of the duty saved on all the unutilized imported items as per authorisation. 2nd Extension for 6 months subject to payment of composition fees of 5% of the duty based on all unutilized imported items as per Authorisation.
Advance Authorisation
gNBC
Revalidation:
Only one revalidation of 6 months is allowed
Contd..
Advance Authorisation
gNBC
Redemption:
In case the export obligation has been fulfilled, the Regional Authority will redeem the case. After redemption, the Regional Authority will forward a copy of the redemption letter to the Customs Authority at the port of registration. Discharge of BG/LUT: Before discharging BG/LUT, in case of physical exports, Customs will verify all the details as given in Redemption Letter as per their records. in case of intermediate supplies and deemed exports, Customs will verify details of supplies from the Central Excise Authority/Bond Officer. After verification, Customs will discharge BG/LUT within 30 days of issuance of EODC/bond waiver by the Regional Authority.
Advance Authorisation
gNBC
Penalty for Shortfall:
Situation Penalty EO is fulfilled in terms A. Customs duty on unutilized imported of Value but shortfall in material along with interest as notified. quantity B. If the unutilized material is restricted for imports as per ITC(HS) on the date of imports then the Authorisation holder has to pay an amount equivalent to 3% of CIF value of unutilised imported material. Authorisation holder shall also be required to obtain a separate authorisation for regularisation of excess imported input. No such penalty in case of imported item is freely permissible. Contd..
Advance Authorisation
gNBC
Penalty for Shortfall:
Situation Penalty EO is fulfilled in terms of A. No penalty is imposed if the licence Quantity but shortfall in holder has achieved positive value value addition. B. In case if positive value addition falls below the minimum VA - amount equal to 1% of shortfall in FOB value in Indian Rupee through TR in authorised branch of Central Bank of India as above or through EFT mode. Contd.
Advance Authorisation
gNBC
Penalty for Shortfall:
Situation EO is fulfilled in terms of Quantity but shortfall in value Penalty Value wise shortfall shall be calculated with reference to actual quantity of exports and FOB value of realisation with reference to prorata quantity of imports and CIF value. E.g. if export performance is only 50% quantity wise but import has been for complete CIF value permitted, then value addition would be calculated on a prorata basis, i.e with reference to 50% of CIF value of imports. This would accordingly imply that where Authorisation holder is unable to export, no penalty on value wise shortfall shall be imposed. Contd..
Advance Authorisation
gNBC
Penalty for Shortfall:
Situation Penalty
In case where EO is not As per the above provisions. fulfilled in terms of value and quantity both Where no export and import Authorisation holder can cancel the is done against Authorisation Authorisation and apply for Drawback after obtaining permission from Customs Authority for conversion of DEEC Shipping bills into Drawback Shipping Bills.
Indigenous Procurement
gNBC
Reasons for opting out in favour of indigenous procurement:
Shorter delivery time Logistical advantages Financial ease (local supplier may not insist on letter of credit) The same material may be available at cheaper cost if the supplier is in a position to claim benefits available under deemed exports. Possibility of inspecting the cargo (since the supplier is within the country, there is comparative ease to inspect the cargo) Indigenous procurement is free of currency risk since payment can be made in Indian Rupees.
Indigenous Procurement
gNBC
Instruments:
Advance Authorisation [for Intermediate Supplies] Advance Authorisation [for Deemed Exports] Advance Release Order Back-to-Back Letter of Credit
gNBC
True and proper account of consumption and utilisation of duty free imported / domestically procured goods against each authorisation is to be maintained as prescribed in Appendix-23. These records in Appendix 23 are mandatory to be submitted for authorisations issued on or after 13-05-2005. Records is to be preserved for a period of atleast 3 years from the date of redemption. Ref: Public Notice No. 08/2005 (RE) dtd. 13.05.2005
Other Provisions
Fixation of Norms:
gNBC
Where SION for export product is not fixed, advance authorisation can be obtained on self-declaration basis. The norms are fixed by Norms Committee [based on Chartered Engineers certificate] with or without modification. In case where Norms Committee has already ratified norms for same export and import products in respect of an Authorisation obtained under paragraph 4.7, the RA will issue Authorisation under Ad hoc Norms fixed category.
Other Provisions
Standardisation of Norms:
gNBC
Norms are fixed by Norms Committee and circulated to industry by way of public notice. Standard norms are applicable to entire industry. Such norms are fixed normally when atleast three applications are received from different entities for the same export product. Such norms are fixed on an average wastage basis. However, the authorisation holder has to account for actual consumption.
Other Provisions
Modification of Norms:
Authorisation Holder can modify the existing SION.
gNBC
The reasons for modifications are Due to inclusion of inputs not available under SION. Difference in Consumption ratio more/less wastages. Due to greater efficiency in the manufacturing process. Where manufacturing is possible by using alternate inputs.
Other Provisions
Facility of Clubbing:
The facility of clubbing shall be redemption/regularisation of the cases. No further import or export is allowed. available only
gNBC
for
For this facility, authorisations are required to have been issued under similar Customs notification even pertaining to different financial years. However in case of authorisations issued in 2004-09 period, Advance Authorisations of different customs notification can be clubbed.
gNBC
Advance Authorisation can also be issued on the basis of annual requirement for physical exports, intermediate supplies and / or deemed exports.
gNBC
The entitlement in terms of CIF value of imports under this scheme is upto 300% of the FOB value of physical export and / or FOR value of deemed export in the preceding licensing year or Rs 1 crore, whichever is higher. Advance Authorisation can be issued with a positive value addition. Validity : 24 months. One revalidation for six months is granted. Extension of Export Obligation : Same as Advance Authorisation.
gNBC
91/2004-CUSTOMS dated 10th September, 2004 Advance Authorisation for deemed export 93/2004-CUSTOMS dated 10th September, 2004 Advance Authorisation 94/2004-CUSTOMS dated 10th September, 2004 Advance Authorisation for Annual Requirement
gNBC
DFIA
Transferable instrument after fulfillment of 100% EO and redemption is obtained. 20% Value Addition. Controversies related to Cenvatparticularly for DFIAs issued upto 31.03.2007.
Application can be made for Application can be made on the existed SION or for Adhoc norms. basis of existed SION only. Subject to Actual User Condition. Subject to Actual User Condition till EO is discharged 100% and redemption obtained.
gNBC
Objective of DEPB is to neutralize incidence of customs duty on import content of export product. Component of Special Additional Duty and customs duty on fuel shall also be allowed under DEPB (as a brand rate) in case of non-availment of CENVAT credit. Credit may be utilized for payment of Customs Duty on freely importable items. The DEPB is valid for a period of 24 months.
DEPB
gNBC
Additional customs duty / Excise Duty and Special Additional Duty paid in cash or through debit under DEPB may also be adjusted as CENVAT Credit or Duty Drawback as per DoR rules The DTA supplier can claim DEPB, in case where supplies are made to SEZ Developer/SEZ units and payment received from Foreign currency account of SEZ Developer/SEZ unit. DEPB and/or items imported against it are freely transferable. Transfer of DEPB shall however be for import at specified port, which shall be the port from where exports have been made.
DEPB
gNBC
Transferable DEPB will be issued only where the payment is received or shipment is made against
confirmed irrevocable letter of credit or bill of exchange is unconditionally Avalised/ CoAccepted/ Guaranteed by a bank and the same is confirmed by the exporters bank and certified by the bank in the relevant Bank certificate of export and Realisation.
In other cases, Non-transferable DEPB will be issued. Once the export proceeds received, the same DEPB shall be made transferable.
DEPB
gNBC
Time period: The application for obtaining DEPB shall be filed within a period of twelve months from the date of exports or within six months from the date of realization or within three months from the date of printing/ release of shipping bill, whichever is later, in respect of shipments for which the claim have been filed.
DEPB
gNBC
Customs Verification: Shipping bills issued before 01.10.2005 and non-EDI Shipping bills will be verified by Customs before allowing import. In case of EDI shipping bills issued on or after 1-10-2005 from EDI ports which are being transmitted electronically by Customs to DGFT, the DEPBs issued shall be sent to Customs at the port of registration through an electronic message exchange system and the DEPB shall be registered at the port of registration electronically. No verification of shipping bills against which such DEPBs have been issued, will be required before allowing imports against these DEPBs.
DEPB
Present Market Value:
gNBC
If DEPB rate is 10% or more, the amount of credit against export product should not exceed 50% of the Present Market Value (PMV) and a declaration to this effect has to be given on the Shipping Bill at the time of making the shipment under DEPB scheme. The PMV consists of applicable excise duties, sales tax, octroi, etc and therefore normally 30% more than FOB value of exports.
DEPB
gNBC
Value Cap: There is a system of value cap where irrespective of the value realized against per unit quantity of export product, the DEPB is given only upto a specified value. Let us say, the value cap is Rs. 30/kg and the rate of DEPB is 10%. Even if exporter achieves a rate of Rs. 40 FOB/kg, he would not be entitled to claim DEPB on Rs. 40/-as value cap restricts such entitlement at Rs. 30/kg.
DEPB
POSITIVE POINTS OF DEPB SCHEME
gNBC
The credit entitlement is expressed as a percentage of FOB value and therefore it represents the amount of duty credit available for debit in Rupee terms. Since DEPB is not a licence but an instrument of duty credit, it is free of nexus with respect to item exported and item imported.
Contd
DEPB
POSITIVE POINTS OF DEPB SCHEME
gNBC
It is also possible that an exporter of readymade garments gets his DEPB at a specified rate and sells it to another person who might import chemicals by using DEPB for debit of duty. Hence, acceptability of DEPB is higher compared to any other instrument. DEPB offers flexibility because it can be utilized for debit of duty against any freely permissible item.
DEPB
gNBC
NEGATIVE POINTS OF DEPB SCHEME Since calculation of DEPB rate is not based on the actual customs duty lost, it may not be compatible with WTO rules. With increasing exports the amount of DEPB also goes up. To this extent, the customs have to forego actual duty receipts in cash.
gNBC
Duty Drawback
Duty Drawback
Meaning & Scope
gNBC
Duty Drawback in relation to the export of indigenously manufactured goods, means refund of duties paid on : Raw materials, Component parts, and Packing materials. consumed in the production and export thereof and now also on goods processed or on which any operation has been carried out in India. These duties may be duties of Customs paid on imported materials and / or duties of Central Excise paid on indigenous materials. Drawback is not admissible in respect of duty paid on goods exported under claim of rebate of duty in terms of Rule 18 of Central Excise Rules, 2002.
Duty Drawback
gNBC
No Drawback where value addition is Negative If the total foreign exchange spent on inputs used in the goods exported is more than the F.O.B. value of the exports, them no drawback will be paid. No Drawback if Sale proceeds not realised within Time Limit Newly inserted rule 16A of the Customs & Central Excise Duties (Drawback) Rules, 1995 has made a provision for recovery of amount of drawback where export proceeds are not realised within the period allowed under the Foreign Exchange Regulation Act, 1973 including any extension of such period.
Duty Drawback
gNBC
Drawback not Mandatory Under Section 75 of the Customs Act, 1962, it is discretionary with the Central Government to allow drawback on goods manufactured in India and exported outside India. Therefore, it cannot be said that it is mandatory for the Government to grant drawback on all goods manufactured in India for export out of India. Drawback not Admissible if Cenvat Availed of In case where exporters has availed CENVAT credit under Rule of Cenvat Credit Rules, 2002, they will not get benefit of duty drawback on Central Excise Allocation.
Duty Drawback
Types of Drawback Rate Determination
gNBC
All Industry Rate of Drawback The one which is based upon determination of average incidence of duties suffered on inputs used in the manufacture of the product exported as manufactured generally, such rates of Drawback which are determined in terms of Rule 3 of Drawback Rules, 1995 are known as All industry Rates of Drawback.
Duty Drawback
Types of Drawback Rate Determination
gNBC
Brand Rate The second provision seeks to give relief of actual amount of duties suffered on the inputs (not rebated/ relieved otherwise) used in the manufacture of export product of specified description/ characteristics of a particular manufacturer. This rate determination is known as Brand Rate fixation.
Duty Drawback
Types of Drawback Rate Determination
gNBC
Special Brand Rate Where any manufacturer/exporter finds that the All Industry Rate of Drawback fixed for any class of goods is less than 4/5th of the duties paid on the materials or components used in the production/manufacture of the goods he can make an application for fixation of an appropriate rate of duty drawback for his product of specified description/characteristic.
Duty Drawback
Procedure for fixation of Brand Rate
gNBC
A new procedure has been introduced for fixation of brand rate via CBEC Circular No. 14 dtd. 06.03.2003. Further amendments have been made to this circular via the following circulars: 83-CBEC dtd. 18.09.2003 89-CBEC dtd. 06.10.2003 97-CBaEC dtd. 14.11.2003 108-CBEC dtd. 17.12.2003
gNBC
The New Drawback Rates have been notified vide Notification No. 68/2007-Cus. (NT) DTD. 16.07.2007. As per Sr. No. 4 of this Notification, the new rates announced will come into force on 18th day of July, 2007. The rates which would be made applicable retrospectively w.e.f. 01.04.2007 are only for specified entries and not for every single entry covered in the Notification. List of these entries is provided in the above Notification [Sr. No. 4].
gNBC
This scheme allows import of capital goods and spares at concessional rate of duty [@3% of Customs Duty] coupled with export obligation equivalent to 8 times the duty saved amount to be completed in 8 years.
EPCG
gNBC
In case CVD is paid in cash on imports under EPCG, the incidence of CVD would not be taken for computation of net duty saved provided the same is not Cenvated.
EPCG
Imports under EPCG:
The capital goods, including spares (including refurbished/reconditioned spares), tools, jigs, fixtures, dies and moulds.
gNBC
Second hand capital goods without any restriction on age may also be imported under the EPCG scheme.
EPCG
Imports under EPCG:
gNBC
Import of Spares: Spares (including refurbished / reconditioned spares), tools, spare refractories and catalyst for existing plant and machinery (imported earlier, under EPCG or otherwise) is allowed to be imported subject to an export obligation equivalent to 8 times of duty saved to be fulfilled in 8 years reckoned from Authorisation issue date.
EPCG
Imports under EPCG:
gNBC
Import of spares: The application shall contain list of plant/ machinery installed in the factory/ premises of applicant, duly certified by Chartered Engineer or Jurisdictional Central Excise Authorities. EPCG Authorisation must indicate the following: Name of plant/machinery for which spares are required. Value of duty saved allowed under the Authorisation. Description of product to be exported with value of export obligation as per the Policy.
EPCG
Imports under EPCG:
gNBC
Import of spares: The installation certificate shall be submitted by the importer within a period of three years from the date of import. [provision inserted vide PN NO. 22/2007 (RE) DTD.17.07.2007]. At the time of final redemption of export obligation Authorisation holder will have to submit certificate from the Independent Chartered Engineer confirming the use of spares, tools, spare refractories and catalysts in the installed capital goods on the basis of stock & consumption register maintained by Authorisation holder.
EPCG
gNBC
Eligibility: The scheme covers manufacturer exporters with or without supporting manufacturer(s)/ vendor(s), merchant exporters tied to supporting manufacturer(s) and service providers. Conditions for import of Capital Goods: Import of capital goods is subject to Actual User condition till the export obligation is completed.
EPCG
gNBC
Incentives for Fast Track Companies: In cases where the Authorisation holder has fulfilled 75% or more of the export obligation under the Scheme (including average level of exports) in half or less than half the original export obligation period specified in the Authorisation, the remaining export obligation is condoned and the Authorisation redeemed by the licensing authority concerned.
EPCG
Indigenous Sourcing of Capital Goods
gNBC
A person holding an EPCG Authorisation may source the capital goods from a domestic manufacturer instead of importing them. The domestic manufacturer supplying capital goods to EPCG Authorisation holders are eligible for deemed export benefits Advance Authorisation for critical components or raw materials or Deemed Export Drawback. and Refund of terminal excise duty. The domestic sourcing from EOU unit is also permitted. Such supply by EOU will be counted for the purpose of fulfillment of NFE.
EPCG
Fulfillment of Export Obligation:
gNBC
Export Obligation is 8 times of duty saved amount and it is to be fulfilled over a period of 8 years. Block-wise maintenance of minimum export obligation has been dispensed with in the recent Annual Updation of FTP.
EPCG
Conditions for Fulfillment of Export Obligation [EO]:
gNBC
Following exports is to be considered for fulfillment of EO Export obligation shall be fulfilled by export of goods, manufactured / services rendered by the applicant. [There is no co-relation to be established] Production co-relation with imported plant and machinery under EPCG under EPCG is no more required. Direct and third party exports. Export proceeds to be realized in freely convertible currency except for deemed exports. Contd
EPCG
Conditions for Fulfillment of Export Obligation [EO]: Maintenance of Average:
gNBC
The export obligation under the scheme has to be, over and above, the average level of exports achieved by Authorisation Holder in the preceding three licensing years. Such average would be the arithmetic mean of export performance in last 3 years. However, certain categories such as handicraft, handlooms, cottage and tiny industries, agriculture, etc. except services are exempted from maintenance of average as per the provision of Para 5.7.6 of HBP V1. Contd
EPCG
Conditions for Fulfillment of Export Obligation [EO]:
gNBC
Export obligation may also be fulfilled by exports of group company which has EPCG Authorisation. However, in such cases, additional export obligation imposed shall be over and above average exports achieved by unit / company / group company in preceding three years, despite exemption in Para 5.7.6 of HBP v1. For this purpose, average would be based on previous export of goods and services put together.
Contd
EPCG
Conditions for Fulfillment of Export Obligation [EO]:
gNBC
Shipments under Advance Authorisation, DFRC, DFIA, DEPB or Drawback scheme would also count for fulfillment of EPCG export obligation. The supplies made to the Oil and Gas sector can be counted towards discharge of EO provided the Authorisation has been issued on or before 31.3.2000 and no deemed exports benefit has been claimed on such supplies.
Contd
EPCG
Conditions for Fulfillment of Export Obligation [EO]:
gNBC
Foreign exchange counted towards fulfillment of export obligation (over and above the average) shall not be eligible for incentives / rewards under promotional measures / schemes.
Wherever more than one EPCG authorisations are issued simultaneously or concurrently, fresh EPCG authorisation would build upon last average export obligation only, notwithstanding actual achievements.
Contd
EPCG
Conditions for Fulfillment of Export Obligation [EO]:
gNBC
Royalty payments received in freely convertible currency and foreign exchange received for R&D services shall also be counted for discharge under EPCG. Payment received in rupee terms for port handling services, in terms of Chapter 9 of FTP shall also be counted for export obligation discharge.
Contd
EPCG
Maintenance of Average Export under EPCG: Example: Let us say: Average Exports Rs. 20 crores Duty saved amount Rs. 10 crores
gNBC
The EO is in addition to maintaining the annual average for the same or similar product. If your average is Rs. 20 crore and duty saved amount is Rs. 10 crore your total obligation would be as under:
Contd.
Contd.
gNBC
a) Average Exports X 8 (20 X 8) : Rs. 160 crore b) 8 times the duty saved amount : Rs. 80 crore (10 X 8) : ------------Total Rs. 240 crore =========
To be completed in 8 years Every year you will first discharge average and then the additional EO. For e.g. please refer following Table.
Contd.
Year Average to be maintain ed Rs. In crore Additional export obligation Rs. in crore Actual Exports say
gNBC
1 2 4 5 6
20 20 20 20 20 20 40
22 25 21 30 31 35 Total
Contd.
gNBC
From this table you will understand that average has to be discharged first and whatever exports you do additionally, those exports would be counted towards discharge of additional EO. Suppose, you complete entire 240 crore in first six years, you will not be required to maintain annual average subsequently. There is also another provision where if you export 75% of your total exports in 4 years or less than 4 years (including average), you will not have to complete balance 25%. [Please refer para 5.11 of Foreign Trade Policy.] The following table shows how it can be done:
Contd. Year Total Calculations exports effected by you say [Rs. in crore] 30 30 30 50 ----140 ==== Average for 4 years (20 X 4) 75% of additional EO (75% of 80 crore) Total = Rs. 80 crore = Rs. 60 crore _____________ = Rs. 140 crore ========
gNBC
1 2 3 4
If your EO is discharged as above, you can redeem your case in the 5th year itself.
EPCG
Extension of Export Obligation Period:
gNBC
1st Extension up to 2 years subject to payment of composition fees of 2% of the total duty saved. OR an enhancement in EO imposed to the extent of 10% of the total EO. 2nd Extension up to 2 years subject to condition that 50% of duty payable in proportion to the unfulfilled export obligation is paid by the Authorisation holder to the Customs authorities before an endorsement of extension is made on the EPCG Authorisation by the Regional authorities.
EPCG
gNBC
In case the firm is still not able to complete the export obligation the duty already deposited will be deducted from the total duty plus interest to be paid for EO default. Waiver of EO may be considered where, because of force majeure or other unforeseen circumstances / reasons, exporter is unable to fulfill export obligation. Such requests shall be considered by a committee comprising representative(s) of DoC and DoR under DGFT. Decision of this committee shall be notified by DoR for implementation.
EPCG
Monitoring of Export Obligation:
gNBC
Progress report on fulfillment of EO is to be submitted by 30th April every year. Regional authority will issue partial EO Fulfillment Certificate to the extent of EO fulfilled in a particular year.
EPCG
Maintenance of Records
gNBC
Every EPCG Authorisation holder will have to maintain, for a period of 3 years from the date of redemption, a true and proper account of the exports/supplies made and services rendered towards fulfillment of export obligation under the scheme.
gNBC
Benefits of EOUs
Duty free import/procurement of Raw materials Capital goods Second hand capital goods without age limit Except items prohibited under ITC (HS)
gNBC
EOUs operate under system of no licence. Hence, there is no need of making separate application for Advance Authorisations, which ultimately results into hassle free operations.
Important Notifications
gNBC
Notification No. 52/2003-Cus. dtd. 31.03.2003 Exemption to specified goods imported or procure from Public/Private warehouse or from International exhibitions held in India by EOU for production or packaging or job work for export of goods and services Notification No. 22/2006-Cus. dtd. 01.03.200 Additional duty in lieu of Sales Tax/VAT Exemption to specified goods
Important Notifications
gNBC
Notification No. 22/2003-CE dtd. 31.03.2003 Exemption to goods brought into EOU units Notification No. 23/2003-CE dtd. 31.03.2003 Exemption to DTA Clearances of specified goods produced in EOU
Deemed Exports
Deemed Exports
gNBC
This is a special facility provided for supplies of indigenous products which can be consumed ultimately in the production of goods to be exported. The conditions are that supplied goods as it is do not leave the country but get consumed in the process of manufacture, payment for which is received in Indian Rupees or in foreign exchange. The categories eligible for deemed exports benefits are given in Para 8.2 of Foreign Trade Policy which are listed here below:
gNBC
Deemed Exports
Supplies to Projects
Important Provisions
Benefits:
gNBC
These benefits are covered under Para 8.3 of Foreign Trade Policy which are as under: a) Advance Authorisation/Advance Authorization for Annual Requirement/DFIA.
or
b) Deemed Exports Drawback. c) Exemption from terminal excise duty where supplies are made against International Competitive Bidding. In other cases, refund of Terminal Excise duty will be given.
Important Provisions
gNBC
As far as (a) and (b) are concerned, these are mutually exclusive because if exemption from duty is claimed, refund cannot be claimed. Hence, deemed exporter will either claim Advance Authorisation for Intermediate supply/ Advance Authorisation for deemed exports/ DFIA or deemed exports duty drawback. Deemed exports duty drawback can be claimed on the basis of All Industry rate or on the basis of Brand rate following the procedure for fixation of brand rate. The deemed exports duty drawback is refunded by DGFT.
Important Provisions
gNBC
As far as claiming of refund of Terminal Excise Duty (TED) is concerned, the same principle applies. Terminal Excise Duty need not be paid by the deemed exports supplier if the supplies are given to EOU units under exemption notification no. 22 dtd. 31.03.2003 (which is commonly known as CT-3 procedure) or when supplies are made to Advance Licence holder under excise notification no. 44 dtd. 26.06.2001. In all other cases, deemed export suppliers have to pay Terminal Excise duty and claim refund, except when supplies are made against international competitive bidding. If the recipient units take CENVAT credit of terminal excise duty, then also the Govt. will not grant refund.
Important Provisions
gNBC
In case of deemed exports duty drawback as well as refund of terminal excise duty, both are to be claimed from licensing authorities alone. Deemed exports, per se, are monitored by DGFT and Excise and not by Customs. In case of EOU, Refund of Terminal Excise Duty and Duty Drawback must be claimed from the concerned Development Commissioner.
gNBC
International Exhibition held in India [Sub-Rule 13] (3) Bonded Warehouse [Sub-Rule 12] (2)
Step 1: DTA unit will clear the goods from his premises:
gNBC
On the basis of ARE-1 Clearance will be on the basis of 1. ARE-1, 2. Bill of Exports
Contd
Step 2: Execution of Bond/LUT as applicable in case of normal exports
gNBC
Step 3: Before arrival of goods, Authorised Officer [AO] assess the ARE-1 and/or Bill of Exports, as per the instructions, procedures, including examination norms applicable to export goods. It is mandatory at this stage to check whether goods are required for authorised operations by the SEZ unit or SEZ Developer with reference to the Letter of Approval [LOA].
Contd
gNBC
Step 4: On arrival of goods into from DTA to SEZ Gate, Authorised Officer will examine the goods in respect of particulars given in the ARE-1, invoice, Bill of Export and packing list and also as per the examination norms laid down in respect of export goods in cases where the goods are being procured under claim of an export entitlement.
Contd
gNBC
Step 5: ARE-1 and/or Bill of Exports, as endorsed by AO is treated as proof of export. After the goods are admitted in the SEZ, the copy of such ARE-1 and/or Bill of Export is to be submitted to the Juris. Central Excise Officer of DTA supplier, within 45 days.
Vaibhav Nagarkar
Thank You
Generation Next Business Consulting Mumbai: A-203, Everest Chambers, Next to Star TV Office, Near Marol Naka, Andheri-Kurla Road, Andheri (East), Mumbai 400 059. Tel: 28507615/28507329/65769126 Fax: 28506419 E-mail: mumbai@gnbc.co.in Pune: EPI Centre, Opp. Indsearch, Law College Road, Pune 411004. Tel:(+91) 020 65246159 Fax: (+91) 020 25465195 E-mail:pune@gnbc.co.in