Export import for ss is 1

Exports & Import for SSI Units and Businessmen

CONTENTS

 Exim Trade

 Terms of Payment in International Trade

 Customs Matters Relating to Imports & Exports

 Salient Features of 1) Advance Authorisation 2.) EPCG
and 3.) 100% EOU / SEZ etc. Schemes

 List of Steps involved in Execution of an Export Order

 Definitions with Purpose/Function/Use/Significance

 Duty Drawback

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EXIM TRADE
1) Legal Framework

Export means sending goods (and services) from India to any place outside
India.

Import means bringing goods (or services) into India from any place outside
India.

India, for import/export purposes, is:

-- in case of every adjacent neighbouring country with whom India has
common border on land, is the border exit/entry point.

-- in case of all other countries, every point on the line at sea and vertically
above in the air, at a distance of 12 Nautical Miles ( about 73,000 feet )
from appropriate base line.

Thus, any ship/aircraft carrying goods entering or leaving the Indian territorial
limit, import or export is considered to have taken place.

Goods may be exported out of/imported into, India from/at notified sea-
ports/airports/land customs stations, airports, ICDs/CFSs using:

-- ships;
-- aircrafts, including courier mode;
-- trucks/railway wagons/other means of surface transport;
-- postal system i.e. post parcels subject to certain size/weight/volume
restrictions.

Every export/import transaction (shipment out of/into, India) involves:

-- the importer or exporter;
-- his CHA;
-- the port/airport/ICD/Custodial authorities;
-- the respective shipping/air/transport, company/organization.

All these entities are concentrated/focused on the purpose of effecting
exports/imports, from/into, India.

There are, therefore, certain basic laws and the Rules, Regulations, Instructions
and the forms/documents, procedures prescribed, which, all such entities have
to follow/comply with to the extent applicable to each one of them within their
respective areas of activities/functioning, obligations/liabilities.

The 3 (Three) Basic commonly applicable laws are: -

-- Customs Act, 1962 (read with Customs Tariff Act, 1975);

-- Foreign Trade (Development & Regulations) Act, 1992
(earlier Import & Export Control Act, 1947);

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-- Foreign Exchange Management Act, 1999.
(earlier Foreign Exchange Regulations Act, 1947/1973).
There may be certain commodity specific legislations e.g. Drugs & Cosmetics
Act which may also apply to an export/import transaction in respect of such
commodities.
The above 3 Basic Legislations are passed by the Parliament (Union
Legislations), extend to whole of India, including Jammu and Kashmir.
The respective Government of India Administrative Ministries and the controlling
authorities are:
-- Ministry of Finance and Company Affairs, Department of
Revenue with Central Board of Excise and Customs;
-- Ministry of Commerce and Industry, Department of Commerce
with Director General of Foreign Trade;
-- Ministry of Finance and Company Affairs, Department of
Banking with Reserve Bank of India, Exchange Control Department.
The CBEC, through Commissioners of Customs and subordinate officers having
jurisdiction over the notified ports/airports/ICDs/land stations etc. and the
assigned areas/talukas/districts/states/UnionTerritories, exercise control/
supervision of all vessels/vehicles and the goods carried when being brought
into India as imports or being taken out of India as export and allow clearances
of export/import goods and even the carrying vessels/vehicles subject to
prescribed declarations, examinations and compliance with the requirements
under all other laws, to the extent applicable, including payment of duties of
customs, as applicable.
The DGFT, through its regional/port offices, exercises control/supervision of
import/export licensing in respect of items under import/export controls i.e.
restrictions.

The RBI, Central Office, foreign exchange department (FED) through FEDs at
their Regional Offices and mostly through banks (authorized persons) exercises
control/supervision over the exchange control/foreign exchange aspects not only
in respect of imports/exports, but also all other activities involving outflow/inflow
of foreign exchange e.g. travel, education, subscriptions, investments abroad/in
India etc. etc.

2) Basic Registrations/Memberships for importers/exporters.

a) MANDATORY

Every entity as importer or exporter or both has to, mandatorily, under the FT
(D&R) Act, 1992 and the Foreign Trade Policy there under, seek from the
jurisdictional Regional Licensing Authority (JDGFT) a ten-digit one-time Importer-
Exporter Code Number in the name and address of the Registered/Head Office or
Main/Sole Office/Factory, which will cover also all other
Branches/Divisions/Factories wherever located throughout India, when the details
of locations/addresses are furnished to the IEC issuing authority.

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It is not a licence or permit nor is it related to the present and future activities of the
applicant. It is simply a mandatory registration identifying a particular
concern/firm/company/establishment; their proprietors/partners/directors/
functionaries; their Registered/Head/ Main office and other relevant particulars like
IT PAN number etc.

Every exporter/importer whether in trading/commercial/industrial/
professional/institutional capacity, has to have a valid IEC, when effecting
exports/imports, when applying to JDGFT Offices for grant of export-linked
incentives/benefits and when applying/declaring to Banks/RBI in exchange control
related matters pertaining to exports/imports.

Based on application in prescribed forms, Rs.250/- one-time fee (from: 01-04-2008
onwards and required documents, the IEC is allotted and an allotment letter
issued.

The persons/entities/situations exempted from IEC are:

-- border trade transactions up to Rs.25,000/- per consignment between
India-Nepal, India-Myanmar and Rs. India-China (Rs.2,00,000/-, if
through Nathula Port);

-- persons importing/exporting for personal use, not connected with
agriculture, trade, industry;

-- diplomatic missions; certain charitable organisations etc.,

-- Government departments etc. etc.;

For them common permanent IEC numbers are allotted and published in Hand
Book of Import-Export Procedures for use by such persons when clearing
imported/export goods through customs.

The IEC is valid for lifetime, unless changes in name, constitution, address etc.
occur. It is not required to be renewed; nor is any annual reporting required.

If lost/misplaced, a duplicate copy of the original allotment letter can be obtained
upon application, FIR, Affidavit and an Rs.200/- fee.

IEC, if not required, can be surrendered voluntarily.

In case of changes e.g. constitution, name, address, shifting of jurisdiction, a
modification application with relevant documentary evidences has to be made
within 90 days from date of change or if thereafter then with a penalty of Rs.1,
000/-.

If the exporter/importer comes to adverse notice of the Government, then IEC can
be suspended / withdrawn, after due process of law, and thereupon, further
exports/imports, if any, can be made only under a specific export/import licence, in
each case, if granted.

b) VOLUNTARY

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i) REGISTRATION-CUM-MEMBERSHIP CERTIFICATE (RCMC)
FROM CONCERNED EXPORT PROMOTION COUNCIL/COMMODITY
BOARD.

EPCs (including FIEO) are autonomous bodies under Societies Act and
function/operate in the interest of export promotion and as inter-face between
exporters and Government.

For certain exports e.g. Rice, Spices, Tobacco it is mandatory to have a valid
RCMC at the time of customs clearance of the export goods within purview of
respective EPCs/CBs. In rest of the cases it is voluntary to have a valid RCMC
from concerned EPC/CB, but getting one helps as certain Foreign Trade Policy,
excise-law related incentives/benefits are available only to Registered Exporters,
whether manufacturer or merchant, holding a valid RCMC.

The RCMC is granted upon application for a 5-year period (1st April – 31st March of
the 5th year) subject to entrance/first year prescribed fees and required
documentation and payment of annual fee in subsequent years.

The RCMC, if not required, can be surrendered for cancellation subject to annual
fee for the year when surrendered already paid.

If the Registered Exporter comes to adverse notice of the Government, then the
DGFT can, after due process of law, suspend/withdraw/cancel RCMC thus
disenabling availment of export-linked incentives/benefits. Registered Exporter
has to get RCMC updated with changes e.g. constitution, name, address, addition/
deletion of branches etc., as and when the changes occur.

Registered-Exporter has to file periodically trade returns as prescribed by the EPC
and non-filing can invite suspension/withdrawal/cancellation of RCMC.

ii) SALES TAX (VAT) REGISTRATION - MERCHANT EXPORTERS

Sale of goods between two parties in India attract the concerned State’s Sales Tax
(e.g. GST in Gujarat now VAT) or the Central Sales Tax (CST) if the sale is inter-
state.

In those cases of exports, where the Merchant-Exporter (Trader) purchases goods,
for exports, from manufacturers/others whether within the State or inter-state, the
State ST/VAT or CST will be exempted provided buyer (exporter) concerned issues
form ‘H’ prescribed under the CST Act.

The international sale i.e. the sale effected by the Merchant Exporter (or even a
manufacturer-exporter) directly to a buyer outside India is outside the purview of
sales tax/VAT leviability, in view of Article 286 of the Constitution and therefore, as
far as export sales overseas are concerned, the exporter need not necessarily be
registered with the Sales Tax/Commercial Tax Authority, but because he has to
first purchase the goods meant for export, in India from a supplier in India, sales
tax/VAT on such purchases is, fundamentally, attracted, but can be avoided if the
exporter (Merchant-Exporter) gets himself registered for ST or VAT/CST, obtains
blank form ‘H’ Books and issues form ‘H’ for purchases for export, without ST or
VAT/CST.

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iii) MEMBERSHIP WITH APPROVED CHAMBER OF COMMERCE &
INDUSTRIES/TRADE ASSOCIATION.

For most of the exports, the exporter needs to provide a certificate of origin (of
goods) for use by buyer abroad in his country.

Ministry of Commerce and Industry, Government of India, approves and authorizes
certain Chambers of Commerce and Industries/Trade Associations/EPCs, to issue
to their members/non-members Certificates of Indian Origin as and when required
and requested.

Members will be able to, easily, quickly and at normal cost, obtain certificates of
origin and likewise attestation of documents/contracts/ agreements from the
respective approved COC&I/TA/EPC.

Non-members, can also get the same services but after recommendation each
time by existing members, appropriate undertaking and at a higher cost of fee.

Members can also be benefited by being invited by their EPCs/COC&I etc. to
participate in Open Houses with highest functionaries from Commerce/Finance,
other Ministries and their Departments e.g. CBEC, DGFT; Buyer-Seller Meets;
Trade Delegations, Study Tours abroad; Exhibition in India/Abroad;
representations to Central/State Government Ministries/Departments; Market
Development Assistance; Visa Recommendations; Recommending export
promotion incentives/ benefits; information services e.g. fortnightly/monthly
magazines/ bulletins. Senior/Responsible functionaries of EPCs/COC&I are also
members of Customs, Excise, ZDGFT/JDGFT and other similar Grievances
Committees.

Terms of Payment in International Trade

The Seller (exporter) of goods sold to a buyer (importer) abroad has to receive
payment for the goods from the concerned buyer.

Similarly the buyer (importer) of goods has to effect payment for the imported
goods to the seller abroad.

For inter-partes settlement of payments in international trade, usually the banking
system is involved/utilized. In most of the countries payment transactions for
exports/imports, necessarily, require to be routed through normal banking
channels.

The terms of payment in International Trade will range from 100% Advance
payment to deferred payment i.e. short term/long term duration of credit or
installments which are known as cash settlement in the sense that payment, as
and when due, is made and also received in a currency or equivalent thereof in the
currency of the recipient. Payment may also be settled in kind i.e. either by way of
two way mutual/third party supply of goods equal in value without any physical
movement/transfer of currency (ies) or even by way of barter i.e. exchange of X
quantity of goods A versus quantity of goods B without any price/value
denominator.

For exports from India under usual trade practices and also as per RBI (exchange
control) regulations the following payment terms are allowed:

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A.) Not requiring any prior/post RBI/Bank approval i.e. under
general permission.

1. 100% Advance Payment;
2. Letter of Credit (DP or DA sight);
3. D. P. Sight;
4. D. A. Sight (up to 180 days D/A).

B.) Requiring RBI/Bank prior permission.

1. D. A. sight above 180 days DA/Deferred credit;
2. Open Account;
3. Escrow Account.

C.) Under Specific Instructions of RBI/Government of India

1. Lines of Credit;
2. Barter Deal.

The nature of permissibility and the effect of the different payment terms on costing,
and consequently pricing, of export goods, are succinctly, as follows: -

A. 1. - 100% Advance Payment.

Exporter is allowed to receive any amount towards part/100% advance payment for
future exports in the form of cheques, personal cheques, demand drafts, pay orders,
mail/telegraphic/telecommunication transfers, and cheques from FCNR/NRE Accounts,
Foreign currency notes/travelers cheques from buyer while on visit to India, through
credit cards, etc. The foreign exchange thus received should be surrendered to an
authorized dealer in foreign exchange and a Foreign Inward Remittance
Certificate/Encashment Certificate should be obtained, retained and later used as
evidence of receipt of payment when effecting exports.

The Advance payment may be with or without interest liability. Interest if payable
should not exceed LIBOR + 100 Basis Points.

Exports should be effected within 1 year from date of receipt of the advance payment.
No refund of part/full advance payment (plus interest, if any) should be made after
expiry of 1 year, without RBI prior permission. There are certain cost and comfort
advantages to seller as well as buyer, such as:

- Seller bears no interest cost for production, shipment, as full amount of funds
are already available in advance;

- As there will no risk of loss of payment, seller does not have to buy credit risks
insurance policy and thus avoids premium cost;

- Direct dispatch of shipment documents to buyer is allowed – thus
minimizing/eliminating certain bank charges, postage and other out-of-pocket
expenses payable to banks;

- Buyer may extract the best possible discount from the seller, which may be higher
than interest cost to him.

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For small value transactions it is advisable to prefer the advance payment option -
provided it is permissible in buyer’s country to remit advance payments.

If, for any reason, the buyer is not willing or not in a position to remit in advance,
payment toward goods ordered and both the Seller and Buyer still want certain level of
security and comfort e.g. Seller prefers an irrefutable assurance of payment
(immediate/later) against shipment of goods effected and presentation of relevant
shipment documents if in order and in the same way buyer prefers that if at all an
assurance of payment is given and payment also made on his behalf then the payment
should be made only upon actual shipment and availability of required shipment
documents in conformity with all the terms/conditions stipulated by him, then the
Buyer and Seller involve bankers for the purpose of issuance of and encashment of the
assurance of payment and adopt payment settlement through :-

A. 2 - Irrevocable (and confirmed) Letter of Credit for payment either at sight or a
certain usance.

A letter of credit is a written/signed or authenticated conditional assurance of payment,
issued, at the instance, request, on account, at the risk and cost of the buyer, by his
banker, addressed to the seller, promising to pay/honour the value due of the specified
goods ordered by the buyer, if shipped and documents thereof furnished strictly in
compliance with all the terms, conditions, stipulations, stated in the letter of credit.

The buyer’s, (opener/accreditor) banker (Opening Bank) opens/issues, letter of credit
and forwards it to a bank in the seller’s country (advising bank) for authentication of its
genuineness and delivery to the seller (beneficiary).

Similarly the OB, later, if requested by Opener, issues and forwards amendments to the
L/C, to the AB, for delivery to the beneficiary. The Opener or the Beneficiary, or both
will bear (respectively) the OB’s opening/amendment commission charges, AB’s
Advising Commission and Postages. The OB’s opening/amendment commission
charges will be on value and periodical i.e. for every 3 months/part thereof, except a flat
rate for amendments, which do not enhance value or shipment/negotiation periods.

The Beneficiary has to then effect shipment; prepare/obtain the required documents
and within the L/C validity present all the required documents together with the original
L/C (including all amendments up to that date) for negotiation and payment under the L/
C to his bank or AB (through his bank) (if negotiation restricted to AB) (known as
negotiating bank).

The NB will scrutinize all the documents presented and compare the
shipment/documents with all the L/C terms/conditions etc.; and if satisfied, may agree to
negotiate and pay (subject to recourse) in anticipation of OB paying in turn.

The NB may, after negotiation, claim re-imbursement, directly, from a bank in NB’s
country or another country (usually country of the currency in which payment is to be
settled), if the OB have, in the L/C or otherwise, indicated the name/details of
Reimbursing Bank and authorized direct claim.

Thus there will be further bank charges e.g. NB’s, RB’s commission etc.

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The Opener may be required to deposit any amount from 5-10% to 100% of the L/C
value, as margin money, with the OB, depending on his credibility and credit-
worthiness. The margin money deposit (3/6 months) may fetch interest, which may be
at a very low rate compared to interest required to be paid on similar amount borrowed
from bank/market. There will, therefore, be interest differential cost to the importer.

Despite the OB’s assurance, there is a risk of failure of the OB or their country, which
may result in non/late-realisation of the export proceeds. The beneficiary has, therefore,
to cover the exposure, by securing a credit risk insurance policy, which entails payment
of premium on export value.

If the NB bank detects discrepancies (which may not be capable of being rectified) then
it may agree to still negotiate either under beneficiary’s indemnity or under reserve. It
may disagree to negotiate and treat the documents on collection basis outside the
scope of L/C.

Thus the L/C may lose its force and virtue due to expiry/discrepancies. For reasons of
competition as well the risks of higher quantum of bank charges and non-negotiation
then the next best payment terms, other than L/C, that may be agreed between Seller
and Buyer are: -
Letters of credits issued subject to Uniform Customs and Practices for Documentary,
Credits, ICC Publication 600 (UCPDC600 from 1-7-2007 onwards).
A.3 D. P. Sight - Documents against payment at sight (Collection)

Based on buyer’s Order, seller effects shipment of goods and tenders, the required
documents, to his bankers, along with appropriate instructions for forwarding to buyer’s
banker for presentation and delivery to buyer only against payment.
The Seller has the security of goods till the buyer pays and can, if required, divert the
goods to another buyer in the same/neighbouring/other countries or at worst bring the
same back.
Buyer has the comfort of having to pay only after shipment and receipt of documents by
his banker. Buyers usually postpone payment till around arrival of ship/goods. Cost of
bank’s charges are comparatively lesser than those under L/C but cost of credit
insurance will be higher under D. P. Sight as now even the buyer is perceived as a risk
factor apart from his bank and country. Seller also bears the interest cost for the
elongated period from shipment date till receipt of payment, after it is made by buyer.
However due to intra/inter-countries severe competition or the imperative on the buyer
to sell goods on certain credit period e.g. Agricultural Machineries to farmers, the Seller
may have to extend a usance credit period higher than D.P Sight e.g.
30/45/60/90/120/180 days, in which case the payment terms adopted are:

A.4 D. A. Sight - Documents against acceptance at sight (up to 180 days DA)
(Collection)

Like D. P. Sight payment terms, the shipment is effected and documents tendered to

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Seller’s banker, with appropriate instructions to forward to buyer’s banker for
presentation and delivery of documents to the buyer against his acceptance, at sight, to
pay on the agreed future date.

Thus the buyer gets, delivery of shipment documents, and consequently the goods,
without payment for the time being, under his written acceptance (promise) to pay on
the agreed future date.

Seller has no security except buyer’s written promise to pay later. The cost of bank
charges will be the same but interest cost and credit insurance cost burden will be
comparatively more on account of elongated duration of payment due date.

In all these above situations, particularly A.2, A.3 and A.4 banks are involved from
documents to payment realisation/remittance stage. If the Seller and Buyer have
mutual faith in one, another and want to minimize, even scale down bank charges,
eliminate credit insurance cost and relish the comfort of direct dealings between
themselves with least intervention of banks, then the payment terms adopted in that
case are known as:

DP or DA sight Documentary Bills are handled subject to Uniform Rules for Collections
ICC Publication 522 (URC-522).

B.1 - Open Account

Under Open Account payment terms agreement, Seller forwards directly to Buyer
shipment documents and upon receipt, Buyer soon or as agreed (even periodically
forwards to Seller payment by cheque/draft. Bank charges will be restricted to only
either commission on issue of Draft or collection of cheque.

This may be one-way i.e. seller to Buyer or two-way i.e. Seller to Buyer for goods Seller
sells (to Buyer) and Buyer to Seller for goods which Buyer Sells (to Seller).

In a two-way direct exchange there can be tremendous savings in bank charges
towards issue of Draft/collection of cheques. For example if Seller were to bill Buyer in
a month up to Rs.100 lacs and Buyer in turn bills seller 70 lacs during the same month
and in the ensuing month they square-up the accounts and mutually settle the net dues
then there will be only a final net remittance of Rs.30 lacs on which only bank charges
are incurred compared to bank charges on:

- Bills for Collection - Rs.100 Lacs
- Bill for Collection - Rs. 70 Lacs
- Remittance - Rs.100 Lacs
- Remittance - Rs. 70 Lacs
----------------
Rs.340 Lacs
==========

For imports into India receiving Bills directly from sellers abroad were earlier allowed
without limitations but in the recent past some limitations were imposed and as on today
the limits are:

a) Up to US$ 1, 00,000 in all cases;

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b) Without limit in case of:

i) Wholly-owned Indian subsidiaries of foreign companies from their
principals;
ii) Status Holders - EH/TH/STH/SSTH/100% EOUs/SEZ units;
Public Sector Undertakings and Public Limited Companies
Including deemed public limited and private limited.

c) All other cases at importer Client’s request authorized dealers may receive
documents directly from overseas supplier based on track record of importer
and report on supplier from overseas banker or reputed credit rating agency.

For exports from India Open Account transactions are allowed to those exporters only
who have a good track record and his bankers agrees to the arrangement. Exporters,
otherwise, can ask their banks to directly forward export shipment documents to the
buyer.

B.2 - Deferred Credit above 180 days DA or installments

Exporter will first have to seek RBI’s prior approval and shipments will be cleared by
customs and similarly documents handled by banks only against evidence of prior
approval by RBI.

B.3 - Escrow Account

The buying or selling or both countries may be facing liquidity crunch and may not be
able to pay in cash on due date even if long terms credit is offered. However they may
have surpluses of goods that are mutually required.

Under Escrow Account payment physically no payment one-way or both-ways will be
made by remittance of the money due.

The supplier first forwards goods e.g. worth Rs.50.00 Million to the buyer in the buying
country. A bank in the buyer’s country will receive the value in its own currency from
the buyer, which will be credited, to an Escrow Account of the Seller/Seller’s banker
with the designated bank. Seller will then order any selected goods worth Rs.50.00
Million from any vendor in the buyer’s country. Such Vendor (who may or may not be
the original buyer) will be paid by the designated bank in his own country the Rs.50.00
Million. Thus for imports from the Seller’s country, no remittance of payment to Seller’s
country is made but instead any/certain goods worth the same amount (quantity,
therefore will depend on price negotiated each time) will be shipped to the Supplying
Country from where no remittance for payment will come.

In this kind of arrangement price, money value of goods and consequently quantities
are taken into consideration and the only difference is that X quantity (or higher or less)
worth Y amount for goods A are exchanged for Z (or higher or less) quantity of goods B
worth the same amount.

This is not bartering, but exchange of the same money value of goods A versus B

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(quantities subject to price negotiated) without movement of currency between the
Selling and Buying Countries.

C.1 – Barter Deal - very rarely adopted.

Usually under Government-to-Government Undertakings. The respective supplier
parties will be paid by their respective Governments in the respective local currencies
but between the Governments the exchange of respective goods will be quantity –
versus – quantity without price/value as a consideration.

This occurs usually for political accommodation or when one or both countries are
desperate with not easily disposable surplus stocks.

C.2 - Lines of Credit or Seller’s Credit/Buyer’s Credit.

Government or EXIM/Other leading Banks may extend a line of credit to a Government/
Financial Institute in the buying country on long term deferred payment basis. Seller
will be paid in IRs equivalent of Sale value by such line of credit extending entities that
will, under RBI approval, collect the dues from the buying countries as per the agreed
repayment programme.
As far as seller is concerned it is as good as payment realised, though the buyer
abroad pays much later, usually in installments in his country to the borrowing institutes
which in turn pay the lending institutes.

Customs Matters Relating to Imports & Exports

A. Background Aspects

Customs Act, 1962, a Union Legislation, extends to the whole of India (including J&K)
and the Indian territorial limit i.e. every point at sea on a line at a distance of 12 Nautical
Miles (1 NM = 6,080 feet approx.) from appropriate baseline (i.e. nearest land point),
and the air space above every such point. Beyond the 12 NM territorial (political limit),
every point at the seabed and sub-soil plus the seawaters up to 200 NM from baseline
is India’s limit of continental shelf and exclusive economic zone for exploration,
exploitation, environment protection etc. The CA, 1962, may by Notification, be
extended even to areas in the CS/EEZ known as “designated areas” e.g. ONGC/foreign
licensed platforms. The border point between neighbouring adjacent countries is the
territorial limit on land.

The main purpose, function and the object of the Act is to regulate:

-- entry/arrival of vessels;
-- entry/arrival of imported goods, departure of export goods;
including ship’s stores, Passenger Baggage;
-- prevent imports/exports, if not permissible under any law;
-- collect statistical details on imports/exports;
-- collect revenue on imports/exports.

Thus Shipping/Airlines/Courier agencies, port authorities, importers/exporters and
passengers have to deal with the provisions of the Act, the Rules and Regulations
made there under.

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Importers/Exporters also have to deal with the Customs Tariff Act, 1975 (to an extent
Central Excise Tariff Act, 1986 also) with regard to particular classification of the
individual goods, based on an internationally recognized and followed system, known
as HSN (Harmonised System of Nomenclature), and the Customs/Excise duty there
against plus the ground Rules of classification including Rules of interpretation for the
purpose of classification.

Under CA, 1962 the Government is empowered to administer the Law and also issue
subordinate legislation e.g. Rules, Regulations, Notifications, Directions. The
administrative Ministry is the Central Ministry of Finance and Company Affairs and its
Department of Revenue.

Implementing agency is the Central Board of Excise & Customs headed by a Chairman
and Members having control over all Customs/Excise Commissionerates at Zonal/State/
District levels, and functioning as the policy making body. The Act provides for
appointment of Ports /Airports as customs notified areas where only arrival/departure of
vessels; entry, unloading/loading of goods etc. can take place. The Act also provides
for appointment of various classes of Officers, their role, functioning and powers
including delegated powers.

The Port/Airport Authorities under Major Ports/Minor Ports etc. Acts are an
infrastructure/services/facilities providing entity for vessels/goods/passengers and have
their own set of Rules/Regulation for entry/departure of vessels, unloading/loading of
goods, storage, upkeep of goods till cleared and charges, fees, cost recoveries
incidental to such activities/services. The Port Authorities are the custodians (trustees)
of goods on behalf of: -

-- the owner ( importer/exporter);
-- the concerned shipping company/vessel;
-- Customs Authorities, and
-- themselves.

For exporting, out of India or importing into India, goods, by Vessels (ships, aircrafts,
courier mode); land/surface transportation (Trucks, Railways, Boats, Carts), through
ports/airports/land customs stations/postal system, for customs clearance, the importer/
exporter will, usually, prefer engaging, for and on his behalf, the services of a Customs
House Agent (CHA) licensed to operate so by Customs Authority at respective ports,
under CA, 1962. The CHA will deal with the Port, Customs, Shipping Company,
Transport Co., Labour, Equipment providers, Surveyors, Octroi Authorities,

Insurance Cos. Chambers of Commerce, Consulates and Inspecting Agencies etc., for
and on behalf of the importer/exporter at their respective locations in the
arrival/departure port city

B. PROCEDURAL ASPECTS

1) IMPORTS

When a ship carrying imported goods enters Indian Territorial limit, date and time of
arrival/entry becomes the taxable event though for administrative convenience either
the date of arrival or date of filing of Bill of Entry for import clearance is relevant for
determination of exchange and duty rates applicable depending on whether B/E has

S. V. Modi Page 13


been filed pre/post arrival. A Customs rummaging team boards the ship to find out
whether anything is concealed or amiss plus seal the storerooms containing provisions/
consumables/parts/components, in excess of the normal requirement, while the ship
remains in port/Indian territorial area (anchorage).

Within 12 hours after arrival and furnishing of a Manifest, (Import General Manifest) by
the ship; of all goods brought into India whether to be unloaded or remaining on board,
consignment-wise, customs grant an entry inwards, whereupon, unloading of goods is
commenced, under Customs, Port, Shipping Co’s supervision. Ship then handover the
unloaded goods to Port Authority who shift and store the goods as appropriate and
have to finally tally and account for all unloaded goods IGM-wise whether eventually
cleared, uncleared, short, missing, lost, destroyed.

The individual importer in the meantime has received the shipment documents, arrival
notice and forwards all required documents to appointed CHA at arrival port, for
preparation, completion, signing and submission of a Bill of Entry (along with required
documents) at the Customs House at the import port, for clearance and taking delivery
of the imported goods.

The Bill of Entry gets noted, numbered in the Customs House and is then taken up by
Customs Appraiser for appraising of the import and assessment of duty i.e. determining
the classification, duty rates, exemptions, valuation, licensing, restrictions, conditions
and any other statutory requirement. If the Appraiser is satisfied with all these aspects,
then he determines the duty assessed and after counter-signature of Superintendent
and Assistant/Deputy Commissioner of Customs, the assessed Bill of Entry is passed
and returned to CHA, for duty payment, which has to be paid within 5 days after date of
return or even thereafter but with interest at 15% p.a. on the duty amount, from 6th day
onwards.

Upon duty (plus interest) payment, the original B/E is retained in the Customs House,
and duplicate, triplicate etc. with accompanying documents are then presented by CHA
to the AC/DC, Docks in the port area for examination and passing of the goods. AC/DC
endorses examination order (random, percentage, full) and accordingly the
inspector/examiner of customs, under presence of Port Authority plus CHA (also
surveyor if called) gets packages opened, verifies goods, tallies quantity/description,
ascertains weight if required, draws and seals samples for analysis/testing, if required,
and if satisfied writes in the B/E his examination report. If nothing is amiss, then the
AC/DC grants final out-of-charge i.e. customs have nothing more to do with the goods,
which, subject to port/shipping co’s clearance can be removed out of the Port Area.
Goods under test/analysis will be allowed 80% delivery or 100% under provisional
assessment bond, subject to balance delivery/finalisation, based on test report.

CHA in the meantime has obtained, from the Shipping Co., delivery order, addressed to
port authority, against surrender of one of the original negotiable Bill of Lading copy,
duly discharged, and payment of their dues e.g. DO charges, freight if not pre-paid etc.
CHA, upon customs out-of-charge, clears port dues (wharfage, demurrage etc.) and
obtains their out-of-charge as well (Gate Pass).

CHA arranges transportation and removes the goods from port area, under port gate
procedures, and also if applicable (e.g. Mumbai, Chennai, Calcutta etc.), completes
Octroi formalities at Gate i.e. either payment, if applicable or transit pass.

S. V. Modi Page 14


CHA then forwards to importer (or through transporter) Triplicate plus Quadruplicate
copies of B/E plus all documents no longer required, import licence if involved etc.
along with his Bill for services and expenses paid.

Importer (through transporter) may have to pay Octroi duty, if applicable, at his place on
the customs assessable value of goods, plus duty, plus CHA, transportation cost
(factor), based on the Bill of Entry details.

Importer receives, tallies, verifies goods and in case of shortages, damages, breakages
etc. calls the insurance surveyor at the earliest.

Importer will preserve and use the original copy of “Triplicate-marked” B/E as voucher
copy evidencing duty payment and also for the purpose of availing Cenvat credit of
Additional Duty of Customs, if paid, as per Central Excise Act, if to be used in or in
relation to manufacture of further excisable goods.

Importer will have to furnish the original copy of the “Quadruplicate-marked” B/E copy,
to his banker, as proof of import against remittance in foreign exchange made/to be
made for the import, towards exchange control compliance, under FEMA, 1999 (this
has been relaxed to up to US$ 1,00,000/- for all importers and higher/no limit for public
limited companies etc.)

If, however, there are disputes over classification, duty rates, exemption benefit,
valuation, licensing, at appraising stage or at examination stage, then customs will
issue query memos or Show Cause Notice for reply (which may be waived by the
importer), grant hearing, adjudicate, pass appellable order (pre-or post-clearance)
confiscate goods, if misdeclaration, suppression found, allow redemption under fine
and impose personal penalty, as applicable. The importer can, if desired, proceed in
Appeal either on a live bill of entry i.e. without clearance (Order-in-Assessment) or first
clear in terms of adjudication and later, proceed in Appeal (Order-in-Original). There
can be a seesaw appeal process starting with Commissioner (Appeals) and ending with
Supreme Court, depending on, at each stage, whether the Adjudication or the Appellate
Orders aggrieves the importer or the Customs.

Orders of each Appellate Authority and even the High Courts/Apex Court (on points of
Law) are binding on all lower authorities/courts within the respective jurisdiction/all India
basis and have to be accepted and implemented by the respondent party and reliefs
granted or amounts paid, as applicable, unless stayed by the higher judicial forum.

However when relief claimed is in the nature of excess duty paid (by the importer) due
to valuation/classification/exemption denial case, then the importer will be entitled to
refund only if he is able to prove that the burden of excess duty has not been passed
on to others, if the disputed goods or goods manufactured there from are sold to others
–
which is known as doctrine of unjust enrichment. If the importer is unable to discharge
the bar of unjust enrichment, then the amount of refund will be credited to Consumer
Welfare Fund for use by Consumer Welfare organizations.

Customs may seize and finally absolutely confiscate the goods in which case there will
be no duty, redemption fine liability, but personal penalty, if any may still have to be
paid (which can be litigated against, if desired).

S. V. Modi Page 15


Before clearance of goods is ordered, importer can relinquish title to goods and will
then not be liable for duty, redemption fine, if applicable. (Penal, may still be imposed, if
offence found). Relinquishment is not permitted in case there is an offence found.

Bill of Entry may be filed ab initio for home consumption or warehousing or a home
consumption B/E before clearance may be converted to warehousing B/E for the
purpose of storage, without immediate payment of duty, in a customs-bonded
warehouse and clearance later, ex-warehouse, on payment duty, then only, under an
ex-bond home consumption B/E for partial/full delivery (ies) as per duty rates prevalent
on the date of filing of each ex-bond home consumption B/E, subject to interest on duty
amount if cleared after 90 days from deposit in the warehouse plus warehousing
charges, rent etc.

Warehoused goods may be transferred to others who can clear ex-bond in their name
subject to duty etc.

Warehoused goods can be re-warehoused elsewhere and can also be cleared for
export out of India without duty etc. Warehoused goods can also be relinquished, if
desired.

For excess duty paid the importer can file a refund claim in prescribed form and
manner, within 6 months from the date of duty payment, after which the claim, even if
correct, becomes, statutorily time-barred, with no remedy at all. However the straight
filing of refund of excess duty paid should not be due to lis i.e. an appellable dispute. In
that case, first an Appeal against the disputed assessment under the Bill of Entry or an
Order-in-Original, if issued, has to be preferred.

In the same way for duties not levied/short-levied or erroneously refunded, customs can
demand the differential within 6 months from duty payment/refund date, otherwise the
demand is statutorily time-barred.

However for duty demand (not-levied/short-levied/erroneously refunded) Commissioner,
if satisfied, can extend the 6 months time limit to 5 years, provided it is a case of fraud,
willful misrepresentation, and misdeclaration.

For duty etc. demands not paid, Customs can proceed with recovery by attaching
moveable/immovable properties of the importer, auction, adjust Government dues and
return the surplus, if any to the importer.

Customs can also certify recovery of Government dues to District Collector who can
then proceed to recover through attachment etc. as if it is land revenue.

Notifications (including Rules/Regulations) come into effect on date of issue or a date
specified. However the Notifications, Rules etc. will have only prospective effect and
not retrospective, unless the Parliament passes a Validating Act giving a retrospective
effect.

Re-import of goods exported from India are to be treated as good as an import and
chargeable to duty and also subject to restrictions/conditions in the same way as like
imported goods would attract. However, there are exemption notifications by virtue of
which, subject to certain time limits and conditions, re-imported goods if brought back
for retention will not be subject to normal import duties etc. but duty equal to incentives/

S. V. Modi Page 16


benefits or recompense equal to exemption scheme benefits availed (e.g. Drawback,
Excise Duty Rebate/Not Paid under bond, Advance Authorization, DFIA, DEPB, EPCG)
or no duty if nothing has been availed.

Goods re-imported for repairs and return (under warranty/extended warranty),
irrespective of benefit availed on export, will still be allowed clearance without duty
subject to re-export within time limit prescribed and customs satisfied with identity of
goods. Goods exported for repair and return, upon re-importation will not attract duty
on their whole value, provided no drawback was availed on export, but will attract duty
on fair cost of repair and freight plus insurance both ways, whether paid or free.

Foreign Goods can be imported and cleared duty free for repair and return plus even
raw materials, parts, components, Capital Goods, Moulds, Tools for carrying out the
repairs, under customs bonded private premises subject to re-export of the repaired
goods, waste/scrap, Machineries etc. or duty payment on retained goods.

Imports by privileged persons (e.g. President etc.), organizations (diplomatic missions
etc.) are allowed duty free/concessional duty and simpler clearance procedures.

There are certain reliefs/concessions, subject to conditions, for private personal
properties exported for repair and return or replacement.

There are also duty reliefs for goods imported belonging to deceased persons, defence
personnel, Scientific, Research Organisations, and Developmental Agencies.

Baggage Rules, Tourist Baggage Rules and Transfer of Residence Rules provide duty
free/concessional duty reliefs subject to certain limits/conditions.

Reliefs are also provided to temporary imports for exhibitions, advertising, publicity,
events (mountaineering, car racing), TV/Media requisites etc. subject to bond, and re-
export.

Goods brought to India, for transit through India, to adjacent neighbouring countries
e.g. Nepal, Bhutan or in other cases for transshipment i.e. onward shipment to any
foreign destination, have to undergo the transit/transshipment customs clearance
(usually under bond) subject to exit proof.

Imported duty-paid goods, if re-exported, to any place outside India will be entitled to
drawback of duties paid up to 98%, if such goods are re-exported, without use within 2
years from date of clearance or if used then at descending rates of per cent of duty paid

depending on the period of use i.e. up to 3, >3-6, >6-9, >9-12, >12-15, >15-18 and >18
months up to 95/85/75/70/65/60/NIL percentage.

Salient features of 1.) Advance Authorisation 2.) EPCG and 3.) 100% EOU/SEZ
etc. Schemes.

1.) Advance Licence Scheme (now renamed as Advance Authorisation
Scheme): -

S. V. Modi Page 17


A scheme under Foreign Trade Policy for registered-exporters facilitating customs duty
free clearance of specified inputs for manufacture and export of the relevant finished
resultant goods subject to several requirements, terms, conditions, restrictions,
obligations and liabilities. The Scheme is jointly operated by the DGFT and MOF. The
DGFT takes care of the Policy/Procedural aspects and MOF issues relevant customs
duties exemption notifications. The salient features of the scheme are: -

- it is available to registered-exporters, Manufacturer or Merchant - who has a
tie-up with a supporting manufacturer;

- exporter has to apply to the jurisdictional licensing authority (JDGFT), for grant
of AA, in prescribed form along with required documents and applicable fees;
(now only on-line through digital signature and Electronic Fund Transfer)

- exporter has to await issue of AA which will be granted subject to : input-output
norms; minimum prescribed value addition; description, quantity and value of
export obligation required to be fulfilled in a certain time limit, in relation to:
description, quantity and value of inputs; and several other terms/conditions
etc.;

- exporter has to undertake (i.e. furnish LUT/BOND) to fulfill the EO prescribed
and observe/comply with all the terms/conditions etc. including liability to repay,
duty saved, if required, together with interest on duty (presently 15% p.a.);

- exporter has to furnish 100%/15% of amount of duty saved Bank Guarantee
(which may be waived under certain statuses);

- exporter has to tender the AA (bearing LUT/BOND and BG accepted or waived
endorsement) to customs authority at import port for duty free clearance of the
inputs allowed ;

- actual user condition i.e. the AA or duty free cleared inputs cannot be
sold/transferred/loaned or parted with any manner (except for job-working
under proper excise documentation) and must be used for the purpose for
which licence has been granted;

- exporter has to declare AA particulars in each Shipping Bill when effecting
exports in discharge of EO;

- upon 100% fulfillment, exporter has to redeem the Bond + BG;

- if not, then exporter has to repay the duty saved, proportionate to EO quantity
shortfall with 15% p.a. Interest from duty free import clearance date;

- for value-wise shortfall only, if value addition is negative then a penalty has to be
paid the 100 times of which plus FOB export value actually realized is equal to
positive value addition (e.g. if imports was 100 and exports was required to be
more than 100 (i.e. 100+) and export value realised is 95, then 100 x Rs.0.051 =
Rs. 5.10 + 95 = 100.10, will suffice);

- the validity for effecting imports is 24 months extendable by 6 more months i.e.
maximum up to 30 months;

S. V. Modi Page 18


- the export obligation discharge period is for 36 months. It is extendable first by
6 more months at a cost of composition fee of 2% of the amount of duty saved
on unutilized duty free materials and second 6 months at 5% composition fee.

- if the exporter wishes to procure the materials allowed duty free from indigenous
sources, then he can get the AA invalidated for direct imports and obtain an
Advance Release Order or Advance Release Advice in favour of indigenous
supplier, who in that case can have his supplies of the intermediate (inputs for
ultimate exporter) to the AA holder counted as Deemed Exports and on that
basis avail :-

- if under ARO, then

- drawback on his supplies;
- terminal excise duty refund;
- discharge of export obligation under other scheme (e.g. EPCG);

or - if under ARA :

- duty free clearance of imported inputs for his product
(intermediate) under Advance Intermediate Authorisation facility;
- terminal excise duty refund;
- discharge of export obligation under other scheme (e.g. EPCG);
- supplies made in India to Advance/EPCG Authorisation holders;
100% EOU units, STP/EHTP units, EPZ units, units and also
projects financed by multilateral/bilateral agencies, or certain
power, fertilizer, nuclear power, oil/gas exploration product etc.
also qualify as Deemed Exports and are entitled to Deemed
Export Advance Authorisation on more or less the same lines as
AA for physical exports;

- AA etc. if not utilized can be surrendered at any time for cancellation, or scaled
down for quantity or value or both for imports or exports;

- Definitions :

- input-output norms:-

- the description and quantity (including wastage) of relevant inputs
allowed per unit of the finished export product;

- value addition :-

the rate of increase from CIF import value of the duty free inputs to the
FOB export value of the relevant output;

- export obligation :-
- the description, quantity and value of finished goods required to be
exported in relation to the description, quantity and value of the relevant
duty free inputs, in the initial/extended time period allowed and value

S. V. Modi Page 19


thereof realized in free foreign exchange within RBI prescribed/extended
time limit.

2) EPCG Scheme ( Export Promotion Capital Goods Scheme ) :

A scheme, under the Foreign Trade Policy for registered exporters, facilitating customs
clearance at 3% basic import duty (instead of normal e.g. 7.5%) and zero duty in
specified sectors and without Additional Duty of Customs (CVD), of New and Unused or
Second Hand Capital Goods, subject to several requirements, terms, conditions,
restrictions, obligations and liabilities. The Scheme is jointly operated by: the DGFT
and Ministry of Finance, Government of India. The DGFT takes care of the
Policy/Procedural aspects and the MOF issues relevant supporting customs duty
exemption notification. The salient features of the Scheme are:

- it is available to Registered Exporters, Manufacturer or Merchant who has a tie-
up with a supporting manufacturer;

- exporter has to apply to the jurisdictional licensing authority (JDGFT), for grant
of EPCG Authorisation, in a prescribed form, together with applicable fees
(Rs.5/Rs.1000/- on duty saved amount at present or 50% thereof if EDI filing of
application preferred), and required documentation; Now on-line digital signature
and EFT payment of fees is compulsory.

- Exporter has to await issue of EPCG Authorisation which will be granted
based on the nexus between the Capital Goods sought to be imported and the
export product capable of being manufactured using the said Capital Goods.
The EPCG Authorisation will bear a condition as to which relevant export goods
should be exported up to 8 times the amount of duty saved within 8 years (12
years in case duty saved is 100 crores or more) and in some cases six times in
six years/12 years and 8 times in 12 years from the date of issuance of the
Authorisation. The said export obligation will be in addition to an obligation to
effect exports up to the annual exports of the same product already achieved in
the preceding 3 licensing years (April/March), if any. Other conditions/
restrictions like repayment of duty saved; upon failure to fulfill the obligation etc.
shall also apply.

- exporter has to undertake (LUT/BOND) to fulfill the prescribed export obligation
and
also comply with/observe all other terms/ conditions/ restrictions etc. including the
liability to repay the duty saved, if required, together with interest (presently
15%p.a.);

- exporter has to furnish a bank guarantee up to 15%/100% of amount of duty saved,
depending on certain qualifying conditions, to the customs authority at the import
port or to JDGFT licence issuing office, if the Capital Goods under the EPCG
Authorisation, are desired to be indigenously procured with deemed exports
benefits
to the domestic supplier.

- exporter has to furnish to Customs authority at the import port, the EPCG
Authorisation, with Bond + BG accepted remarks, for clearance of the Machineries
at 3% duty.

S. V. Modi Page 20


- exporter has to furnish to customs authority at the port of clearance the EPCG
machineries, certificate of installation at the declared factory/ premises issued by the
jurisdictional Excise Authority, within 6 months/extended period, if allowed from date
of clearance.

- Actual user condition i.e. the EPCG Machines cannot be disposed, leased/rented
out,
transferred, sold or in anyway parted with (except repairs) until fulfillment of
obligation and redemption of Bond + BG.

- exporter has to declare the EPCG Authorisation particulars in each shipping bill
(own/third party exports) when effecting exports in discharge of EO.

- exporter has to submit to Customs and the JDGFT EPCG Authorisation issuing
office
yearly statement of exports certified by CA/Banks.

- upon 100% EO fulfillment exporter has to redeem Bond + BG.

- If not, then duty saved proportionate to EO unfulfilled has to be paid with interest at
15% p.a. from import clearance date.

- Obligation has to be discharged slab-wise e.g. years 1st to 6th – 50%; 7th to 8th 50%
(or 1st to 4th – 50%; 5th and 6th – 50% or 1st to 10th -50%; 11th and 12th 50%).
Excess exports made in a preceding period can be carried forward to ensuing period
but not vice versa. If there is EO fulfillment shortfall in a particular block, and no
extension has been granted, then duty saved proportionate to the short fall; with
interest at 15% p.a. has to be paid.

- EPCG Authorisation holder can import and clear the machineries also in SKD/CKD
condition.

- EPCG Authorisation holder can get the Authorisation invalidated for direct imports
and procure similar machines from domestic supplier who will be entitled to Deemed
Exports benefits e.g. Drawback or Duty Free imports (of raw materials, parts,
components etc. for manufacture of the machines); terminal excise duty refund and
discharge of EO, if any e.g. under Duty Exemption/EPCG schemes.

- If EO cannot be fulfilled by exporting the EPCG machinery-linked goods.

including pre-production or post-production, then upon request EO may be refixed
for fulfillment by way of export of any other products manufactured by the licence
holder in the same/his other factory (ies).

LIST OF STEPS INVOLVED IN EXECUTION OF AN EXPORT ORDER

1) Receive order/LC, Scrutinize, Acknowledge and ask for
amendment/rectifications/modifications, if required;

2) Organise ECGC Policy/Credit Limit to adequately cover political/commercial
risks;

S. V. Modi Page 21


3) Place Work Order on own factory or Purchase Order on manufacturer/supplier, if
Merchant Exporter; mentioning crucial details like: description, quantity,
quality/standards, packaging/packing, markings inspection requirements if any,
excise if applicable, then option whether on payment or under bond, No Sales
Tax/VAT i.e. against form ‘H’, price, date and place of delivery, port of shipment,
last shipment date, transit/contingency/marine insurance, as applicable;

4) Obtain pre-shipment finance, if required;

5) Submit Advance Authorisation application, if so opted;

6) Monitor production, readiness of goods for inspection/excise clearance /dispatch
to shipment port, progress;

7) Liaise with Inspecting Agency, if inspection required;

8) Execute LUT/ Bond, obtain CT1, if merchant exporter and if own bond option
preferred;

9) Forward ARE1 or CT1 + ARE1 to own factory/supplier;

10) Prepare and forward a set of customs clearance and shipment purpose
documents to CHA at shipment port;

11) purchase transit/contingency/marine insurance, as applicable, prior to
removal of the export goods for transportation to shipment port;

12) receive from CHA dispatch instructions, relay to factory/supplier;

13) remove the export goods for transportation to shipment port under
ARE1/ARE2 procedure, if export goods/materials contained in the export are
excisable and rebate claim/under bond removal preferred;

14) await customs clearance and shipment;

15) receive from CHA export shipment documents;

16) inform shipment details to buyer/agent/buyer’s insurance company, as may be
required;

17) prepare/obtain remaining shipment documents;

18) tender shipment documents to bank for negotiation/collection;

19) forward non-negotiable set to buyer/agent abroad;

20) monitor negotiation/collection, till payment realization;

21) clear the dues, of supplier, CHA etc.;

22) forward form ‘H’ to supplier;

S. V. Modi Page 22


23) report export to ECGC and pay applicable premium;

24) file excise rebate/bond discharge claim within prescribed time limit;

25) file other incentives/benefits claims etc. obligation discharge/DEPB etc. as
applicable, with in respective time limits.

Sequencing of Export Customs clearance, shipment then negotiation /collection
activities and movements related thereto.

Documentation Movements

A set of pre-shipment documents Removal and transportation of the
1. forwarded to CHA at export port for 1. export goods to shipment port.
Shipping Bill procedure

2. ARE1/ARE2 Procedure 2. Customs Clearance and shipments
of the export goods.

A set of post-shipment documents Bank forwarding export shipment
3. for negotiation/collection 3. documents to overseas bank for
collection or as a negotiation.

S. V. Modi Page 23


LIST OF DOCUMENTS REQUIRED FOR CUSTOMS CLEARANCE AND SHIPME OF
EXPORT GOODS.

A. From exporter’s side

1. Instructions letter to CHA at export shipment port;
2. Invoice set;
3. Packing list set;
4. GR form/SDF declaration, in duplicate (if export shipment above US$
25,000/- with effect from 01-04-2004);
5. Original + Duplicate, 5th Copy of ARE1/ARE2, if goods/materials excisable
and rebate/under bond manufacture/removal preferred;
6. EIA’s/any other Controlling Authority’s inspection certificate, if pre-shipment
inspection compulsory (or alternative provided);
7. Export Licence/Quota certificate/NOC, as may be applicable, if item under
export control;
8. Certificate/declarations, prescribed, depending on type of incentives/benefits
claimed;
9. Copy of IEC + BIN; (or customs EDI registration).
10. Copy of any other statutory registration, licence, as applicable, specific to
commodity e.g. Drug Licence;
11. Copy of export order/contract/LC, as may be applicable;

B. Added by CHA.

1. Shipping Bill set;
2. Dock Receipt (Challan);

LIST OF EXPORT SHIPMENTS DOCUMENTS REQUIRED FOR COLLECTION/
NEGOTIATION.

1. Instruction-cum-forwarding letter to bank;
2. Bill of Exchange, set;
3. Invoice Set;
4. Packing List Set;
5. Certificate of origin/GSP certificate of origin, if asked for;
6. Insurance Policy, if CIF;
7. Bill of Lading (full set) Airway bill/Rail/Road Receipt/Courier Airway bill,
Consignment Note/Postal Receipt;
8. CRF, if required;
9. Certificates/Declarations, as prescribed in the LC or order or otherwise;
10. Duplicate copy of GR/SDF. (if over US$ 25,000/-);
11. LC with all amendments in original, if under L/C terms.

DEFINITIONS WITH PURPOSE / FUNCTION / USE/ SIGNIFICANCE

A. GR/SDF – Guaranteed Receipt/ Statutory Declaration Form.

S. V. Modi Page 24


It is an export exchange control declaration form; prescribed under FEMA, 1999, issued
by the RBI in duplicate both the copies identically numbered (GR only), required for: (i)
customs clearance and shipment of export goods, (ii) negotiation/collection of export
shipments documents and (iii) export value foreign exchange receipt accounting. It is
filled, completed signed and submitted, by the exporter to the customs authority at
shipment port along with rest of the required customs clearance and shipment
documents plus the goods. Customs process both the copies right from submission till
final departure of the ship/aircraft/surface transportation vehicle. Customs retain original
for directly on-forwarding to the RBI and return duplicate to exporter who in turn has to
submit it to his bankers along with all the shipment documents required for
negotiation/collection. Bank initially reports to RBI having received the duplicate; and
later upon payment realisation, discharges it with payment realised remarks, releases
and forwards it to the RBI. Thus RBI comes to know of every export shipment directly
from customs; then the consequential negotiation/collection and realisation/non-
realisation from the reporting bank. The GR/SDF is not only a declaration but also the
exporter’s undertaking to RBI to realise and repatriate the export value to India within
the RBI prescribed/extended time limit.

B. Shipping Bill

It is an export declaration form, prescribed under Customs Act, 1962, required for
customs clearance and shipment of export goods. It is filled, completed, and signed by
the exporter/his CHA on his behalf and submitted to the Customs Authority at shipment
port along with rest of the required documents. It first gets noted and numbered with
date and security seal number and then processed by way of appraising and
assessment. If satisfied, customs pass the shipping bill with ‘allow shipment’ order.
Thereafter the passed shipping bill is again presented to customs authority in the port
area for examination, passing and allowing export. Customs in port area after
examination of the goods, if satisfied complete the shipping bill with examination report
and ‘Let Export’ order i.e. customs ‘out-of-charge’. The cleared goods are then loaded
into the ship/aircraft under port authority/customs/CHA/shipping line/airline supervision
and required certification from the, ship/aircraft (e.g. Mate’s Receipt i.e. Captain’s
acknowledgment of having received the goods specified on board his ship for
transportation as agreed). The MR details get noted in customs/port authority’s copies
of shipping Bill/Dock Challan. On departure (sailing) of the ship/aircraft, customs
complete the shipping bill with loading, shipment effected and departure details.
Customs, then release one copy of shipping bill for use by the exporter as proof of
export for claiming export–related incentives/benefits/obligation discharge. Thus the
shipping Bill is not only an export declaration but also a full, final and authentic
certificate and evidence of export.

C. Bill of Lading

It is a sea transport document, issued by the concerned Shipping Company, evidencing
carriage of goods specified therein, on board the vessel named therein, from one
seaport to another. It is a contract of carriage. It is a document of title to goods; it is
negotiable; i.e. the title can be transferred to others by endorsements. The Shipping
Company will grant delivery of the goods at destination port, against surrender of one of
the original negotiable B/L copy duly discharged by the consignee or the last endorsee.

S. V. Modi Page 25


Thus it is a sea-transport document as well as contract of carriage with a character of
transferability; enables delivery at destination port and can in the meantime be offered
as security/collateral for obtaining finance.

D. Bill of Exchange

It is an unconditional demand made in writing by the seller asking the buyer to pay, to
the presenter, a certain sum, either at sight or at a certain usance, for value received. It
is a document of title to monies. It is negotiable; i.e. the title can be transferred to others
by endorsements. When paid, the payee or the last endorsee, discharges it with
payment received confirmation and delivers it to the drawee (buyer) for whom it
becomes a receipt. However, if not paid, then it can by got noted/protested for non-
payment and can then be used as evidence of non-payment for further litigation,
arbitration, credit insurance claims and recovery proceedings. It may be required to be
affixed with the applicable stamp duty in the seller’s/buyer’s or both countries
depending on the Stamp Duty legislations/provisions in respective countries.

Duty Drawback

Drawback means taking back or claiming back. It is an accepted proposition under the
customs legislations of all/most countries, and WTO compatible, that duties of customs
and other taxes like VAT, Excise, Sales Tax etc., as applicable, if paid: -

a) on imported goods, re-exported;
b) on imported and/or domestic materials
used in the manufacture of the finished
export goods;

has to be granted as drawback, upon export/re-export so that it is only the goods that
get exported/re-exported, from the country of export, and not the taxes on the goods
themselves or on inputs used in the manufacture of the export goods.

At present the Indian Legislations i.e. the Customs Act, 1962; the Central Excise Act,
1944 and the rules/regulations/provisions made and the procedures prescribed there
under, provide for:

a) Under Section 74 of Customs Act, 1962 read with Re-export of Imported
Goods (Drawback of Customs Duties) Rules, 1995: -

Drawback of customs duties, viz. Basic + Additional (CVD) + Education Cess (likewise
any other duties of customs under section 3 of Customs Tariff Act; Section 12 of
Customs Act or a particular Finance Act e.g. surcharge, special additional etc) – from
98% or 95% graded down to 60%, of the duties paid at the time of import,
depending on whether the goods in question are being re-exported as such i.e.
without use or after use subject to certain period limitations etc.

b) Under Section 75 of Customs Act, 1962 and/or Section
37 of Central
Excise Act, 1944 read with Customs and Central Excise Duties
(Drawback) Rules, 1995: -

S. V. Modi Page 26


drawback of duties of customs and/or excise paid on materials used in the
manufacture of the resultant finished export goods.

The salient features with regard to (a) above i.e. drawback on re-export of imported
goods are:

- drawback at 98% of the duties paid be will allowed, when re-exporting, if the subject
goods have not been used and the re-export is within 2 years from the import date ;

- at the time of export :
- a drawback shipping bill/bill of export is filed;
- declarations are made in the shipping bill/bill of export that:

- export is under DBK claim under Sec. 74 of CA, 1962
- customs duties have been paid on imported goods;
- the imported goods have not been taken for use;
- or the goods were taken for use.

- furnish copy of relevant import Bill of Entry, Invoice duty payment evidence,
export
invoice, Packing list and if required GR waiver/RBI permission to re-export.

- after the re-export, within 3 months, the exporter should lodge with the customs
house from where export took place, drawback claim by submitting/furnishing :

- a claim in duplicate in a prescribed from (Annexure II);
- original copy of the ‘Triplicate’ copy of shipping Bill/Bill of Export with
examination report;
- Copy of Bill of entry, import invoice duty paid challan;
- RBI permission/GR waiver/exemption as applicable,
- export invoice, packing list, B/L, AW-b.
- within 2 months after filing and customs acknowledgement of receipt
application, complete in every respect, drawback by way of cheque or credit in
exporter’s bank account will be paid.

- if the re-export is after use, the declarations/procedure will be the same, but the
quantum of drawback will be :

up to 3 months - 95%
more than 3 upto 6 months - 85%
’’ 6 ’’ 9 - 75%
’’ 9 ’’ 12 - 70%
’’ 12 ’’ 15 - 65%
’’ 15 ’’ 18 - 60%
’’ 18 months NIL.

- Customs should be satisfied with the identity of the goods.

The salient features of drawback provisions under b) above are the government, after
collecting each individual product-wise data on input-output consumption ratio;
international/domestic prices of inputs, burden of customs and/or excise duties on

S. V. Modi Page 27


inputs etc., determine on annual basis duty drawback rates on several finished
products and announces by a Notification the All Industry drawback rates subject
to certain conditions mentioned therein and further subject to the 1995 Rules and
mainly the Sections 75 of CA, 1962 and 37 of Central Excise Act,1944 and certain
other sections in CA, 1962.

Exporters when exporting such notified and eligible products, if so preferred, shall claim
drawback at the specified AIR by filing a Drawback Shipping Bill/Bill of Export and
furnishing certain prescribed declarations for the purpose.

Upon exportation, customs at the shipment port will sanction and pay the AIR drawback
by directly crediting to exporter’s account with a designated bank or issuing a cheque.

Customs will have to pay interest on the drawback amount from 61st day, if the amount
has not been paid within 2 months after export.

if the export proceeds are not realised in foreign exchange within the RBI prescribed
time limit or extension, if granted, then the exporter has to within 30 days after receiving
notice from customs, furnish proof of realization, if available; failing which customs will
pass a recovery order in compliance with which the exporter has to repay the drawback
amount within 60 days; proportionate to amount not realised. The recovered amount
shall be repaid, if within a year from recovery date exporter produces evidence of
realization.

if no AIR rate exits or if it exists, but is found to be low (i.e. less than 4/5 th (80%) of the
rate expected), then individual exporter can apply for fixation of Brand Rate/Special
Brand Rate, under Rules 6 or 7 of the 1995 Rules, based on his stocks at the
beginning and actual purchases (imports/domestic) of the relevant inputs in the 3
months period preceding the export date/application date. Upon fixation the concerned
customs authority at the shipment port will sanction and grant DBK in respect of
exports made in the meantime and to be made later based on the order/contract
specifications including quantity.

Drawback on export of goods is an alternative to Advance Authorisation /DFIA/DEPB
100% EOU etc. scheme.

Exports – Excise Provisions/Procedures.

In terms of Rule 18 under Central Excise 2002 Rules, rebate (refund) of:

- duty paid on the export goods (output duty) and/or.

- duty paid on excisable materials (input duty) used in the manufacture of
the export goods , if not otherwise availed as Cenvat Credit or Duty
Drawback.

will be granted to the exporter (manufacturer or merchant), upon exportation, subject to
procedures/conditions prescribed under a Notification.

The relevant Notifications are:

S. V. Modi Page 28


- 19/2004-CE (NT) dated 06-09-2004, as amended, for output duties when
exported to all countries except Nepal and Bhutan;

- 20/2004-CE (NT) dated 06-09-2004, as amended, for output duties when
exported to Nepal.

- 21/2004-CE (NT) dated 06-09-2004, as amended, for input duties when
the relevant manufactured goods are exported to all countries, except
Nepal and Bhutan;

Form ARE1 will be used if the output duty paid at the time of removal is to be claimed
as rebate upon exportation and ARE2 for input duty rebate claim or ARE2 for both
output and input duty rebate claim together. Alternatively in terms of Rule 19 i.e.:

19(1) - excisable goods can be removed for export without payment of duty
(output duty) under undertaking/bond, subject to export and export proof
submission and/or

19(2) - Procurement and removal of excisable materials from factory of its
manufacture, without payment of duty, (input duty) under bond, for
manufacture and export of the resultant export goods (whether
excisable or not), subject to export and proof submission.

The relevant notifications are:

19(1) - 42/2001-CE (NT) dated 26-06-2001 for export to all countries, except
Nepal and Bhutan.

19(2) - 43/2001-CE (NT) dated 26-06-2001 for export to all countries and also
Nepal and Bhutan, if payment for the export goods is received in freely
convertible currency.

19(1) - 45/2001-CE (NT) dated 26-06-2001 for export under bond to Nepal and
Bhutan, if payment made in freely convertible currency or even in IRs. in
certain specified situation.

Manufacturer, if self-exporting finished goods, shall execute Legal undertaking (LUT)
with own Excise Divisional Office and remove and export under form ARE1 [Rule 19(1)];

Manufacturer if procuring without duty excisable materials under bond for manufacture
and export, shall execute Bond, procure under Annexure-1, receive under AR3, return
AR3 with re-warehousing certificate, manufacture, then remove and export under Form
ARE2 [Rule 19(2)];

ARE2 may be used for output and input duties, not paid under bond, subject to export
and proof submission.

Merchant exporter procuring from manufacturer finished goods for export, without
payment of duty, has to execute Bond with Maritime Commissioner of Central Excise, at
relevant Gateway Port or the Headquarters Excise Authority where his Office is located;
obtain each time form CT1, forward to manufacturer who shall remove the finished
goods under CT1+ARE1 for export and proof submission by the Merchant Exporter to
the Bond Accepting and Discharging Authority.

S. V. Modi Page 29


Under Rebate claim or Bond procedure, the export should take place within 6 months
from removal date or extension, if granted.

The Rebate/Bond Discharge claim should be filed within 1 year from export date. If
filed after 1 year, the rebate claim will be permanently and irrevocably time-barred;
however late filing in case of removal under LUT/Bond, may not entail duty recovery,
but a penalty for late submission may be imposed.

If goods removed for export under rebate claim are not exported, then can be diverted
to domestic market or brought back to factory under ARE1/ARE2 cancellation
procedure and availment of credit of duty in case paid subject to fresh duty when
removed again, as such or to further processing.

If goods removed under bond are not exported, then duty plus interest to be paid, if
directly diverted to domestic market or be brought back to factory under ARE1/ARE2
cancellation procedure and duty to be paid when re-issued in the domestic market.

If the goods removed for export, are exported, but subsequently re-imported for
retention, then a customs duty equal to excise duty paid but rebated or not paid under
bond, when the export had taken place, has to be paid on the occasion of re-import.

The procedure for removal, export, rebate/bond discharge claim will as follows:

1) Under Central Excise Supervision:-

1.1 under Rebate claim:

- Manufacturer (for himself or merchant exporter), fills, completes, signs
and submits form ARE1/ARE2, in 4 or 5 copies (optional) to the Range
Superintendent, at least 24 hours before date/time or removal.

- Superintendent, will depute inspector for verification of goods, duty
payment details, sealing and final removal under supervision;

- Inspector arrives, verifies goods, duty debits, seals packages and
certifies verification, duty debit sealing details in all 4 or 5 copies;

- Inspector returns certified Original, Duplicate (and 5th) to the exporter;
retains Triplicate for forwarding directly to the Rebate Granting
Authority
(RGA) and 4th copy for Range record. If requested Inspector may
handover to the exporter Triplicate in a tamper-proof sealed envelope
addressed to the RGA.

- Exporter will handover the Original + Duplicate (and 5th) copies to the
CHA at shipment port, direct or through the vehicle driver.

- CHA will include these copies with the Shipping Bill/Shipment
documents set, when examination, clearance, shipment of the export
goods takes place.

- upon shipment, customs at clearance port, will certify shipment effected
and also vessel left/ship departure certificate in both or all 3 copies;

S. V. Modi Page 30


return Original (plus 5th) to the exporter and retain duplicate for directly
on-forwarding to RGA; but, if requested, will handover the duplicate, in
a
tamper-proof sealed envelope addressed to RGA. Customs may allow
clearance without examination because of pre-sealing by Excise.

- within one year form export date, exporter should file rebate claim
before the RGA, using Original, open, certified by Excise and Customs,
duplicate in sealed envelope certified by Excise and Customs, Triplicate
in a sealed envelope certified by Excise plus other corroborative
evidences of export e.g. copies of Shipping Bill, Bill of Landing etc.

- Manufacturer can claim rebate only from own Divisional office whereas
Merchant Exporter has a choice of claiming either from manufacturer’s
Divisional Office or Maritime Commissioner of CEX at gateway port.

1.2 under LUT/Bond:-

- Manufacturer will execute LUT with own Divisional Excise Authority,
removes, exports as above and furnishes export proof as above to the
said Divisional Office for bond discharge.

- Merchant Exporter will execute Bond with i) Maritime Commissioner of
Central Excise or ii) the Excise Headquarters Office under whose
jurisdiction his office is located; obtain form CT1 (output duty) forward to
manufacturer with ARE1, and then follow the same procedure as
above.
Proof submission responsibility and duty liability is on the Merchant
Exporter. Manufacturer is free, upon removal.

- Manufacturer may execute Bond with own Divisional Office for removals
for Merchant-Exporter, subject to proof submission to the Divisional
Office, by manufacturer, after obtaining it from merchant-exporter.

2.0 Without Supervision (self-removal) (in some eligible cases, self-
sealing also):-

- Goods are first removed without sealing under ARE1, Original +
Duplicate (and 5th), without Excise certification accompany the goods.

- the Triplicate and the Quadruplicate copies have to be submitted
to the Range Superintendent within 24 hours from the date/time of
removal.

- Upon examination, clearance and shipment, Customs will certify
Original + Duplicate (and 5th) and carry out disposal as above.
Because of lack of Excise sealing, Customs will properly examine the
goods and seal the packages.

- Certain privileged categories of exporters can self-seal the
packages/containers certify to that effect and otherwise follow the
- same procedure as above.

S. V. Modi Page 31


Excise Authorities are statutorily bound to pay, suo-motu, interest on delayed refund
(rebate claim) if the refund is delayed beyond 3 months from claim submission date
from
the expiry of the 3 months period till date of actual payment.

Imports:
Import control commonly known as Direct or Physical Controls or Quantitative
Restrictions i.e. permissibility, restrictions, prohibitions or canalisation with or without
conditions is governed by the Foreign Trade (Development & Regulations) Act, 1992.
Secondary controls like compliance with the laws, rules and regulations as applicable to
goods produced or manufactured and sold in India e.g. BIS Standards, MRP marking
will also apply to imported goods. Before planning an import, the controls applicable, if
any, or to the extent applicable have to be verified and if amenable and conducive, then
only import should be organised; lest the import is held invalid, unauthorized, illegal
attracting consequences including confiscation and/or fine, penalties.

Imported goods will also attract indirect controls i.e. fiscal controls by way of charge of
taxes mostly import duty plus import duty equal to certain cesses/levies as applicable to
goods not imported. A cost analysis of all applicable duties including reliefs like
exemptions/concessions, conditional or unconditional, should be first undertaken to
determine the duty cost burden including the net effective cost burden if some parts of
the aggregate of the duties is vattable and final decision is to be arrived at as to
whether the import is a viable proposition or not.

If viable, then in organising imports into India the following steps/procedures will be
followed:

1) identify/locate foreign supply sources;
2) obtain literature, catalogues, price lists, quotations and samples to the extent
possible;
3) obtain IEC;
4) obtain import licence, any other permission, if so applicable;
5) finalise supplier, place order;
6) purchase marine (cargo)-cum-duty insurance, if contract on FOB/C&F terms;
7) apply to bank for opening of letter of credit if so agreed and deposit margin
money as the bank may require;
8) obtain copy of L/C, verify, seek immediate amendment/rectification, if so
required:
9) fax/e-mail copy of L/C to foreign supplier;
10) await shipment;
11) receive shipment effected information;
12) receive from supplier non-negotiable set of shipment documents;
13) forward a copy set to the CHA at import port along with other required
documents for Bill of Entry preparation;
13) purchase duty add-on policy if import on CIF basis at any time latest by the
time the goods arrive at the import port;
14) retire original negotiable set of shipment documents received by the bank;
15) forward the essential originals to CHA sequel to the N/N set earlier
forwarded;

16) vessel(ship/aircraft) arrives; declares Import General Manifest featuring all
imports individually, details-wise;

S. V. Modi Page 32


17) CHA tallies IGM entry and prepares, completes, signs and submits Bill of
Entry for appraising and assessment;
18) duty and exchange rate as on the date of presentation (noting) of the bill
entry shall apply. If a prior entry bill of entry has been preferred and noted
prior to arrival of the ship then the duty and exchange rate as on the date of
entry of the vessel in Indian territorial waters shall apply;
19) Appraising Group take up the Bill of Entry and all the required documents
furnished for appraising and assessment;
20) if satisfied the Bill of Entry is passed with Assessment Order i.e. duty
determined and the passed B/E returned for duty payment;
21) duty has to be paid within 5 days from date of return or with interest from 6th
day onwards, if not paid within the 5 days;
22) the duty-paid Bill of Entry is then presented to the preventive section in the
port storage area where the goods are placed;
23) goods are tallied, examined, samples drawn, if required and if satisfied then
the B/E is finally passed with customs out-of-charge order;
24) CHA in the meantime obtains Delivery Order from the carriers by
surrendering one of the original negotiable Bill of Lading copy/airlines
arrival notice, duly discharged for receipt of goods;
25) CHA pays port dues and obtains their gate pass;
26) CHA organises transport vehicle, gets goods loaded, removed from port
area
through gate security;
27) at port exit point octroi exemption pass has to be obtained if the vehicle has
to pass through the port city limits where octroi on goods is still applicable
or else octroi has to be paid;
28) driver will carry import documents for on the way checking and sales tax
authorities purposes and deposit octroi pass at the city exit point;
29) receive goods at factory/godown premises; receive documents held with the
driver;
30) verify goods, packages; do not open all packages if some damage/loss
found/apparent or suspected;
31) call insurance surveyors if a claim arises;
32) submit with letter (duly acknowledged) original copy of Bill of Entry marked:
TRIPLICATE EXCHANGE CONTROL to the bank through whom outward
remittance in foreign exchange towards payment to the foreign supplier has
been already or is to be effected; invariably in case of Advance Payment or
direct receipt of documents from foreign supplier; in other cases only if
import value per consignment above US$.1,00,000/- all entities or
10,00,000/- certain qualifying entities;
33) use original of DUPLICATE copy for availing cenvat credit of Additional and
Special Additional Duties paid if applicable.

Other Important features in an Import Transaction:
The import duty chargeable on goods is by and large ad valorem i.e. on value of the
goods at the specified percentage rate. In a few cases the duty may be specific i.e. a
specified rate per unit of quantity. In some cases there may be a dual tariff structure
i.e. ad valorem duty plus specific duty. In some cases duty though ad valorem may on a
pre-determined published tariff value i.e. irrespective of the value at which the import
takes place.

Duty rates applicable may vary from item to item, commodity to commodity. This entails
categorisation of each and every type/kind/description of goods into a class/category

S. V. Modi Page 33

Export import for ss is 1

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