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EXPORT PROCEDURE AND DOCUMENTATION

PROJECT REPORT ON

EXPORT PROCEDURE & DOCUMENTATION

PREPARED BY

DIVYA THINGALAYA

UNDER THE GUIDANCE OF

Prof. MONA

SUBMITTED TO UNIVERSITY OF MUMBAI IN

PARTIAL FULFILLMENT OF THE REQUIREMENT

FOR THE AWARD OF

BACHELOR OF MANAGEMENT STUDIES

ACADEMIC YEAR

2006 - 2007

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EXPORT PROCEDURE AND DOCUMENTATION

DECLARATION

I Miss. DIVYA THINGALAYA OF VIVEK COLLEGE OF COMMERCE OF

T.Y.B.M.S. (SEMESTER VI) HEREBY DECLARE THAT I HAVE COMPLETED

THIS PROJECT ON EXPORT PROCEDURE AND DOCUMENTATION IN THE

ACADEMIC YEAR2006 – 2007. THE INFORMATION SUBMITTED IS TRUE AND

ORIGINAL TO THE BEST OF MY KNOWLEDGE.

DATE:

PLACE: (SIGNATURE OF THE STUDENT)

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EXPORT PROCEDURE AND DOCUMENTATION

CERTIFICATE

I Prof. MONA HERBY CERTIFY THAT Miss. DIVYA THINGALAYA OF VIVEK

COLLEGE OF COMMERCE OF T.Y.B.M.S. (SEMESTER VI) HAS COMPLETED

THE PROJECT ON EXPORT PROCEDURE AND DOCUMENTATION IN THE

ACADEMIC YEAR 2006 – 2007. THE INFORMATION SUBMITTED IS TRUE,

ORIGINAL AND AUTHENTIC TO THE BEST OF MY KNOWLEDGE.

SIGNATURE OF PRINCIPLE SIGNATURE OF PROJECT


GUIDE

(Prof. SUNIL .B. MANTRI) (Prof. MONA)

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EXPORT PROCEDURE AND DOCUMENTATION

ACKNOWLEDGEMENT

IT IS THE MATTER OF GREAT PLEASURE AND PRIVILEGE TO BE


ABLE TO PRESENT THIS PROJECT REPORT ON EXPORT PROCEDURE AND
DOCUMENTATION.

THE COMPILATION OF THE PROJECT IS A MILESTONE IN THE LIFE


OF THE MANAGEMENT STUDENT AND ITS EXECUTION IS INEVITABLE
WITH THE CO-OPERATION OF THE PROJECT GUIDE. I WISH TO RECORD A
DEEP SENSE OF RESPECT AND GRATITUDE TO MY PROJECT GUIDE, PROF.
MONA FOR HER ENCOURAGEMENT TO COURSE OF MY WORK. IT IS DUE
TO THE ENDURING EFFORT AND GUIDANCE OF MY GUIDE THAT
ULTIMATELY MADE IT SUCCESS.

I ALSO TAKE THIS OPPORTUNITY TO EXPRESS MY DEEP REGARDS


AND GRATITUDE TO THE PRINCIPLE SUNIL MANTRI AND WOULD LIKE TO
THANK THE HEAD OF B.M.S. DEPARTMENT PROF. MONA WHO GAVE US
GUIDANCE TO TAKE UP AND PURSUE THE PROJECT

I CANNOT JUST CONDONE THE VALUABLE OPPORTUNITY GIVE TO


ME BY THE UNIVERSITY OF MUMBAI FOR COMPILING AND SUBMITTING
THE PROJECT, WHICH I FEEL IS AN OPPORTUNITY TO EXPRESS MY VIEWS
ABOUT EXPORT PROCEDURE AND DOCUMENTATION.

I ACKNOWLEDGE MY INDEBTNESS TO VARIOUS AUTHORS FOR


MAKING USE OF VALUABLE INFORMATION LIBERALLY.

IT IS MY PROUD PRIVILEGE TO EXPRESS MY DEEP SENSE OF


APPRECIATION AND GRATITUDE TO MY PARENTS AND FRIENDS FOR
THEIR SUPPORT AND CO-OPERATION IN THE COURSE OF THE PROJECT
EITHER DIRECTLY OR INDIRECTLY INVOLVED IN TIME WITH THEIR
VALUABLE CONTRIBUTION.

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EXPORT PROCEDURE AND DOCUMENTATION

INDEX

SERIAL CONTENT PAGE


NUMBER NUMBE
R
1 INTRODUCTION 6
2 HOW TO SET UP AN EXPORT ORGANISATION 8
3 HOW ONE BEGINS TO DO EXPORT 14
4 EXPORT SALES & CONTRACT TERMS & 17
CONGITIONS
5 TERMS OF SHIPMENT – INCOTERMS. 20
6 PROCESSING AN EXPORT ORDER 27
7 FINANCIAL RISK INVOLVED IN FOREIGN 28
TRADE
8 EXPORT DOCUMENTS 29
9 OCTROI 53
10 QUALITY CONTROL & PRE-SHIPMENT 57
INSPECTION
11 SHIPPING ANG CUSTOMS FORMALITIES 60
12 SALES TAXES EXEMPTION PROCEDURE 66
13 METHODS OF RECEIVING PAYMENTS 68
AGAINST EXPORTS
14 THE LETTER OF CREDIT 71
15 PREPARATION AND SUBMISSION OF 88
DOCUMENTS FOR BANK NEGOTIATIONOR
PURCHASE
16 SHIPMENT THROUGH COURIERS 91
17 CUSTOM PROCEDURE FOR EXPORT UNDER 92
EDI SYSTEM
18 THE ECGC COVER. 112

INTRODUCTION

India has a mission to capture 2% of the global share of trade by 20010, up


from the present level of less than 1%. Export is one of the lucrative business activities in
India. The government also provides various promotional schemes to the exporters for

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EXPORT PROCEDURE AND DOCUMENTATION

earning valuable foreign exchange for the country and for meeting their requirements for
importing modern technology and essential inputs. Besides, the income from export
business is also exempted to the specified extent under the Income Tax Act, 1961,
Refund of Central Excise and Custom Duty on export is also made under the Duty
Drawback Scheme of the Government. There is no Sales Tax on products meant for
exports.

Exports can be of goods which can be moved physically from one country
to another or can be of service rendered. Detailed list of services are given in the Foreign
Trade Policy covering more than 160 items e.g. Insurance, Hospital, Postal and
Telecommunication etc.

TWO CLASSES OF EXPORTS:

Physical Exports: If the goods physically go out of the country or services


are rendered outside the country then it is called as physical export. Deemed Exports:
Where the goods do not go out of the country physically they can be termed as deemed
exports. This will be subject to certain conditions as prescribed by the DGFT. Under
Deemed Exports, the goods may be supplied to the manufacturer exporter who ultimately
export a finished product of which this supply forms a part and ultimately go out of the
country. E.g. Supply of fabrics to the garment exporter who exports the garments made
out of the said fabric.

The government may announce from time to time the types of supplies
that may be considered as deemed export. The Foreign Trade Policy gives the list of
supplies considered under the Deemed Export Category. The policies and procedures are
different for Physical Exports and Deemed Exports as also the benefits available. In a
nutshell, Deemed Exports do not enjoy all the benefits that are available under Physical
Export. The Foreign Trade defines exports as taking out of India any goods by land, sea,
air. Although the act does not term them as “Physical Exports”, we have to put phrase to
distinguish it from “Deemed Exports” which is sales in India but considered as exports
for limited purpose.

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TYPES OF EXPORTERS:

Exporters can be basically classified into two groups

• Manufacturer Exporter: As the exporter has the facility to manufacturer the


product he intends to export and hence he exports the products manufactured by
him.
• Merchant Exporter: An exporter who does not have the facility to manufacture
an item. But, he procures the same from other manufacturers or from the market
and exports the same.

An exporter can be both a manufacturer exporter as well as a merchant


exporter, he can export product manufactured by him or he can export items bought from
the market.

Once it is decided to export, it is mandatory on your part to follow certain


procedures, rules and regulations as prescribed by various regulatory authorities such as
DGFT, RBI, and Customs. These procedures, rules and regulations are laid down in the
Exim Policy 2004-09, Exchange Control Manual, Customs Act etc. Accordingly Export
documents are required to be prepared keeping in view of the requirement of the foreign
buyers and our regulatory authorities.

HOW TO SET UP AN EXPORT ORGANISATION

The proper selection of organization depends upon

• Ability to raise finance.


• Capacity to bear the risk.

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• Desire to exercise control over the business.


• Nature of regulatory framework applicable to anyone

If the size of the business is small, it would be advantageous to form a sole


proprietary business organization. It can be set up easily without much expenses and legal
formalities. It is subjected to only few governmental regulations. However, the biggest
disadvantage of sole proprietorship business is limited ability to raise funds which
restricts the growth. Besides the owner has unlimited personal liabilities. In order to
avoid this disadvantage, it is advisable to form a partnership firm.

The partnership firm can also be set up with ease and economy. Business
can take benefit of the varied experiences and expertise of the partners. The liability of
the partners though joint and several, is practically distributed amongst the various
partners, despite the fact that the personal liability of the partner is unlimited. The major
disadvantage of partnership firm of business organization is that conflict amongst the
partners is a potential threat to the business. It will not be out of place to mention here
that partnership firms are governed by the Indian Partnership Act, 1932 and, therefore
they should be formed within the parameters laid down by the Act. Company is another
form of business organization, which has the advantage of distinct legal identity and
limited liability to the share holders.

It can be a private limited company or a public limited company. A private


limited can be formed by just two persons subscribing to its share capital. However, the
number of its shareholders cannot exceed 50, public cannot be invited to subscribe to its
capital and the members right to transfer their share is restricted. On the other hand, a
pubic limited company has a minimum of seven members. There is no limit on the
maximum number of its members. It can invite the public to subscribe to its capital and
permit the transfer of share. A public limited company offers enormous potential for
growth because of access to substantial funds. The liquidity of investment is high because
of easiness of transfer of shares. However its formation can be recommended only when
the size of the business is large. For small business, a sole proprietary concern or a
partnership firm will be the most suitable form of business organization. In case it is

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decided to incorporate a private limited company, the same is to be registered with the
Registrar of Companies.

CHOOSING APPROPRIATE MODE OF OPERATIONS:

You can choose any of the following modes of operations

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

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

• Sales Agent / Commission Agent / Indenting Agent i.e. acting on behalf of the
seller and charging the Commission.

• Buying Agent i.e. acting on behalf of the buyer and charging Commission.

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

NAMING THE BUSINESS

Whatever form of business organization has been finally decided, naming


the business is an essential task for every exporter. The name and style should be soft,
attractive, short and meaningful. Open a current account in the name of the organisation
in whose name you intend to export. It is advisable to open the account with a bank
which is authorised to deal in Foreign Exchange.

STRUCTURE OF AN EXPORT ORGANISATION

• marketing manager for generating sales


• Commercial manager for looking activities of the execution of the orders.
• staff personnel for carrying out the day-to-day activities namely

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o Preparation of pre - shipment documents.


o Co-ordinating with clearing agents on the progress of the shipment to be
made.
o Co-ordinating with the ware house\C. excise department regarding
packing and clearance of the goods for export.
o Preparation of post shipment documents foe banks.
o Follow-up with the bank on dispatch of documents, receipt of payment,
availment of bank loans etc.

• To look into the requirement of licenses, claiming of export benefits fiiling of


documents with the Government Authorities in Discharge of Export Obligations,
if any, filing of returns to the various Government Agencies which are mandatory,
prepare and keep an information bank of various transaction of the company, their
domestic as well as international competitors.
• An office boy for doing leg work.
• A clearing and forwarding agent to handle the documents and the goods in the
customs premises\ in the ports of lading.

Depending upon the size of the business the numbers of personnel under
each category may increase. For example if a company is transacting substantial volume
of business in more than one product. Then it is necessary to have marketing manager for
each product so that the person can concentrate on a particular trade to enhance the
business.

REGISTRATION WITH REGIONAL LICENCING AUTHORITIES OBTAINING


IMPORTER EXPORTER CODE (IEC) NUMBER.

The Customs Authorities will now allow the exporter to export or import goods into or
from India unless he holds a valid IEC number. Before applying for IEC number it is

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necessary to open a bank account in the name of the company with any commercial bank
authorized to deal in foreign exchange. The duly signed application form should be
supported by the following documents.
• Bank receipt ( in duplicate ) / Demand Draft for payment of the fees of Rs. 1000/-
• Certificate from the banker of the applicant firm as per Annexure 1 to the form
given.
• One copy of PAN number issued by Income Tax Authorities duty attested by the
applicant.
• One copy of Passport Size photographs of the applicant duly attested by the
banker to the applicant.
• Declaration by the applicant that the proprietor/partners/directors as the case may
be of the applicant company, are not associated as proprietor/partners/directors in
any other firm, which has been caution, listed by the RBI. Where the applicant
declares that they are associated as proprietor/partners/directors in any other firm,
which has been caution, listed by the RBI, they will be allotted IEC No. but with
an additional condition that they can export only with RBI’s prior approval and
they should approach RBI for the purpose.
• Each importer/exporter shall be required to file importer/exporter profile once
with the licensing authority shall enter the information furnished in Appendix 2 in
their database so as to dispense with changes in the information given in
Appendix-2, importer/exporter shall intimate the same to the licensing authority.

IEC EXEMPT CATEGORIES.

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

• Ministries \ Department of Central or State Government.

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• Person importing or exporting goods for their personal use not connected with
trade or manufacture or agriculture.
• Persons importing\exporting goods from\to Nepal & Myanmar provided the CIF
value of single consignment does exceed Indian Rs. 25000\-.

APPLICATION FOR OBTAINING AN IEC NUMBER

For obtaining IEC number apply in the prescribe form along with the documents listed
above to Regional Licensing Authority (Office of the Regional DGFT). The registered
office or the head office may apply for allotment of IEC No.

Whenever, there is a change in the name, address or constitution of the holder of IEC
No., such change should be intimated within 30 days to the concern authorities.

IEC certificate will be issued in the form (copy enclosed). A copy of IEC No. is also
endorsed to the concerned banker.

VALIDITY :

The IEC No allotted to a firm/company will be valid for all its branches/divisions
units/factories as indicated in the IEC No. Import/Export of any commodity by that
firm/company. There being no date of expiry, the IEC once allotted is valid till it is
revoked. But, if no import or export is effected in the previous financial year, the same
will be made inoperative. However, this can be made operative by a formal request to the
DGFT.

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

As it is not always possible for the top man or directors, promoters of the company to
visit DGFT frequently. There is a provision of issuance of identity cards to the

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EXPORT PROCEDURE AND DOCUMENTATION

proprietors/partners/directors and their authorized representatives. An application of


Issuance of an identity card may be made in the form (Appendix-5) The document/
License/Certificate/Permissions may be delivered to the identity card holder and officials
of the Licensing Authority(DGFT)shall not be responsible for any loss etc. In case of loss
of an identity card a duplicate card may be issued on the basis of an FIR & affidavit. In
addition to obtaining the IEC No. the exporter is also required to obtain Business
Identification No(BIN). For this exporter is required to contact DGFT online on web site.
The licensing authority issues BIN in coordination with customs authorities. This BIN is
required to be mentioned on the shipping bills at the time of customs clearance of the
export cargo.

RCMC (Registration-Cum-Membership Certificate) – REGISTRATION WITH


EXPORT PROMOTION COUNCILS –

In order to enable the exporter to obtain benefits/concessions under the Foreign Trade
Policy, the exporter is required to register himself with an appropriate export promotion
agency by obtaining registration-cum-membership certificate. (RCMC). If the export
product is that it is not covered by any EPC, RCMC in respect thereof may be issued by
FIEO. An application for registration should be accompanied by a self certified copy of
the Importer-Exporter Code number issued by the regional licensing authority concerned
and bank certificate in support of the applicants financial soundness. The RCMC shall be
valid for 5 years ending 31st March of the licensing year.

REGISTRATION WITH SALES TAX AUTHORITIES:


Goods that are to be shipped out of the country for export are eligible for exemptions
from both Sales Tax and Central Sales Tax. For this purpose, exporter should get himself
registered with the Sale Tax Authority of is state after following the procedures
prescribed under the Sales Tax Act applicable to his state.

HOW ONE BEGINS TO DO EXPORT


Before entering into the venture of exports, one must look for the product to be exported
and the market where he intends to export.

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In case of a manufacturer, obviously he would like to export the product he manufactures


as is or with possible modification as may be required by the market. However, in case of
a merchant exporter or a trader, one has to identity the product to export. If the exporter is
already in the trade in the domestic market and is familiar with the product it would be an
advantage to export the said product of which he has reasonable knowledge.

Before selecting a product, one must simultaneously made a study and find out the
prospective market. For finding out the market for the selected product, the following
methods will help.
• Get statistical information as to imports of the product by various countries
and their growth prospects in the respective countries
• Approach the chamber of commerce for their guidance to find out the market.
• Approach the Export Promotion Council dealing in the product of selection to
get more information.
The Preliminary
Once you are ready with the product you wish to export and have found the market for
the same, you are ready to proceed further. Following sequences can be followed:
• Any one, who wishes to export, must first of all get an Importer Exporter
Code Number (IE Code).This can be obtained by making a formal
application to the office of the Regional Directorate General of Foreign
Trade (DGFT).
• Get yourself registered with the related Export Promotion Council and
become a member. Also arrange to obtain Registration-Cum-Membership
Certificate (RCMC) from the council. This has twin objectives:
o Under the Foreign Trade Policy, it is mandatory that an exporter gets him
registered with the Export Promotion Council to avail of various export
facilities.
o Being a member, you will have access to all the information relating to the
product that could be made available by the council

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o Many foreign buyers send their enquiries for the imports to the Export
Promotion Council. Hence you will have few customers interested in your
product.
• If you are a manufacturer, find out the provisions under the EXIM Policy of
getting the raw materials duty free.
• Get familiar with the excise formalities as goods meant for export can be cleared
without payment of C. Excise duty on the finished product subject to compliance
of certain formalities.
• Understand the local government regulations in relations to the export of the
product.
• Get information of the government’s regulations of the importing country as to
restrictions on the quantity, product specification, packing regulations, customs
regulations, requirement of specific documents/information etc.
• Availability of Vessels/Airlines, the transport charges, frequency of operation
etc.,
• To look for a Custom House Agent (CHA) (also know as freight forwarders or
clearing agents) for handling the documents/cargo in the customs.
• If the product is covered under any quota regulation, find out the agency/council
who are handling the quota distribution for the product and the availability of
quota for exports.

FINDING A CUSTOMS
Once you have selected the market, the next step is to find a prospective customer.
This you can get
• From the directory of importers of the country
• By writing to the Embassy of India in that country for assistance
• By writing to the chamber of commerce of that country
• By means of participation in a Fair/Exhibition abroad either directly or through
the Export Promotion Council
• By participating in international fair if organized locally

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• Through the personal contacts in that country. By these processes one can only
have the list of customers. One has to dialogue or correspond with these
customers by sending samples, getting feedback from the customers etc. to
ultimately select the customer with whom to deal with. It is necessary to know the
financial standing of the company which can be obtained through the bank
channel or through the office of ECGC.

NEGOTIATING CONTRACT.
Once the prospective customer is found, the business deal has to be concluded. The
following aspects may be considered before entering into a final contract with the
buyer.
• Credit Worthiness of the Customer.
• Availability of the Steamer/Airlines and the frequency
• The freight charges
• The full product specification
• The quantity, Price
• Terms of Payment
• Type of packing and markings on the packages
• Mode of shipment & Shipment schedule
• Tolerance of quantity to be shipped
• Documentation requirement for the customer
• Documentation requirement of the government of importing country
• Compliance of the local governmental rules and regulations
Before entering into contract one should take note of the above factors. While these are
indicative, the requirements will vary from country to country, product to product and
buyer to buyer.

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EXPORT SALES & CONTRACT TERMS & CONDITIONS

Very often exporters do not enter into any formal contract and finalize the trade deal
through the exchange of letters, cable, telex etc. It is, however, expedient that the parties
(exporters & importers) incorporate all important terms & conditions of their trade deal in
a separate document or contract that will avoid disputes arising out of uncertainty or
ambiguity. Export contract may be sent in duplicate along with the Proforma Invoice to
the overseas buyer.

NATURE OF INTERNATIONAL TRADE COUNTRACTS.

There are certain, peculiar characteristics of international trade contract which are not
present in those for sales of goods in the domestic market

Whereas the parties to a domestic trace contract normally needs only agree on the
elements which are necessary for their particular trade transactions like price, description,
quality and quantity of goods, delivery terms etc the situation will be quite different when
the buyer and the seller to sale/purchase contract belong to different countries. The
parties to all international trade contracts provide all their relative rights and obligations
in several ways

For example, they may agree to adopt either the Law of the country of the buyer or that
of the seller. The traders are normally reluctant to leave the determination of the rights
and obligations by implications under the legal system of either’s country. They prefer to
make explicit provisions regarding the rights and obligations by including a set of
detailed and precise terms and conditions in their contract.

EXPORT OF SAMPLES\GIFTS.

Exports of bonafide trade and technical samples of freely exportable items shall be
allowed without any limit. Goods including edible items of value not exceeding Rs.
100000/- in a licensing year, may be exported as a gift. However items mentioned as

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restricted for exports in ITC(HS) shall not be exported as a gift without a


licence/certificate/permission, except in the case of edible items.

STANDARD CONTRACT FOMS:

Notwithstanding the efforts made by various national/international organizations like the


United Nations Commission on the International Trade Law, there is still no perfection or
a device which would give the parties an accurate and complete idea of each others
understanding of various trade terms, the commercial practices and the rights and the
obligations vis-à-vis each other so that the misunderstandings are practically eliminated.

Nevertheless, the Indian Council of Arbitration published in 1966 a booklet on “Standard


Contract Forms and Model Arbitration Clause for use in Foreign Trade Contracts”. It was
revised and reprinted in 1969 and 1977. It can be referred to by exporter for various
clause to be incorporated in the Export Contract.

ENTERING INTO AN EXPORT CONTRACT

In order to avoid disputes, it is necessary to enter into an export contract with the
overseas buyer. For this purpose, export contract should be carefully drafted
incorporating comprehensive but in precise terms, all relevant and important conditions
of the trade deal.

There should not be any ambiguity regarding the exact specifications of goods and terms
of sale including export price, mode of payment, storage and distribution methods, type
of packaging, port of shipment, delivery schedule etc. The different aspects of an export
contract are enumerated as under:

• Product, Standards and Specifications


• Quantity
• Inspection
• Total Value of Contract
• Terms of Delivery

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• Taxes, Duties and Charges


• Period of Delivery/Shipment
• Packing, Labeling and Marking
• Terms of Payment-- Amount/Mode & Currency
• Discounts and Commissions
• Licenses and Permits
• Insurance
• Documentary Requirements
• Guarantee
• Force Majeure of Excuse for Non-performance of contract
• Remedies
• Arbitration clause

It will not be out of place to mention here the importance of arbitration clause in an
export contract Court proceedings do not offer a satisfactory method for settlement of
commercial disputes, as they involve inevitable delays, costs and technicalities. On the
other hand, arbitration provides an economic, expeditious and informal remedy for
settlement of commercial disputes. Arbitration proceedings are conducted in privacy and
the awards are kept confidential. The Arbitrator is usually an expert in the subject matter
of the dispute. The dates for arbitration meetings are fixed with the convenience of all
concerned. Thus, arbitration is the most suitable way for settlements of commercial
disputes and it may invariably be used by businessmen in their commercial dealings.

ARBITRATION:

Arbitration clause recommended by the Indian Council of Arbitration:”All disputes


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

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TERMS OF SHIPMENTS – INCOTERMS

The INCOTERMS (International Commercial Terms) is a universally recognized set of


definition of international trade terms, such as FOB, CFR & CIF, developed by the
International Chamber of Commerce(ICC) in Paris, France. It defines the trade contract
responsibilities and liabilities between buyer and seller. It is invaluable and a cost-saving
tool. The exporter and the importer need not undergo a lengthy negotiation about the
conditions of each transaction. Once they have agreed on a commercial terms like FOB,
they can sell and buy at FOB without discussing who will be responsible for the freight,
cargo insurance and other costs and risks.

The INCOTERMS was first published in 1936 --- INCOTERMS 1936 --- and it is revised
periodically to keep with changes in the international trade needs. The complete
definition of each term is available from the current publication --- INCOTERMS 2000.
Under INCOTERMS 2000, the international commercial terms are grouped into E, F, C
and D, designated by the first letter of the term, relating to the final letter of the term. E.g.
EXW—exworks comes under grouped ‘E’.

The purpose of Incoterms is to provide a set of international rules for the interpretation of
the most commonly used trade terms in foreign trade. Thus, the uncertainties of different
interpretations of such terms in different countries can be avoided or at least reduced to a
considerable degree. The scope of Incoterms is limited to matters relating to the rights
and obligations of the parties to the contract of sale with respect to the delivery of goods.
Incoterms deal with the number of identified obligations imposed on the parties and the
distribution of risk between the parties.

In international trade, it would be best for exporters to refrain, wherever possible, from
dealing in trade terms that would hold the seller responsible for the import customs
clearance and/or payment of import customs duties and taxes and/or other costs and risks
at the buyer’s end, for example the trade terms DEO (Delivery Ex Quay) and DDP
(Delivered Duty Paid)

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Quite often, the charges and expenses at the buyer’s end may cost more to the seller than
anticipated. To overcome losses, hire a reliable customs broker or freight forwarder in the
importing country to handle the import routines.

Similarly, it would be best for importers not to deal in EXW (Ex Works) which would
hold the buyer responsible for the export customs clearance, payment of export customs
charges and taxes, and other costs and risks at the seller’s end

MORE CLARIFICATION ON INCOTERMS

EXW {+the named place}

Ex Works: Ex means from. Works means factory, mill or warehouse, which are the
seller’s premises. EXW applies to goods available only at the seller’s premises. Buyer is
responsible for loading the goods on truck or container at the sellers premises and for the
subsequent costs and risks. In practice, it is not uncommon that the seller loads sthe
goods on truck or container at the sellers pre4mises without charging loading fee. N the
quotation, indicate the named place (sellers premises) after the acronym EXW for
example EXW Kobe and EXW San Antonio.

The term EXW is commonly used between the manufacturer (seller) and export-
trader(buyer), and the export-trader resells on other trade terms to the foreign buyers.
Some manufacturers may use the term Ex Factory, which means the same as Ex Works.

FCA {+the named point of departure}

Free Carrier: The delivery of goods on truck, rail car or container at the specified
point(depot) of departure, which is usually the sellers premises, or a named railroad
station or a named cargo terminal or into the custody of the carrier, at sellers expense.
The point(depot) at origin may or may not be a customs clearance centre. Buyer is
responsible for the main carriage/freight, cargo insurance and other costs and risks.

In the air shipment, technically speaking, goods placed in the custody of an air carrier are
considered as delivery on board the plane. In practice, many importers and exporters still

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use the term FOB in the air shipment. The term FCA is also used in the RO/RO (roll
on/roll off) services

In the export quotation, indicate the point of departure (loading) after the acronym FCA,
for example FCA Hong Kong and FCA Seattle. Some manufacturers may use the former
terms FOT (Free on Trucks) and FOR (Free on Rail) in selling to export-traders.

FAS {+the named port of origin}

Free Alongside Ship: Goods are placed in the dock shed or at the side of the ship, on the
dock or lighter, within reach of its loading equipment so that they can be loaded aboard
the ship, at seller’s expense. Buyer is responsible for the loading fee, main
carriage/freight, cargo insurance, and other costs and risks In the export quotation,
indicate the port of origin(loading)after the acronym FAS, for example FAS New York
and FAS Bremen. The FAS term is popular in the break-bulk shipments and with the
importing countries using their own vessels.

FOB {+the named port of origin)

Free on Board: The delivery of goods on the board the vessel at the named port of origin
(Loading) at seller’s expense. Buyer is responsible for the main carriage/freight, cargo
insurance and other costs and risks. In the export quotation, indicate the port of origin
(loading) after the acronym FOB, for example FOB Vancouver and FOB Shanghai.

Under the rules of the INCOTERMS 1990, the term FOB is used for ocean freight only.
However, in practice, many importers and exporters still use the term FOB in the air
freight. In North America, the term FOB has other applications. Many buyers and sellers
in Canada and the USA dealing on the open account and consignment basis are
accustomed to using the shipping terms FOB Origin and FOB destination.

FOB Origin means the buyer is responsible for the freight and other costs and risks. FOB
Destination means the seller is responsible for the freight and other costs and risks until
the goods are delivered to the buyer’s premises which may include the import custom

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EXPORT PROCEDURE AND DOCUMENTATION

clearance and payment of import customs duties and taxes at the buyer’s country,
depending on the agreement between the buyer and seller. In international trade, avoid
using the shipping terms FOB Origin and FOB Destination, which are not part of the
INCOTERMS (International Commercial Terms).

CFR {+the named port of destination}

Cost and Freight: The delivery of goods to the named port of destination (discharge) at
the sellers expenses. Buyer is responsible for the cargo insurance and other costs and
risks. The term CFR was formerly written as C&F. Many importers and exporters
worldwide still use the term C&F.

In the export quotation, indicate the port of destination (discharge) after the acronym
CFR, for example CFR Karachi and CFR Alexandria. Under the rules of the
INCOTERMS 1990, the term Cost and Freight is used for ocean freight only. However,
in practice, the term Cost and Freight (C&F) is still commonly used in the air freight.

CIF {+named port of destination}

Cost, Insurance and Freight: The cargo insurance and delivery of goods to the named
port of destination (discharge) at the seller’s expense. Buyer is responsible for the import
customs clearance and other costs and risks.

In the export quotation, indicate the port of destination (discharge) after the acronym CIF,
for example CIF Pusan and CIF Singapore. Under the rules of the INCOTERMS 1990,
the term CIFI is used for ocean freight only. However, in practice, many importers and
exporters still use the term CIF in the air freight.

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EXPORT PROCEDURE AND DOCUMENTATION

CPT {+the named place of destination}

Carriage Paid To: The delivery of goods to the named port of destination (discharge) at
the sellers expenses. Buyer assumes the cargo insurance, import custom clearance,
payment of custom duties and taxes, and other costs and risks. In the export quotation,
indicate the port of destination (discharge) after the acronym CPT, for example CPT Los
Angeles and CPT Osaka.

CIP {+ the named place of destination)

Carriage and Insurance Paid To: The delivery of goods and the cargo insurance to the
named place of destination (discharge) at seller’s expense. Buyer assumes the importer
customs clearance, payment of customs duties and texes, and other costs and risks.

In the export quotation, indicate the place of destination (discharge) after the acronym
CIP, for example CIP Paris and CIP Athens.

DAF {+ the names point at frontier}

Delivered At Frontier: The delivery of goods to the specified point at the frontier at
sellers expense. Buyer is responsible for the import custom clearance, payment of custom
duties and taxes, and other costs and risks.

In the export quotation, indicate the point at frontier (discharge) after the acronym DAF,
for example DAF Buffalo and DAF Welland.

DES {+named port of destination}

Delivered Ex Ship: The delivery of goods on board the vessel at the named port of
destination (discharge) at sellers expense. Buyer assumes the unloading free, import
customs clearance, payment of customs duties and taxes, cargo insurance, and other costs
and risks.

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EXPORT PROCEDURE AND DOCUMENTATION

In the export quotation, indicate the Port of destination (discharge) after the acronym
DES, for example DES Helsinki and DES Stockholm.

DEQ {+ the named port of destination

Delivered Ex Quay: The delivery of goods to the Quay (the port) at the destination at
buyers expense. Seller is responsible for the importer customs clearance, payment of
customs duties and taxes, at the buyers end. Buyer assumes the cargo insurance and other
costs and risks. In the export quotation, indicate the Port of destination (discharge) after
the acronym DEQ, for example DEQ Libreville and DEQ Maputo.

DDU {+ the named point of destination}

Delivered Duty Unpaid: The delivery of goods and the cargo insurance to the final point
at destination, which is often the project site or buyers premises at sellers expense. Buyer
assumes the import customs clearance, payment of customs duties and taxes. The seller
may opt not to insure the goods at his/her own risks.

In the export quotation, indicate the point of destination (discharge) after the acronym
DDU for example DDU La Paz and DDU N’djamena.

DDP {+ the named point of destination)

Delivered Duty Paid: The seller is responsible for most of the expenses which include
the cargo insurance, import custom clearance, and payment of custom duties, and taxes at
the buyers end, and the delivery of goods to the final point of destination, which is often
the project site or buyers premise. The seller may opt not to insure the goods at his/her
own risk. In the export quotation, indicate the point of destination (discharge) after the
acronym DDP, for example DDP Bujumbura and DDP Mbabane.

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EXPORT PROCEDURE AND DOCUMENTATION

“E”-term,”F”-term, “C”-term &”D”-term: Incoterms 2000, like its immediate


predecessor, groups the term in four categories denoted by the first letter in the three-
letter abbreviation.

• Under the “E”-TERM (EXW), the seller only makes the goods available to the
buyer at the seller’s own premises. It is the only one of that category.
• Under the “F”-TERM (FCA, FAS, &FOB), the seller is called upon to deliver
the goods to a carrier appointed by the buyer.
• Under the “C”-TERM (CFR, CIF, CPT, & CIP), the seller has to contract for
carriage, but without assuming the risk of loss or damage to the goods or
additional cost due to events occurring after shipment or discharge.
• Under the “D”-TERM (DAF, DEQ, DES, DDU & DDP), the seller has to bear
all costs and risks needed to bring the goods to the place of destination.

All terms list the seller’s and buyer’s obligations. The respective obligations of both
parties have been grouped under up to 10 headings where each heading on the seller’s
side “mirrors” the equivalent position of the buyer. Examples are Delivery, Transfer of
risks, and Division of costs. This layout helps the user to compare the parties respective
obligations under each Incoterms.

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EXPORT PROCEDURE AND DOCUMENTATION

PROCESSING AN EXPORT ORDER

You should not be happy merely on receiving an export order. You should first
acknowledge the export order, and then proceed to examine carefully in respect of

• Items
• Specification
• Pre-shipment inspection
• Payment conditions
• Special packaging
• Labeling and marketing requirements
• Shipment and delivery date
• Marine insurance
• Documentation requirement etc.

If you are satisfied on these aspects, a formal confirmation should be sent to the buyer,
otherwise clarification should be sought from the buyer before confirming the order.
After confirmation of the export order immediate steps should be taken for
procurement/manufacture of the export goods. In the meanwhile, you should proceed to
enter into a formal export contract with the overseas buyer.

Before accepting any order necessary homework should have been done as to availability
of the production capacity, raw material e.t.c. It would be in the interest of the exporter to
look into entering into forward contract to safeguard against exchange rate fluctuations.
Ensure that the mode of payment is also agreed upon. In case of shipment against letter of
credit, the buyer should be advised to open the credit well in advance before effecting the
shipment.

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EXPORT PROCEDURE AND DOCUMENTATION

FINANCIAL RISKS INVOLVED IN FOREIGN TRADE

As an exporter while selling goods abroad, you encounter various types of risks. The
major risks which you have to undergo are as follows:

• Credit Risk
• Currency Risk
• Carriage Risk
• Country Risk

You can protect yourself against the above risks by initiating appropriate steps.

Credit Risks :

You can cover your credit risk against the foreign buyer by insisting upon opening a
letter of credit in your favour. Alternatively one can avail of the facility offered by
various credit risk agencies. A specific insurance cover can also be obtained from ECGC
(Exports Credit & Guarantee Corporation) to cover your country risk besides covering
credit risk.

Currency Risks:

As regards covering the currency risk, due to the exchange rate fluctuations, you can
request your banker to book a forward contract.

Carriage Risk:

The carriage risk can be covered by taking an appropriate general insurance policy.

Country Risk:

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EXPORT PROCEDURE AND DOCUMENTATION

ECGC provides cover to protect the exporter from country risks. A detailed procedure
how an exporter can get himself protected against the above risks are given in separate
chapters later.

EXPORT DOCUMENTS

Any export shipment involved various documents required by various authorities such as
customs, excise, RBI, Inspection and according depending upon the requirements, there
are categorized into 2 categories, namely commercial documents and regulatory
documents.

A. Commercial Documents. : - Commercial documents are required for effecting


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

1. Commercial Invoice: Commercial invoice is an important and basic export


document. It is also known as a 'Document of Contents' as it contains all the
information required for the preparation of other documents. It is actually a seller's
bill of merchandise. It is prepared by the exporter after the execution of export
order giving details about the goods shipped. It is essential that the invoice is
prepared in the name of the buyer or the consignee mentioned in the letter of credit.
It is a prima facie evidence of the contract of sale or purchase and therefore, must
be prepared strictly in accordance with the contract of sale.

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EXPORT PROCEDURE AND DOCUMENTATION

Contents of Commercial Invoice

• Name and address of the exporter.


• Name and address of the consignee.
• Name and the number of Vessel or Flight.
• Name of the port of loading.
• Name of the port of discharge and final destination.
• Invoice number and date.
• Exporter's reference number.
• Buyer's reference number and date.
• Name of the country of origin of goods.
• Name of the country of final destination.
• Terms of delivery and payment.
• Marks and container number.
• Number and packing description.
• Description of goods giving details of quantity, rate and total amount in terms of
internationally accepted price quotation.
• Signature of the exporter with date.

Significance of Commercial Invoice

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


documents.
• It is used in various export formalities such as quality and pre-Shipment
inspection excise and customs procedures etc.
• It is also useful in negotiation of documents for collection and claim of incentives.
• It is useful for accounting purposes to both exporters as well as importers.

2 Inspection Certificate: The certificate is issued by the inspection authority such as


the export inspection agency. This certificate states that the goods have been
inspected before shipment, and that they confirm to accepted quality standards.

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EXPORT PROCEDURE AND DOCUMENTATION

3 Marine insurance policy: Goods in transit are subject to risk of loss of goods
arising due to fire on ship, perils of sea, theft etc. marine insurance protects losses
incidental to voyages and in land transportation. Marine insurance policy is one of
the most important document used as collateral security because it protects the
interest of all those who have insurable interest at the time of loss. The exporter is
bound to insure the goods in case of CIF quotation, but he can also insure the goods
in case of FOB contract, at the request of the importer, but the premium payment
will be made by the exporter. There are different types of policies such as
• SPECIFIC POLICY: This policy is taken to cover different risks for a
single shipment. For a regular exporter, this policy is not advisable as he
will have to take a separate policy every time a shipment is made, so this
policy is taken when exports are in frequent.
• Floating Policy: This is taken to cover all shipments for some months.
There is no time limit, but there is a limit on the value of goods and once
this value is crossed by several shipments, then it has to be renewed.
• Open Policy: This policy remains in force until cancelled by either party
i.e. insurance company or the exporter.
• Open Cover Policy: This policy is generally issued for 12 months period,
for all shipments to one or more destinations. The open cover may specify
the maximum value of consignment that may be sent per ship and if the
value exceeded, the insurance company must be informed by the exporter.
• Insurance Premium: Differs upon product to product and a number of
such other factors, such as, distance of voyage, type and condition of
packing, etc. Premium for air consignments are lowered as compared to
consignments by sea.

4. Consular Invoice: Consular invoice is a document required mainly by the


Latin American countries like Kenya, Uganda, Tanzania, Mauritius, New Zealand,
Myanmar, Iraq, Australia, Fiji, Cyprus, Nigeria, Ghana, Guinea, Zanzibar, etc. This
invoice is the most important document, which needs to be submitted for
certification to the Embassy of the importing country concerned. The main purpose

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EXPORT PROCEDURE AND DOCUMENTATION

of the consular invoice is to enable the authorities of the importing country to


collect accurate information about the volume, value, quality, grade, source, etc., of
the goods imported for the purpose of assessing import duties and also for statistical
purposes. In order to obtain consular invoice, the exporter is required to submit
three copies of invoice to the Consulate of the importing country concerned. The
Consulate of the importing country certifies them in return for fees. One copy of the
invoice is given to the exporter while the other two are dispatched to the customs
office of the importer's country for the calculation of the import duty. The exporter
negotiates a copy of the consular invoice to the importer along with other shipping
documents.

Significance of Consular Invoice for the Exporter

• It facilitates quick clearance of goods from the customs in exporter's as well


as importer's country.
• Certification' of goods by the Consulate of the importing country indicarer
that the importer has fulfilled all procedural and licensing formalities for
import of goods.
• It also assures the exporter of the payment from the importing country.

Significance of Consular Invoice for the Importer

• It facilitates quick clearance of goods from the customs at the port


destination and therefore, the importer gets quick delivery of goods.
• The importer is assured that the goods imported are not banned for imported
in his country.

Significance of Consular Invoice for the Customs Office

• It makes the task of the customs authorities easy.


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

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EXPORT PROCEDURE AND DOCUMENTATION

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


origin without which clearance to import is refused. The certificate of origin states
that the goods exported are originally manufactured in the country whose name is
mentioned in the certificate. Certificate of origin is required when:-

• The goods produced in a particular country are subject to’ preferential tariff rates
in the foreign market at the time importation.
• The goods produced in a particular country are banned for import in the foreign
market.

Types of the Certificate of Origin

(a) Non-preferential Certificate, of Origin: - Non-preferential certificate of origin is


required in general by all countries for clearance of goods by the importer, on which
no preferential tariff is given. It is issued by: ¬

• The authorised Chamber of Commerce of the exporting country.


• Trade Association. Of the exporting country.

(b) Certificate of Origin for availing Concessions under GSP :- Certificate of origin
required for availing of concessions under Generalised System of Preferences
(GSP) extended by certain, countries such as France, Germany, Italy, BENELUX
countries, UK, Australia; Japan, USA, etc. This certificate can be obtained from
specialised agencies, namely;

• Export Inspection Agencies.


• Jt. Director General of Foreign Trade..
• Commodity Boards and their regional offices.
• Development Commissioner, Handicrafts.
• Textile Committees for textile products.
• Marine Products Export Development Authority for marine products.
• Development Commissioners of EPZs

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EXPORT PROCEDURE AND DOCUMENTATION

(c) Certificate for availing Concessions under Commonwealth Preferences (CWP):


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

(d) Certificate for availing Concessions under other Systems of Preference:-


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

Contents of Certificate of Origin

• Name and logo of chamber of commerce.


• Name and address of the exporter.
• Name and address of the consignee.
• Name and the number of Vessel of Flight
• Name of the port of loading.
• Name of the port of discharge and place of delivery.
• Marks and container number.
• Packing and container description.
• Total number of containers and packages.
• Description of goods in terms of quantity.
• Signature and initials of the concerned officer of the issuing authority.
• Seal of the issuing authority.

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EXPORT PROCEDURE AND DOCUMENTATION

Significance of the Certificate of Origin

• Certificate of origin is required for availing of concessions under Generalised


System of Preferences (GSP) as well as under Commonwealth Preferences
(CWP).
• It is to be submitted to the customs for the assessment of duty clearance of goods
with concessional duty.
• It is required when the goods produced in a particular country are banned for
import in the foreign market.
• It helps the buyer in adhering to the import regulations of the country.
• Sometimes, in order to ensures that goods bought from some other country have
not been reshipped by a seller, a certificate of origin IS required.

6. Bill of Lading: The bill of lading is a document issued by the shipping


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

Bill of Lading serves three main purposes:

• As a document of title to the goods;


• As a receipt from the shipping company; and
• As a contract for the transportation of goods.

Types of Bill of Lading

• Clean Bill of Lading: - A bill of lading acknowledging receipt of the goods


apparently in good order and condition and without any qualification is termed as
a clean bill of lading.

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EXPORT PROCEDURE AND DOCUMENTATION

• Claused Bill of Lading: - A bill of lading qualified with certain adversere marks
such as, "goods insufficiently packed in accordance with the Carriage of Goods
by Sea Act," is termed as a claused bill of lading.
• Transhipment or Through Bill of Lading: - When the carrier uses other
transport facilities, such as rail, road, or another steamship company in addition to
his own, the carrier issues a through or transhipment bill of lading.
• Stale Bill of Lading: - A bill of lading that has been held too long before it is
passed on to a bank for negotiation or to the consignee is called a stale bill of
lading.
• Freight Paid Bill of Lading: - When freight is paid at the time of shipment or in
advance, the bill of landing is marked, freight paid. Such bill of lading is known
as freight bill of lading.
• Freight Collect Bill of lading :- When the freight is not paid and is to be
collected from the consignee on the arrival of the goods, the bill of lading is
marked, freight collect and is known as freight collect bill of lading

Contents of Bill of Lading

• Name and logo of the shipping line.


• Name and address of the shipper.
• Name and the number of vessel.
• Name of the port of loading.
• Name of the port of discharge and place of delivery.
• Marks and container number.
• Packing and container description.
• Total number of containers and packages,
• Description of goods in terms of quantity.
• Container status and seal number.
• Gross weight in kg. and volume in terms of cubic meters.
• Amount of freight paid or payable.

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EXPORT PROCEDURE AND DOCUMENTATION

• Shipping bill number and date.


• Signature and initials of the Chief Officer. .

Significance of Bill of Lading for Exporters

• It is a contract between the shipper and the shipping company for carriage of the
goods to the port of destination.
• It is an acknowledgement indicating that the goods mentioned in the document
have been received on board for the Purpose of shipment.
• A clean bill of lading certifies that the goods received on board the ship are in
order and good condition.
• It is useful for claiming incentives offered by the government to exporters
• The exporter can claim damages from the shipping company if the goods are lost
or damaged after the issue of a clean bill of lading.

Significance of Bill of Lading for Importers

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


delivery.
• The exporter sends the bill of lading to the bank of the importer so as to enable
him to take the delivery of goods.
• The exporter can give an advance intimation to the foreign buyer about the
shipment of goods by sending him a non-negotiable copy of bill of lading

Significance of Bill of Lading for Shipping Company

• It is useful to the shipping company for collection of transport charges from the
importer, if not collected from the exporter.

7. Airway Bill: An airway bill, also called an air consignment note, is a receipt
issued by an airline for the carriage of goods. As each shipping company has its own bill

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EXPORT PROCEDURE AND DOCUMENTATION

of lading, so each airline has its own airway bill. Airway Bill or Air Consignment Note is
not treated as a document of title and is not issued in negotiable form.

Contents of Airway Bill

• Name of the airport of departure and destination.


• The names and addresses of the consignor, consignee and the first carrier.
• Marks and container number.
• Packing and container description.
• Total number of containers and packages.
• Description of goods in terms of quantity.
• Container status and seal number.
• Amount of freight paid or payable.
• Signature and initials of the issuing carrier or his agent.

Importance of Airway Bill: It is a contract between the airlines or his agent to


carry goods to the destination. It is the document of instructions for the airline
handling staff. It acts as a customs declaration form. Since, it contains details about
freight it also represents freight bill.

7. Shipment Advice to Importer:- After the shipment of goods, the exporter


intimates the importer about the shipment of goods giving him details about the date
of shipment, the name of the vessel, the destination, etc. He should also send one
copy of non-negotiable bill of lading to the importer.
8. Packing List: The exporter prepares the packing list to facilitate the buyer to check
the shipment. It contains the detailed description of the goods packed in each case,
their gross and net weight, etc. The difference between a packing note and a
packing list is that the packing note contains the particulars of the contents of an
individual pack, while the packing list is a consolidated statement of the contents of
a number of cases or packs.
9. Bill of Exchange: The instrument is used in receiving payment from the importer.
The importer may prefer Bill of Exchange to LC as it does not involve blocking of

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EXPORT PROCEDURE AND DOCUMENTATION

funds. A bill of exchange is drawn by the exporter on the importer, to make


payment on demand at sight or after a certain period of time.
• B/E is a means to collect payment.
• B/E is a means to demand payment.
• B/E is a means to extent the credit.
• B/E is a means to promise the payment.
• B/E is an official acknowledgement of receipt of payment.
• Financial documents perform the function of obtaining the finance
collection of payment etc.
• 2 sets. Each one bearing the exclusion clause making the other part of the
draft invalid.
• Sight B/E.
• Usance B/E.
• It is known as draft.
• Immediate payment – Sight draft.
• There are two copies of draft. Each one bears reference to the other part
A&B. when any one of the draft is paid, the second draft becomes null and
void.

Parties to bill of exchange.

1. The drawer: The exporter / person who draws the bill.


2. The drawee: The importer / person on whom the bill is drawn for payment.
3. The payee: The person to whom payment is made, generally, the exporter /
supplier of the goods.
B Auxiliary Documents: These documents generally form the basic
documents based on which the commercial and or regulatory
documents are prepared. These documents also do not have any
fixed formats and the number of such documents will wary
according to individual requirements.

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EXPORT PROCEDURE AND DOCUMENTATION

1. Proforma Invoice: The starting point of the export contract is in the form of offer
made by the exporter to the foreign customer. The offer made by the exporter is in
the form of a proforma invoice. It is a quotation given as a reply to an inquiry. It
normally forms the basis of all trade transactions.

Contents of Proforma Invoice

• Name and address of the exporter.


• Name and address of the importer.
• Mode of transportation, such as Sea or Air or Multimodal transport.
• Name of the port of loading.
• Name of the port of discharge and final destination.
• Provisional invoice number and date.
• Exporter's reference number.
• Buyer's reference number and date.
• Name of the country of origin of goods.
• Name of the country of final destination.
• Marks and container number. .
• Number and packing description.
• Description of goods giving details of quantity, rate and total amount in
terms of internationally accepted price quotation.
• Signature of the exporter with date.

Importance of Proforma Invoice

• It forms the basis of all trade transactions.


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

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EXPORT PROCEDURE AND DOCUMENTATION

2. Intimation for Inspection: Whenever the consignment requires the pre-


shipment inspection, necessary application is to be made to the concerned
inspection agency for conducting the inspection and issue of certificate thereof.
3. Declaration of Insurance: Where the contract terms require that the insurance
to be covered by the exporter, the shipper has to give details of the shipment to
the insurance company for necessary insurance cover. The detailed declaration
will cover:

• Name of the shipper \ exporter.


• Name & address of buyer.
• Details of goods such as packages, quantity, value in foreign
currency as well as in Indian Rs. Etc.
• Name of the Vessel \ Aircraft.
• Value for which insurance to be covered.

4. Application of the Certificate Origin: In case the exporter has to obtain


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

Types of Mate's Receipts

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EXPORT PROCEDURE AND DOCUMENTATION

• Clean Mate's Receipt: - The Commanding Officer of the ship


issues a clean mate's receipt, if he is satisfied that the goods are packed
properly and there is no defect in the packing of the cargo or package.
• Qualified Mate's Receipt: - The Commanding Officer of the
ship issues qualified mate's receipt, when the goods are not packed properly
and the shipping company does not take any responsibility of damage. to the
goods during transit.

Contents of Mate's Receipt

• Name and logo of the shipping line.


• Name and address of the shipper.
• Name and the number of vessel.
• Name of the port of loading.
• Name of the port of discharge and place of delivery.
• Marks and container number.
• Packing and container description.
• Total number of containers and packages.
• Description of goods in terms of quantity.
• Container status and seal number.
• Gross weight in kg. and volume in terms of cubic meters.
• Shipping bill number and date.
• Signature and initials of the Chief Officer.

Significance of Mate's Receipt

• It is an acknowledgement of goods received for export on board


the ship.
• It is a transferable document. It must be handed over to the
shipping company in order to get the bill of lading.

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EXPORT PROCEDURE AND DOCUMENTATION

• Bill of lading, which is the title of goods, is prepared on the basis


of the mate's receipt.
• It enables the exporter to clear port trust dues to the Port Trust
Authorities.

Obtaining Mate's Receipt

The goods are then loaded on board the ship for which the Mate or the
Captain of the ship issues Mate's Receipt to the Port Superintendent.

6. Shipping order: it is issued by the Shipping/Conference Line intimating the


exporter about the reservation of space for shipment of cargo which the exporter
intends to ship. Details of the vessel, poet of the shipment, and the date on which
the goods are to be shipped are mentioned. This order enables the exporter to
make necessary arrangements for customs clearance and loading of the goods.
7. Shipping Instructions: at the pre-shipment stage, when the documents are to sent
to the CHA for customs clearance, necessary instructions are to be give with
relevance to

• The export promotion scheme under which goods are to be


exported.
• Name of the specific vessel on which the goods are to be
loaded.
• If goods are to be FCL or LCL.
• If freight amount are to be paid / collected.
• If shipment are covered under A.R.E.-1 procedure.
• Instructions for obtaining Bill of Lading etc.

8. Bank letter for negotiation of documents: at the post shipment stage, the exporter
has to submit the documents to a bank for negotiation or discounting or collection
for forwarding the same to the customer and also for realization of export
proceeds. The bank letter is the set of instruction for the bank as to how to handle
the documents by them and by the bank at the buyer’s country which may include

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EXPORT PROCEDURE AND DOCUMENTATION

• Name and address of the buyer.


• Details of various documents being sent and the number of the copies thereof.
• Name and address of the buyer’s bank if available.
• If the documents are sent L/C or on open terms.
• If the proceeds are to adjusted against any pre-shipment packing credit loan.
• If the bill amount is to be adjusted against any forward exchange cover.
• In case of credit bill who has to bear the interest, either exporter or if the same is to be
collected from the buyer.
• Instructions in case non-acceptance/non-payment by the buyer.

C. Regulatory Document: Regulatory pre-shipment export documents are prescribed by


the different government departments and bodies in order to comply with various
rules and regulations under the relevant laws governing export trade such as export
inspection, foreign exchange regulation, ex port trade control, customs, etc. Out of 9
regulatory documents four have been standardised and aligned. These are shipping
bill or bill of export, exchange control declaration (GR from), export application dock
challan or port trust copy of shipping bill and receipt for payment of port charges.

1. Shipping Bill: Shipping bill is the main customs document, required by the
customs authorities for granting permission for the shipment of goods. The
cargo is moved inside the dock area only after the shipping bill is duly
stamped, i.e. certified by the customs. Shipping bill is normally prepared in
five copies :-

• Customs copy.
• Drawback copy.
• Export promotion copy.
• Port trust copy.
• Exporter's copy.

Types of Shipping Bill

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EXPORT PROCEDURE AND DOCUMENTATION

Based on the incentives offered by the government, customs authorities have introduced
three types of shipping bills:-

• Drawback Shipping Bill: - Drawback shipping bill is useful for claiming the
customs drawback against goods exported.
• Dutiable Shipping Bill: - Dutiable shipping bill is required for goods which are
subject to export duty.
• Duty-free Shipping Bill: - Duty-free shipping bill is useful for exporting goods
on which there is no export duty.

In order to facilitate easy recognition and quick processing, following colours have been
provided to different kinds of shipping bills :

Types of goods By Sea By Air


Drawback shipping bill Green Green
Dutiable shipping bill Yellow Pink
Duty-Free shipping bill White Pink

Contents of Shipping Bill

• Name and address of the exporter.


• Name and address of the importer.
• Name of the vessel, master or agents and flag.
• Name of the port at which goods are to be discharged.
• Country of final destination.
• Details about packages, description of goods, marks and numbers, quantity and
details of each case.
• FOB price and real value of goods as defined in the Sea Customs Act.
• Whether Indian or foreign merchandise to be re-exported
• Total number of packages with total weight and value.

Significance of Shipping Bill

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EXPORT PROCEDURE AND DOCUMENTATION

a) Shipping bill is the main customs document, required by the customs


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

2. A.R.E. 1 form (Central excise): this form ARE-1 is prescribed under Central
Excise rules for export of goods. In case goods meant for export are cleared
directly from the premises of a manufacturer, the exporter can avail the
facility of exemption from payment of terminal excise duty. The goods may
be cleared for export either under claim for rebate of duty paid or under bond
without payment of duty. In both the events the goods are to be cleared under
form A.R.E-1 which will show the details of the goods being exported, the
relevant duty involved and if the duty is paid or goods being cleared under
bond, details of goods being sealed either by the exporter or Central Excise
officials etc.
3. Exchange Control declaration Form (GR/PP/SOFTEX): under the exchange
control regulations all exporters must declare the details of shipment for
monitoring by the Reserve Bank of India. For this purpose, RBI has
prescribed different forms for different types of shipments like GRI, PP forms
etc. These declaration forms must be presented to the customs officials at the
time of passing of export documentation. Under the EDI processing of
shipping bill in the customs, these forms have been dispensed with and a new
form SDF has to be submitted to the customs in the place of above forms.
4. Export Application: this is the application to be made to the customs officials
before shipment of goods. The prescribed form of the application is the
Shipping Bill/Bill of Export. Different types are required for shipment like ex-

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EXPORT PROCEDURE AND DOCUMENTATION

bond, duty free goods, and dutiable goods and for export under different
export promotion schemes such as claims for duty drawback etc.
5. Vehicle Ticket/Cart Ticket/Gate Pass etc.: before the goods are being taken
inside the port for loading, necessary permission has to be obtained for
moving the vehicle into the customs area. This permission is granted by the
Port Trust Authority. This document will contain the detail of the export
cargo, name and address of the shippers, lorry number, marks and number of
the packages, driver’s licence details etc.
6. Bank Certificate of Realisation: this is the form prescribed under the Foreign
Trade Policy, wherein the negotiating bank declares the fob value of exports
and for the date of realisation of the export proceeds. This certificate is
required fore obtaining the benefit under various schemes and this value of
fob is reckoned as fob value of exports.

D. Other Document:

• Black List Certificate: it certifies that the ship/aircraft carrying the


cargo has not touched the particular country on its journey or that the
goods are not from the particular country. This is required by certain
nations who have strained political and economical relations with the
so called “Black Listed Countries”.

• Language Certificate: Importers in the European Community require a


language certificate along with the GSP certificate in respect of
handloom cotton fabrics classifiable under NAMEX code 55.09.
Generally four copies of language certificate are prepared by the
concerned authority who issues GSP certificate. Three copies are
handed over to the exporter. A copy is sent along with the other
documents for realisation of export proceeds.
• Freight Payment Certificate: in most of the cases, the B/L or AWB
will mention the transportation and other related charges. However if
the exporter does not want these details to be disclosed to the buyer, the

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EXPORT PROCEDURE AND DOCUMENTATION

shipping company may issue a separate certificate for payment of the


freight charges instead of declaring on the main transport documents.
This document showing the freight payment is called the freight
certificate.

• Insurance Premium Certificate: this is the certificate issued by the


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

• Combined Certificate of Origin and Value: this certificate is required


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

• Customs Invoice: this is required by the countries like Canada, USA


for imposing preferential tariff rates.

• Legalized Invoice: this is required by the certain Latin American


Countries like Mexico. It is just like consular invoice, which requires
certification from Consulate or authorised mission, stationed in the
exporter’s country.

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

• Article-37: Commercial Invoice

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EXPORT PROCEDURE AND DOCUMENTATION

o Must appear on their face to be issued by the beneficiary named


in the credit.
o Must be made out in the name of the applicant.
o Need not be signed

• Banks may refuse Commercial Invoice issued for amounts in excess of


the amount permitted by the credit except otherwise stated.

• The description of the goods in the commercial invoice must


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

Pre-Shipment Documents:

• Shipping bill.
• Export order/Sales contract/Purchase order.
• Letter of Credit
• Commercial invoice.
• Packing list.
• Certificate of origin.
• Guaranteed Remittance (G.R/SDF/PP/SOFTEX),or SDF.
• Certificate of Inspection.
• Various declarations required as per custom procedure.

Exchange Control Declaration Form: all exports to which the requirement of


declaration apply must be declared on appropriate forms as indicated below unless the
consignment is of samples and of ‘No Commercial Value’

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EXPORT PROCEDURE AND DOCUMENTATION

• GR FORM: to be completed in duplicate for exports otherwise than by


post including export of software in physical form i.e. magnetic
tape/discs and paper media.
• SDF FORM: to be completed in duplicate and appended to the
Shipping Bill for export declare to the customs offices notified by the
Central Government which have introduced EDI system for processing
Shipping Bill.
• PP FORM: to be completed in duplicate for export by post.
• SOFTX: to be completed in triplicate for export of software otherwise
than in the physical form i.e. magnetic tapes/discs and paper media.

These forms are available for sale in Reserve Bank of India

Export declaration forms have utmost importance and are binding on the exporters. It is,
therefore, necessary that enough care is taken while declaring exports on these forms,
with special reference on the following points.

• Name and address of the authorised dealer through whom proceeds of


exports have been or will be realized should be specified in the relevant
column of the form.
• Details of commission and discount due to foreign agent or buyer
should be correctly declared otherwise difficulties may arise at the time
of remittance of such commission.
• It should be clearly indicated in the form whether the export is on
‘outright sale basis’ or ‘on consignment basis’ and irrelevant clauses
must be stuck out
• Under the term ‘analysis of full export value’ a break up of full export
value of goods under F.O.B value, freight and insurance should be
furnished in all cases, irrespective of the terms of contract.
• All documents relating to the export of goods from India must pass
through the medium of an authorised dealer in foreign exchange in
India within 21 days of shipment.

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EXPORT PROCEDURE AND DOCUMENTATION

• The amount representing the full export value of goods must be


realized within six months from date of shipment.

Disposal of Copies of Export Documentation Form

• GR forms covering export of goods other than jewellery should be


completed by the exporter in duplicate and both the copies should be
submitted to customs at the port of Shipment. Customs will give their
running serial number on both the copies of the GR forms after
verifying the particulars and admitting the corresponding shipping bill.
The value declared by the exporter will also be verified by the customs
and they will also record the assessed value. Duplicate copy will be
returned to the exporter and the original will be remained by the
customs for onward submission to the Reserve Bank. Duplicate form of
the GR form will again be presented to the customs at the time of
actual shipment. After examination of goods and certifying the quantity
passed for shipment the duplicate copy will again be returned to
exporter for submission to an authorised dealer. However, an exception
to submission of GR forms to the Customs authorities have been made
in case of deep sea fishing.
• (a) PP forms are to be first presented to an authorised dealer for
countersignature. The form will be countersigned by the authorised
dealer only if the post parcel is addressed to his branch or
correspondent bank in the country or import. The concerned overseas
branch or correspondent is to be instructed to deliver the post parcel
against payment or acceptance of relevant bill, as the case may be.

(b) For post parcel addressed directly to the consignee, the


authorised dealer will countersign the form, provided —

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EXPORT PROCEDURE AND DOCUMENTATION

(i) an irrevocable letter of credit for the full value of export has
been opened in favour of exporter and has been advised
through authorised dealer concerned; or
(ii) the full value of shipment has been received in advance by the
exporter through an authorised dealer; or
(iii) On receipt of full value of shipment declared on
this form the authorised dealer will forward to RBI the
duplicate copy along with the certified copy of shipper’s
invoice.
(iv) The authorised is satisfied on the basis of standing and track
record of the exporter and arrangements made for realisation of
the export proceed that he cold do so. If the authorised dealer is
not satisfied about standing etc. of the exporter, the application
is rejected. No reference is entertained by the Reserve Bank in
such cases.

(c) The original PP form countersignature will be returned to the


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

The export of computer software may be undertaken in physical form i.e. software
prepared on magnetic tape and paper media as well as in non-physical form by direct data
transmission through dedicated earth stations/satellite links. The export of computer
software in physical form is subject to normal declaration on GR/PP form and regulations
applicable there to will also be applicable to such exports. However, export of non-
physical form should be declared on SOFTEX Form. Besides computer software, export
of video / T.V. Software and all other types of software products / packages should also
be declared on the SOFTEX forms. Since export of software is fraught with many risks
and special guidelines have been framed for handling such exports.

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EXPORT PROCEDURE AND DOCUMENTATION

OCTROI

• Octroi is the local tax levied by the civic body on goods entering into
the city.

• There are three procedures for clearing goods which are meant for
export.

Procedure – 1, Export on payment of octroi duty and refund thereof after export.

Pay the Octroi Duty and apply for refund of payment made.

• At Octroi Naka form B is issued with cash receipt for the payment of
Octroi Duty.
• Cargo is moved to the docks.
• At Docks Octroi officer prepares form”C” & endorses Shipping Bill
Number & Steamers Name.

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EXPORT PROCEDURE AND DOCUMENTATION

• After shipment exporter prepares claim for refund by submitting


following documents:
• Covering Letter for refund of Octroi Duty.
• Original receipt of Octroi paid.
• Original Form B.
• Original Form C.
• Invoice under which material was bought to the city.
• Export invoice issued by the Exporter to the importer.
• Export Promotion Copy of Shipping Bill – Photo Copy.
• Bill of Lading or Airway Bill Copy.

Procedure – 2, Export without payment of Octroi Duty.

N Form Procedure.

• Prepares form N in 3 copies.


• Checking of documents Shipping Bill, Carting order, Export Invoice by Octroi
officer.
• Under taking that the goods will be cleared for export within 7 days of clearance
through the octroi post.
• Octroi officer at Docks will endorse the Shipping Bill number & shipment details
on N form.
• Proof of export... N form with above endorsement to be submitted to the Head
Office along with copies of Shipping Bill, Bill of Lading, Export Invoice etc.

Procedure – 3

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EXPORT PROCEDURE AND DOCUMENTATION

E.P (Export Promotion) Form.

• Registration form + IEC / RCMC + CA Certificate.


• Number will be allotted.
• Fees Rs. 500/-

Documents Checked

• Factory Challan cum Invoice.


• ARE –1.
• EP forms 3 copies.
• Export order.
• Shipping Bill.

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

• Company’s Letter.
• EP form.
• EPC.
• Bill of Lading.
• Shipping Bill – 6.25% Service charge.

Bar Coding

• It is the endeavor of the Central Government to enhance export competitiveness


of the Indian products and to promote substantially.
• Compliance with prevalent international best practices.
• National task force has recommended adoption of Bar-coding for all Indian
products within five years.

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EXPORT PROCEDURE AND DOCUMENTATION

• Bar coding, using International Symbologies / Numbering, systems would enable


timely and accurate capture of product information and its communication across
the supply chain ahead of physical product flow.
• With the ultimate objective of facilitating adoption of Bar-coding for all products
using international Symbologies numbering systems all exports of finished and
packaged items meant for retail sale shall incorporate barcodes from a date to be
notified by DGFT.

MARINE INSURANCE POLICY

Goods in transit are subject to risks of loss of goods arising due to fire on the ship, perils
of sea, thefts etc. Marine insurance protects losses incidental to voyages and in land
transportation.

Marine Insurance Policy is one of the most important document used as collateral
security because it protects the interest of all those who have insurable interest at the time
of loss. The exporter is bound to insure the goods in case of CIF quotation, but he can
also insure the goods in case of FOB contract, at the request of the importer, but the
premium payment will be made by the exporter.

There are different types of policies such as

Specific Policy: This policy is taken to cover different risks for a single shipment. For a
regular exporter, this policy is not advisable as he will have to take a separate policy
every time the shipment is made, so this policy is taken when exports are infrequent.

Floating Policy: This policy is taken to cover all shipments for same months. There is no
time limit, but there is a limit on the value of goods and once this value is crossed by
several shipments, then it has to be renewed.

Open Policy: This policy remains in force until cancelled by either party, i.e. insurance
company or the exporter.

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EXPORT PROCEDURE AND DOCUMENTATION

Open Cover Policy: This policy is generally issued for 12 months period, for all
shipments to one or all destinations. The open cover may specify the maximum value of
consignment that may be sent pre ship and if the value exceeded, the insurance company
must be informed by the exporter.

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

The Insurance Policy Normally Contains:

• The name and address of the insurance company.


• The name of the assured & description of the risk covered.
• A description of the consignment.
• The sum insured & the date of issue.
• The place where claims are payable together with details of the agent to whom
claims may be directed & Any other details, as applicable.

QUALITY CONTROL AND PRE-SHIPMENT INSPECTION

Realizing the importance of the need for supplying quality goods as per international
standards, the Government of India has introduced Compulsory Quality Control and Pre-
Shipment Inspection of over 1050 items of export under Export (Quality Control and Pre-
Shipment Inspection) Act 1963.

At present, the export items that are subjected to compulsory inspection includes food
and agricultural products, chemicals, engineering, coir, jute and footwear.

Compulsory Pre-shipment Inspection:

• Foods and Agriculture & Fishery


• Mineral & Ore
• Organic & Inorganic Chemicals

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EXPORT PROCEDURE AND DOCUMENTATION

• Refectories & Rubber Products


• Foot wear & Foot wear components
• Ceramic Products & Pesticides
• Light Eng. Products
• Steel ;Products
• Jute Products
• Coir & Coir Products

Exemption from compulsory Pre-shipment Inspection:

• Status Houses
• Certification by Units IPQC – approved by EIA
• EUO/EPZ/SEZ
• Firm Letter from the overseas buyer
• Specified products such as Eng/Fishery average level of Rs.1.5 Cr.for the last
three years no compliant.

For monitoring pre-shipment inspection, Govt. of India has set up Export Inspection
Council (EIO) The EIC has set up 5 Export Inspection Agencies (EIA). The EIAs are
located one each at Mumbai, Calcutta, Cochin, Delhi and Chennai. The EIAs has a
network of nearly 60 offices throughout India. Each EIA is given certain jurisdiction
for inspection purpose. For instance, EIA of Mumbai has jurisdiction over
Maharashtra, Gujarat and Goa.

Systems of Quality Control:

For the purpose of pre-shipment inspection, EIC has recognized three systems of
inspection namely:

• Self-Certification
• In-Process Quality Control
• Consignment Wise Inspection

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EXPORT PROCEDURE AND DOCUMENTATION

Self-Certification:

Under this system, complete authority is given to the manufacturing units to certify
their own products and issue certificates for export. The manufacturing units which
have been recognized under this scheme have to pay a nominal yearly fee at the rate
of 0.1% of FOB price subject to minimum of Rs.2,500/- and maximum of Rs.1 lakh
in a year to the concerned EIA

In-Process Quality Control (IPQC):

In this system, companies/units adjusted as having adequate level of quality control right
from raw material stage to the finished product stage including packaging are eligible to
get the inspection certificate on a formal request by the exporter. Over 800 units all over
India are operating under this system.

Constant vigil and surveillance are kept on units approved under IPQC and self-
certification system. Units approved under the above two systems are often known as
“Export worth Units”, because of their consistent standards of quality.

Consignment wise Inspection:

Under this system, each and every consignment is subject to compulsory inspection. The
exporter has to follow a certain procedure such as:

• He has to make an application to Export Inspection Agency with certain


documents.
• The EIA deputes inspector to inspect the goods
• After the inspection, the goods are repacked with EIA seal
• The inspector then makes a report to Deputy Director of EIA
• The Dy. Director of EIA then issues Inspection Certificate in triplicate if the
inspection report is favorable
• If the inspection report is not favorable, a rejection note is issued.

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EXPORT PROCEDURE AND DOCUMENTATION

o It is to be noted that goods marked with ISI/AGMARK/BIS14000/ISO


9000 are not required to be inspected by any agency
o Overseas buyer may depute his own inspection team to inspect the goods
o Inspection of textile goods is conducted by Textile Committee in respect
of those exporters who are registered with the textile committee.

Norms:

• Adequate Testing Facility


• Raw Material Testing & Process Control
• After Sales Services & Maintaining Product Quality
• Control on bought out components
• Meteorological Control & PKG.
• Independent Quality Audit & Houses.

Fumigation: For ensuring that no insects or bacteria are carried with the export
certain types of export products are fumigated before shipment. The fumigation is
carried out in the port of shipment.

SHIPPING AND CUSTOMS FORMALITIES

(As per the Prevailing Law i.e., ICA 62)

The shipment of export cargo has to be made with prior permission of, and under the
close supervision of the custom authorities. The goods cannot be loaded on board the ship
unless a formal permission is obtained from the custom authorities. The custom
authorities grant this permission only when it is being satisfied that the goods being
exported are of the same type and value as have been declared by the exporter or his C&F
agent, and that the duty has been properly determined and paid, if any.

The custom procedure can be briefly explained as follows:

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EXPORT PROCEDURE AND DOCUMENTATION

• Submission of Documents: The exporter or his agent submits the necessary


documents along with the shipping bill to the Custom House. The documents
include:

o ARE-1 (Original and duplicate)


o Excise gate pass (Original and duplicate transporters’ copy
o Proforma Invoice
o Packing List
o GRI form (Original and duplicate)
o Customs Invoice (where required in the importing country)
o Original letter of credit/contract
o Declaration form in triplicate
o Quality Certificate
o Purchase memo
o Labels
o Licence (if any required) including advance licence copy
o Railway receipt/lorry way bill
o Inspection Certificate by Export Inspection Agency

• Verification of Documents: The Customs Appraiser verifies the documents and


appraises the value of goods. He then makes an endorsement of “Examination
Order” on the duplicate copy of shipping bill regarding the extent of physical
examination of the goods at the docks. All documents are returned back to the
agent or exporter, except

o Original Copy of GR to be forwarded to RBI


o Original copy of shipping bill
o One copy of commercial invoice

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EXPORT PROCEDURE AND DOCUMENTATION

• Carting Order: The exporter’s agent has to obtain the carting order from the Port
Trust Authorities. Carting Order is the permission to bring the goods inside the
docks. The carting order is issued by the superintendent of Port Trust. Carting
Order is issued only after verifying the endorsement on the duplicate copy of
shipping bill. The Carting Order enables the exporter’s agent to cart goods inside
the docks and store them in proper sheds.

• Storing the Goods in the Sheds: After securing the carting order, the goods are
moved inside the docks. The goods are then stored in the sheds at the docks.

• Examination of Goods: The exporter’s agent then approaches the customs


examiner to examine the goods. The customs examiner examines the cargo and
records his report on the duplicate copy of the shipping bill. The customs
examiner then sings the “Let Export Order”

• Let Export Order: The Let Export Order is then shown to the Customs
Preventive Officer, along with other documents. The CPO is in charge of
supervision of loading operations on the vessel. If CPO finds everything in order,
he endorses the duplicate copy of shipping bill with the “Let Ship Order” This
order helps the exporter/shipper to load the goods on the ship.

• Loading Goods: The goods are then loaded on the ship. The CPO supervises the
loading operations. After loading is completed, the Chief Mate (Cargo Officer) of
the ship issues the “Mate’s Receipt”. The Mate’s Receipt is sent to the Port Trust
Office. The C&F agent pays the port trust dues and collects the mate’s receipt.
The C&F agent then approaches the CPO and gets the certification of shipment of
goods on AR Forms and other documents
• Obtaining Bill of Lading: The Mate’s Receipt is then handed over to the
shipping company (on whose vessel the goods are loaded). The shipping company
issues bill of lading. The Bill of Lading is issued in:

o 3 negotiable copies of Bill of Lading

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EXPORT PROCEDURE AND DOCUMENTATION

o 10 to 12 Non-negotiable copies of Bill of Lading.

The negotiable copies have title to goods; whereas non-negotiable copies do not have
title to goods but are used for record purpose.

PROCEDURE OF EXCISE CLEARANCE:

The common procedure of excise clearance under “bond” and under “rebate” is
discussed as follows:

• Preparing of Invoice: The export goods have to be cleared from the factory
under invoice. The invoice contains details like name of the exporter, value of
goods, excise duty chargeable, etc. The invoice is to be prepared in triplicate. In
case of export under Bond, the invoice should be marked as “For Export without
payment of duty”. In addition to the invoice, a prescribed for ARE 1 has to be
filed in by exporter.

• Filling up of ARE-1 form (Annexure-20): The ARE-1 form needs to be filled in


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

• Application to Assistant Commissioner of Central Excise (ACCE): The


exporter has to make an application to ACCE regarding the removal of goods
from the factory/warehouse for export purpose.
• Information to Range Superintendent of Central Excise (RSCE): The ACCE
will inform the RSCE under whose jurisdiction the goods are intended to be
cleared for export
• Deputation of Inspector: The RSCE will then depute an inspector to clear the
goods, either at the factory or warehouse, and in certain cases at the port.
• Processing of ARE-1 Form: The Excise Officer/Inspector will make
endorsement on all copies of ARE-1. The handling of ARE-1 Form is done as
follows:

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EXPORT PROCEDURE AND DOCUMENTATION

o The inspector returns the original and duplicate copies to the


exporter
o The triplicate copy is sent to officer (ACCE or Maritime
Commissioner (MCCE) to whom bond was executed or letter of
undertaking (LUT) was given. This copy can also be handed over
to the exporter in a tamper proof sealed cover to be submitted to
ACCE/MCCE.
o The 4th copy will be retained by the excise inspector.
o The 5th copy is also handed over to the exporter.
o At the time of export, original, duplicate and the 5 th copy (optional)
will be submitted to customs officer. The customs officer will
examine these copies and then export will be allowed.
o The customs officer will then make endorsement of export on all
copies of ARE-1. He will cite shipping bill number and date and
other particulars of export on ARE-1.
o The original copy and quintuplicate (optional) will be returned to
the exporter. The duplicate copy will be sent directly to the
ACCE\MCCE i.e. excise officer with whom bond was executed
will get 2 copies, one from RSCE (or excise inspector) when goods
are cleared from factory and other Custom Officer after export.
This will enable him to keep track to ensure that all goods cleared
from factory or warehouse without payment of duty are actually
exported. In case of export after payment of duty, under claim of
rebate, the basic procedure is same as above, except that the
triplicate copy (by excise inspector) and duplicate copy(by customs
officer)will be sent to the officer to whom rebate claim is filed. If
claim of rebate is by electronic submission, these copies well be
sent to excise rebate audit section at the place of export.

• Refund or Release of Bond: The exporter should make an application to the


excise officer for refund or release of bond. The application must be supported by

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original copy of ARE-1 form. The excise officer crosschecks the original copy of
ARE-1 form and the duplicate and triplicate copies of ARE-1 form, which he had
received earlier. If the copies match, then refund is given or the bond is released.

FACTORY STUFFING OF CARGO

Clearance of goods to docks: If the goods meant for export is of a small quantity
which may not be sufficient to make one full container, the cargo is said to be less
than container load (LCL) cargo. Such cargo has to be taken to the docks where the
goods will be consolidated (combining the cargo of other exporters to make up
quantity for a full container) by the agent and loaded into a container. Here the
examination of the cargo is done at the docks.(There are also inland container depots
approved by the customs where the goods can be consolidated and stuffed into the
container by the agent under the supervision of the customs officer)

If the goods meant for export is of sufficient quantity to make up a full container, the
exporter has the option to take the goods to the docks and get them examined and
stuffed into a separate container. An exporter gets the benefit on the freight amount
for a full container. (Generally called box rate)

Alternatively, he can have a container allotted to him and get the same to his Mills
Premises. The goods meant for exports can be stuffed into the container under the
supervision of the regional Central Excise Authority. Here the exporter has to

• Obtain permission from the Customs for getting the container to his mills
premises for stuffing (House Stuffing)
• Inform the C.Excise Authorities at least 24 hours before bringing the
container for loading.

The C.Excise Authority will supervise the loading, seal the container and certify the
invoice as directed in the permission given by the custom authorities. A special Lock is
used to lock the doors of the container. Samples from the goods will be drawn, if
necessary, as required under the customs permission. Such samples will be sealed and

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forwarded along with the container. The examiner in the docks may arrange to send the
sample for testing. Then the container is moved to the dock for loading. Generally, such
containerized goods are not subject to further examination in the customs. They will be
directly taken for loading.

SALES TAX EXEMPTION PROCEDURE

Export good are exempted from the payment of sales tax. The exporter can claim
exemption from sales tax (on purchases or sales for export purpose), provide the exporter
is registered with the Sales-Tax Department. If the exporter is not registered with the
sales tax department, he cannot utilize the facility of sales tax exemption. Therefore, it is
necessary for the exporter to get his organization registered with sales tax department.

I Registration Procedure

• Application: The exporter must apply to the Sales Tax Officer (STO)
under whose jurisdiction the head/ registered office of the exporter is located.

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


office of the exporter and inspect:

o Relevant books showing sales/ purchases.


o Partnership Deed or Memorandum and Articles of Association
along with Incorporation Certificate.
o Other Relevant documents.

• Inspection: The inspector visits the office of the exporter and inspects the
necessary books and other documents.

• Report by Inspector: The Sales Tax Inspector makes a report to the STO for
registration or otherwise. The STO verifies the inspector report. The STO, before
granting the ST Reg. Number may cal the exporter for necessary clarifications, if
required.

• Security Bond: The STO normally requires the exporter to provide a security
bond from another firm which is registered with the Sales Tax Department.

• Granting of Sales Tax Reg. Number: After completing necessary formalities, the
STO grants Sales Tax Reg. Number to the exporter.

II. Exemption Procedure

• Obtaining Form ‘H’: the registered exporters need to apply to the concerned STO
for obtaining Form ’H’. the exporter should submit:
o A copy of Letter of Credit
o A copy of Letter of Credit /Export Order.
o Copy of the Invoice , where goods are already purchased for export
purchase.
o A copy of shipping bill duty certified by customs.

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

• Filling the details in Form ‘H’: After export of goods, the exporter fills the
relevant details in ‘Form H’. The Form ‘H’ needs to be prepared in triplicate.

The exporter retains one copy, and other two copies are sent to the seller from whom the
exporter purchased the goods for export purpose. The seller than sends on copy of Form
‘H’ to STO along with the Return of Sales Tax. The other copy is retained by seller. The
STO may issue refund order to the exporter.

METHODS OF RECEIVING PAYMENT AGAINST EXPORTS

Before we proceed to understand the concept of Letter of Credit, let us understand the
various types of payment methods available against export.

METHODS OF PAYMENT

There are three methods of payment depending upon the terms of payment, and each
method of payment involves varying degrees of risks for the exporter. The methods are:

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• Payment in advance
• Documentary Bills
• Letter of Credit
• Open Account
• Counter Trade

A. PAYMENT IN ADVANCE

This method does not involve any risk of bad debts, provided entire amount has been
received in advance. At times, a certain per cent is paid in advance, say 50% and the rest
on delivery. This method of payment is desirable when:

• The financial position of the buyer is weak or credit worthiness of the buyer is
not known.
• The economic/ political conditions in the buyer’s country are unstable.
• The seller is not willing to assume credit risk, as un the case of open account
method.

However, this is the most unpopular methods as a foreign buyer would not be willing to
pay advance of shipment unless:

• The goods are specifically designed for the customer, and


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

B. DOCUMENTARY BILLS:

Under this method, the exporter agrees to submit the documents to his bank along with
the bill of exchange. The minimum documents required are

• full set of bill of lading


• commercial Invoice
• Marine Insurance policy and other document, if required.

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There are two main types of documentary bills:

• Documents against Payment,


• Documents against Acceptance.

Documents against payment (D/P): The documents are released to the importer against
payment. This method indicates that the payment is made against Sight Draft. Necessary
arrangements will have to be made to store the goods, if a delay in payment occurs.

The risk involved that the importer may refuse to accept the documents and to pay
against them. The reason for non-acceptance may be political or commercial ones. In
India, ECGC covers losses arising out of such risks. Under this system, as compared to
D/A, the exporter has certain advantages:

• The document remain in the hands of the bank and the exporter does not lose
possession or the ownership of goods till payment is made,
• Other reason may include that the exporter may not be able to allow credit and
wait for payment.

Documents Against acceptance (D/A): The document are released against acceptance
of the Time Draft i.e. credit allowed for a certain period, say 90 days. However, the
exporter need not wait for payment till bill is met on due date, as he can discount the bill
with the negotiating bank and can avail of funds immediately after shipment of goods.

In case of D/A as compared to D/P bills, the risk involved is much grater, as the
importer has already taken possession of goods which may or may not be in his custody
on the maturity date of the bill. If the importer fails to pay on due date, the exporter, will
have to start civil proceedings to receive his payment, if all other alternatives fails. The
risk involved can be insured with ECGC.

C. LETTER OF CREDIT (L/C):

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This method of payment has become the most popular form in recent times, it is more
secured as company to other methods of payment (other than advance payment).

A letter of credit can be defined as “ an undertaking by importer’s bank stating that


payment will be made to the exporter if the required documents are presented to the bank
within the variety of the L/C”.

THE LETTER OF CREIDT

Introduction

The cycle of a business transaction can be said to be complete prima facie when the buyer
has received the product he desires to buy and the seller gets his payment in due
consideration of the product supplied.

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While the seller is keen to receive the payment for his supplies, the buyer is equally keen
that he gets what he wants by the paying for the same.

Tough there are many merit and demerits in each of the different mode of payments we
have discussed earlier, in relation either to the buyer or to the seller, we shall now deal in
detail about the mode of payment under the Documentary Credit.

Generally, though exporters are complacent once they get the letter of Credit on hand
feeling that their payment is secured, let me say it is as much a dubious instrument as is a
safe instrument.

If one does not understand the implications of the terms and condition of a letter of credit,
the provisions under UCP 500, how co-operative are the exporter’s bank and how good
are the L/C opening bank and the reimbursement bank, he is sure to land in trouble at
once stage or another.

There are ample cases of frauds under the Letter of Credit. More and more ingenious
methods are adopted to circumvent the provisions of UPC 500 by fair or foul means.
Hence, even the safety and security under the Letters of Credit may prove to be no better
than a mirage for a man in the desert.

Hence, sufficient care is to be taken by the exporter to ensure that instrument is received
in order and the conditions of the L/C can be well complied with, and there are no clauses
of ambiguity.

What is a Documentary Credit?

To say in simple language, this is an Undertaking by a Bank associated with the buyer to
make the payment for the supply of goods by a seller subject to compliance of various
requirements that may be specified in the document of undertaking by the Bank. This
document is known as Documentary Credit. A Documentary Credit is also called a Letter
of Credit (L/C).

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CONTENTS OF A LETTER OF CREDIT

A letter of credit is an important instrument in realizing the payment against exports. So,
needless to mention that the letter of credit when established by the importer must contain
all necessary details which should take care of the interest of Importer as well as
Exporter. Let us see shat a letter of credit should contain in the interest of the exporter.
This is only an illustrative list.

• name and address of the bank establishing the letter of credit


• letter of credit number and date
• The letter of credit is irrevocable
• Date of expiry and place of expiry
• Value of the credit
• Product details to be shipped
• Port of loading and discharge
• Mode of transport
• Final date of shipment
• Details of goods to be exported like description of the product, quantity, unit rate,
terms of shipment like CIF, FOB etc.
• Type of packing
• Documents to be submitted to the bank upon shipment
• Tolerance level for both quantity and value
• If L/C is restricted for negotiation
• Reimbursement clause

PROCEDURE INVOLVED IN THE LETTER OF CREDIT

The following are the step in the process of opening a letter of credit:

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

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• Importer’s Request to his Bank: The importer requests his bank to open a L/C. He
May either pay the amount of credit in his current account with the bank.
• Issue of LC: The issuing bank issues the L/C and forwards it to its correspondent
bank with also request to inform the beneficiary that the L/C has been opened.
The issuing bank may also request the advising bank to add its confirmation to the
L/C, if so required by the beneficiary.
• Receipt of LC: the exporter takes in his possession the L/C. He should see it that
the L/C is confirmed.
• Shipment of Goods: Then exporter supplies the goods and presents the full set of
documents along with the draft to the negotiating bank.
• Scrutiny of Documents: The negotiating bank then scrutinizes the documents and
if they are in order makes the payment to the exporter.
• Negotiation: The exporter’s bank negotiates the document against the letter of
credit and forwards the export documents to the L/C opening bank or as per their
instructions.
• Realization of payment: The issuing bank will reimburse the amount (which is
paid to the exporter) to the negotiating bank.
• Document to Importer: the issuing in turn presents the documents to the importer
and debits his account for the corresponding amount.

In order to have uniformity and to avoid disputes, the ICC Paris has evolved uniform
customs and practices of documentary credit (UCPDC), in short known as UCP 500
effective from 1-1-96. These are rules have been adopted by more than 150 countries.
They provide the comprehensive and practical working aid to banker, lawyer, importers,
exporters, Exporters, transporters, executives involved in international trade.

Note: as soon as an L/C is received ensure that the same is authenticated. Meaning that
the genuineness of the L/C is certified by the Advising Bank by an endorsement with the
marking ‘AUTHENTICATED’ OR ELSE THE L/C IS OF NO USE.

Different Type of Documentary Credits.

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

• Revocable / Irrevocable Documentary Credit :A Revocable Documentary Credit


can be revoked (cancelled) by the buyer at his own discretion and this does not
require the consent of the seller. The risk factor here is that the L/C may be
cancelled even after the shipment is done and before the beneficiary present the
documents to the bank for claiming the reimbursement. Hence, a revocable L/C is
as goods as no L/C. obviously, no seller will entertain a revocable L/C. Contrary
to this, an Irrevocable Documentary Credit once established and advised to the
beneficiary, cannot be revoked or cancelled unilaterally by the buyer without the
consent of the beneficiary (Seller).A Seller must always ask for an Irrevocable
Letter of Credit.
• Restricted/ Unrestricted Documentary Credit: A Documentary Credit stipulates
the name of the bank who is authorized to negotiate the document for claming the
reimbursement. In this case the beneficiary is obliged to negotiate the documents
only through the specified bank i.e. Negotiation of document is restricted to that
particular bank. On the contrary if no specific bank is nominated for negotiation,
it may say ‘Negotiation by any bank’ which means the beneficiary is free no
negotiate the document through the bank of his choice. This is beneficial because
he can negotiate the documents through his own bank where he is having an
account. Since the bank is not alien to him, he will not face any
practical/procedural difficulty in negotiating the document. It is suggested to have
an unrestricted L/C or L/C which may be restricted to the bank of the
beneficiary’s choice.

• Confirmed/Unconfirmed Documentary Credit: Confirmed Documentary Credit is


one in which the beneficiary has the option to have the L/C confirmed by a bank
in the beneficiary country i.e. the bank who confirms the L/C takes the

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responsibility of making the final payment to the beneficiary upon negotiation of


the document in strict compliance with the terms and conditions of the Letter of
Credit. By this process the final payment will be made in the beneficiary’s
country by the bank which confirms the L/C immediately upon negotiation of the
documents. The beneficiary do not stand the risk of waiting for the document to
reach the opening bank who will have the final say so to the compliance under the
L/C before making the payment. Further, the payment is also made immediately
after negotiation and without recourse to the beneficiary i.e. the payment once
made by the confirmed bank cannot be revoked. Moreover, if the importing
country’s regulation changes and the money is not allowed to be repatriated, this
will eliminate the risk. On the contrary, in an unconfirmed L/C, the negotiating
bank only accepts the documents and pays for the same with recourse i.e. if as and
when the documents reach the opening bank, and the opening find some
discrepancy in the documents it may refuse to make the payment or seek
clarification for the applicant before reimbursement. The beneficiary is fully at the
mercy of the opening bank for payment. It is suggested to ask for a Confirmed
L/C.
• With Resource and Without (Sans) Resource Letter of Credit: The revocable or
irrevocable LC can further be classified as with resource and without resource
LC.
o With resource LC: In this type the exporter is held liable to the
paying/ negotiating bank, if the draft drawn against LC is not honored
by the importer/issuing bank. The negotiating bank can make the
exporter to pay the amount along with the interest, which it has
already paid to the beneficiary.
o Without (Sans) Resource LC: In the case of sans (without) resource
letter of credit, the negotiating bank has no recourse to the exporter,
but only to the issuing bank or to the confirming bank.

Normally, the negotiating bank makes advance payment to the exporter in


resource of letter of credit either by discounting bills against letter of credit or by

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

• Transferable/Non-transferable Documentary Credit: In a transferable L/C, the


beneficiary can transfer the L/C opened in his name in favor of a third party who
may effect the shipment and negotiate the documents and claim payment under
the said L/C.
• Revolving Documentary Credit: Where an exporter is having a regular shipment
for a particular customer and the value of each shipment may also be of more or
less equal value, and then one can call for a Revolving Documentary Credit.
The salient feature of this L/C is that the buyer opens an L/C which can take care
of shipments, say, may be for a period of one year on a monthly basis.

For e.g. an exporter enters into a contract for supply of 5000 pairs of Trousers
valued approx.US.$.75,000/- to be shipped every month. The buyer can open an
L/C for a value of US.$.75000/- with validity for 12 months stipulating shipment
every month for a value of US$. 75000/-and by adding a clause to make 12
shipment of like value the L/C stands replenished for the full value of the L/C
after each shipment is made the documents are negotiated for which payment are
also made immediately for the value of the shipment. The main benefit in this L/C
is that the buyer, the bank and the exporter are saved from the routine of opening
one L/C every month, the anxiety of non-receipt of the L/C on time, the
amendments that may be warranted every time, the bank charges for opening
number of L/Cs etc.,. A revolving Documentary Credit may have cumulative
effect i.e. if a particular shipment is not made, then the value is added to the value
for future utilization. In an automatic Revolving Credit, the bank is liable for the
total amount covering the entire shipment and where it is non-automatic its

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responsibility is restricted to the value of one shipment. In automatic Revolving


Credit the value of the credit is automatically replenished by an amendment.

Where there are continuous shipments like the one stated above one can call for a
Revolving Letter of Credit.

• Assignable Documentary Credit: In this type of L/C the benefit is shared between
the first beneficiary and the parties whose names are assigned on the L/C. The
assignee is not a party to the letter of credit but he only derives the benefit as per
the L/C. this is more beneficial to the assignee because he receives his part of the
money once the documents are negotiated by the first beneficiary in whose name
the L/C is opened. Calls for an L/C as necessary.
• Stand by Letter of Credit: This is aimed at providing a security to a seller in case
the buyer fails to perform his part. Thus this L/C is used in case of non-
performance while the other types of L/Cs are generally for some performance.
Such credits are paying on first presentation and the only document required
therein is a simple declaration of non-performance along with the statement of
claim. This type of L/C is mainly common in U.S.A.

A standby Documentary Credit is generally common on open account trading


where the seller may expect some security for getting his payment. This is not
permitted in India.

• Red Clause LC: The red clause LC is the usual irrevocable LC with further
authorities the negotiating bank to make advance to the beneficiary for the
purpose of processing the export goods. Thus, the red LC enables the exporter to
obtain packing credit facility for the purpose of processing the goods. It is called a
red-cause LC because it is generally printed/ typed in red ink.
• Green Clause LC: The Green LC in addition to permitting packing credit advance
also provides for the storing facilities at the port of shipment. Green LCs is
extensively used in Australian wool creditors.

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• Back-to-Back LC: Back-to Back LC is a domestic letter of credit. It is a ancillary


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

• Documentary LC: Most of the L\C is documentary L\C. Payment is being made
by the bank against delivery of the full set of documents as laid down by the terms
of credit. The important documents required to be submitted by the exporter under
documentary LC includes the following:

o Bill of Lading /Airway Bill or any other transport document


o Commercial Invoice
o Insurance Policy
o Shipping Bill
o Certificate of Origin
o Combined Invoice and Certificate of Value and Origin
o GSP/CWP certificate
o Packing List
o Certificate of Quality Inspection
o Bill of Exchange
o Any other document if required.

A letter of credit may call for some or most of the above documents and may also call for
some other documents specific to the shipment.

• Traveler’s LC: Traveler’s LC is issued to the person who intends to make a


journey abroad. The correspondent/ agent of the bank honors all the cheques
drawn on this credit by its holder up to the amount mentioned in LC. Traveler’s

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LC has more advantages as compared to traveler’s cheques. In case of cheque, the


holder can withdraw up to the amount of the cheque. Again, he has to carry a
number of cheque. In case of traveler’s LC, the holder can draw any amount up to
the limit mentioned in the LC, and he need to carry only one paper of LC.

Types of Payments under a Documentary Credit.

Payment under a documentary credit can be of the following types:

• payment at Sight: In this mode, the payment is made by the L/C opening bank or
its nominated bank or by a confirming bank on presentation of the documents in
full conformity with the L/C. The L/C may or may not call for draft at sight for
the full value of the documents.
• Deferred Payment Scheme: In this case the payment is to be made at a future date
as stipulated in the L/C. Here, generally NO draft is required as the due date of
payment is defined in the L/C. In case of a confirmed L/C, the final payment is
made by the confirmed bank on due date and by the issuing bank or its nominated
bank if the L/C is not confirmed.
• Acceptance Credit : This type of credit requires a usance draft to be drawn on a
nominated or accepting bank. The payment is made by the nominated/accepting
bank on the due date as per instructions of the negotiating bank. In case of a
confirmed L/C the payment on due date is made by the negotiating bank
(confirming bank).
• Negotiation Credit: Here the payment is made by the negotiating bank upon
negotiation of the documents if it prepares to take the risk and will recourse to the
beneficiary. If the credit is confirmed, then the negotiation bank is obliged to
make the payment upon submission of a clean document by the beneficiary.

Expect in the case of confirmed L/C there is always a time lag between the date of
negotiation of the document and the date of receipt of the payment. This is a grey area. If
the bank acts swiftly and without prejudice, one gets payment within a week’s time. If the
payment is delayed beyond this time, though an exporter has every right to ask for

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compensation, in actual practice, no justice is done to the exporter for the delayed
payment. Very rarely, on persistent approach by the exporter/their banker, does a
defaulting bank comes forward to compensate for the delayed payment. Generally the
exporter has to forego lot of money in correspondence through the negotiating bank
because every communication of the bank is charged to the exporter. It is no surprise
many exporter suffer this loss silently.

Feature of a Documentary Credit

A documentary credit is a document in writing issue by the bank on behalf of its


customer (The Buyer). Documentary Credit must stipulate the Type of Credit as detailed
above and inter alia will also stipulate the

Following details :

• the name of the Bank issuing the Documentary Credit.(The L/C Opening Bank)
• the name and address of the buyer on whose behalf the credit is Issued.(The
Applicant)
• the name and address of a bank in the country of the seller the credit through
Whom the L/C is to be advised to the seller.
• The name and address of the Seller (Beneficiary)
• The Maximum Value the opening bank undertakes to pay to the Beneficiary.
• The date of issue of the credit.
• The Expiry Date of the L/C
• The Validity Date for shipment.
• The Details of the product to be shipped.(Description)
• Details of document required for claiming the payment from the Opening bank.
• The name and address of the bank authorized to negotiate the documents.
• The Reimbursement Clause.

As soon as an L/C is received ensure that the L/C is authenticated. If the L/C received in
mail the signatures are got to be verified by the advising bank. In case of telex/swift the

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bank should endorse on the document authenticated and then only the L/C is a valid
document.

While the above details are the minimum that a Documentary Credit may have in actual
practice there can be other stipulations mutually agreeable to the buyer, seller and the
opening bank as also the negotiating bank.

The guidelines for the interpretation and usage of Letter of Credit are governed by the
UCP 500 (Uniform Customs Practice for Documentary Credit) published by the
International Chamber of Commerce (ICC). The UPC 500 covers all the procedural
aspects relating to the transactions under a Letter of Credit. Hence one is suggested to be
familiar with all the 49 Articles as detailed in the UCP 500 of 1994.

While all the elements and events that one may encounter in each and every organization
can not be explained, the UCP 500 has attempted to take care most of the queries that one
may encounter normally.

The ICC Uniform Customs and Practice was first published in 1993. Taking into the
consideration of the various developments in the transactions under the Documentary
Credit the ICC has been reviewing these rules and updating the same. As time changes
and the international transactions faces new aspects, attempts will be made to get the
UCP 500 revised.

Scrutiny of letter of credit

Mere receipt of letter of credit is no guarantee of payment. There are many ifs and buts
before the documents are submitted to the bank against the letter of credit for realization
of proceeds from the opening bank. As soon as the letter of credit is received a through
scrutiny is to be undertaken to ensure that

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• First and foremost that the credit is properly authenticated by the advising bank.
• The letter of credit has been opened in accordance with the terms of the contract.
• The name and address of the beneficiary has been spelt properly.
• The details of product description, quality, and value are in order.
• The validity of shipment and expiry are correct.
• The documents that are required can be submitted.
• There is sufficient % of tolerance of quantity and value.
• The unit price and the terms of contract are correct.
• The terms and conditions stipulated can be complied with.
• That the credit is available for negotiation without restriction.
• In case of exports requires the credit to be confirmed by the local, then necessary
clause is incorporated by the opening bank on the credit.
• Last but not the least; the credit has a reimbursing clause enabling the negotiation
bank to get reimbursement of the money paid to the exporter against the
documents.

There are only few suggestions. The requirement may differ for different exporter and the
scrutiny has be done relative to the requirement.

AMENDMENTS TO THE CREDIT

On scrutiny of the letter of credit, if the exporter finds that some change are required to
be made in the credit, he should immediately request the buyer to make necessary change
in the letter of credit and the opening bank issued necessary amendment in this respect.
Any oral and written agreement by the importer about change in the credit directly to the
exporter should not be accepted as it is not valid under the credit. Any change must be
advised by the importer through the opening bank only as a sort of amendment to the
original credit.

DOCUMENTARY CREDIT IN GENERAL

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Of all the various type of payments, the most safest as far as the exporter is concerned is
to get an advance payment in full for the value of shipment to be effected. Obviously, this
puts the buyer totally at the mercy of the seller and unless the buyer feels unavoidable he
will not be prepared to make advance payment. Hence, of the rest of the modes of
payment, the best is calling for a Documentary Credit for any shipment. Now let us see
how we can take care of the interest of the exporter while an L/C is established.

It is suggested that the exporter gives the full details as to the various requirements to the
buyer for incorporation in the L/C. this will avoid the necessary of asking for
amendments and will save both time and money. Bear in mind every amendment costs
you badly. Care are should be taken to ensure that there are NO spelling mistakes,
omission and commission of “, or”, or such small things. A discrepancy is a discrepancy
and there is nothing like minor discrepancy or major discrepancy as far as the bank is
concerned. A bank strictly deals in documents and the documents are expected to be cent
percent in line with details give in the Documentary Credit. Ensure that the Validity for
shipment and for negotiation of documents can be complied with. If not possible, call for
amendment extending the validity as required.

Unless the L/C specifies the tolerance for the quantity and value, the exporter should
follow the quantity and value as stipulated in the L/C. There is provision for a tolerance
of the quantity up to 5 percent more or less than stipulated in the L/C even if the L/C does
not specify tolerance exclusively and unless tolerance is prohibited 0 specifically.
However, the value of documents, on no account, could exceed the limits of the L/C.

Check the description of the product properly, the rates if specified, and quantity of each
of the items. Ask for amendment where you cannot copy with the terms. Make sure that
all the documents as called for by the Credit can be submitted without any exception.

The last but not the least is the Reimbursement clause (Getting the funds for the shipment
made). An L/C without this clause is no L/C. if there is no provision as to from where the
exporter is going to get paid for, the whole exercise of the L/C is futile. The opening bank
may specify the reimbursement clauses as follows:

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• The negotiating bank to send the documents to the opening bank who will, upon
receipt of the documents, arrange for reimbursement as claimed by the negotiation
bank.
• The negotiating bank can claim reimbursement directly from a nominated bank
(say ABC Bank, New York) either upon negotiation of documents or after a
period of ¾ days of negotiation subject to the documents being submitted by the
beneficiary is strictly in conformity with terms and condition of the letter of
credit.

I for one prefer the reimbursement clause as in b) so that on one hand my bank sends the
documents to the opening bank and at the same times claims the reimbursement from
nominated bank.

These are some of the aspects one should take care to ensure that the L/C established in
his favor is in order and that he can comply with all the provision thereof. However, one
is advised to make a checklist and take a note of each and every condition of the L/C for
compliance at the right time.

PARTIES TO LETTER OF CREDIT

• Applicant: the buyer or importer of goods.


• Issuing Bank: importer’s bank who issues the L/C.
• Beneficiary: the party to whom the L/C is addressed. The seller or supplier of
goods.
• Advising Bank: issuing bank’s branch or correspondent bank in the exporter’s
country to which the L/C is sent for onward transmission to the beneficiary.
• Confirming Bank: the bank in beneficiary’s country which guarantees the credit
on the request of the issuing bank. (Many a times the advising bank and
confirming bank are one and the same).
• Negotiation Bank: the bank to whom the beneficiary present his documents for
Payment u Under L/C.

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• Reimbursing Bank: the bank which will reimburse the negotiating bank for the
value of the credit.

Where an L/C stipulates that the Negotiation is restricted to a specific bank which is not
the Advising Bank or Where the L/C is not restricted, and the seller desires to negotiate
the document which is not the advising bank, then we have a separate Negotiating Bank.

Where the opening bank prefers to advise the L/C through its own branch in the
beneficiary country or through another bank of its choice, then the L/C may be advised to
the beneficiary directly by this bank or if it instructed to advise the L/C through the
buyer’s nominated bank then it does so. Here, we have two advising bank.

As far as possible, one should restrict the involvement of the number of the banks to the
minimum. More the number of the banks, more the time in the transmission of the L/C, in
addition to multiplicity of bank charges.

SPECIAL NOTE

Though one may strongly feel that a Letter of Credit is the safest mode of payment, one
will face innumerous practical difficulties in so far as compliance with the terms and
conditions of the L/C. since several documents are involved, there are every possible of
discrepancy in the documents either between different documents or between the
document or between the document and the L/C. the Negotiating bank soft pedal some of
the discrepancies which they feel may not be pointed out by the opening bank as
discrepancy to favour its customer. In the like manner the opening bank, to safeguard the
interest of the buyer, would like to ensure that the document submitted against a Letter of
Credit are strictly in full conformity of the L/C.

For mastery of the operation under the Letter of Credit one is advised to completely study
the various articles of the UCP 500 so that one can be clear in his mind as to the various
provisions available under the Documentary Credit which will stand good while
negotiating the documents with the bank. While the articles of UCP 500 come safeguard
the interest of both the buyer and the seller, there are certain elements which may be

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outside the definition of the UPC 500. Also there is certain flexibility provisions in the
UPC 500 which one might like to exploit to his favour.

So, in spite of the L/C being the safest method to ensure the payment, unless both the
buyer and the seller follow the business ethics there is every chance that one gets cheated
by the other. As a prudent exporter one should be very careful in selecting his customer
apart from taking other safety measures.

If the customer is too good, and you have been dealing with them for a long time, one
may relax and term the L/C as the best method to receive payment. If the customer turns
out to be unscrupulous then he can play havoc. This is applicable to both the seller and
the buyer. There are books on fraudulent us of the Documentary Credits. Sometimes it
may be the buyer who is at the receiving end and some time it may be the other way.

A study of such book as above may help one to take adequate care. But, the brain is
always working in multi directions. It will be no surprise if one comes across newer and
newer dubious methods being adopted by the contracting parties.

TOTAL OPERATION UNDER THE LETTER OF CREDIT.

The Unconfirmed L/C.

• The Buyer makes an application to his bank to open an L/C.


• Opening bank establishes the L/C.
• Opening bank advises the L/C through his associate or through the bank.
Nominated by the beneficiary.
• The Bank in the beneficiary country which receives the L/C sends the Original
L/C to the customer either directly or through the bank Specified in the L/C.
• The buyer complies with the L/C requirements and submits the relevant
documents. To the bank for claiming reimbursement.
• The negotiating bank negotiates and sends the documents to the opening bank or
as Directed. Meantime pays the beneficiary.

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• Advises the opening bank or the reimbursement bank the details of his Accounts
and the nominated bank where the proceeds are to be credited.
• Once the credit is received, the nominated bank advises the negotiating bank of
the credit. Thus the negotiating bank gets the credit for the L/C documents.

The Confirmed L/C.

All the steps from 1to6 as far as the beneficiary are concerned since the payment is made
to the beneficiary without recourse. However, the negotiating bank may have to follow
the subsequent steps since he has to receive his money from the opening bank.

PREPARATION AND SUBMISSION OF DOCUMENTS FOR


BANK NEGOTTIATION /PURCHASE

Document against exports should normally be realized through an authorized dealer


foreign exchange. However payment of export can be received directly from the overseas
buyer in the form of bank draft, pay order, banker’s cheque, personal cheque foreign

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

The following are the steps in realizing export proceeds:

• Approaching a Bank: After dispatch of the goods, either by sea, or by air, the
exporter should approach his bank (authorized dealer) with a formal request to
realize sale proceeds from the foreign buyer. It is obligatory to submit the
shipping documents to an authorized dealer within 21 days of the date of
shipment (subject to certain exceptions). In India, the exporters have to realize the
full value of exports within 180 days from the date of shipment, (unless the
payment terms offered are “deferred payment terms”). Where it is not possible to
realize the sale proceeds within the prescribed period, the exporter should apply
for extension in prescribed form ETX (in duplicate) to RBI.

• Submission of Documents to the Bank: The exporter should submit the following
documents
o Bill of Exchange
o Full set of Bill of Lading
o Commercial Invoice Copies
o Certificate of Origin
o Insurance Policy
o Inspection Certificate
o Packing List
o GR (duplicate copy to forward it to RBI)
o Bank Certificate
o Other relevant documents.

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The above documents need to be submitted in two complete sets, because it is


customary to dispatch two sets of documents, one after the other. This is because,
if one set is misplaced or delayed in transit, the importer can get at least the other
set and clear the goods.

• Verification of Documents: The bank will verify the documents to find

o Whether the required documents are in order.


o Whether the required documents are attested by customs and other
authorities.

• Letter of Indemnity: If the exporter wants immediate payment from his bankers,
then his bankers may provide advance payment only when the exporter signs an
indemnity letter. The implications of an indemnity letter is that in the event of
refusal of payment by the issuing bank in respect of LC, then the negotiating bank
can ask the exporter to pay back the money advanced along with necessary
charges.

Common Document Discrepancies

o Credit Expired
o Late shipment
o Presented after permitted time from date of issue of shipping
documents
o Short Shipment
o Credit Amount Exceeded
o Underinsured
o Description of goods on invoice differ from that of credit
o Mark and numbers differ between documents
o Bill of lading, Insurance documents, Bill of Exchange not endorsed
correctly
o Absence of Documents called for under credit.

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o Insurance certificate submitted instead of policy.


o Weight in different document differs.
o Class of Bill of lading no acceptable-charter party or House B/L.
o Insurance cover expressed in currency other than that of credit.
o Absence of signature, where required on documents.
o Bill of exchange not drawn as per tenor stated in credit.
o Bill of exchange drawn on wrong party.
o Insurance risks covered not being those specified in credit.
o Absence of freight paid statement on B/L in CFR of CIF shipment.
o Bill of lading doses not carry shipped on broad stamp.
o Amount shown on invoice and bill of exchange differ.
o Shipment not make to port specified.
o Transshipment/part shipment undertaken where expressly forbidden.
• Discounting of bills: the bank may discount or
negotiate the bills drawn against LC, and make immediate payment to the
exporter, if so required.
• Dispatch of documents: before the submission of
documents for negotiation/collection, the bank examines them thoroughly with
reference to the terms and conditions of the buyer’s order. Letter of credit and the
laws relating to foreign exchange control. If any scrutiny, the documents are in
order, the bank dispatches them to its overseas branch/correspondent branch as
early as possible. The overseas branch of the bank then submits the document to
the importer’s bank, and the importer’s bank hands it over to the importer.

SHIPMENT THROUGH COURIERS

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In addition to the exporter by sea, air, rail or road, exports are also allowed by courier
under the courier imports or exporters (clearance) Regulation Act, 1998.

These regulations shall apply for clearance of goods carried by authorized courier on
outgoing flights on behalf of exports. Consigner for a commercial consideration.

Export Terms & conditions:

Export of any item can be affected by courier, except the following.

• Goods which are subject to cess.


• Goods proposed to be exported with claim of duly drawback.
• Goods proposed to be exported under DEPB, EPCG, AL (Advance License)
• Where the value of goods is more than Rs. 25,0000/-
• Goods where weight of individual packet is more than 32 kg.

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CUSTOM PROCEDURE FOR EXPORT UNDER EDI


SYSTEM

It is brought to the notice of all exporters, importers, CHAs, Trade and General Public
that the computerized processing of Shipping Bills under the Indian Customs EDI
(Electronic Data Interchange) System – (Exports), will commence w.e.f.1`5-09-2004.
The computerized processing of shipping bills would be in respect of the following
categories:

• Duty Free white shipping bills


• Dutiable shipping bills (Cess)
• DEEC Shipping Bills
• EPCG Shipping Bills
• DEPB Shipping Bills
• DFRC Shipping Bills
• 100% EOU Shipping Bills
• Re export, Jobbing Shipping Bills
• Drawback Shipping Bills
• Other NFEI Shipping Bills

The procedure to be followed in respect of filing of shipping bills under the Indian
customs EDI System-Exports at CFS-Mulund shall be as follows:

2. DATA ENTRY FOR SHIPPING BILLS

2.1 Exporters/CHAs are required to register their IE codes, CHAs Licence


Nos, and the Bank A/C No.(for credit of Drawback amount) in the
Customs Computer Systems before an EDI Shipping Bill is filed.

2.2 Exporters/CHAs would be required to submit at the SERVICE CENTRE


the following documents.

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• A declaration in the specified format


• SDF declaration
• Quota/Inspection Certificate
• Drawback/DEEC/DFRC/DEPB Declarations etc., as applicable

2.3 The formats should be duly completed in all respects and should be signed
by the exporter or his authorized CHA . Forms, which are incomplete or
unsigned will not be accepted for data entry
2.4 Initially, data entry for Shipping Bills will be allowed to be made only at
the Service centre. After the exporters/CHAs become conversant with the
EDI procedures, the option of Remote EDI System would also be made
available. In the Remote EDI system (RES) Exporters/CHAs can
electronically file their shipping bills from their offices.
2.5 The schedule of charges to be levied for data entry at the Service Centre is
as follows:

Charges for S/Bills having up to five items ... Rs.60/-

Charges for additional block of five items ... Rs.10/-

Amendment fees (for a block of five items) ... Rs.10/-

Printing of a S/Bill for Remote EDI System ... Rs.20/-

2.6 The Service Centre operators shall carefully enter the data on the basis of
declarations made by the CHAs/Exporters. After completion of data entry,
the checklist will be printed by the Data Entry Operator and shall be
handed over to the Exporters/CHAs for confirmation of the correctness.
Thereafter, the CHA/Exporters will make corrections, if any, in the
checklist and return the same to the operator duly signed. The operator
shall make the corresponding corrections in the date and shall submit the
shipping bill. The operator shall not make any amendment after generation
of the checklist and before submission in the system unless the corrections

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made by the CHAs/Exporters are clearly indicated on the checklist against


the respective fields and duly authenticated by CHA/Exporters signature.
2.7 The system automatically generates the S/Bill Number. The operator shall
endorse the same on the checklist in clear and bold figures. It should be
noted that no copy of the S/Bill would be available at this stage.
2.8 The declarations would be accepted at the service centre from 10.00 hrs to
16.30 hrs. Declarations received up to 16.30 hrs will be entered in the
computer system on the same day.
2.9 The validity of the S/Bill in EDI System is fifteen days only. After expiry
of fifteen days from the date of filing of shipping bill, the exporter has to
file the declaration afresh.

3 PROCEDURE FOR GR-1


3.1 Under the revised EDI procedure there would be no GR-1 Procedure.
Exporters(including CHAs) would be required to file a declaration in the
form SDF. It would be filed at the stage of “goods arrival” One copy of
the declaration would be attached to the original copy of the S/Bill
generated by the system and retained by the customs.The second copy
would be attached to the duplicate S/B (the exchange control copy) and
surrendered by the exporter to the authorized dealer for
collection/negotiations.
3.2 The exporters are required to obtain a certificate from the bank through
which they would be realizing the export proceeds. If the exporter wishes
to operate through different banks for the purpose, a certificate would have
to be obtained from each of the banks. The certificates would be submitted
to customs and registered in the system. These would have to be submitted
once a year for confirmation or whenever the bank is changed.
3.3 In the declaration form to be filled by the exporters for the electronic
processing of export documents, the exporters would need to mention the
name of the bank and the branch code as mentioned in the certificate from
the bank. The customs will verify the details in the declaration with the

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information captured in the system through the certificates registered


earlier.
3.4 In the case of S/Bs processed manually, the existing arrangement of filing
GR-1 forms would continue.

• OCTROI PROCEDURES, QUOTA ALLOCATION AND OTHER


CERTIFICATION.

1.1 The processing of S/Bs involving allocation of ready-made garments


quota by the Apparel Export Promotion Council (AEPC) will change with
the introduction of the system. The quota allocation label will be pasted on
the export invoice instead of S/B. Allocation number of AEPC would be
entered in the system at the time of S/B data entry. The quota certification
on export invoice should be submitted to Customs along with other
original documents at the time of examination of export cargo.
1.2 As a transitional measure, AEPC certification even on S/B form would be
accepted. However, in these cases, S/B number should be indicated on the
invoice when goods are presented for examination. This transitional
facilitation measure will be available for a period of two months i.e., upto
30th November 2004.
1.3 For determining the validity date of the quota, the relevant date would be
the date on which the full consignment is presented for examination and
the date to recorded in the system.
1.4 The certificate of other agencies, such as, the Cotton Textiles Export
Promotion Council; the Wildlife Inspection Agency under CITES; the
Engineering Export Promotion Council; the Agricultural Produce Export
Development Agency (APEDA), the Central Silk Board and the All India
Handicraft Board should also be obtained on the invoice. Similarly, the no
objection of the Asst. Drug Controller and of the Archaeological of Survey
India would be obtained on the Invoice.

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The transitional arrangements would be the same as in the case of AEPC


certification.

1.5 The exporters would have to make use of export invoice or such other
documents as required by the Octroi Authorities for the purpose of octroi
exemption.
2. ARRIVAL OF GOODS AT EXPORT EXAMINATION SHEDS IN CFS
2.1 The existing procedure of permitting entry of goods, brought for the
purpose of examination (and subsequent: “Let export” Order) in the CFS
on the strength of S/B shall be discontinued. The CONCOR will permit
entry of the goods on the strength of the checklist, the date entry form and
the declaration. The CONCOR would endorse the quantity of goods
entering the CFS on the reverse of the checklist
2.2 The goods should be brought for examination within 15 days of filing of
declaration in the Centre. In case of delay, a fresh declaration would need
to be filed
2.3 If at any stage subsequent to the entry of goods in CFS it is noticed that
the declaration has not been registered in the system, the exporters and
CHAs will be responsible for the delay in shipment of goods and any
damage, deterioration or pilferage, without prejudice to any other action
that may be taken.
3. PROCESSING OF SHIPPING BILLS
3.1 The S/B shall be processed by the system on the basis of declaration made
by the exporter. However, the following S/B shall require clearance of the
Assistant Commissioner/Dy. Commissioner (AC/DC Exports):

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


• Free Trade Sample S/B for FOB value above Rs.25,000
• Drawback S/B where the drawback exceeds Rs. One lakh

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3.2 Subject to the provisions of para 20.3 of this PN the following categories
of S/Bills shall be processed buy the Appraiser (Export Assessment) first
and then by the Asstt/Dy. Commissioner:

• DEEC
• DEPB
• DFRC
• EOU
• EPCG

3.3 Apart from verifying the value and other particulars for assessment, the
AO / AC / DC may call for the sample s for confirming the declared value
or the checking classification under the drawback schedule / DEEC /
DEPB / DFRC / EOU etc., He may also give special instruction for
examination of goods.
3.4 If the S/B falls in the categories indicted in para 6.1 above, the exporter
should check up with the query counter at the Centre, whether the S/B has
been cleared by Asstt. Commissioner /Dy. commissioner, before the goods
are taken for examination. In case AC / DC raises any query, it should be
replied through the Service Centre or, in case of EDI connectivity, through
terminals of the Exporter / CHA. After all the queries have been
satisfactorily replied to, AC / DC will pass the S/B
4. CUSTOMS EXAMINATION OF EXPORT CARGO
4.1 On receipt of the goods in the Export Shed in the CFS, the exporter will
contact the system examining officer (SEO)and present the checklist with
the endorsement of CONCOR on the declaration, along with all original
documents such as Invoice, Packing List, ARE-1(AR-4)etc. He will also
present additional particulars in the prescribed form.
4.2 SEO will verify the quantity of the goods actually received against that
entered in the system. He will enter the particulars in the system. The
system would identify the Examining Officer (if more than one are

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available)who would be carrying out physical examination of goods. The


system would also indicate the packages(the quantity and the serial
numbers) to be subjected to examination. SEO would write this
information on the checklist and hand it over to the exporter. He would
hand over the original documents to the Examining Officer. No
examination order shall be given unless the goods have been physically
received in the Export Shed. It may, however, be clarified that Customs
may examine all the packages/goods in case of any discrepancy.
4.3 The Examining Officer may inspect and/or examine the shipment, as per
instructions contained in the checklist and enter the examination report in
the system. There will be no written examination report. He will then mark
the Electronic S/B and forward the checklist along with the original
documents to the Appraiser/Supdt. in Charge. If the Appraiser/Supdt. is
satisfied that the particulars entered in the system conform to the
description given in the original documents (including AEPC quota and
other certifications) and the ;physical examination, he will proceed to give
“:Let Export” order for the shipment and inform the exporter. The
Appraiser/Supdt. would retain the checklist, the declaration and all
original documents with him.
4.4 In case of any variation between the declaration in S/B and the documents
or physical examination report, the Appraiser/Supdt. will mark the
electronic S/B to AC/DC Exports. He will also forward the documents to
AC/DC and advise the exporters to meet the AC/DC for further action
regarding settlement of dispute. In case the Exporter agrees with the
views of the Department, the S/B would be processed finally. Where the
exporter disputes the views of the Department, the case would be
adjudicated following the principles of natural justice.
5. GENERATION OF SHIPPING BILLS
5.1 As soon as the Shed Appraiser/Supdt.gives “Let Export” order, the system
would print 6 copies of the S/B in case of Free and scheme S/B. In case of
DEPB there are 7 S/B. If the S/B (DEPB) is assessed provisionally, then

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EP copy will be generated only after AC/DC finalises the assessment. On


the examination report the Appraiser/Shed Supt.will sign. On all the
copies, the Appraiser/Shed Supdt., Examination Offer as well as
exporter’s representative/CHA will sign. Name and ID Card number of the
Exporters representative/CHA should be clearly mentioned below his
signature.
5.2 The distribution of S/Bills is as follows:

DEPB Scheme S/Bills Other Scheme S/Bills

• 1. Exporter’s copy 1. Exporters copy


• 2. Custom’s Copy 2. Customs copy
• 3. Exchange Control Copy 3. ExchangeControl Copy
• 4. Scheme Bill Copy 4. E.P.Copy
• 5. E.P.Copy 5. TR-1. TR-2 Copies
• 6. TR-1, TR-2 Copies

5.3 The original AEPC quota and other certificates will be retained with the
S/Bills and recorded in the Export Shed.
6. PAYMENT OF MERCHANT OVERTIME (MOT)
6.1 For the time being the present manual system for payment of Merchant
Overtime (MOT) charges will continue.
6.2 MOT charges will be required to be paid by exporter when the goods are
examined by Customs for allowing “Let Export” beyond the normal office
hours. No charges would be required to be paid on normal working days
when the examination itself is being done for “Let Export” upto 05.oo PM.
In addition, no charges would be required to be paid if the exporter wants
the goods to be entered in CONCOR (CFS) only for meeting the quota
deadlines.

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7. DRAWAL OF SAMPLES
7.1 Where the Appraiser of Customs orders for samples to be drawn and
tested, the Examining Officers will proceed to draw two samples from the
consignment and enter the particulars thereof along with name of the
testing agency in the system. No registers will be maintained for recording
dates of samples drawn. Three copies of the test memo will be sprepared
and signed by the Examining Officer, the Appraiser and Exporter. The
disposal of the three copies would be as follows:

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


• Duplicate copy to be retained with the second sample
• Triplicate to be handed over to the exporter.

7.2 AC/DC may, if he deems necessary, order for sample to be drawn for
purposes other than testing such as visual inspection and verification of
description, market value enquiry etc.

11 QUERIES
11.1 With the discontinuation of the assessment of S/B in the Export
Department, there should not be any queries. The exporter, during
examination, can clarify doubts, if any. In case where the need arises for
the detailed answer from the exporter, a query can be raised in the system
buy the Appraiser, but would need prior approval of AC/DC (Exports) The
S/B will remain pending and cannot be printed till the exporter replies to
the query to the satisfaction of the Assistant Commissioner/Dy.
Commissioner
12 AMENDMENTS:
12.1 Corrections/amendments in the checklist can be made at the service centre
provided the system has not generated the S/B number. Where corrections
are required to be made after the generation of the S/B No. or, after the

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goods have been brought in the docks/CFS, amendments will be carried


out in the following manner.

• If the goods have not yet been allowed “Let Export”, Assistant
Commissioner/Dy. Commissioner may allow the amendment.
• Where the “Let Export” order has been given, the Addl./Joint Commissioner
(Exports) would allow the amendments

12.2 In both the cases, after the permission for amendments has been granted, the
Asstt./Dy. Commissioner(Exports) will approve the amendments on the
system. Where the print out of the S/B has already been granted, the exporter
will surrender all copies of the S/Bill to the Appraiser for cancellation before
amendment is approved in the system.

13. SHORT SHIPMENTS, SHUT OUT, CANCELLATION AND BACK


TO TOWN PERMISSIONS.
13.1 AC/DE (Export) will give permission for issue of short shipment
certificate, shut out or cancellation of S/B, on the basis of an application
made by the exporter. The S/B particulars would need to be cancelled
/modified in the system before granting such permission. AC/DC should
check the status of the goods, before granting permission.

14. AMENDMENT OF FREIGHT AMOUNT

14.1 If the freight/insurance amount undergoes a change before “Let Exports”


is given, corresponding changes would also need to be made in the S/B
with the approval of AC/DC Exports. But if the change has taken place
after the “Let Exports” Order, approval of Additional/Jt.Commissioner
would be required. Non-intimation of such changes would amount to mis-
declaration and may attract penal action under Customs Act 1962.

15. RECONSTRUCTION OF LOST DOCUMENTS:

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15.1 Duplicate print out of EDI S/B cannot be allowed to be generated if it is


lost, since extra copies of S/B are liable to be misused. However, a
certificate can be issued by the Customs stating that “Let Exports” order
has been passed in the system to enable the goods to be accepted by the
Shipping Line, for export. Drawback will be sanctioned on the basis of the
“Let Export” order already recorded on the system.

16 RE-PRINT OF SHIPPING BILL:

16.1 Similarly, reprints can be allowed where there is a system failure, as a


result of which the print out(after the “Let Export” order) has not been
generated or there is a misprint. Permission of AC/DC (exports) would be
necessary for the purpose. The misprint copy shall be cancelled before
such permission is granted

17 EXPORT OF GOODS UNDER CESS

17.1 For export items, which are subject to export cess the corresponding serial
number of the Cess Schedule should be clearly mentioned. A printed
challan generated by the system would be handed over to the exporter.
The cess amount indicated should be paid in the Bank of India, Extension
Branch of CFS, under a receipt.

18. EXPORT OF GOODS UNDER CLAIM FOR DRAWBACK

18.1 The scheme of computerized processing of drawback claims under the


Indian Customs EDI system-Exports will be applicable for all exports
through CFS.

18.2 In respect of goods to be exported under claim for drawback, the exporters
will file declaration in the form. The declaration in the form would also be
required to be filed when the export goods are presented at the Export
Shed for examination & “Let Export”

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18.3 The exporters who intend to export the goods through CFS under claim for
drawback are advised to open their account with the Bank of India branch
situated at CFS-Mulund. This is required to be done to enable direct credit
of the drawback amount to the exporters account, obviating the need for
issue of separate cheque by post. The exporters are required to indicate
their account number opened with the Bank of India branch at CFS-
Mulund. It would not be possible to accept any shipment for export under
claim for drawback in case the account number of the exporter in the bank
is not indicated in the declaration form.
18.4 The exporters are also required to give their account number along with
the details of the bank through which the export proceeds are to be
realized.
18.5 Export declarations involving a drawback amount of more than rupees one
lakh will be processed on screen by the AC/DC before the goods can be
brought for examination and for allowing “Let Export”:
18.6 The drawback claims are sanctioned subject to the provisions of the
Customs Act 1962, the Customs and Central Excise duties drawback rules
1995 and conditions prescribed under different sub-headings of the All
Industry rates as per notification number 26/2003-Cus(NT) dated 1.4.2003
as amended by notification number 12/2004-Cus(NT) dated 29-01-04.
18.7 After actual export of the goods, the drawback claims will be processed
through EDI system by the officers of drawback branch on first come first
serve basis. There is no need for filing separate drawback claim. The
claims will be processed, based on the Train Summary/Inward way bill,
submitted by CONCOR. The status of the S/Bill and sanction of
drawback claim can be ascertained from the “query counter” set up at the
service centre. If any query has been raised or deficiency noticed, the same
will be shown on the terminal and a printout of the query/deficiency may
be obtained by the authorized person or the exporter from the service
centre. The exporters are advised to reply to such queries expeditiously
and such replies shall be got entered in the EDI system at the service

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centre . The claim comes in queue of the EDI system after reply to
queries/deficiencies is entered by the service centre.
18.8 Shipping Bills in respect of goods under claim for drawback against brand
rates would also be processed in the same manner, except that drawback
would be sanctioned only after the original band rate letter is produced
before the designated customs officer in the office of Asstt/Dy.
Commissioner (Export) and is entered in the system. The exporter should
specify the SS No. of drawback as 98.01 for provisional drawback.
18.9 All the claims sanctioned in a particular day will be enumerated in a scroll
and transferred to the Bank through EDI. The bank will credit the
drawback amount in the Account of the exporter on the next day and will
handle accounts of the exporters as per their instructions. Bank will also
send a fortnightly statement to the exporters about the payments of their
drawback claims.

19. EXPORT OF GOODS UNDER DEPB


19.1 While filing information as per the format, exporters are required to ensure
that correct Group Code No. of the goods being exported and the item No.
of relevant Group is clearly mentioned (item-wise details). The
exporters/CHAs are advised to fill Item No, in the same manner as given
in the Public Notices issued by DGFT.
19.2 DEPB Credit in respect of items like formulations, injections etc. of group
code No.62 (Chemicals) are at a specific percentage of credit rate for the
relevant bulk drug. For proper calculations of DEPB rate, exporters/CHAs
are advised to claim export under the specific Sl.No. if they are exporting
injections and thereafter mention Sl.No. of Group Code 62 of the bulk
drug of which such injections have been made. The system will calculate
the said specific percentage of the DEPB rate of such bulk drugs,
formulations of which are being exported.
19.3 All the DEPB S/Bills having FOB value less than Rs.5 lakhs and/or DEPB
rates less than 20% will be assessed by Appraiser/Supdt. (DEPB Cell)

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However, the S/Bill having FOB value more than Rs.5 lakhs and/or credit
rate 20% or more will be assessed by AC/DC (Export) . Any query at the
time assessing by Appraiser (DEPB cell) or AC/DC (Export) may be
obtained from the service centre and reply to the query has to be furnished
through service centre.
19.4 If the group code No., Item No. and FOB value declared is accepted by the
Appraiser/Supdt (DEPB Cell) or Asstt./Dy. Commissioner(Export), goods
may be brought and entered in the system. The examining officer will feed
the examination report and “Let Export” order will be given by
Appraiser/Supdt. in the EDI system. Seven copies of S/Bill will be printed
for the purposes mentioned against each as under :
Customs Copy For record of Customs
Exporter’s copy For record of Exporters
E.P.Copy For office of DGFT
DPB copy For use in the import cell of ICD Bangalore for
registration of licence.
Exchange Control Copy For negotiating the export documents in bank
TR-1TR-2 copies
19.5 There is a provision for changing the Group Code No./Item No./Value for
DEPB credit purposes and such changes will be reflected in the print out
of the S/Bill. Such charges may be done by Appraiser/Supdt. (DEPB Cell)
AC/DC(Export) as well as by Appraiser/Supdt.(Exam.) The credit will be
allowed by the DGFT at the rate/value (for credit purposes only) as
approved by Customs. The EP copy of the shipping bill shall be used by
the Exporters to obtain DEPB licence from DGFT.
19.6 In case, for credit purposes, the exporter accepts the lower value as
determined by customs, such lower value will be entered by Appraiser
(DEPB Cell) AC/DC (Export) or by Appraiser (Exam) for each item(s)
Printout of S/Bill at item level will indicate for FOB value as well value
for DEPB credit purposes. Exporters are required to apply for the DEPB
Licence at the B value accepted by Customs and not the value declared by
them. However, as DEPB is issued on the basis of exchange rate
applicable on the date of Let Export, exporters are advised to apply for

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DEPB Licence at the value accepted by Customs at the time of export


multiplied by exchange rate on the date of Let Export(LEO) (As per para
4.43 of EXIM Policy 2003 edition)
19.7 In case the exporter does not accept the value determined by the customs,
the exports will be allowed provisionally after taking samples ‘for market
enquiry. The words “NOT VALID FOR DEPB” will be printed on all the
copies of S/Bill and the exporters will be not be eligible for DEPB licence
against provisionally assessed S/Bills. In such cases, EP copy of S/Bill
will not be printed and only 6 copies will be printed. However, market
enquiries about value will be conducted in such cases and either after issue
of the Show Cause Notice the market value will be determined or may be
accepted by the Exporters on his own. In such cases where samples are
drawn subject to market enquiry the copy of the S/Bill for claiming DEPB
will be generated after determination of value on the basis of market
enquiry and handed over to the exporters duly signed by Appraiser/Supdt.
of Customs. In such cases wherever market value has been found to be
less than twice the credit claimed, the market value will be mentioned in
the EP copy of S/Bill as under :

“Market value of the goods is Rs………..and credit not to exceed 50% of


the market value”

Sample may also be drawn for the other purposes such as Chemical test,.
DEPB entitlement etc. The procedure of Provisional Assessment shall be
applicable mutates mutandis to above cases as well and the cases will be
finalized after necessary reports etc. arte received and unprinted copy of
S/Bill meant for DEPB Licence shall be released thereafter for printing.

19.8 Registration of DEPB Licence:

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The DEPB Licence in respect of exports made from this customs station
will be required to be registered at the same station. Before registration,
the concerned officer will verify the S/Bill(s) in the Licence from the
computer ensure that exports have been affected and value mentioned is as
determined by customs at the time of export. In cases of S/Bills assessed
provisionally, the verification will not be possible because S/Bill will not
be in the verification queue. The exporters are advised to obtain licences
for the items exported un DEPB scheme and not for non-DEPB items. If
the lower value for credit purposes has been accepted at the time of export,
the licenses shall be obtained only for such lower value and not for FOB
value declared in S/Bill or as per Bank realisation certificate. Similarly in
cases where market value of the goods is less than twice the credit availed,
the licence shall be obtained for 50% of the present market value of the
goods. The computer at the time of registration of licence will calculate
admissible credit on the basis of exchange rate on the date of realisation of
export proceeds (as per bank realisation certificate) for DEPB items only
and at customs approved value at the time of export. If the amount of
licence is more than the amount of credit calculated by the system, it will
not be possible to register a licence and reference will be made to DGFT
for correction of amount of credit. If the amount of credit as per customs
computer matches with the credit as per DEPB licence, computer will
generate printout regarding verification of the exports giving details like
S/Bill No. date , rate of credit, FOB value as approved by customs and
amount of credit etc. DEPB licence will be registered on the basis of
printout of verification report duly signed by AC/DC (Export). If a DEPB
Licence is having S/Bills exported from other ports in the same city the
exporters can get the licence registered at any of the ports from where he
intends to import the goods in the city after verification about exports from
other ports from where exports were affected. The same procedure will be
followed for DFRC Licences also.

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20. EXPORT OF GOODS UNDER 100% EOU SCHEME

20.1 The exporters can get the export goods examined by Central
Excise/Customs Officer at the factory even prior to filling of S/Bill. Self
sealing facility is also available. He shall obtain the examination report in
the form to this Public Notice duty signed and stamped by the examining
officer and supervision officer at the factory. The export invoice shall also
be signed and stamped by both the officers at the factory. Thereafter the
goods shall be brought to the concerned customs warehouse for the
purpose of clearance and subsequent “Let Export”. The exporters/CHA
shall present the goods for registration along with Examination Report,
ARE-1, Export Invoice duly signed by the Examining Officer and
supervising officer at the factory, check list, declaration in form and other
documents such as document of transportation, ARE-1, etc., to the
examiner in the concerned shed. After registration of goods, the shipping
bill will be marked to an examiner for verification of documents and seal.
If seal is found intact the S/Bill will be recommended for LEO, which will
be given by the shed appraiser. However if seal is not found intact, the
goods will be marked for examination and LEO will be given if the goods
are found in order.

21. EXPORT OF GOODS UNDER EPCG SCHEME

21.1 All the exporters intending to file shipping bills under the EPCG scheme should
first get their EPCG licence registered with the Export section. For registration of EPCG
licence, the exporter/CHA shall produce the Xerox copy of EPCG licence to the service
centre for data entry. A printout of the relevant particulars entered will be given to the
exporter/CHA for his confirmation. After verifying the correctness of the particulars
entered, the said printout will be signed by the exporter. Thereafter, the original EPCG
licence along with the attested copy of the licence and the signed printout of the
particulars shall be presented to the Appraiser/Supt (EPCG Cell)The Appraiser/Supdt.
(EPCG Cell) would verify the particulars entered in the computer with original licence

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and register the same in EDI system. The registration number of the EPCG Licence
would be furnished to the exporters/CHA, who shall note the same carefully for future
reference. The said registration number would need to be mentioned against respective
item on the declaration form filed for data entry of the s/bill, at the time of export of
goods. All the EPCG S/Bill would be processed on screen by the Appraiser/Supdt.(EPCG
Cell) and the AC/DC (Export). After processing of the EPCG S/Bill by the Appraiser
EPCG Cell and AC/DC Export, the goods can be presented at the Customs warehouse for
registration, examination and “Let Export” as in the case of other export goods. After
train summary is submitted to CONCOR, the S/Bill will be put to Appraiser queue for
logging/printing of ledger. After logging/printing of ledger, the EPCG bill will be moved
to history tables.

22 EXPORT OF GOODS UNDER THE DEEC SCHEME

22.1 Only shipping bills pertaining to DEEC books issued on or after 1.4.95 will be
processed on the EDI system.

22.2 All the exporters intending to file s/bills under the DEEC scheme including those
under the claim for drawback should first get their DEEC Book registered with the CFS
Mulund. The registration can be done in the service centre.

The original DEEC book would need to be produced at the service centre for data entry.
A print out of the relevant particulars entered will be given to the exporter/CHA. The
DEEC Book would need to be presented to the Appraiser/Supdt., DEEC Cell, who would
verify the particulars entered in the computer with the original DEEC and register the
same in the EDI system. The registration No. of the DEEC Book would be furnished to
the exporter/CHA, which would need to be mentioned on the declaration forms at the
CFS for export of goods It would not be necessary thereafter for the exporter/CHA to
produce the original DEEC book for processing of the export declarations

22.3 Each book will be allotted a Registration No. should be indicated on the shipping
bills in the relevant columns.

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22.4 Exporters/CHAs that will be filling S/Bills for export of goods under the DEEC
Scheme would be required to file additional declarations regarding
availment/non-availment of MODVAT or regarding observance/non-observance
of specified procedures prescribed in the Central Excise 1944 in the form. The
declaration should be supported by necessary certificates (ARE-1 or for non-
availment of MODVAT) issued by the jurisdiction Central Excise authorities.
“Let Export” would be allowed only after verification of all these certificates at
the time of examination of goods. The fact that the prescribed DEEC declaration
is being made should be clearly stated at the appropriate place in the declaration
being filled in the service centre or through RES-Mode.
22.5 All the export declarations for DEEC would be processed on screen by the
Appraiser/Supdt., Export Department and the AC/DC Exports. The said
processing would be akin to the processing of Bill of Entry on the EDI System
with provisions for query/reply. After the declarations have been so processed and
accepted, the goods can be presented at the Export Shed along with DEEC Books
registered in the4 EDI System so that the export declarations are processed
expeditiously.
22.6 Further, exporters availing of DEEC benefits in terms of various notifications
should file the relevant declarations.
22.7 It is further clarified as follows:

• While giving details relating to DEEC operations in the form the exporters/CHAs
should indicate the S.No. of the goods being exported in the column titled “ITEM
S.NO.IN DEEC BOOK PART E”
• If inputs mentioned in DEEC Import book only have been used in the
manufacture of the goods under export, in column titled “Item Sr.No. in DEEC
Book Part C” the exporters/CHAs are required to give S.No. of inputs in Part-C of
the DEEC Book and Exporters need not fill up column titled “DESCRIPTION OF
RAW MATERIALS”
• If some inputs which are not in Part-C of the DEEC Book have been used in the
manufacture of the goods under export and the exporter wants to declare such

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inputs, he shall give the description of such inputs in column titled


“DESCRIPTION OF RAW MATERIALS”
• In the Col. “IND/IMP”, the exporters are required to write “N”, if the inputs used
are indigenous and “M”. if the inputs used are imported.
• In column titled “Cess Schedule Sl.No.” the relevant Sl.No. of the Schedule
relating to Cess should be mentioned.

23. EXPORT OF GOODS UNDER DFRC SCHEME:

The details pertaining to export products i.e. input materials utilized as per SION should
be clearly mentioned in the declaration mentioned at Annexure A at the time of filing.

24. EXPORT GENERAL MANIFEST:


24.1 All the steamer agents shall furnish the Export General Manifest, House Bill of
Landing wise, t the Customs electronically. In the beginning, the steamer agents
are required to enter the manifest in the Customs Computer System through the
Service Centre on payment of the prescribed fee. (In due course, arrangements
will be made for the electronic delivery of Export General Manifest through
EDI Service Providers. Till such time, all the EGMs will have to be entered at
the Customs Computer System only.)
25. GRIEVANCE HANDLING
25.1 The Asstt. Commissioner/ Dy. Commissioner of Customs, CFS-Mulund may be
approached by exporters or their CHAs for settlement of any problems faced at
any stage of the export clearance.

THE ECGC COVER

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The abbreviated form for Export Credit and Guarantee Corporation is ECGC. As the
name indicates this is a sort of guarantee or a sort of cover for the exporter. Let us now
see what this is all about.

Needless to say that an exporter before entering into a contract with the overseas buyer
for making any supply, takes care to ensure that the customer with whom he is dealing
have some credit worthiness. This he may be able to do either through the local agent
who is in a better position to know about the customer or through a bank or through any
of the exporter’s associates if happens to be in the area of the customer etc., But, in a
business things may change. The financial status of a customer may take drastic turn and
an established customer may go bankrupt within a short period of time.

Moreover, the buyer may be willing to make the payment, but there are other
environment which prevents him from effecting the transfer of funds through the bank.
For e.g., there could be break out of war, the balance of payment position of the country
may become unfavourable, there may be some coup of the government etc., and all
transactions could be sealed.

These are the risk factors for the exporters. What is the guarantee that he will get paid for
the supplies he has made?

With a view to provide support to Indian exporters, the Govt. of India set up the Export
Risk Insurance Corporation (ERIC) in 1957. This was transformed into Export Credit &
Guarantee Corporation Ltd. in 1964. In order to give the Indian identity a sharper focus
the name was again changed to Export Credit & Guarantee Corporation of India Ltd., in
1983. This is a company wholly owned by the Govt. of India and functions under the
administrative control of the Ministry of Commerce and managed by the Board of
Directors representing Government, Banking, Insurance, Trade, Industry etc.

Though one may insist for a Letter of Credit, still there could be some elements of risk
which we will study later here. Except getting an advance payment for the full value of
the supplies, any other mode of payment will have some risk.

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Take the case of an exporter who has made supplies and before the payment is received
the buyer goes bankrupt or there comes some new provision or policy of Government of
the importing country preventing repatriation of the funds to other countries what
recourse the exporter has to recover his dues. The litigation procedure might be time
consuming and the exporter can never be sure of getting his full payment. An ECGC
cover a safeguard his interest to a great extent.

An exporter can either agree for sight payment or can made shipment on credit terms for
say 60 days, 90 days etc., In project exports the period of payment may extend to some
years. Longer the period of cre3dit given to the customer, more will be the risk factor for
the exporter.

In respect of sight bill, there is almost no risk because the customer has to make payment
first before he retires the documents. Therefore, before the title of the goods is passed on
to the customer, the importer makes the3 payment. However, in respect of usance bill
(credit bills) the buyer retires the documents by accepting the usance draft and takes
delivery of the goods. In case the customer goes bankrupt or become insolvent, before the
due date of payment, the exporter is totally at a loss. While big units may be able to
absorb the one time loss, small exporters will get broke even with one such transaction.
Here the ECGC comes into picture. It takes up the responsibility of paying the funds to
the exporter and makes all efforts including legal proceedings to recover the dues from
the customer, provided the exporter has taken an ECGC cover.

WHAT ECGC OFFERS FOR PROTECTION OF EXPORTER’S INTEREST ?

ECGC offers various types of insurance cover to protect the exporter’s interest. For each
type of cover an exporter has to take Policy specific to the respective requirements. The
Policy that is most commonly taken by the exporters is the Standard Policy or otherwise
called the Shipments (Comprehensive Risks) Policy.

SHIPMENTS (COMPREHENSIVE RISKS) POLICY also called STANDARD


POLICY

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For exporters with an annual export turnover in excess of Rs.50 lakhs, the Shipments
(Comprehensive Risks) Policy is the one intended for covering shipments on cash basis
or on short-term credit basis. (Credits not exceeding 180 days)

The risks covered this Policy is as follows effective from the date of shipment.:

Commercial Risks

Insolvency of the buyer


Failure of the buyer to make payment within a specified period.
Buyer’s failure to accept the goods subject to certain conditions.

Political Risks

• Imposition of restrictions by the Govt. of the buyer’s country or any


government action which may block or delay the transfer of payment made by
the buyer.
• War, civil war, revolution or civil disturbances in the buyer’s country
• New import restrictions or cancellation of a valid import licence
• Interruption or diversion of voyage outside India resulting in payment of
additional freight or insurance charges which cannot be recovered from the
buyer.
• Any other cause of loss neither occurring outside India nor normally insured
by general insurers and beyond the control of both the e porters and the buyer.

Risks not covered under the Policy

The Standard Policy does not cover losses on account of following risks:

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• Commercial disputes including quality disputes raised by the buyer unless


the exporter obtains a decree from a competent court of law in the buyer’s
country in his favour
• Causes inherent in the nature of the goods
• Buyer’s failure to obtain necessary import or exchange control clearance
from authorities concerned
• Insolvency or default of the agent of the exporter or of the collecting bank
• Loss or damage to goods which can be covered by general insurers.
• Exchange rate fluctuations
• Failure of the exporter to fulfill the terms of the export contract or
negligence on his part.

Shipments Covered

The Standard Policy is meant to cover all the shipments that may be made by an exporter
during a period of 24 months ahead. The policy cannot be issued for selected shipments,
selected buyer or selected markets. For specific requirements an exporter can opt for
different policy from the various services offered by the corporation

Exclusions:

Shipments made against advance payments received or shipments against confirmed


letters of credit which has the confirmation from the bank in India may be excluded.

However, shipments against confirmed L/C may be covered for political risks only. The
premium for cover under political risks will be less than that under the comprehensive
policy. ECGC may also agree to exclude certain items if the exporter is dealingt in
different distinct products.

Shipments to Associates:

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EXPORT PROCEDURE AND DOCUMENTATION

Shipments to buyers i.e. the foreign buyers in whose business the exporter has financial
interest, are normally excluded from the Policy. However such shipments can be covered
against political risks.

Shipments on Consignment basis:

Shipments on consignment basis can be covered only against political risks.

Shipments by Air

Since the buyer is able to take delivery of the goods even without retiring the bank
documents, shipments by air are not covered under the policy. However, the exporter
may cover such shipments for payments under open terms. The exporter can have cover
for such shipments, if he has obtained Credit Limit on such buyers on open delivery
terms and also pays the premium at rates applicable to open delivery terms.

HOW TO GET ECGC COVER

Step 1. Open Policy:

An exporter desiring to get the ECGC cover has to approach the office of the ECGC
making a Proposal. He must make his home work and be clear as to what will be his total
turnover during a year ad what will be the maximum amount he expects to be outstanding
from various buyers at a given point of time. Once this is clear he can apply for an Open
Policy for the maximum amount that he expects to be outstanding at a given point of
time. Suppose, he expects that at any given time his outstanding will be say Rs.50/- lakhs
then he can apply for a policy for this amount. After verification of the details of the
exporter, the ECGC may issue a open policy for Rs.50 lakhs with a validity of say 2
years. This is the first step.

Step 2. - Credit Limit on Individual Buyer

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Once the open policy is taken, as a next step the exporter must make out the list of the
customers to whom he expects to make shipment. For each and every customer he has
to apply to the ECGC to have a limit of liability fixed. That is to say, he has to declare the
maximum amount of bills he expects to be outstanding from each customer at a given
point of time. Based on the value of business dealing, suppose the exporter expects that
from customer A the outstanding may be Rs.10 lakhs. Then the exporter has to apply to
ECGC in the prescribed form for getting limit fixed for the customer. On receipt of the
application, ECGC will check for the credit worthiness of the customer either through
their own net work of offices globally, or through the customer’s bank or through some
reputed independent agency. Based on the credit report, ECGC will determine the limit
that can be fixed for the customer. If it feels that a limit of Rs.10 lakhs is in order, it will
advise the exporter of the same. Similarly, the exporter can have the limit fixed to all his
customers.

Once the limit is taken from ECGC, the exporter is free to make his shipments to the
various customers. If shipment for any customer is made before getting the limit fixed by
ECGC, no risk will be covered for that shipment.

Step 3 – Payment of Premium and filing of monthly returns

For the risk the ECGC takes, it charges a premium on the value of the shipments actually
made. This is calculated as per the table to be supplied by ECGC which shows the
premium per Rs.100 of exports.

This table which gives the premium amount payable is framed based on the following.

The various countries around the globe are divided into different groups and are
classified as A1, A2, B1, B2, C1,C2 & D. The countries are grouped according to
their economic standard. For e.g. USA. Canada, UK are grouped in category A. The
premium amount will be less for group A countries and will be increased gradually to
group B, C & D countries.

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The premium for group D countries will be more because they are all economically
weaker countries and payment risks are high

Again the premium table is based on the period of credit. The slab is for credits up to 90
days, 120 days, 180 days etc. Longer the credit period greater is the premium.

Thus, the premium will be least for group A countries and for the shorter credit
period and will be maximum for group D countries and for maximum credit period

FILING OF MONTHLY RETURNS:

The exporter has to send a monthly return in the prescribed form to ECGC declaring the
list of various shipments made and the amount of premium payable as per the premium
table. The exporter has to work out the total premium applicable on the shipment effected
and make payment to the ECGC

The exporter is also expected to file a Monthly Return in a separate form listing all the
Bills which are not paid on due date, if any, so that ECGC is periodically aware of the
defaulters.

In case of any eventuality when the buyer goes bankrupt, he may prefer a claim with
ECGC for payment.

The policy that is issued for shipment not covered under L/C is called Comprehensive
Policy meaning that the policy will cover both the commercial and political risks. While
commercial risk is that of the buyer going bankrupt, the political risk relates to the
country’s policies which may prevent the repatriation of funds or there could be outbreak
of war preventing financial transactions etc.

All the above relates to shipments not covered under L/C. However, an exporter can have
a separate ECGC Policy for shipments under L/C. Here the exporter will have the policy
covering only the political risk since under L/C, the bank stands as a guarantor and there
is no commercial risk.

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EXPORT PROCEDURE AND DOCUMENTATION

An exporter must cover all his exports under ECGC, including bills on sight basis, and
are NOT under L/C. He cannot be selective to certain countries or certain buyer. The
cover is on whole turnover basis.

For all shipments under L/C, the buyer may take a separate policy to cover the political
risks. The premium for L/C shipments will be relatively less than that on comprehensive
policy.

Note: ECGC cover is not for non-payment on account of dispute on quality, damages to
the goods, theft, pilferage etc.

The cover is only when the party goes insolvent or there are some political risk due to
which the exporter is not in a position to get the payment immediately or on due date.
This cover must be distinguished from the general insurance.

VARIOUS POLICIES OFFERED BY ECGC:

1. STANDARD POLICY

An exporter whose annual export turnover is more than Rs.50 lakhs is eligible for this
policy

Period of the Policy: 24 Months

Exclusions permitted: Export to Associates

Letters of Credit

Consignment Exports

Risk Covered: Commercial Risks

Political Risks

LC Opening Bank Risks

Percentage of Cover: 90%

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EXPORT PROCEDURE AND DOCUMENTATION

Minimum Premium: Rs.10, 000/- adjustable

Important Obligations of the Exporter

• Obtaining valid credit limit on buyers and banks


• Monthly Declaration of shipments and payment of premium
• Declaration of payment overdue by more than 30 days
• Filing of claim within 24 months
• Sharing of recovery

Highlights

• Lowest Premium Rate


• NCB OF 5% every year
• Discrepancy cover of LC
• Automatic Approval fort resale/shipment upto 25% of GIV
• Increased discretionary limit

2. SMALL EXPORTERS POLICY

Period of the Policy: 12 Months

Exclusions Permitted: Exports to Associates

Letters of Credit

Consignment Exports

Risk Covered: Commercial Risks

Political Risks

LC Opening Bank Risks

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EXPORT PROCEDURE AND DOCUMENTATION

Percentage of Cover: 95% for commercial risks

100% for political risks

Minimum Premium : Rs.2, 000 adjustable

Important Obligations of the Exporter:

• Obtaining valid credit limit on buyers and banks


• Quarterly Declaration of shipment and payment of premium.
• Declaration of payment overdue by more than 30 days
• Filing of claim within 24 months
• Sharing of recovery.

Highlights

• Highest coverage/compensation
• Lowest premium rate
• NCB of 5% every year
• Discrepancy cover for LC
• Automatic approval for resale/shipment upto 25% of GIV
• Increased discretionary limit

3. SPECIFIC SHIPMENT POLICIES – SHORT TERM (SSP-ST)

These policies can be availed of by exporters who do not hold our Standard Policy or by
exporters having standard policy, in respect of shipment permitted to be excluded from
the purview of the standard policy. Exporters can pick and choose the contract/shipment
to be covered and indicate the type of cover required.

Period of Policy :

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The policy would be valid for shipment(s) made from the date of the policy upto last date
allowed under the relevant contract for shipment.

Risk Covered:

• Commercial Risks
• Political risks
• LC Opening Bank Risk
• Insolvency risk on agent on conditions

Percentage of Cover: 80%

Important Obligations of the exporters:

• Upfront premium payment


• Statement of shipment made
• Payment Advice slip
• Statement Of Overdue
• Filing of Claim within 12 months from due date
• Sharing of recovery

Highlights:

• Selection for Insurance cover


• Other exports not to be declared
• “Add on” Marine Insurance Cover
• Premium rate reduced proportionately on higher share of loss to exporter.

4. EXPORTS (SPECIFIC BUYERS) POLICY

The specific buyer policy provides cover for shipments made to a particular buyer or set
of buyers. An exporter not holding the standard policy can avail of this to cover their
shipments to one or more buyers. Exporters holding Standard Policy can also avail this

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Policy for covering shipments to individuals Buyers, if all shipments to such buyers have
been permitted to be excluded from the purview of the Standard Policy.

Period of the Policy: 12 Months

Risk Covered: Commercial Risks

Political Risks

Insolvency or default of LC Opening Bank

Percentage of Cover: 80%

Important Obligation of the Exporters:

1. Deposit Premium on Quarterly in advance


2. Submission of shipment declaration quarterly
3. Declaration of payment overdue for more than 30 days
4. Filing of the within 12 months from due date
5. Sharing of recovery

Highlights:

1 Selective buyer can be insured


2 Option to exclude LC exports
3 Premium rate can be reduced proportionately

5. EXPORTS TURNOVER POLICY

Turnover Policy is for the benefit of large exporters who contribute not less than Rs.10
lakhs per annum towards premium. The policy envisages projection of the export
turnover of the policyholder for a year and the initial determination on the premium
payable on that basis, subject to adjustment at the end of the year based on actual.

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Period of the Policy : 12 Months

Risk covered: Commercial Risks

Political Risks

LC Opening Bank Risks

Percentage of Cover: 90%

Important Obligation of the Exporter

1. Premium will be payable in four equal quarterly installments in


advance
2. Submission of quarterly statement of shipments
3. Declaration of overdue payments
4. Filling of claim within 24 months from due date
5. Sharing of recovery

Highlights:

1. Simplified procedure for payment of premium


2. 10% of projected premium is waived when exports increase beyond
projection
3. Increased discretionary limit

6. BUYER EXPOSURE POLICY :

The Buyer Exposure Policy is to insure the exporters having large number of shipments
with simplified procedure and rationalized premium. An exporters can chose to obtain
exposure based cover on the selected buyer. The cover would be cover against
commercial and political risk. The option to exclude LC shipment is available. If the
exporter has opted for commercial and political risks cover, failure of LC opening bank

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with World Rank up to 25,000 as per latest Bankers Almanac is available. If exporters
opts for only political risks for LC exports premium at a less rate is offered

Period of the Policy: 12 months

Risk covered: Buyer Risk

LC Opening Bank Risks

Political Risks

Percentage of Cover: 90% for Standard policyholder and 80% for others

Important Obligations of the Exporter:

1 Premium Payable in advance


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

Highlights:

1. 5% discount premium if paid in advance


2. Declaration procedure waived
3. Exporter to approach only for default in claim
4. One Policy for one buyer

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7. MULTI-BUYER EXPOSURE POLICY

Some exporters export to large number of buyers. The number of shipments made by
them is also quite high. In order to meet the needs of such exporters, Multi buyer
exposure policy is introduced. Cover would be available for exports to the buyers in
countries listed under open cover category as long as the buyer is not in “default buyers
list” maintained by the Corporation and available on its website www.ecgcindia.com. If
the transaction is on LC terms, failure of the LC opening bank in respect of exports
against LC will also covered, For banks with World Rank upto 25000 as per Latest
Bankers Almanac Cover in respect of exports to restricted over countries would not be
available under this policy

Period of Policy: 12 Months

Risk Covered: Buyer Risks

Political Risks

LC Opening Bank Risks

Percentage of Cover: 80%

Important Obligations of the Exporters:

1. Premium payable in advance


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

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Highlights:

1. Policy is best suited for exporters who make frequent shipments


2. Reduced premium rates available on conditions
3. 5% reduction on total premium on lump sum payment
4. No declaration required
5. All buyers in open countries covered on conditions
6. Protection up to Aggregate Loss Limit and Individual buyer up to 10% of All.

8. CONSIGNMENT EXPORTS POLICY (STOCKHOLDING AGENT)

Economic liberalization and gradual removal of international barriers for trade and
commerce are opening up various new avenues of exports opportunities to Indian
exporters of quality goods. A method increasingly adopted by Indian exporters is
consignment exports where goods are shipped and held in stock overseas ready for sale to
overseas buyers, as and when orders are received. Thus separate Credit Insurance Policy
is introduce to cover exclusively shipments on consignment basis taking into account
their special features, providing adequate incentives and simplifying procedures
considerably

Period of the Policy: 12 Months

Risks covered:

• Commercial Risks on stockholding agent and/or ultimate buyer


• Political Risks

Percentage of Cover: 90% for Standard Policyholders and 80% for others

Important obligations of Exporters:

• Advance deposit of premium in advance on quarterly or monthly basis


• Obtaining credit limit on ultimate buyers beyond the discretionary limit
• Quarterly/Monthly statement of actual exports

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• Overdue declaration
• Filing of claim
• Sharing of recovery

Highlights:

• Covers only the consignments exports


• Rationalized premium for 360 days
• Automatic cover for ultimate buyers upto discretionary limit
• Commercial risks on agents covered
• Extended period for realization upto 360 days

9 CONSIGNMENT EXPORTS POLICY (GLOBAL ENTITY)

A method adopted by India exporters is consignment exports where goods are shipped to
their own branch office overseas ready for sale to overseas buyers, as and when orders
are received. Thus separate credit insurance policy is introduce to cover exclusively
shipments by the exporters to their branches overseas on consignment basis taking into
account their special features, providing adequate incentives and simplifying the
procedures considerably.

Period of the Policy: 12 Months

Risks covered:

• Commercial Risks on overseas branch on conditions

Percentage of Cover: 90% for Standard Policyholders and 80% for others

Important obligations of Exporters:

• Advance deposit of premium in advance on quarterly or monthly basis


• Obtaining credit limit on ultimate buyers beyond the discretionary limit

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• Quarterly/Monthly statement of actual exports


• Overdue declaration
• Filing of claim
• Sharing of recovery

Highlights:

• Covers only the consignments exports


• Rationalized premium for 360 days
• Automatic cover for ultimate buyers upto discretionary limit
• Commercial risks on agents covered
• Extended period for realization upto 360 days

10. SERVICES POLICIES

Services Policies offer protection to Indian firms against payments risks involved in
rendering services to foreign parties. A wide range of services, hiring or leasing can be
covered under these policies. The exporters can opt for whole Turnover Services Policy
or for Specific Services Policy depending on the nature of services provided. The
premium rates applicable. To standard policy will be applied for whole turnover services
policy and specific shipment policy (SSP-ST) premium rates will be applied for Specific
Service Policy.

Period of the Policy: 12/24 Months

Risks covered:

• Commercial Risks on ultimate buyers


• Political Risks
• LC Opening Bank Risks

Percentage of Cover: 90% for Standard Policyholders and 80% for others

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Important obligations of Exporters:

• Advance deposit of premium in advance to cover premium


• Obtaining credit limit on services receiver
• Monthly statement of actual service provided
• Overdue declaration
• Filing of claim
• Sharing of recovery

Highlights:

• Option to select the type of cover.

8. MATURITY FACTORING

The Maturity Factoring scheme, as designed by ECGC has unique features and does not
exactly fit into the conventional mould of maturity factoring. The changes devised are
intended to give the clients the benefits of full factoring services through the maturity
factoring scheme, thus effectively addressing the needs of exporters to avail of pre-
finance (advance) on the receivable, for their working capital requirements. One
important feature is the very role and special benefits envisaged for banks under the
scheme.

Benefits:

• 100% credit guarantee protection against had debts


• Sales register maintenance in respects of factored transaction
• Regular monitoring of outstanding credits, facilitating collection of receivable on
due date, recovery, at its own cost, of all recoverable had debts

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Setting up Charges and Factoring Charges

• The factoring application fee payable initially is Rs.10,000/- For setting up


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

Exporters Obligations:

• Registration and obtaining permitted limit on the buyer


• Payment of factoring charges with statement of exports made
• Inform developments

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