PGDIEM- SEM I

Exim Policy &Export Procedure & Documentation

(102)

(I)Preliminaries For Exports

Registration IEC,RCMC, EPC, C.Excise

Registration of Exporters/Importers

• All intending importers/ exporters are required to register themselves with the following authorities before commencing business;

– DGFT( regional authority) for obtaining Importer-Exporter Code Number (IEC Number)

– Concerned Export Promotion Councils / Federation of Indian Export Organization) for obtaining Registration- cum Membership Certificates (RCMC)

– Registration with Value added Tax Authorities

– Registration with Central Excise Authorities

Registration of Exporters /Importers

• Importer Exporter Code Number (IEC)– No person is allowed to export or import goods

without obtaining an Importer-Exporter Code Number, from the regional authority, unless specifically exempted, under any other provision of FTP.

– Exporter of goods to Nepal or Myanmar through Indo-Myanmar border areas, are exempted, provided that the CIF value per consignment, is below Rs. 25,000.00.

Registration of Exporters /Importers (cont)

• Application For Grant Of IEC Number– An application for grant of IEC number shall be made by the

Registered Office/ H.O., of the applicant, to the Regional Authority, (DGFT-Regional Office), under whose jurisdiction, the Registered Office in case of the company, or H.O. in case of others, falls in the Ayyat-Niryat Form, and shall be accompanied by:

• DD or Bank Receipt for Rs. 1000.00• ST registration certificate or passport copy (for an

individual), or copy of the legal authority letter when the application is signed by an authorized signatory.

• Certificate from banker of the firm as required• A copy of PAN card duly attested, copies of passport size

photographs etc

Registration of Exporters Contd..1

• The regional Office concerned, will grant an IEC number to the applicant, in the prescribed format. A copy of such certificate, shall also be endorsed to the banker.

• An IEC number allotted, shall be valid, for all its branches/ divisions / units/ factories, as indicated on the IEC number.

• To facilitate collection of license / other documents, identity cards are issued by Regional Authority, to the authorized representative of the applicant.

Registration With EPCs

• Registration with Export promotion Councils/ Commodity Boards/ Authorities– To enable exporters avail of benefits/ concessions given under

the FTP, they are required to register with concerned EPC/ C.B /or authority and obtain an registration –cum- membership certificate (RCMC)

– The Exporter is required to apply in the prescribed format to EPC relating to their main line of business

– Status Holder can also obtain RCMC from FIEO.– Application for obtaining RCMC, to be made in prescribed

manner & accompanied by IEC code number. If application is granted, EPC or FIEO will grant status of the exporter as merchant exporter or manufacturer exporter

Registration With VAT Authorities

• Registration with Value added Tax Authorities (VAT)– Goods which are to be shipped out of the country

for exports are eligible for are eligible for exemption from both VAT & CST.

– For this , the exporters are required to register themselves, with the VAT authorities of the state, in which they are located.

– The registration has to be done in the manner prescribed by the state VAT authorities.

Registration With Central Excise & PAN

• Registration with Central Excise Authorities– Goods meant for export are exempt from CED. – For this the manufacturer has two options :

• either they can deposit CED at the time of clearance from factory

• or take refund or avail procedure for export of goods without payment at the time of clearance.

• Obtaining PAN– Exporters & importers who obtain the IEC number

are also required to obtain PAN. An application in form number 49A has to be submitted

Other Registrations

• Any exporter who wants to export his goods needs to obtain PAN based Business Identification Number (BIN) from DGFT prior to filing of Shipping Bill for clearance of export goods.

• The exporter must also register themselves to the authorized foreign exchange dealer code & open a current account in the designated bank for credit of any drawback incentive.

• All exporters intending to export under export promotion schemes need to get their licenses, DEEC Books etc.

(II)Categories Of ExportsPhysical Direct & Indirect

Deemed ExportsMerchant & Manufacturer Exports

Categories of Exporters

• Exporter

– Means a person, who exports or intends to export and holds an importer-exporter code number, unless otherwise specifically exempted

• Manufacturer Exporter

– Manufacturer exporter means a person, who exports goods manufactured by him, or intends to export such goods

• Merchant Exporter

– Merchant exporter means a person, engaged in trading activity and exporting or intending to export goods.

– A status holder means an exporter recognized as Export House, Trading House, PTH etc by DGTD/ Development Commissioner.

Categories of Exporters (Cont)

• Supporting Manufacturer , means any persons who manufactures any product or part/ accessories/ components of that product. Name of supporting manufacturer as well as exporter must be endorsed on export documents.

• Third Party exports means exports made by an exporter or manufacturer on behalf of another exporter(s). In such cases, export documents such as shipping bills shall include name of both manufacturer exporter/manufacturer & third party exporters. BRCs, GR declaration, export order & invoice should be in the name of third oarty exporter.

Categories of Exporters (Cont)

• Service Exporter means a person providing:

– Supply of service from India to any other country

– Supply of service to a service consumer of any other country in India

– Supply of service from India through commercial or physical presence in the territory of another country.

– Supply of service in India relating to exports paid in FFE

• Services normally means services recognized by GATT / WTO’S Agreement & includes 161 tradable services covered under GATS & where payment for services is received under FFE.

Deemed Exports

• Deemed Exports refers to those transactions in which goods supplied do not leave the country & payment for such supplies is received either in Indian Rupees or in FFE.

• Following categories of supplies by main/sub contractors shall be regarded as “deemed exports” under FTP, provided goods are manufactured in India:– Supply of goods under advance authorization/

DFIA– Supply of goods to EOUs/ STPs/ EHTPs or BTPs

Deemed Exports (cont)

– Supply of capital goods to holders of authorization under EPCG scheme.

– Supply of goods to projects funded by multilateral or bilateral agencies or funds as notified by DEA.

– Supply of capital goods to fertilizer plants.– Supply of goods to power projects & refineries.– Supply to projects funded by UN agencies & nuclear

power plants etc.

Benefits For Deemed Exports

• Deemed exports, shall be eligible for any/ all of the following benefits, in respect of manufacture & supply of goods, qualifying as deemed exports

– Advance authorization/ DFIA– Deemed export drawback.– Exemption from terminal export duty where

supplies are made against ICB. In other cases refund of terminal excise duty will be given.

Benefits For Deemed Exports (cont)

– In respect of supplies made against the Supplier Authorization / DFIA in terms of paragraph 8.2(a) of FTP, supplier shall be entitled to Advance Authorization / DFIA, for intermediate supplies.

– If supplies are made against Advance Release Order (ARO) or Back to Back Letter of Credit issued against Advance Authorization / DFIA, in terms of paragraphs 4.1.11 and 4.1.12 of FTP, suppliers shall be entitled to benefits listed in paragraphs 8.3(b) and (c) of FTP, wherever is applicable.

Export & Trading Houses

• Export & Trading Houses: Merchant as well as Manufacturer Exporters, Service Providers, EOUs & units located in SEZs , AEZs, Electronic Hardware Technology Parks (EHTPs), Software Technology Parks (STPs) & Bio-Technology Parks (BTPs) shall be eligible for status.

• Status is calculated on total FOB export performance during current plus previous three years (taken together) upon exceeding limit given below:– EXPORT HOUSE (EH): Rs. 20 Crores

– STAR EXPORT HOUSE (SEH): Rs. 100 Crores

– TRADING HOUSE (TH): Rs. 500 Crores

– STAR TRADING HOUSE (STH): Rs. 2500 Crores

– PREMIUR TRADING HOUSE (PTH): Rs. 10,000 Crores.

Export & Trading Houses Contd.• Status holder will be eligible for a number of facilities including :

– Authorization & customs clearance for both imports & exports, on self-declaration basis.

– Fixation of input-output norms on priority within 60 days– Exemption from compulsory negotiation of documents through

banks– 100% retention of foreign exchange on EEFC account– Enhancement of normal repatriation period from 180 days to

360 days.– Exemption of providing Bank guarantee in schemes under

FTP.– SEH & above to be permitted to establish export warehouses

as per DoR guidelines– Conferring ACP status within 30 days of application.

(III)Shipping Documents & Terms Used In Shipping

III(a)Shipping Documents

Documents For Declaration Of GoodsUnder Foreign Exchange Rules

• Section 7 of FEMA 1999, lays down the statutory control concerning exports.

• Under FEMA regulations ( number 3), every exporter of goods or software in physical form or through any other form, either directly or indirectly, to anyplace outside India ( other than Nepal & Bhutan) shall furnish to the specified authority a declaration in prescribed form & supported by such evidence as may be specified.

• Certain goods & services like trade samples, personal effects, personal gifts, goods being sent for testing, defective goods being sent outside for repair etc are exempted from the above.

Documents For Declaration Of GoodsUnder Foreign Exchange Rules

• The appropriate declaration forms are :– GR Forms : To be completed in duplicate for all exports

(other than by post) including export of software in physical form.

– SDF Form : In duplicate and appended to the shipping Bill for exports declared to customs offices notified by Central Government which have introduced EDI system for processing Shipping Bill.

– PP Form : for exports by post– SOFTEX : To be completed in triplicate for export of

software otherwise than in physical form ie. Magnetic tapes, disks & paper media.

GR Form

• GR Form is an exchange control document required by RBI. The exporter through the GR Form has to assure to the RBI that the export proceeds will be realized within 180 days.

• It is submitted in duplicate, to the customs, at the port of shipment along with the Shipping Bill & the customs certify the value declared by the exporter & also record the assessable value.

• Customs returns one copy to exporter & retains the original for transmission to RBI

• The exporter is required to negotiate the shipping documents, through his bankers (authorized dealers), along with the GR Form, within 21 days of the shipment.

• The authorized dealer reports to the RBI after negotiation of documents & has to retain the documents till the full exports proceeds have been realized, & thereafter send the documents to RBI.

Electronic Data Interchange (EDI)• Electronic data Interchange can be used to electronically transmit

documents such as purchase orders, invoices, shipping bills, receiving advices and other standard business correspondence.

• Coping with the increasing imports/exports the Excise & Customs has computerized the manual process of assessment of Bills of entry, clearing of shipping bills for export & all documents relating to imports & exports are being   processed on-line

• At present all types of bills of entry for import of goods under export related schemes, e.g., 100% EOUs, EPCG scheme, EPZ, STP, EHTP, DEPB, DEEC, & imports for research purposes are being processed on EDI system.

• A new centralized electronic data system will be in place at major ports, airports by the end of the year (2008), for speedy and hassle-free clearance of exports and imports as well as to reduce delays in settling duty drawback claims.

SDF Forms• On account of introduction of EDI system at certain customs

offices, where shipping bills are processed electronically, the existing declaration in Form GR, is replaced by declaration in Form SDF ( statutory declaration form) .

• SDF form is to be submitted in duplicate, annexed to the relative shipping bill to the concerned commissioner of customs.

• After verifying & authenticating the declaration, the commissioner hands over to the exporter, exchange control copy of the shipping bill & the SDF form annexed thereto.

• This must be submitted to the authorized dealer, within 21 days from the date of export, along with other shipping documents for negotiation.

• The manner of disposal of the shipping bill & the SDF form annexed thereto is the same as that of the GR form.

SOFTEX Forms

• The exporter should submit declaration in Form SOFTEX in triplicate in respect of export of computer software & audio/ video/ television software to the concerned designated official of GOI at STPI/ EPZ/FTZ/SEZ for valuation/ certification not later than 30 days from the date of invoice.

• The designated official may also certify the SOFTEX forms of EOUs which are registered with them.

• In respect of long duration contracts, where the exporter bills the client periodically, the exporter can submit a combined SOFTEX form of all invoices including advance remittance.

• Disposal of SOFTEX forms is done as per prescribed procedure in Export Of Goods & Services Regulations, 2000. Duplicate copy of SOFTEX along with a copy of the invoice may be retained by authorized dealers.

Documents For Transportation Of goods

• The documents required for transportation of goods are:

– Airway Bill or Air consignment Note

– Bill Of Lading

– Mate Receipt

– Combined transport document : ICDs have been set up at various centers within the country for convenience of exporters.The movement of goods from ICDs to the destination is covered by the Combined transport document.

Airway Bill or Air Consignment Note

• The receipt issued by an airline company or its agent for carriage of goods, is called airway bill (AWB) or air-consignment note.

• It is not a document of title and it is not issued in a negotiable form.

• The goods are delivered to the consignee mentioned in the AWB, after identifying himself as the party named in the AWB as the consignee / receiver, against payment of charges if any.

• It is therefore desirable to cosign the goods in the name of the foreign corresponding bank, as it will enable us to retain the control of the goods, till payment is made/ documents are accepted for payment.

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.This receipt is a prima facie evidence that goods are loaded in the vessel.

• Mate’s receipt is first handed over to the Port Trust authorities & on receipt of port dues, the Port Trust authorities, hand the mate’s receipt to the exporter or his agent.

Mate’s Receipt (cont)

• The mate’s receipt has to be handed over shipping company for obtaining the Bill of Lading.

• The mate’s receipt is a transferable document & can be of two types– Clean mate’s Receipt : This signifies that the goods

have been received well in order, properly packed & without any defect or damages

– Qualified Mate’s receipt: This signifies goods have not been packed properly or received damaged. In this case the shipping company does not take any responsibility for damage in transit.

Bill of Lading

• Bill of Lading (B/L) 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 & other charges as mentioned have been duly paid. It is also a document of title to the goods & as such is freely transferable by endorsement & delivery.

• B/L serves three main purposes :

– As a document of title to the goods

– As a receipt from the shipping company

– As a contract for the transportation of the goods.

Types Of Bill of Lading

Clean B/L B/L acknowledging receipt of goods apparently in good order & condition & without any qualification is a clean B/L. Such B/L does not contain any negative remark about condition of goods.

Claused B/L B/L with a remark such as “goods insufficiently packed” is known as claused B/L.

Transshipment or through B/L

For multimode transportation, or when another shipping company’s vessel is used, this B/L is issued.

Stale B/L A B/L held too long (normally more than 21 days)), before negotiations, is termed stale B/L.

Freight paid B/L B/L issued when freight is paid at the time of shipment is a freight paid B/L

Freight collect B/L

B/L issued when freight is not paid at the time of shipment& is to be collected from consignee is a freight collect B/L

Contents Of The Bill Of Lading

• Name & logo of the Shipping Line

• Name & address of the shipper

• Name & number of vessel

• Name of the port of lading, port of discharge & place of delivery

• Marks & container number, container seal number

• Packing & container description

• Total number of packages & containers

• Description of goods, gross weight, volume

• Amount of freight paid or payable

• Shipping Bill number & date

• Signature & initials of the Chief Officer

Documents For Customs Clearance Of Goods

• The Shipping Bill is the main document required by customs for clearance of goods for shipment.

• Where the goods are to be cleared by Land Customs, Bill Of Export is prepared instead of the Shipping Bill.

• Bill Of Exports are also of four types

– White for export of duty free goods

– Green for export of goods under claim for duty drawback

– Yellow for export of dutiable goods

– Pink for export of duty free goods ex-bond.

Shipping Bill

• Shipping Bill is an important document required by the customs authorities for allowing shipment.

• It is prepared by the exporter & it contains the name of the vessel, name of port of discharge, country of final destination, , exporter’s name & address, details about packages, number & description of goods, marks & numbers, quantity & details about each case, FOB price, total number of packages with the weight & value and the name & address of the importer.

Shipping Bill (cont)

• The shipping Bills are of following types:– Duty Free Shipping Bill : No duty or cess

applicable– Dutiable Shipping Bill : Goods subject to

export duty / cess – Drawback Shipping Bill : – Shipping Bill for shipment Ex-bond.: For goods

imported for re-export.

Documents Required For Processing Of Shipping Bill:

• The following documents are required for the processing of the Shipping Bill:

– GR forms (in duplicate) for shipment to all the countries.

– 4 copies of the packing list mentioning the contents, quantity, gross and net weight of each package.

– 4 copies of invoices which contains all relevant particulars like number of packages, quantity, unit rate, total f.o.b./ c.i.f. value, correct & full description of goods etc.

– Contract, L/C, Purchase Order of the overseas buyer.

– AR4 (both original and duplicate) and invoice.

– Inspection/ Examination Certificate.

Other Documents

• Other documents as shown in the following pages are also necessary and required to carry out various formalities for shipment & negotiation of documents and for meeting the regulations in the importing country.

Aligned Documentation System

• Aligned Documentation System is based on the UN layout key.

• Under this system, different forms used in the international trade transactions are printed on paper of the same size & in such a way that the common items of information are given in the same relative slots in the same piece of paper.

Aligned Documentation System (cont)

• Commercial Documents – These are required for effecting physical transfer of goods &

their title from the exporter to the importer & the realization of export proceeds. Out of the 16 commercial documents in the export documentation, as many as 14, have been standardized and aligned to one another. These are proforma invoice, commercial invoice, packing list, shipping instructions, intimation for inspection, certificate of inspection, insurance declaration, certificate of insurance, mate’s receipt, B/L, application & certificate of origin, shipment advice & negotiation of documents.

– Shipping order & bill of exchange could not be brought under this system.

Aligned Documentation System (Cont)

• Regulatory documents– Regulatory pre-shipment export documents are

prescribed by different government department & bodies in order to comply with various rules & regulations under the relevant laws governing export trade such as export inspection, etc.

– Out of the nine regulatory documents, four have been standardized and aligned. These are Shipping Bill, Exchange Control Declaration (GR Form), port trust copy of the Shipping Bill for payment of Port Charges.

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 & net weights etc.

• The packing list also contains all basic information about the export order like name & address of the buyer & the exporter, purchase order number & date etc.

• The packing order is the basic document used in the preparation of further documents like proforma invoice & so on.

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 customer is in the form of the Proforma Invoice.

• It is a quotation given as a reply to an enquiry. • It normally forms the basis of all trade

transactions & enables importer to obtain import license, if required.

Proforma Invoice (cont)

• Contents of Proforma Invoice are generally the following:– Name & addresses of exporter & importer

– Mode of transportation, port of discharge, final destination

– Buyer’s & seller's reference numbers / dates

– Description of the goods, mode of packing, total number of packages, expected total weight etc.

– Origin of goods

– Price offer on FOB & CIF Basis

– Basic terms & conditions of sale.

Commercial Invoice

• Commercial invoice is the basic export document & contains all information required for making other documents.

• It is prepared by the exporter after the execution of the export order giving details about the goods shipped

• It should be addressed to the consignee as per the letter of credit.• It is the basic evidence of the ‘contract of sale’ or purchase &

therefore must be prepared strictly in accordance to the terms 7 conditions mutually agreed between the buyer & seller.

• It should contain basic details as in the proforma invoice, the detailed description of goods, as well as the final packing lists and the markings on packages plus details of shipment of goods, name & number of vessel/ voyage.

• This document is used for various export formalities, incentive claims, negotiation of documents , accounting etc.

Certificate Of Origin

• The importers in several countries require a Certificate Of Origin without which clearances 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.

• Certificates of origin are required when:– Goods produced in a particular country are subject to preferential

tariff rates in the foreign market at the time of importation

– The goods produced in a particular country are banned for import in the foreign market.

Types Of Certificate Of Origin 1

• (1) Certificate Of Origin for Availing Concessions under GSP :– Required by countries like France,Germany, Italy, Benelux

countries,UK, Australia, Japan, USA etc., which extend GSP benefits & are issued by specialized agencies like:

• Export inspection agencies

• Joint DGFT, Commodity Boards & their regional offices

• Development Commissioner, Handicrafts

• Textile Committee for textiles

• Marine product export development authority for marine products

• Development Commissioner for EPZs

Types Of Certificate Of Origin (cont)

• (2) Non-preferential Certificate Of Origin:– These are normally required for clearance of goods by all

importers & are issued by the Chamber of Commerce of the exporting countries or by Trade Association of the importing country.

• (3) Certificate For availing concessions Under Commonwealth Preferences:– This is also known as “Combined Certificate Of origin &

value” & is required by two commonwealth countries, Canada & New Zealand for concessions under Commonwealth preferences.

– These have to be obtained from the High commission of the country concerned.

Types Of Certificate Of Origin (cont)

• (4) Certificate For Availing Concessions Under Other System Of Preferences– Certificates of Origin are also required for tariff

concessions under the Global system Of Trade Preferences (GSTP), Bangkok agreement (BA), SAPTA,

– Export Inspection Councils have the authority to print blank Certificates of Origin & these are issued by EPCs, DCs of EPZs, EIC, FIEO etc.

Consular Invoice

• Consular Invoice is a document required mainly by the African & certain other countries like Kenya, Uganda, Tanzania, Mauritius, Australia, New Zealand Nigeria, Ghana etc.

• The exporter is required to submit 3 copies of the Commercial invoice & related documents for certification to the respective Embassy & one copy is returned to him after certification.

• Balance copies are sent by the Embassy to the customs department of the importing country for verification upon arrival of goods & calculation of the import duty payable.

• The consular certified copy is negotiated by the exporter along with other documents.

Customs Invoice

• Countries like USA, Canada etc need customs invoice• It is generally made out on a special form presented by

the customs authorities of the importing country & helps for allowing entry of goods in the importing country at preferential tariff rates.

• The invoice forms are generally available at the consular office of the importing country and are required to be signed and witnessed after duly filling the same.

Bill Of Exchange / Draft• A Bill Of Exchange also known as Draft contains an order from

the creditor to the debtor to pay a specified amount to a person mentioned therein.

• The maker of the Bill is known as “Drawer” & the person who is directed to pay is called the “Drawee”

• The person who is entitled to receive the amount is called “Payee”

• A Bill Of Exchange is of two types: (i) Sight draft (immediate payment) & (ii) Usance Draft ( Credit – Usance 30 days or usance 60 days)

• Unless & until the draft is retired, the negotiating collecting bank does not hand over the shipping documents & the buyer can not take delivery of goods.

Legalization & Attestation Of Documents

• Documents issued in one country ('Source Country') which need to be used in another country ('Destination Country') must be 'authenticated' or 'legalized' before they can be recognized as valid in the foreign country. This is a process in which various seals are placed on the document.

• The number and type of authentication certificates depends on the nature of the document and whether or not the foreign country is a party to the multilateral treaty on "legalization" of documents.

• "Embassy (Consular) Legalization" of official documents is a procedure of confirmation of the validity of originals of official documents or certification of authenticity of signatures of the officials, authorized signatures on documents, and also the validity of prints of stamps, seals by which the document is fastened.

III(b)Terms Used In Shipping

(INCO Terms)

INCO Terms

• Incoterms are internationally accepted commercial terms, developed in 1936 by the International Chamber of Commerce (ICC), in Paris.

• Incoterms 2000 define the respective roles of the buyer and seller, in the agreement of transportation and other responsibilities and clarifies, when the ownership of the merchandise takes place.

• Incoterms are used in union with a sales agreement or other methods of sales transactions and define the responsibilities and obligations of both, the exporter and importer, in Foreign Trade Transactions.

INCO Terms

– Incoterms 2000, is mainly concerned with the loading, transport, insurance and delivery transactions.

– Its main function is the distribution of goods and regulation of transport charges.

– Another significant role played by Incoterms is to identify and define the place of transfer and the transport risks involved.

– Incoterms make international trade easier and help traders in different countries to understand one another & are most widely used international contracts

INCO Terms- Objectives

• Incoterms safeguard the following issues in the Foreign Trade contract or International Trade Contract:

– To determine the critical point of the transfer of the risks of the seller to the buyer, in the process of forwarding of the goods (risks of loss, deterioration, robbery of the goods).

– To enable the person who supports these risks to make arrangements in term of insurance & other arrangements.

– To specify who is going to subscribe the contract of carriage; seller (exporter) or the buyer (importer).

INCO Terms- Objectives

• To distribute between the seller and the buyer, the logistic and administrative expenses, at the various stages of the process

• It is important to define, who is responsible for packaging, marking, operations of handling, loading and unloading, inspection of the goods.

• Need To confirm and fix respective obligations, for the achievement of the formalities of exportation and importation, the payment of the rights and taxes of importation, as well as the sending of the documents.

• There are 13 Incoterms, globally adopted by the International Chamber of Commerce.

INCO Terms- Groups

• Incoterms 1990 / 2000 - which defines all trade terms are divided into four basic groups.

• Group E comprise of Departure term. Where the seller makes the goods available to the buyer at the seller's own premises, (EXW) - Ex Works

• Group F: Comprise of Shipment terms - Main carriage unpaid. Where the seller is called on to deliver the goods to a carrier named by the buyer, (FCA, FAS and FOB). These are shipment contracts with the shipment point named, and carriage unpaid by the seller. – FCA - Free Carrier– FAS - Free Alongside Ship – FOB - Free On Board

INCO Terms- Groups

• Group C: Comprise of Shipment terms - Main carriage paid. Where the seller has to contract for carriage, but without assuming the risk of loss of or damage to the goods or additional costs due to events occurring after shipment and dispatch, (CFR, CIF, CPT and CIP).

• These are shipment contracts, with the destination point named, and carriage paid by the seller.

• There are two critical division points, one for costs, the other for risk.

• Costs being assumed by the seller until the destination point; risk being transferred to the buyer at the point of shipment.

INCO Terms- Groups

• In CIF & CIP terms, the seller arranges the contract of carriage and payment of freight. – CFR - Cost and Freight– CIF - Cost, Insurance and Freight – CPT - Carriage Paid To – CIP - Carriage and Insurance Paid To

INCO Terms- Groups

• Group D: Comprise Of Arrival Terms. Where the seller has to bear all costs and risk needed to bring the goods to the country of destination, (DAF, DES, DEQ, DDU and DDP). These are arrival contracts. – DAF - Delivered At Frontier– DES - Delivered Ex Ship– DEQ - Delivered Ex Quay– DDU - Delivered Duty Unpaid– DDP - Delivered Duty Paid

Ex-Works Contract (EXW)

• Title and risk pass to buyer, (including liability for payment for all transportation and insurance costs) from the seller's door.

• Used for any mode of transportation.

• Seller : In EXW shipment terms the Seller (Exporter) provides the goods for collection by the Buyer (Importer) on the seller’s or exporter's premise.

• Responsibility for the seller is to put the goods, in a good package which is adaptable and disposable by the transport.

Ex-Works Contract (EXW)

• Buyer : The buyer or Importer, arranges insurance for damage in transit goods & have to bear all costs and risks involved in shipment transactions.

• (However, if the parties wish the seller to be responsible for the loading of the goods on departure and to bear the risks and all the costs of such loading, this should be made clear by adding explicit wording to this effect in the contract of sale.

FCA -Free Carrier (…. Named place)

• "Free Carrier" means that the seller fulfils his obligation to deliver when he has handed over the goods, cleared for export, into the charge of the carrier named by the buyer at the named place or point.

• If no precise point is indicated by the buyer, the seller may choose within the place or range stipulated where the carrier shall take the goods into his charge.

• When, according to commercial practice, the seller's assistance is required in making the contract with the carrier (such as in rail or air transport), the seller may act at the buyer's risk and expense.

• This term may be used for, any mode of transport, including multimodal transport.

FCA -Free Carrier (…. Named place)

• "Carrier" means any person who, in a contract of carriage, undertakes to perform or to procure the performance of carriage by rail, road, sea, air, inland waterway or by a combination of such modes.

• If the buyer instructs the seller to deliver the cargo to a person, e.g. a freight forwarder who is not a "carrier", the seller is deemed to have fulfilled his obligation to deliver the goods when they are in the custody of that person.

• "Transport terminal", means a railway terminal, a freight station, a container terminal or yard, a multi-purpose cargo terminal or any similar receiving point.

• "Container" includes any equipment used to unitize cargo, e.g. all types of containers and/or flats, trailers etc and applies to all modes of transport.

FAS - ( Free Alongside Ship) Contract

• FAS- Free Alongside ship: Title and risk pass to buyer, including payment of all transportation and insurance cost, once delivered alongside ship by the seller.

• Used for sea or inland waterway transportation. The export clearance obligation rests with the seller.

• In FAS price includes all costs incurred in delivering the goods alongside the vessel, at the port or nominated place of the buyer, but seller does not pay charges for loading on board of vessel, as well as ocean freight charges and marine insurance.

• Seller: The responsibility of the seller are fulfilled, when goods are placed cleared along the ship.

• Buyer: Buyer or Importer bears all expenses and risks of loss or damage of transit goods, delivered along the ship.

Free On Board (FOB) Contract

• FOB is one of the most frequently used price quotation, in the international market.

• Under this quotation, the exporter undertakes to pay all expenditure till the loading of goods, on board the ship, including documentation charges.

• All expenditure thereafter, such as ocean freight, marine insurance, unloading charges etc are borne by the importer.

Free On Board (FOB) Contract (cont)

• The sellers obligations are :– To provide goods & the commercial invoice , or its equivalent

electronic message, in conformity with the contract of sale.– To obtain any export license or other official authorization,

and carry out all customs formalities, necessary for exportation of goods.

– To deliver the goods on board of vessel, at the port of shipment, on the date, or within the period, stipulated.

– To give the buyer sufficient notice, that, the goods have been delivered on board the vessel

– To pay the costs of checking quality, measuring, weighing, counting , packing and marking of the goods.

Free On Board (FOB) Contract ( Cont)

• The buyer’s obligations in a FOB contract are:

– To pay the price as provided, in the contract of sale

– To obtain import license or other official authorization & carry out all customs formalities, for the importation of goods

– To take delivery of goods, when the goods have been delivered, in accordance with the terms of the contract.

– To reserve the necessary shipping space and give due notice of the same, to the exporter ; &

– To bear all costs and risks of the goods, from the time, when they shall have effectively passed the ship’s rail,

Cost & Freight (CFR) Contract

• In this term the exporter bears the cost of carriage or transport to the selected destination port, & the risk transferable, to the buyers at the port of shipment.

Seller: chooses the carrier, concludes and bears the expenses by paying freight to the agreed port of destination, unloading not included. The loading of the duty-paid goods on the ship falls on him as well as the formalities of forwarding. On the other hand, the transfer of risks is the same one as in FOB.

Buyer: The buyers supports all the risk of transport. When the goods are delivered aboard by ship at the unloading port, buyer receives it from the carrier and takes delivery of the goods from nominated destination port.

CIF Contract

• Cost, insurance & freight means, that, the seller has the same obligations as under the FOB contract, but with the addition, that, he has to organize the marine freight & procure marine insurance, against the buyer’s risk of loss or damage, to the goods during carriage.

• The seller contracts the insurance and pays the premium and also pays the ocean freight.

CIF Contract(cont)• The seller has the following additional obligations as

compared to FOB Contract :– To arrange for the carriage of the goods to the named port of

destination by the usual route in a sea-going vessel & to pay its costs & freights.

– To obtain cargo insurance as agreed in the contract & to provide the buyer with the insurance policy or other evidence of insurance cover.

• The above obligations are excluded from the buyer’s obligations. Buyer still has the obligations, as indicated in the “ buyers’ obligations, in FOB contracts.

CPT- Carriage Paid To….

• "Carriage paid to... " means that the seller pays the freight for the carriage of the goods to the named destination. The risk of loss of or damage to the goods, as well as any additional costs, due to events occurring after the time the goods have been delivered to the carrier, is transferred from the seller to the buyer, when the goods have been delivered into the custody of the carrier.

• "Carrier" means any person who, in a contract of carriage, undertakes to perform or to procure the performance of' carriage, by rail, road, sea, air, inland waterway or by a combination of such modes.

• If subsequent carriers are used for the carriage to the agreed destination, the risk passes when the goods have been delivered to the first carrier.

• The CPT term requires the seller to clear the goods for export.

DAF- Delivered At Frontier(Named Place)

• "Delivered at Frontier" means that the seller fulfils his obligation to deliver when the goods have been made available, cleared for export, at the named point and place at the frontier, but before the customs border of the adjoining country.

• The term "frontier" may be used for any frontier including that of the country of export. Therefore, it is of vital importance that the frontier in question be defined precisely by always naming the point and place in the term.

• The term is primarily intended to be used when goods are to be carried by rail or road, but it may be used for any mode of transport.

DES - DELIVERED EX SHIP (... named port of destination)

• “Ex Ship" means that the seller fulfils his obligation to deliver, when the goods have been made available to the buyer on board the ship, uncleared for import at the named port of destination.

• The seller has to bear all the costs and risks involved in bringing the goods to the named port of destination. This term can only be used for sea or inland waterway transport.

DEQ -"Delivered Ex Quay (duty paid)"

• "Delivered Ex Quay (duty paid)" means that the seller fulfils his obligation to deliver when he has made the goods available to the buyer on the quay (wharf) at the named port of destination. The seller has to bear all risks and costs including duties, taxes and other charges of delivering the goods thereto.

• This term should not be used if the seller is unable directly or indirectly to obtain the import license.

• Buyer has to clear the goods for importation and pay the duty. • If the parties wish to exclude from the seller's obligations some of

the costs payable upon importation of the goods (such as value added tax (VAT)), this should be made clear by adding words to this effect: "Delivered ex quay, VAT unpaid (... named port of destination)",.

• This term can only be used for sea or inland waterway transport.

DDU- "Delivered duty unpaid"

• Delivered duty unpaid" means that the seller fulfils his obligation to deliver when the goods have been made available at the named place in the country of importation.

• The seller has to bear the costs and risks involved in bringing the goods thereto (excluding duties, taxes and other official charges payable upon importation) as well as the costs and risks of carrying out customs formalities.

• The buyer has to pay any additional costs and to bear any risks caused by his failure to clear the goods for import in time.

DDU- "Delivered duty unpaid“(cont)

• If the parties wish the seller to carry out customs formalities and bear the costs and risks resulting there from, this has to be made clear by adding words to this effect.

• If the parties wish to include in the seller's obligations some of the costs payable upon importation of the goods (such as value added tax (VAT)), this should be made clear by adding words to this effect: Delivered duty unpaid, VAT paid, (... named place of destination),

• This term may be used irrespective of the mode of transport.

DDP- Delivered Duty Paid

• "Delivered duty paid" means that the seller fulfils his obligation to deliver when the goods have been made available at the named place in the country of importation.

• The seller has to bear the risks and costs, including duties, taxes and other charges of delivering the goods thereto, cleared for importation whilst the DDU should be used.

• If the parties wish to exclude from the seller's obligations some of the costs payable upon importation of the goods (such as value added tax (VAT)), this should be made clear by adding words to this effect: "Delivered duty paid, VAT unpaid (...named place of destination)".

• This term may be used irrespective of the mode of transport.

(IV)Export Procedures

IV(a)Excise Clearance For Exports

Excise Clearance Benefit/ Rebate

• Excise Duty– Excise duty is a tax imposed by the Central

government on goods manufactured in India.– It is collected at source I.e. before removal of

goods from the factory premises– Exporters are totally exempted from payment of

CED– However, necessary clearances must be obtained

by the exporter in one of the following ways

Excise Clearance Benefit/ Rebate (cont)

• (i) Export Under Rebate– Under this system, an exporter is required to pay

CED initially & then claim it from central excise department after shipment of goods.

• (ii) Export under Bond– Under this system, an exporter is required to execute

a bond, in favor of excise authorities, for a sum equivalent to the amount of excise chargeable on such goods. Such bond should be supported by an appropriate bank guarantee.

Excise Clearance Under Rule 18 & Rule 19 of Central Excise Rules

• Export Procedures for Excise - There are basically two procedures for dispatching the goods out of India. – (a) (Rule 18 of Central Excise Rules).

• In the first procedure, duties are paid and subsequently rebate (refund) is claimed after exportation of such goods. Alternatively, rebate is granted of duty paid on inputs used in the exported final product.

• Rebate claim had to be made to A.C. of Central excise along with original of ARE-1 & other prescribed documents.

Excise Clearance Under Rule 18 & Rule 19 of Central Excise Rules (cont)

– (b) (Rule 19 of Central Excise Rules).• The other procedure is to export goods under bond

without payment of excise duty.

• On actual exportation of goods and on presentation of necessary proofs regarding exports, the bond is released. Regular Exporters can have a running bond for this purpose.

• A merchant exporter has to furnish bond in form B-1 & certificate in CT-1.

Conditions For Central Excise Clearance

• As a part of further simplifications and rationalization of excise rules announced by the Finance Minister a new set of Central Excise Rules, 2001, has come into effect from 1st March 2002.

• The procedure for export of excisable goods (except to Nepal & Bhutan) is subject to certain conditions & limitations.

Conditions & Limitations ( Under payment of CED)

• The excisable goods can be exported directly from a factory or a warehouse after the payment of excise duty

• The excisable goods must be exported within 6 months from the date within which they were cleared for export from the factory of manufacture or his warehouse.

• The market price of the excisable goods at the time of exportation is not less than the amount of rebate duty claimed.

• The amount of rebate of duty admissible is not less than Rs. 500.00

Conditions & Limitations ( Without payment of CED)

• The exporter is required to submit a General Bond ( Surety or security) to the Assistant Commissioner of Central Excise or the Maritime Commissioner for a sum equivalent to the duty chargeable on the goods.

• The excisable goods must be exported within 6 months from the the date on which they were cleared for exports from the factory of manufacturer or his warehouse.

Procedure For Central Excise Clearance

• The following is the procedure for obtaining central excise clearance:– (i) Application to the Assistant Collector/ commissioner of Central

Excise (ACCE)

• The exporter is required to make an application to the Superintendent or the Inspector of Central Excise, having jurisdiction over the factory of production or warehouse of the exporter, by filling up 4 copies of ARE-I form, in five copies with distinctive colors.

– (ii) Information to the Range Superintendent

• The ACCE informs the range superintendent, in whose area the exporter’s factory or warehouse is located. On receiving instructions from the ACCE, the range superintendent, deputes an inspector for clearance of goods for exports.

Procedure For Central Excise Clearance(Cont)

• (iii) Sealing of goods :– The inspector of Central Excise verifies the

goods mentioned in the application and the particulars of the duty paid or payable.

– If satisfied, he seals each package or the container in the manner as may be specified by the Commissioner of Central excise and endorses each copy of the application.

(iv)Processing of ARE-I Forms

ARE-I(Original)

ARE-II(Duplicate)

The Superintendent or Inspector returns the original & the duplicate to the exporter

ARE-I (Triplicate) The triplicate copy of ARE-I is sent to the Maritime Commissioner at the port of shipment or to the Excise Rebate Audit section in case the rebate is to be claimed by EDI (Electronic Data Interchange) system of customs.

ARE-I (Quadruplicate)

This copy of ARE-I is retained by the Superintendent or Inspector of Central Excise.

ARE-I

(Quintuplicate)

This copy is returned to the exporter for claiming any other incentive.

Procedure For Central Excise Clearance(Cont)

• (v) Examination of the goods at the place of exports

– At the port of shipment, the exporter presents goods together with original, duplicate & quintuplicate copies of the ARE-I to the Commissioner of Customs.

– The Commissioner of Customs examines the consignments and if satisfied, certifies the goods for exports, by an endorsement on all the copies of ARE-I.

– The original & quintuplicate copies are returned to the exporter and the duplicate copy is sent to the Maritime Commissioner.

Procedure For Central Excise Clearance(Cont)

• (vi) Submission of the claim: For claiming rebate, the exporter is required to submit the following documents along with the prescribed application in form “C”(in triplicate) to Assistant Commissioner of central excise / maritime collector

– Original copy of ARE-I duly endorsed by customs officer

– Duplicate copy of ARE-I received from customs officer in a sealed cover.

– Duly attested copy of shipping bill

– Duly attested copy of Bill of Lading or airway bill

– Duplicate copy of Central Excise invoice under which CED was paid

Procedure For Central Excise Clearance(Cont)

• (vii) Verification of the application– Assistant or Deputy Commissioner of Central Excise compares the

details listed in the different copies of ARE-I & if he is satisfied that the exports are not under claims for duty drawback, he sanctions the rebate.

• (viii) Refund of duty– If any refundable amount is not paid to the applicant within 3

months from the date of filing the claim, interest at the rate of 20% is paid for the period between the expiry of 3 moths & the date of refund.

• (ix) Cancellation of documents– If the excisable goods are not exported, the Assistant

Commissioner of Central Excise cancels the export documents on request of the exporter.

IV(b)Shipment Of Goods

(Sea Shipment)

Shipping & Customs Formalities

• According to Section 40 of Customs Act, the person in charge of conveyance vessel, vehicle, aircraft etc., can not permit loading of export cargo, at the customs station, until & unless a formal approval to the export given by the authorized customs officer is presented.

• Before granting permission, the customs officer ensures that the goods being exported are in accordance with different regulations, particularly in terms of the following:

– Goods must be as declared by the exporter

– The duty or cess leviable thereon has been properly declared & paid.

– Provision of Export Control order, Export (Quality Control & Inspection Act) & FEMA are complied with.

Procedure For Shipping & Customs Clearance

• (a) Preparation & Submission of Export Documentation: For clearance of cargo from customs, the exporter or his agent is required to submit the following documents along with 5 copies of Shipping Bill to the customs appraiser at the Customs House.

– Letter of Credit along with Export Contract or Export Order

– Commercial Invoice (2 copies)

– Packing List or Packing Note

– Certificate of Origin

– GR Form ( original & duplicate)

– ARE-I Form

– Original copy of Certificate Of Inspection, wherever necessary.

– Marine Insurance Policy.

Procedure For Shipping & Customs Clearance ( cont 1)

• (b) Verification Of Documents– The Customs appraiser verifies the details listed in each document

& ensures that all formalities relating to exchange control etc., have been properly complied with by the exporter. If satisfied, he issues a Shipping Bill Number.

• (c) Valuation Of Goods – The customs appraiser assesses the Shipping Bill and values the

goods.The value as determined by the customs officer, holds good in future transactions, especially for the claim of incentives. All documents are then returned to the exporter, except the following:

• Original copy of GR, to be forwarded to the RBI• Original Copy of Shipping Bill• One copy of Commercial Invoice.

Procedure For Shipping & Customs Clearance ( cont 2)

– The validity of the assessed Shipping Bill, is for one month only. If the exporter fails to deliver the goods in that period, he will have to undergo the above procedure again.

• (d) Obtaining Carting Order– The C&F Agent, then, approaches the Superintendent of

the concerned Port Trust, for obtaining the “Carting Order” for moving the cargo inside the docks. After obtaining the carting order, the cargo is physically moved into the port area & stored in the appropriate shed.

Procedure For Shipping & Customs Clearance ( cont 3)

• (e) Customs Examination & Issue of “Let Export Order”:– The customs examiner at the port of shipment physically examines

the goods and seals the package in his presence. The same can be arranged for at the factory or the warehouse by making an application to the Assistant Collector of customs. The customs examiner, if satisfied, issues a formal permission for loading of the cargo on the ship in the form of a “ let export order”. The above procedure is now processed through EDI system.

• (f) Obtaining “Let ship Order” from customs preventive officer:– “Let export order” must be supplemented by a “Let Ship Order”

issued by the Customs Preventive Officer. The C&F agent submits the duplicate copy of the Shipping Bill, duly endorsed by the customs examiner, to the preventive officer, who endorses it with the “Let Ship Order”

Procedure For Shipping & Customs Clearance ( cont 4)

• (g) Obtaining Mate’s receipt & the Bill of Lading:– The goods are then loaded on board of ship for which the

Mate or the captain of the ship, issues Mate’s Receipt to the Port Superintendent. The Port Superintendent on receipt of the port’s dues, hands over the mate’s receipt to the C&F agent who surrenders the Mate’s receipt to the shipping company for obtaining the Bill of Lading.

– The shipping company issues two or three negotiable and two or three copies of non-negotiable copies of the B/L.

Exports By Air• The exporter must have an IEC (Import Export Code)

number issued by DGFT (Director General of Foreign Trade).

• He has to file a Shipping Bill which has to be assessed by Customs and the goods are also subject to examination by Customs before LEO (Let Export Order) is given.

• This document can be filed with Customs up to 15 days before the goods are actually exported.

• Like in case of imports, in exports too, the document for assessment and examination by Customs Shipping Bill, is processed through the EDI.

Exports By Air (cont)

• To encourage exports, the Government has introduced various export promotion schemes i.e. Drawback, DEEC, DFRC, DEPB, EPCG etc. and the exporter has a choice to avail any of them.

• However, certain schemes cast an export obligation on the exporter for which he is required to execute Bond and Bank Guarantee for certain period.

• Exports are also governed by the Customs Act, 1962, the EXIM Policy and are subject to prohibitions and restrictions imposed under various other Acts i.e. CITES, NDPS Act, Arms Act, Antiques Act, Drugs & Cosmetics Act, etc. .

Procedure For Air- Cargo as given by AAI

Shipment Procedure for Export General Cargo• 1.Registration, Processing of shipping bill by customs.

• 2.Obtain carting order and AWB from the carrier or through EDI

• 3.Present papers (shipping bill / AWB / Carting order) to AAI counter and obtain terminal charges receipt.

• 4.Pay AAI Charges.

• 5.Enter Export Cargo along with relevant documents

• 6.Present TSP receipts to AAI staff at designated TO gate and off-load cargo. Obtain AAI endorsement on TSP receipt.

Procedure For Air- Cargo as given by AAI

• 7.Get the packages (as per the customs endorsement) examined by customs and complete the formalities

• 8.Let Export Order / Customs Orders• 9.Present TSP receipt along with let Export Order to AAI staff at

bonded area gate along with cargo for binning & for location slip for airlines handled by AAI.

• 10.Hand over documents to airlines• 11.Unitization - Airline submits Customs approved checklist for

unitization or bulk loading to AAI• 12.Release of Export Cargo for the flight against request from

airlines duly approved by customs.Basically the steps in clearance of air-cargo are the same as in sea-cargo. However, suitable modifications as required are done.

IV(c)Marine Insurance For Export Cargo

Introduction• Marine Insurance covers the loss or damage of ships, cargo,

terminals, and any transport or property by which cargo is transferred, acquired, or held between the points of origin and final destination.

• Cargo insurance is a sub-branch of marine insurance, though Marine also includes Onshore and Offshore exposed property (container terminals, ports, oil platforms, pipelines); Hull; Marine Casualty; and Marine Liability.

• In the 19th. century, Lloyd's and the Institute of London Underwriters (a grouping of London company insurers) developed between them standardized clauses for the use of marine insurance, and these have been maintained since. These are known as the Institute Clauses because the Institute covered the cost of their publication.

Marine Cargo Insurance

• Transport Insurance• Export and import in international trade, requires transportation

of goods over a long distance. • No matter whichever transport has been used in international

trade, necessary insurance is must for every single good.• Cargo insurance also known as marine cargo insurance is a type

of insurance against physical damage or loss of goods during transportation.

• Cargo insurance is effective in all the three cases whether the goods have been transported via sea, land or air.

• Insurance policy is not applicable if the goods have been found to be packaged or transported by any wrong means or methods. So, it is advisable to use a broker for placing cargo risks.

Insurance- Scope Of Coverage

• The following can be covered for the risk of loss or damage:• Cargo import/ export cross voyage dispatched by sea, river, road,

rail post, personal courier, and including associated storage risks. • Good in transit (inland). • Freight service liability. • Associated stock. • However there are still a number of general exclusions such as loss

by delay, war risk, improper packaging and insolvency of carrier. Covers for some of these may be negotiated.

• Regular exporters may negotiate open cover. It is an umbrella marine insurance policy that is activated when eligible shipments are made. Individual insurance certificates are issued after shipment

Insurance- Specialized Covers

• Whereas standard marine/transport cover is the answer for general cargo, some classes of business will have special requirements.

• General insurer may have developed specialty teams to cater for the needs of these business, and it is worth asking if this cover can be extended to export risks.

• Cover may be automatically available for the needs of the trade.

• Examples of this are:

– Project Constructional works: cover the movement of goods for the project.

– Fine art

– Precious stones : Special Cover for of precious stones.

– Stock through put cover: extended beyond the time goods are in transit until when they are used at the destination.

Insurance- Specialized Covers

• Seller's Buyer's Contingent Interest Insurance– An exporter selling on, for example FOB

(INCOTERMS 2000) delivery terms would according to the contract and to INCOTERMS, have no responsibility for insurance, once the goods have passed the ship's rail.

– However, for peace of mind, he may wish to purchase extra cover, which will cover him for loss or will make up cover where the other policy is too restrictive . This is known as Seller's Interest Insurance.

– Similarly, cover is available to importers/buyers.

Insurance- Specialized Covers (cont)

• Loss of Profits/ Consequential Loss Insurance– Importers buying goods for a particular event

may be interested in consequential loss cover in case the goods are received late and expensive replacements have to be found to replace them.

– n such cases, the insurer will pay a claim and receive proceeds from the eventual sale of the delayed goods.

Insuring Goods Against Marine Risks

• A marine insurance policy has to be obtained to cover various risks while goods are in transit.

• Marine insurance policy must normally be taken from an Indian insurance company & should be for CIF value plus 10% for incidentals.

• Upon receipt of the cover, the insurer must study the various clauses carefully.

Insuring Goods Against Marine Risks (cont)

• Policies can broadly be divided into 3 groups

– Individual shipment policy

– Open policy – (automatic protection for all shipments. Each shipment must be declared to the insuring company)

– Floating Policy ( describes insurance in general terms & leaves other particular to be stated subsequently)

• Risks covered by marine insurance policies are represented by special clauses like Institute Cargo clause (C), Institute Cargo clause(B) , Institute Cargo clause(A) etc.

• These policies are freely assignable

IV(d)Quality & Preshipment Inspection

Introduction• For sometime now, a number of importers have used the services

of independent inspection companies, to certify the quality & quantity of products , they want to import.

• These inspections, mostly conducted prior to shipment & in the country of exports, assure the importer that the goods conform to the technical specification & quality standards laid down in the contract & that the quantities exported are accurate.

• Regulations in many countries, require that goods imported by government departments to be inspected & certified for quality & quantity by independent & competent inspection authorities.

• Over 30 developing countries in the world use the services of preshipment inspection (PSI) agencies to control unfair or improper practices.

Introduction

• The basic objectives of PSI are:

– To carry out physical inspection of the goods to ensure that they conform to the terms of the contract

– To verify their prices &

– To ensure that they are classified by the exporter under the correct tariff classification of the importing country.

• GATT Agreement recognizes PSI by several nations.

• The purpose is to safeguard national financial interests (prevention of capital flight and commercial fraud as well as customs duty evasion, for instance) and to compensate for inadequacies in administrative infrastructures.

Export Inspection Council of India (EIC)

• The Export Inspection Council of India (EIC) was set up by the Government of India under the Export (Quality Control & Inspection) Act, 1963, as an apex body, to provide for sound development of export trade, through quality control and pre-shipment inspection.

• The Act empowers the Central Government, to notify commodities and their minimum standards for exports and to set up suitable machinery for inspection and quality control.

• The EIC is assisted in its functions by the Export Inspection Agencies (EIAs) located at Chennai, Kochi, Kolkata, Delhi and Mumbai, having a network of 38 sub-offices and laboratories, to back up the pre-shipment inspection and certification activity

Export Inspection Council

• Majority of export commodities have been brought within the purview of this Act and are subject to compulsory pre-shipment inspection.

• All commodities will be covered by quality control and compulsory pre-shipment inspection ultimately.

• The Export Inspection Council, established under the Act administers quality control and pre-shipment inspection.

• The Council is responsible for establishing laboratories/ test houses providing inspection facilities for the commodities notified

• Has established inspection agencies, under which quality inspection officials operate

IV(e)ECGC Services

ECGC• Export contracts are open to risks which can generally be

categorized into two broad types:

• POLITICAL RISKS

– Can be caused by outbreak of war or civil war, in the importer’s country or coup or an insurrection, which can result in delay or non-receipt of payments. Same problems may arise due to macro-economic or balance of payments problems, in the importer’s country.

• COMMERCIAL RISKS

– These are insolvency or protracted default in payment by the buyers.

ECGC

• The Government set up the Export Risks Insurance Corporation (ERIC) in 1957 to provide export credit insurance support to Indian exporters.

• This was transformed to Export Credit & Guarantee Corporation Ltd. (ECGC) in 1964 & then to Export Credit Guarantee Corporation of India Ltd. In 1983.

• ECGC is wholly owned by GOI & functions under the Ministry of Commerce.

• ECGC is managed by a Board of Directors comprising representatives of the Government, RBI, Banking , Insurance & Exporting community.

• The goal of ECGC is to provide cost effective insurance and trade related services to meet the needs & expectations of the exporting community.

Need For Export Credit Insurance

• Payments for exports are open to risks even at the best of times.• The risks have assumed large proportions today,due to the far-

reaching political and economic changes that are sweeping the world.

• Outbreak of war or civil war or coup or an insurrection, may block or delay payment for goods exported.

• Economic difficulties or balance of payment problems may lead a country to impose restrictions on either import of certain goods or on transfer of payments for goods imported.

• In addition, the exporters have to face commercial risks of insolvency or protracted default of buyers.

• Export credit insurance is designed to protect exporters from the consequences of the payment risks, both political and commercial, to enable them to expand their overseas business

Services Provided By ECGC To Exporters

• To provide political & commercial risk cover to the exporters.

• To provide exporters information regarding credit worthiness of overseas buyers (Dun & Bradstreet)

• Provide information on approximately 180 countries with its own export ratings.

• To facilitate exporters in recovering bad debts.

Services Provided By ECGC To Exporters (cont)

• Assists exporters in obtaining financial assistance from commercial banks / financial institutions & provides guarantees to bankers for:

– Packing Credit guarantee ( pre-shipment credit on the basis of export order)

– Post shipment export credit guarantee

– Export performance guarantee ( Counter guarantee to protect bankers against guarantees given by it on behalf of exporters)

– Export Finance Overseas Credit guarantee ( to banks financing overseas projects)

Types Of Policies Issued By ECGC

• Construction Works Policy– It is a comprehensive policy covering credit risks faced by

Indian contractors executing civil contracts abroad. Nature of these contracts differ from other normal supply contracts.

• Insurance for Buyer’s Credit & Lines Of Credit– Buyer’s Credit is a credit extended by Banks in India to an

overseas buyer in order to enable him to pay for importing machinery & equipment for a specific project from India

– A Line of Credit is a credit extended by a Bank in India to an Overseas Bank, institution or Government, for the purpose of facilitating import of goods from India to the overseas country.

– ECGC has evolved policies for banks which extend Buyer’s Credit or Line Of Credit to overseas buyers.

Types Of Policies Issued By ECGCContinued

• Shipment Policy– Shipment ( comprehensive risks) Policy, commonly known as the

Standard Policy, is ideally suited to cover risks in respect of goods exported against maximum 180 days terms & covering most risks I.e political & commercial, from date of shipment.

– Issued to exporters whose export turnover is over Rs. 50 Lakhs– Covers all shipments made by the exporter on credit terms

excepting shipments made to one’s own associates.– Shipments on consignment basis ( where payments are made by the

agent on stock & sale of the goods ) are normally excluded.– Air shipments are covered only when the exporter has been issued

a cover against “open delivery” & has paid appropriate premiums.

ECGC’s Performance(In Rs. Crores)

Item 2007-08 2006-07

Value Of risks covered 922,183 428,040

Premium Income 668 618

Claims Paid 420 372

Recoveries made 157 210

IV(f)GSP Rules Of Origin

Generalised System Of Preferences (GSP)

• GSP is a non contractual instrument by which industrialized (developed) countries unilaterally & on the basis of non- reciprocity extend tariff concessions to developing countries.

• The following countries extend tariff preference under their GSP schemes:– USA, New Zealand, Belarus, European Union ,

Japan , Russia, Canada, Norway, Australia, Switzerland, Bulgaria.

Generalised System Of Preferences (GSP)( Cont)

• GSP schemes of these countries detail the sectors/ product & tariff lines under which these benefits are available, besides the conditions & the procedures governing these benefits.

• These schemes are renewed & modified from time to time.

• Normally customs of GSP offering countries require information in a prescribed form duly filled by exporters of beneficiary countries & certified by authorized agencies.

Global System Of Trade Preferences (GSTP)

• Under the agreement establishing global system Of Trade Preferences (GSTP), tariff concessions are exchanged among developing countries, who have signed the Agreement.

• Presently there are 46 member countries of GSTP and India has exchanged tariff with 12 countries on a limited number of products.

• Export Inspection Council (EIC) is the sole agency authorized to issue “certificate of origin” under GSTP.

SAPTA

• The agreement establishing SAPTA (SAARC preferential Trading Agreement) was signed by 7 SAARC members namely India, Pakistan, Nepal, Bhutan, Bangladesh, Sri Lanka, Maldives in 1993 & came into operation in 1995.

• Four rounds of trade negotiations have been completed and more than 3000 tariff lines are under tariff concessions among the SAARC countries.

(v)Benefits Of Exports

(i) Excise Clearance Benefits/RebateIncome Tax Benefit

Excise Clearance Benefit/ Rebate

• Excise Duty– Excise duty is a tax imposed by the Central government on goods manufactured

in India.

– It is collected at source I.e. before removal of goods from the factory premises

– Exporters are totally exempted from payment of CED

– However, necessary clearances must be obtained by the exporter in one of the following ways

• (i) Export Under Rebate– Under this system, an exporter is required to pay CED initially & then claim it

from central excise department after shipment of goods.

• (ii) Export under Bond– Under this system, an exporter is required to execute a bond, in favor of excise

authorities, for a sum equivalent to the amount of excise chargeable on such goods. Such bond should be supported by an appropriate bank guarantee.

Excise Clearance Under Rule 18 & Rule 19 of Central Excise Rules

• Export Procedures for Excise - There are basically two procedures for dispatching the goods out of India. – (a) (Rule 18 of Central Excise Rules).

• In the first procedure, duties are paid and subsequently rebate (refund) is claimed after exportation of such goods. Alternatively, rebate is granted of duty paid on inputs used in the exported final product.

• Rebate claim had to be made to A.C. of Central excise along with original of ARE-1 & other prescribed documents.

– (b) (Rule 19 of Central Excise Rules).• The other procedure is to export goods under bond without payment of

excise duty. • On actual exportation of goods and on presentation of necessary proofs

regarding exports, the bond is released. Regular Exporters can have a running bond for this purpose.

• A merchant exporter has to furnish bond in form B-1 & certificate in CT-1.

Conditions For Central Excise Clearance

• As a part of further simplifications and rationalization of excise rules announced by the Finance Minister a new set of Central Excise Rules, 2001, has come into effect from 1st March 2002.

• The procedure for export of excisable goods (except to Nepal & Bhutan) is subject to certain conditions & limitations.

Conditions & Limitations ( Under payment of CED)

• The excisable goods can be exported directly from a factory or a warehouse after the payment of excise duty

• The excisable goods must be exported within 6 months from the date within which they were cleared for export from the factory of manufacture or his warehouse.

• The market price of the excisable goods at the time of exportation is not less than the amount of rebate duty claimed.

• The amount of rebate of duty admissible is not less than Rs. 500.00

Conditions & Limitations ( Without payment of CED)

• The exporter is required to submit a General Bond ( Surety or security) to the Assistant Commissioner of Central Excise or the Maritime Commissioner for a sum equivalent to the duty chargeable on the goods.

• The excisable goods must be exported within 6 months from the the date on which they were cleared for exports from the factory of manufacturer or his warehouse.

Income Tax Benefits

1. Exemption from Income Tax: In order to enable the exporters to plough back their earnings and promote exports, the Government has given IT exemption to exporters under section 80HHC of the I.Tax Act

2. Similarly long term tax holidays are allowed to 100% EOUs in designated areas such as EPZs, SEZs etc.

VIShipment & Transport

Sea, Air, Rail, Road, Pipeline

VIIRole Of Overseas Agents

& Remittance Of Commission

Overseas Agents

• Selling through overseas agents is a strategic entry option open to exporters.

• Like all options, it has certain advantages & demerits.• Overseas Agents

– Selling through an overseas agent is an effective strategy.

– The agents serve as a source of market intelligence.

– The agent is in a position to render his advice to exporter or new methods and strategy for pushing up sales of your products. He also provides you support in the matter of transportation, reservation of accommodation, appointment with the government as and when required by you.

Overseas Agents (cont)

– In some countries it is compulsory under their law to sell through local agents only. It is, therefore, essential that you should carefully select your overseas agent.

– Some source of information on agents are:• Government Departments Trade

Associations /Chambers of Commerce /Banks • Independent Consultants/Export Promotion

Councils/Advertisement Abroad.

Appointing Overseas Agents

• Points to be considered before appointing Agents– Size & age of the agent's company – Company's ownership and control, capital &

financial details– Name, age and experience of the company's senior

executives/ salesmen – Other agencies that the company holds.– Length of company's association with other principal– New agencies that the company obtained or lost

during the past year

Appointing Overseas Agents (cont)

– Company's total annual sales and the trends in its sales in recent years

– Company's sales coverage, overall and by area – Any major obstacles expected in the company's sales

growth – Agent's capability to provide sales promotion and

advertising services – Agent's transport facilities and warehousing capacity – Agent's rate of commission; payment terms required – References on the agents from banks, trade associations

and major buyers

Demerits Of Appointing An Agent

• There are certain disadvantages of appointing an overseas sales agent, which are as follows;– After sales service can be difficult when selling

through an intermediary– There is some risk for the exporter to lose some

control over marketing & brand image.

(VIII)Various Export Promotion

Schemes

Export Promotion schemes & IncentivesDuty Exemption Schemes- Advance license

Advance license (authorization) issued to allow duty free import of

inputs, which are physically incorporated in export product (making

normal allowance for wastage).

Advance license holders are exempted from payment of basic customs

duty, additional customs duty, anti dumping duty, education cess &

safeguard duty.

• Consumables such as fuel, oil, energy, catalysts, etc are also allowed under this scheme.

– Available to a manufacturer exporter / merchant exporter

– Also available to manufacturer of intermediate products used by the main exporter & for deemed exports.

Duty Exemption Schemes- Advance Authorisation

• Advance license is issued subject to actual user condition & necessitate exports with a positive value addition. Exports to SEZ units are allowed.

• Input-output norms are the description of inputs that are required for the production of particular products & are published in Handbook of Procedures.

• Export obligations for manufacturers using the scheme is normally 18 months for the date of issue of license.

• This scheme is considered useful when a standard product is manufactured in large quantities & standard raw materials are used for production.

• Duty free import of mandatory spares up to 10% of CIF value of license are also allowed.

• Presently a Quantity Based Advance Licensing Scheme (QABAL) is allowed replacing the value based scheme in force earlier.

Export Promotion Schemes & IncentivesDuty Exemption & Remission Schemes

• Duty Exemption schemes enable duty free import of inputs required for export production. These schemes are :– Advance Authorization – Duty Free Import Authorization (DFIA) : salient features of

Advance Licensing Scheme & DFRC have been clubbed to evolve a new scheme named as DFIA.

• The new scheme offers the facility to import required inputs before the exports & allows transferability of scrip once the export obligation is fulfilled.

• This scheme allows duty free import of specified inputs for export production as per standard Input- Output norms.

• DFIA is allowed under actual user condition till export obligation is fulfilled

• Minimum of 20% of value addition is required for such authorization.

Export Promotion Schemes & IncentivesDuty Exemption & Remission Schemes (cont)

• Duty Remission Schemes enables post export replenishment/ remission of duty on inputs used in export product. Duty remission scheme consists of – Duty Entitlement Passbook Scheme (DEPB) & – Duty Drawback scheme (DBK)

Export Promotion Schemes & IncentivesDuty Remission Schemes

• The main Duty Remission Schemes are Duty Entitlement Passbook Scheme (DEPB) & Duty Drawback (DBK)

• Entitlement Passbook Scheme (DEPB)– Under this scheme, grant of customs duty credit against the

exported product, is provided on the import content of the product exported.

– The credit is granted on post- export basis, as a percentage of FOB value.

– DEPB is a fully transferable instrument, which can be availed of by the manufacturer as well as the merchant exporter.

– Exports under the DEPB scheme are allowed only in respect of items, for which standard input-output norms exist.

Duty Remission Schemes (cont)

– DEPB is valid for a period of 12 months from date of its issuance.

– Credit rates of DEPB are generally better than Drawback rates and this scheme is very widely used by the exporting community.

• Duty Free replenishment certificates ( DFRC)

– DFRC is an alternative to the advance license scheme where the benefits are provided on post export basis

– DFRC scheme has been withdrawn with effect from 1st May 2006

Duty Remission SchemesDuty drawback Scheme (DBK)

• Duty drawback is defined as the rebate of duty chargeable on any imported or excisable material used in the manufacture of goods exported from India.

• This is a widely used incentive around the world and provides a level playing field to the country’s exporters.

• This scheme is widely used exporters in India & has worked very well.

• The rates are notified by Directorate of Drawback under the Ministry of Finance, annually.

• Drawback rates are fixed for any class of products manufactured, known as all industry rates, or for a product manufactured by a particular manufacturer, known as brand rates.

Duty Remission SchemesDuty drawback Scheme (DBK) (Cont)

• All industry rates are published every year & are normally valid for one year. These are calculated

– On the basis of average consumption of inputs, duties & taxes paid, quantity of wastage & export price of exported products.

– These are given either on quantity basis (per kg) or on ad valorem basis (as % of FOB value) & are reviewed and revised periodically.

• Brand rates/ Special Brand rates are calculated if all industry rates are unavailable or industry rates provide inadequate compensation

– These are product and exporter specific & require proof of payment of duties, materials used & irrevocable wastages incurred and other data.

Export Promotion Schemes & IncentivesExport Promotion Capital Goods

(EPCG) Scheme• EPCG scheme: introduced in 1990 to enable the import of

capital goods at concessional rate of duty (3% at present`) subject to an appropriate export obligation accepted by the exporter. The specified export obligation needed to be fulfilled over a specified period in a prescribed manner.

• The aim of the scheme is to reduce the incidence of high capital costs on export prices to make export competitive in international markets.

• The import duty slab on capital goods was quite high when this scheme was introduced. However, the import duties have been reduced in the succeeding years

Export Promotion Schemes & IncentivesExport Promotion Capital Goods

(EPCG) Scheme (cont)

• The export obligation is required to be fulfilled by the export of goods manufactured or produced by the use of the capital goods imported under the scheme.

• Capital goods including spares, jigs, fixtures, dies & moulds can also be imported.

• The export obligation of the user of this scheme is linked to the amount of custom duty saved (presently 8 times)

• There are no restrictions on the quantum of domestic sales in case of imports under EPCG.

Marketing Development Assistance (MDA)

• Marketing Development Assistance (MDA)

– Under MDA, exporters with turnover upto Rs. 15.00 crores are eligible for financial assistance for a range of export promotions activities such as participation in Trade Fairs, buyer-seller meets abroad or in India , export promotion seminars etc.

– Financial assistance with travel grants is available to exporters traveling to Latin America, Africa, CIS region, ASEAN countries, Australia & New Zealand. In other areas, financial assistance without travel grants is available

Market Access Initiative (MAI)

• Market Access Initiative (MAI)– This scheme is intended to provide financial assistance for

medium term export promotion efforts with a sharp focus on a country & product. Export Promotion Councils (EPC) Industry & Trade Associations, Agencies of State governments, Indian Commercial Missions abroad are eligible for assistance under this scheme.

– Range of activities can be funded by MAI scheme. These include: market studies, setting up of showrooms/warehouses, sales promotion & publicity campaigns, participation in international trade fairs etc.

– Financial assistance ranging from 25% to 100% of total costs can be received

Focus Market Schemes (FMS)

• Objective:

– Objective is to offset high freight costs & other externalities to select international markets with a view to enhance our export competitiveness in these countries.

• Entitlement

– Exporters of all products to notified countries shall be entitled for duty credit scrip equivalent to 2.5% of FOB value of exports for each licensing year commencing from 1st April, 2006

– Exports made by EOUs,/ EHTP/ BTP, who do not avail direct tax benefits,/ exemptions shall be eligible, provided the same benefits are not availed otherwise.

Focus Product Schemes (FPS)• Objective:

– Objective is to incentivise exports of such products which have high employment intensity in rural or semi-urban areas, so as to offset infrastructure inefficiencies & other associated costs involved in marketing of such products.

• Entitlements:– Export of notified products to all countries (including SEZ

units) shall be entitled for duty credit scrips equivalent, to 1.25% of FOB value of exports for each licensing year commencing from 1st April, 2006

– Exports made by EOUs,/ EHTP/ BTP, who do not avail direct tax benefits,/ exemptions shall be eligible, provided the same benefits are not availed otherwise.

Export & Trading Houses

• Export & Trading Houses: Merchant as well as Manufacturer Exporters, Service Providers, EOUs & units located in SEZs , AEZs, Electronic Hardware Technology Parks (EHTPs), Software Technology Parks (STPs) & Bio-Technology Parks (BTPs) shall be eligible for status.

• Status is calculated on total FOB export performance during current plus previous three years (taken together) upon exceeding limit given below:– EXPORT HOUSE (EH): Rs. 20 Crores

– STAR EXPORT HOUSE (SEH): Rs. 100 Crores

– TRADING HOUSE (TH): Rs. 500 Crores

– STAR TRADING HOUSE (STH): Rs. 2500 Crores

– PREMIUR TRDING HOUSE (PTH): Rs. 10,000 Crores.

Export & Trading Houses (Cont)

• Status holder will be eligible for a number of facilities including :

– Authorization & customs clearance for both imports & exports, on self-declaration basis.

– Fixation of input-output norms on priority within 60 days

– Exemption from compulsory negotiation of documents through banks

– 100% retention of foreign exchange on EEFC account

– Enhancement of normal repatriation period from 180 days to 360 days.

– Exemption of providing Bank guarantee in schemes under FTP.

Special focus InitiativesVishesh Krishi & Gram Udyog Yojana

(VKGUY)

– A new scheme called “Vishesh Krishi Upaj Yojana”( now Vishesh Krishi & Gram Udyog Yojana -VKGUY) to boost exports of fruits, vegetables, flowers, minor forest produce and their value added products, has been initiated.

– Capital goods imported under Export Promotion Capital Goods (EPCG) scheme shall be permitted to installed anywhere in Agri-Export Zone (AEZ)

– Funds shall be earmarked under the Assistance to States for Infrastructure Development of Exports (ASIDE) scheme for development of AEZs

Special focus InitiativesVishesh Krishi & Gram Udyog Yojana

(VKGUY) (cont)

– Import of restricted items like panels shall be allowed under various export promotion schemes.

– New towns of excellence with reduced threshold limit of 250 crores shall be notified.

– Certain specific flowers, fruits and vegetables will be entitled to a special duty credit scrip, in addition to the normal benefit under VKGUY.

– Imports of inputs such as pesticides under Advance License.

Special focus InitiativesHandloom & Handicrafts Sector:

• Handloom & Handicrafts Sector:– Specific funds would be earmarked for Market Access

Initiatives(MAI) Market Development Assistance (MDA) scheme for promoting handloom exports.

– CVD is exempted on duty free imports of trimmings & establishments for handlooms & handicrafts.

– Exemption of samples from countervailing duty (CVD)

– Authorizing Handicraft Export Promotion Council to import trimmings embellishments and samples for small manufactures

Special focus InitiativesHandloom & Handicrafts Sector: (cont)

– Establishment of a new Handicraft Special Economic Zone.

– Duty free import entitlement of tools, machinery &equipment, trimmings & embellishments shall be 5% of FOB value of exports during the previous financial year. This shall also extend to merchant exporter tied up to a supporting manufacturer.

– Handicrafts EPC is authorized to import trimmings on behalf of exporters.

– New towns of excellence with reduced threshold limit of 250 crores shall be notified.

Special focus InitiativesGems & Jewellery Sector

• Gems & Jewellery Sector– Permission for duty free import of consumables for metals

other than gold & platinum up to 2% of FOB value of exports

– Duty free re-import entitlement for rejected jewellery allowed upto 2% of FOB value of exports.

– Duty free import of commercial samples of jewellery allowed upto Rs 3 Lakhs

– Permission to import gold of 18 carat and above under the replenishment scheme

– Cutting & polishing of gems & jewellery to be treated as manufacturing under the Income Tax for purposes of exemption.

Special focus InitiativesLeather & Footwear Sector

• Leather & Footwear Sector– Increase in duty free entitlement of import trimmings &

embellishments & footwear components for leather industry to 3% of FOB value of exports & duty free imports of specified items for leather sector to 5% of FOB value of exports.

– Imports of machinery for Effluent Treatment Plants exempted from basic customs duty

– Re-exports of unsuitable material ( raw hides & skins & wet blue) permitted.

– CVD is exempted on lining & interlining material & raw, tanned & dressed fur skins.

Special focus Initiatives (Cont)Special Focus initiatives have also been extended to• Marine Sector

– Duty free entitlement of specified specialized inputs/ chemicals and flavoring oils is allowed to the extent of FOB value of preceding financial year’s export.

• Electronic & IT Hardware– Exporters/ associations would be entitled to utilize MAI &

MDA schemes for promoting their exports • Sports Goods & Toys

– This sector will be treated as a priority sector under MDA/MAI schemes wherein specific sums would be earmarked for this sector.

– DGFT will issue Fast Track clearances to their applications.

Served from India Scheme (SFIS)Service Exports

• Served from India Scheme (SFIS)– Objective is to accelerate growth in exports of

services so as to create a powerful & unique “Served From India” brand, instantly recognized and respected

– All service providers of services listed, who have a total free foreign exchange earning of at least Rs. 10 Lakhs in preceding year will qualify for duty credit scrip equivalent to 10% of free F.E. earned

Served from India Scheme (SFIS)Service Exports (cont)

• Service Exports– EPCs set up in order to map opportunities for key services

in key markets and develop strategic market access programmes, including brand building in coordination with sectoral players & nodal bodies of the service industry.

– Services include all 161 tradable services covered under General Agreement on Trade in Services (GATS) where payment for such services is received in free foreign exchange.

– Service exporters are required to register themselves with respective EPC or FIEO.

(IX)SEZ, EHTP,STP & EOUs

Export Processing Zones (EPZs)

• In order to encourage exports, GOI, has provided special incentives for units set up primarily for manufacturing goods for export. Such units can be set up in designated Export processing Zones (EPZs)

• These EPZs are designed to provide an internationally competitive duty free environment at low cost for export production. Each of the zones provide basic infrastructure facilities like developed land, standard design factory buildings, roads, power, water supply, drainage and customs clearance facilities.

• The first EPZ set up in India was in 1965 - the Kandla Free Trade Zone. Subsequently, six more EPZs have been set up at : Santa Cruz (Bombay) , Falta (WB) , Madras (Tamil Nadu), Noida (U.P), Cochin (Kerala), and Visakhapatnam (AP).

• EPZs have now been merged into SEZs.

EOU Scheme

• The Export Oriented Unit (EOU) Scheme, which had been introduced in the early 1980s remains in the forefront of country’s export production schemes.

• The scheme has witnessed many changes over the last twenty-six years in the context of ever changing economic realities.

• However, the basic premise remains the same. This premise is that the exporters are treated as a special class and given the required tariff, non-tariff and policy support to facilitate their export efforts.

• Thus, today the EOU Scheme has emerged as a dynamic policy initiative facilitating the exporting community in the task of increased exports

EOU Scheme

• There is a separate Export Promotion Council for EOU & SEZ units.

• 100% EOUs fall into 3 categories – (a) EOUs established anywhere in India and exporting 100%

products except certain fixed percentage of sales in the Domestic Tariff Area (DTA) as may be permissible under the Policy.

– (b) Units in Free Trade Zones or Special Economic Zones (SEZs) and exporting 100% of their products.

– (c) EOUs set up in Software Technology Parks (STPs) and Electronic Hardware Technology Parks (EHTPs) of India, Bio-technology Parks (BTP), for development of Software & Electronic Hardware & Bio-technology respectively.

Export Oriented Units (EOU), Electronic Hardware Technology Parks(EHTPs), Software Technology Parks(STPs)

Bio-technology Parks (BTPs)

• Eligibility : Units undertaking to export their entire production of goods & services (except permissible sales in DTA), may be set up under the above schemes. Trading units are not covered under these schemes.

– These units may import and/or procure from DTA or bonded warehouses in DTA/ international exhibitions held in India, without payment of duty, all types of goods including capital goods. Import of capital goods will be on self certification basis & will be subject to actual user condition.

– They may procure from DTA, without payment of duty, certain specified goods for creating a central facility.

Export Oriented Units (EOU), Electronic Hardware Technology Parks(EHTPs), Software Technology Parks (STPs)

Bio-technology Parks (BTPs)

– These units ,other than service units, may export to Russian Federation in Indian Rupees against repayment of State Credit/ Escrow Rupee account , subject to RBI approval.

– These units, may also source capital goods from a domestic/ foreign leasing company without payment of customs/ excise duties

– They will be entitled for reimbursement of CST on goods manufactured in India & exemption from payment of CED on goods procured from DTA.

– They will be exempted from Income Tax as per section 10A & 10B of I.T. Act

– They will be allowed to retain 100% of export earnings in EEFC account.

Special Economic Zones(SEZ)

• Special Economic zones (SEZ) is a specifically designated duty free enclave which shall be deemed to be a foreign territory for the purpose of trade operations & duties & tariffs.

• The policy provides for setting up of SEZ in the public, private & joint sectors or by state governments.

• The Government has already converted a number of Export Processing Zones (EPZ) to SEZ. Amongst them is the Santa Cruz SEZ at Mumbai.

Special Economic Zones(SEZ) (cont)

• SEZ Act 2005, was passed by the Parliament in May 2005 & came into effect on 10th Feb 2006. The Act is supported by SEZ rules.

• As on 9th Jan, 2008, number of notified SEZs were 193. At the end of December 2007, there were 211 SEZs with formal valid approvals.

• In 2006-07, total exports from all 18 SEZs (Government & private together) were $ 7.68 B, indicating an increase of 48.8% over the exports in 2005-06.

• By the end of November, 2007, total investments in all SEZs were Rs. 59,631 Crores and 276,307 persons were employed by all SEZs.

(Statistical Outline of India)

Special Economic Zones(SEZ) (Cont1)

• Some of the features of SEZ are:– Export & Import : Goods & services going into

the SEZ area from DTA shall be treated as deemed exports and the domestic suppliers are eligible for deemed export benefits. Similarly, goods & services coming from SEZ area into DTA shall be treated as if the goods are being imported. The entire production of SEZ must be exported & DTA sales are permitted only after payment of full applicable customs duties.

Special Economic Zones(SEZ) (Cont2)

– Activities permissible : SEZ units may be set up for manufacture, services, production, processing, assembling, trading, repair, remaking, reconditioning etc. Units for generation of power may also be permitted at SEZs.

– Foreign direct Investments: (FDI) : FDI up to 100% is allowed through automatic route for all manufacturing activities, except prohibited items.

– Promotional Package:

• Exemption from payment of CED on procurement of capital goods, raw materials, consumable spares etc. from the domestic market.

Special Economic Zones(SEZ) (Cont2)

• Reimbursement of CST paid on domestic purchases.

• Income Tax exemptions as notified in Section 10A and Section 80-LA of the I.T. Act.

• Support services like banking, post offices, clearing agents etc. are available within the zone.

• Exemption from payment of Service Tax.

• No license required for imports. Exemption from customs duty on imports of capital goods, raw materials, consumables, spares etc.

• SEZ units can retain 100% of their export proceeds in Exchange Earner’s Foreign Currency (EEFC) account.

• Realization of export proceeds allowed up to 12 months from the date of exports.

Highlights- EOUs Vs SEZs

Export Oriented Units Special Economic Zones

Establishment

EOU can be set up at any place declared as warehousing station under Custom’s Act. There are over 300 such places in India.

SEZ unit has to be located within the specified zone developed

Import

Procedure

Can import capital goods, R.M. consumables, packing material,etc without payment of customs duty. Similarly, these can be procured indigenously without payment of CED Second hand capital goods can also be imported.

SAME AS EOUs

Net Forex Earnings

They have to achieve positive NFE.( Net foreign Exchange Earnings)

SAME AS EOUs

Minimum Investment

Min investment in plant & machinery & building is Rs.100L before stating prodn.

There is no such limit for SEZs.

Highlights- EOUs Vs SEZs

Export Oriented Units Special Economic Zones

Procedure A bond in prescribed format has to be executed ( B-17 in case of EOU)

A bond in prescribed format has to be executed ( A form prescribed under SEZ Rules 2003)

Green channel

There is no physical supervision of customs/excise authorities over production & clearances but proper records to be maintained.

SAME AS EOUs

Customs Clearance

Fast track clearance scheme for clearance of imported consignments for EOUs

In case of SEZs , customs clearance for exports & imports is obtained within SEZ

Export Of Final Prod.

Generally all final prodn to be exported except rejects up to prescribed limit.

SAME As EOUs

Highlights- EOUs Vs SEZs

EOUs SEZs

CST CST paid on purchases is refundable

In case of SEZs, suppliers do not have to pay CST.

Supplies made by Indian Suppliers

Supplies made by Indian suppliers are “deemed exports” & suppliers are entitled to benefits of “deemed exports”

Supplies to SEZs are exports and all export benefits are available.

Infrastructure General infrastructure available to EOU units are not as good as those available to SEZs.

SEZ infrastructure is normally much better.