EXPORT PROCEDURE AND DOCUMENTATION PROJECT REPORT ON EXPORT PROCEDURE & DOCUMENTATION PREPARED BY By Rahul Sharma 10-MBA-IB 2012-14

Under the Supervision of Mr. Atambir Singh Nanda

SUBMITTED TO THE BUSINESS SCHOOL JAMMU UNIVERSITY IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE AWARD OF DEGREE OF MBA-IB ACADEMIC YEAR2012 - 2014

DECLARATION

I mr Rahul Sharma of THE BUSINESS SCHOOL of MBA-IB (semester 3rd) hereby declare that I have completed this project on EXPORT PROCEDURE AND DOCUMENTATION in the academic year 2013-14.the information submitted is true and original to the best of my knowledge

RAHUL SHARMA MBA-IB(semester 3rd) ROLL NO.-10-MBA-IB THE BUSINESS SCHOOL JAMMU UNIVERSITY
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ACKNOWLEDGEMENT
Life of human beings is full of interactions. No one is self-sufficient by himself whenever anyone is doing some serious and important work a lot of help from the people concerned is needed & one less specially obliged towards them. I cannot forget acknowledging them in few words as without the guidance & co-ordination of them in my project report would not have been possible. A large number of individual contributed to this project. I am thankful to all of them for their help and encouragement. My writing in this project report has also been influenced by a number of website and standard textbooks. As far as possible, they have been fully acknowledged at the appropriate place .I express my gratitude to all of them. First of all I owe my heartfelt gratitude to my guide Mr. Atambir Singh Nanda(Accounts and Export Manager) for his noble guidance throughout the completion of the Project. I would like to extend my heartfelt thanks to Mr. Deepak Singh (Founder and CEO), for giving me an opportunity to work on this project. I would also like to thank Mr. Chandan Singh (Managing Director) PMGL Emerging Energies Pvt. Ltd. Mohali (Chandigarh) for their guidance, inspiration, and constructive suggestions, which helped me in the Project. I must also thank the management of PMGL Emerging Energies Pvt. Ltd.. To provide excellent opportunity and environment to be able to pull my project through. Cooperation of the staff is also gratefully acknowledged. Last but not least, also give my sincere thanks to all the people to directly indirectly have help and encourage me in finding the way to us collecting the requisite information and completing the project effectively and timely.

Rahul Sharma 10 MBA-IB

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CERTIFICATE

INDEX

OBJECTIVES OF THE STUDY

The primary objective of my study at EMERGING ENERGIES PVT LTD is to study the export documentation process. To know what are the documents required before and after sailing the cargo My objective is to apply my learning in the area of foreign trade so that significant practical knowledge and Understand the details of export documentation. I gain

Understand the need for and the ways of training for international assignments. To understand the working of various departments of EMERGING ENERGIES PVT LTD contributing towards processing of an export order.

RATIONALE OF THE STUDY

Export in simple words means selling goods abroad or Export refers to outflow of goods and services and inflow of foreign exchange. Each country has its own rules and regulations regarding the foreign trade. For the fulfillment of all the rules and regulations of different countries an exporting company has to maintain and fulfill different documentation requirements. The documentation procedure depends on the type of goods, process of manufacturing, type of industry and the country to which goods is to be exported. In order to complete an order for permanent generators, many activities like communication between different departments, the process of outsourcing raw material, payment process, quality control, packing and shipment of goods etc. are undertaken. Different departments work in synchronicity & various documents are prepared in the process. Hence, a single mistake or lack of proper planning can lead to the rejection of the whole order or increase the cost. Todays world is the global village in which each country is trading with other countries in the form of export or import. This field has a great scope because today each company whether it is small or big wants to engage in foreign trade. So, it is very important to study the export procedure and documents involved in it. Hence, selecting this project is a judicious decision.

SCOPE OF THE STUDY

The aim of this project report is to unfold stepwise all complexities involved in the export business right from receiving an export order to final realization of export proceeds. It gives a detail idea of how different departments in an EMERGING ENERGIES PVT LTD work in synchronization so that an export order is processed. This project would be helpful to fulfill many loopholes of manufacturing, processing and analyzing the export order as well as documentation. This research provides me with an opportunity to explore in the field of foreign trade. Apart from that it would provide me a great deal of exposure to interact with the high profile managers of the company.

RESEARCH DESIGN
Research design is the based framework, which provides guidelines for the research process. It is a map or blue print according to which the research is to be conducts. The research design specifies the methods for data collection & data analysis determine the source of data. Most specifically it was a kind of Descriptive conclusive research who takes care of who, when, where, what, how and why aspects of the investigation further the researcher used the statistical method to serve the purpose of project, it permitted the research to derive more accurate generalization whose reliability could be measured.

CENTRE RESEARCH

: CHANDIGARH (MOHALI) : EXPLORATORY

RESEARCH TECHNIQUE: QUALITATIVE & QUANNTATIVE TOOL USED DATA SOURCE : INTERNET & TELEPHONIC : PRIMARY & SECONDARY

LIMITATIONS OF THE STUDY

Not goods specific data Not an exact science Limitation of time Erroneous findings Not exact tool for data collection In experience research staff Complex data research

INTRODUCTION OF STUDY
This project is all about to know export import procedure/ documentation of shipment. This project puts more focus on to know custom clearness, to make export - import invoice, to get shipping bill number from custom department etc..

COMPANY PROFILE
LOCATION CHANDIGARH (MOHALI)

ESTABLISHED IN INDUSTRY IEC NUMBER MAJOR PRODUCTS

2009 RENEWABLE ENERGY 2209001358 ALTERATOR 1 kilowatt to 100 kilowatts

MISSION
PM Generators Ltd goal is to keep prices down, foster transparent supply strategies and forge long-lasting relationships that produce the brightest ideas of this generation.PM Generators Ltd is the leading value suppliers of permanent magnet generators for all energy requirements. Fueled by the leading minds and personel of the industry, PMGL products out perform all competitors products and provide a value to all energy generation companies that make change a reality.

Values
PM Generators Ltd is in constant pursuit of more efficient, reliable and affordable methods of converting and producing power.Its agile team has developed the technology, sourcing and manufacturing capabilities you need for success in the new energy market.

PRODUCTS AND SERVICESS

power generation, transmission customized permanent magnet alternators customized wind technologies customized hydro-kinetic turbines customized diesel generator sets

MAJOR CUSTOMERS
Catalyst energy technologies 160 Harrison road,suite, Sequim WA 98382 USA United states Alexander Electric Inc DBA state electric generator 211 fern street Santa Cruz,CA 95060 USA United States

Windsail receptor inc 1616 ann way boulder city, Nv 89005 USA MARTIME VENTURES INTERNATIONAL INC 9023 hWY 6 south Houstan texas usa 77083 USA

IDC Energy Rue ernest montellier 8 5380 fernelmont BELGIUM CHALWELL AUTO REPAIRS 15 WILS STREET BRIGHT VICTORIA AUSTRALIA 3741 AUSTRALIA ALEX HINE FUTURE FORCE LLC 1938 COUNTY RD C W ROSEVILLE MN 55113 UNITED STATES PM Generators Ltd. boasts of happy customers in many other countries like U.S.A, Lativa , Mexico, South America, Africa etc

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Management team
Deepak Singh Deepak Singh (IIT Delhi, 69, MBA Indiana University), founder and CEO, has extensive experience as an engineer involved in developing large scale civil projects and furthering research and development of renewable energies. After graduating as a Civil Engineer from IIT Delhi, Mr. Singh proceeded to USA where he did his Masters in Business Administration from Indiana University in Bloomington, Indiana, USA, with a concentration in Finance and Industrial Management. This combination of a technical background with an eye on Finance has helped him develop projects that are not only technically sound and innovative but are also financially feasible with tremendous growth opportunities. Chandan Singh Chandan A. Singh (MS GWU and MBA from Robinson School of Business), Business Development, offers immense experience in the Renewable Energy and Environmental field having worked with Washington, D.C. based World Resources Institute. His experience in India has included piloting a financial product for the Indian ESCO industry with two of the countrys largest private financial institutions. In addition to his career and educational background, Chandans passion for preserving the environment is well demonstrated by the fact that he was one of the few candidates selected by Vice President Al Gore for training and disseminating the message on Global Warming. Tapan Bandyopadhyay Tapan Bandyopadhyay, Chief Research and Design Manager, has served as an Electrical Design Engineer for 27 years. His industrial experience has focused on the design and development of Permanent Magnet Brushless Bearing less Alternators, BLDC Motor, Brushless Alternators for Diesel Generating sets and defense application. His previous position was with M/s Luminous Teleinfra Limited as Sr. Manager R & D. Atambir Singh Nanda Atambir Singh Nanda, Senior Commercial Manager, PMGL, has deep knowledge of various fields related to accounts, finance, export management, and supply chain management. Apart from getting his Post Graduate Diploma in Business Management from DAV, Chandigarh, he has also cleared first group of ICWA Inter and then obtained his certification in Export Management from Foreign Trade Development Council. His working experience spreads over a number of industries ranging from agro companies to export houses. He has held senior positions in accounts departments in all his tenures before and hence brings with him a good sound knowledge of both leadership qualities and department knowledge. His thorough knowledge of Accounts Department, MIS, Taxes and Supply Chain Management makes him a valuable asset of PMGL.

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Tarvinder Bhullar Tarvinder Bhullar (B.Sc. Punjab University, Chandigarh), Manager Operations at PMGL, brings with him vast knowledge and experience in the field of Quality Analysis and product Designing. After graduating from Punjab University, Tarvinder worked as a Senior Quality Analyst in the area of Medical Transcription. Having held leadership positions he works in the areas of profit management, customer support and logistics. His areas of expertise include scaling up operations from a mechanical design perspective and managing customer relationships. His proficiency in AutoCAD, Solidworks, Catia, Pro-E.1 etc give his work a mechanical dimension which helps in the smooth functioning of PMGL.

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International acts, terms and norms

Carriage of goods by sea act 1924

Uniform customs and practices for documentary credit (UCPDC) 1993

International commerce terms (INCOTERMS) 2000

INDIAN EXPORT RELEVENT LAWS/ACTS

Central excise Customs Insurance Marine insurance

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Carriage of sea acts

The Carriage of Goods by Sea Act ("COGSA") is a United States statute governing the rights and responsibilities between shippers of cargo and ship-owners regarding ocean shipments to and from the United States. It is the U.S. enactment of the International Convention Regarding Bills of Lading, commonly known as the "Hague Rules". The United States Congress, concerned that the Hague Rules did not offer shippers enough protection against damage to cargo by ship owners, amended the Hague Rules in a number of minor, but important, ways. It increased the amount that ship owners would have to pay cargo owners for damage in transit from GBP 100 per package to USD 500 per package or, for goods not shipped in packages, per customary freight unit. This "package limitation" has become one of the most contentious and litigious areas in the field of cargo damage, particularly as it relates to the transportation of goods by ocean shipping containers.

Risks
Every contract of carriage of goods by sea the carrier, in relation to the loading, handling, stowage, carriage, custody, care and discharge of such goods, shall be subject to the responsibilities and liabilities, and entitled to the rights and immunities Here in after set forth.

Responsibilities and Liabilities

1. The carrier shall be bound, before and at the beginning of the voyage, to exercise due diligence to-(a) make the ship seaworthy; (b) properly man, equip and supply the ship, (c) make the holds, refrigerating and cool chambers, and all other parts of the ship in which goods are carried, fit and safe for their reception, carriage and preservation. 2.The carrier shall properly and carefully load, handle, stow, carry, keep, care for and discharge the goods carried. 3. After receiving the goods into his charge, the carrier or the master or agent of the carrier, shall on demand of the shipper, issue to the shipper a bill of lading showing among other things (a) The leading marks necessary for identification of the goods as the same are furnished in writing by the shipper before the loading of such goods starts, provided 14

such marks are stamped or otherwise shown clearly upon the goods if uncovered, or on the cases or coverings in which such goods are contained, in such a manner as should ordinarily remain legible until the end of the voyage; (b) Either the number of package or pieces, or the quantity or weight, as the case may be, as furnished in writing by the shipper; (c) The apparent order and condition of the goods: Provided that no carrier, master or agent of the carrier, shall be bound to state or show in the bill of lading any marks, number, quantity, or weight which he has reasonable ground for suspecting not accurately to represent the goods actually received, or which he has no reasonable means of checking. 4. Such a bill of lading shall be prima facie evidence of the receipt by the carrier of the goods. However, proof to the contrary shall not be admissible when the bill of lading has been transferred to a third party acting in good faith. 5. The Shipper shall be deemed to have guaranteed to the carrier the accuracy at the time of shipment of the marks, number, quantity, and weight, as furnished by him, and the shipper shall indemnify the carrier against all loss, damages and expenses arising or resulting from inaccuracies in such particulars. The right of the carrier to such indemnity shall in no way limit his responsibility and liability under the contract of carriage to any person other than the shipper. 6. Unless notice of loss or damage and the general nature of such loss or damage be given in writing to the carrier or his agent at the port of discharge before or at the time of the removal of the goods into the custody of the person entitled to delivery thereof under the contract of carriage, or, if the loss or damage be not apparent, within three days, such removal shall be prima facie evidence of the delivery by the carrier of the goods as described in the bill of lading.

The notice in writing need not be given if the state of the goods has, at the time of their receipt, been the subject of joint survey or inspection. In any event the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within one year after delivery of the goods or the date when the goods should have been delivered. This period may, however, be extended if the parties so agree after the cause of action has arisen; Provided that a suit may be brought after the expiry of the period of one year referred to in this sub-paragraph within a further period of not more than three months as allowed by the court. In the case of any actual or apprehended loss or damage, the carrier and the receiver shall give all reasonable facilities to each other for inspection and tallying the goods. 15

7. After the goods are loaded the bill of lading, to be issued by the carrier, master or agent of the carrier to the shipper, shall, if the shipper so demands, be a shipped bill of lading, provided that, if the shipper shall have previously taken up any document of title to such goods, he shall surrender the same against the issue of the shipped bill of lading but at the option of the carrier, such document of title may be noted at the port of shipment by the carrier, master or agent with the name or names of the ship or ships upon which the goods have been shipped and the date or dates of shipment, when so noted the same shall for the purpose of this Article be deemed to constitute a shipped bill of lading. 8. Any clause, covenant or agreement in a contract of carriage, relieving the carrier or the ship from liability, for loss or damage to or in connection with goods arising from negligence, fault or failure in the duties and obligations provided in this Article or lessening such liability otherwise than as provided in these Rules, shall be null and void and of no effect. A benefit of insurance or similar clause shall be deemed to be a clause relieving the carrier from liability. Rights and Immunities 1. Neither the carrier nor the ship shall be liable for loss or damage arising or resulting from unseaworthiness unless caused by want of due diligence on the part of the carrier to make the ship seaworthy, and to secure that the ship is properly manned, equipped and supplied, and to make the holds, refrigerating and cool chambers and all other parts of the ship in which goods are carried fit and safe for their reception, carriage and preservation. Whenever loss or damage has resulted from unseaworthiness the burden of proving the exercise of due diligence shall be on the carrier or other person claiming exemption under this section. 2. Neither the carrier nor the ship shall be responsible for loss or damage arising or resulting from (a) act, neglect, or default of the master, mariner, pilot or the servants of the carrier in the navigation or in the management of ship; (b) fire, unless caused by the actual fault or privity of the carrier; (c) perils, dangers and accidents of the sea or other navigable waters; (d) act of God; (e) act of war; (f) act of public enemies; (g) arrest or restraint of princes, rulers of people or seizure under legal process; (h) quarantine restrictions; (i) act or omission of the shipper or owner of the goods, his agent, or representative; (j) strikes or lock-outs or stoppage or restraint of labour from whatever cause, whether partial or general; (k) riots and civil commotions; (l) saving or attempting to save life or property at sea;

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(m) wastage in bulk or weight or any other loss or damage arising from inherent defect, quality, or vice of the goods; (n) insufficiency of packing; (o) insufficiency or inadequacy of marks; (p) latent defects not discoverable by due diligence; (q) any other cause arising without the actual fault or privity of the carrier, or without the fault or neglect of the agents or servants of the carrier, but the burden of proof shall be on the person claiming the benefit of this exception to show that neither the actual fault or privity of the carrier nor the fault or neglect of the agents or servants of the carrier contributed to the loss or damage. 3. The shipper shall not be responsible for loss or damage sustained by the carrier or the ship arising or resulting from any cause without the act, fault, or neglect of the shipper, his agents or his servants. 4. Any deviation in saving or attempting to save life or property at sea, or any reasonable deviation shall not be deemed to be an infringement or breach of these Rules or of the contract of carriage, and the carrier shall not be liable for any loss or damage resulting there from. 5. Neither the carrier nor the ship shall in any event be or become liable for any loss of damage to or in connection with goods in an amount exceeding 666.67 Special Drawing Rights per package or unit or two Special Drawing Rights per kilogram of gross weight of the goods lost or damaged, whichever is higher. Where a container, pallet or similar article of transport is used to consolidate goods, the number of packages or units enumerated in the bill of lading and as packed in such article of transport shall be deemed to be the number of packages or units for the purposes of this paragraph as far as these packages or units are concerned. Neither the carrier nor the ship shall be entitled to the benefit of limitation of liability provided for in this paragraph if it is proved that the damage resulted from an act or omission of the carrier, done with intent to cause damage, or recklessly and with knowledge that damage would probably result. Where the nature or value of the goods has been knowingly misstated by the shipper ( so as to cause such entries) in the bill of lading , the liability of the carrier or ship shall not exceed the value so stated. This declaration if embodied in the bill of lading shall be prima facie evidence, but shall not be binding or conclusive on the carrier. By agreement between the carrier, master or agent of the carrier and the shipper another maximum amount than that mentioned in this paragraph may be fixed, provided that such maximum shall not be less than the figure above named. Neither the carrier nor the ship shall be responsible in any event for loss or damage to or in connection with goods if the nature or value thereof has been knowingly mis-stated by the shipper ( ) in the bill of lading. 6. Goods of an inflammable, explosive or dangerous nature, to the shipment whereof, the carrier, master or agent of the carrier, has not consented, with knowledge of their 17

nature and character, may at any time before discharge be landed at any place or destroyed or rendered innocuous by the carrier without compensation, and the shipper of such goods shall be liable for all damages and expenses directly or indirectly arising out of or resulting from such shipment. If any such goods shipped with such knowledge and consent shall become a danger to the ship or cargo, they may in like manner be landed at any place or destroyed or rendered innocuous by the carrier without liability on the part of the carrier except to general average, if any. Surrender of Rights and Immunities, and Increase of Responsibilities and Liabilities A carrier shall be at liberty to surrender in whole or in part all or any of his rights and immunities or to increase any of his responsibilities and liabilities under the Rules contained in any of these Articles, provided such surrender or increase shall be embodied in the bill of lading issued to the shipper. The provisions of these Rules shall not be applicable to charter parties, but if bills of lading are issued in the case of a ship under a charter party, they shall comply with the terms of these Rules. Nothing in these Rules shall be held to prevent the insertion in a bill of lading of any lawful provision regarding general average. Special Conditions Notwithstanding the provisions of the preceding Articles, a carrier, master or agent of the career, and a shipper shall, in regard to any particular goods, be at liberty to enter into any agreement in any terms as to the responsibility and liability of the carrier for such goods, and as to the rights and immunities of the carrier in respect of such goods, or his obligation as to seaworthiness so far as the stipulation is not contrary to public policy, or the care or diligence of his servants or agents in regard to the loading, handling, stowage, carriage, custody, care, and discharge of the goods carried by sea, provided that in this case no bill of lading has been or shall be issued and that the terms agreed shall be embodied in a receipt which shall be non-negotiable document and shall be marked as such. Any agreement so entered into shall have full legal effect: Provided that this Article shall not apply to ordinary commercial shipments made in the ordinary course of trade, but only to other shipments where the character or condition of the property to be carried or the circumstances, terms and conditions under which the carriage is to be performed as such, are reasonable to justify a special agreement. Limitations on the Application of the Rules Nothing herein contained shall prevent a carrier or a shipper from entering into any agreement, stipulation, condition, reservation or exemption as to the responsibility and liability of the carrier or the ship for the loss or damage to or in connection with the custody and care and handling of goods prior to the loading on and subsequent to the discharge from the ship on which the goods are carried by sea.

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Limitation of Liability
The provisions of these Rules shall not affect the right and obligation of the carrier under any Statute for the time being in force relating to the limitation of the liability of owners of sea-going vessels. The monetary units mentioned in these Rules are to be taken to be gold value.

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INCOTERMS
The Incoterms rules or International Commercial Terms are a series of pre-defined commercial terms published by the International Chamber of Commerce (ICC) that are widely used in International commercial transactions or Procurement processes. A series of three-letter trade terms related to common contractual sales practices, the Incoterms rules are intended primarily to clearly communicate the tasks, costs, and risks associated with the transportation and delivery of goods. The Incoterms rules are accepted by governments, legal authorities, and practitioners worldwide for the interpretation of most commonly used terms in international trade. They are intended to reduce or remove altogether uncertainties arising from different interpretation of the rules in different countries. As such they are regularly incorporated into sales contracts worldwide. First published in 1936, the Incoterms rules have been periodically updated, with the eighth versionIncoterms 2010having been published on January 1, 2011. "Incoterms" is a registered trademark of the ICC. Language is one of the most complex and important tools of International Trade. As in any complex and sophisticated business, small changes in wording can have a major impact on all aspects of a business agreement. Word definitions often differ from industry to industry. This is especially true of global trade. Where such fundamental phrases as "delivery" can have a far different meaning in the business than in the rest of the world. For business terminology to be effective, phrases must mean the same thing throughout the industry. That is why the International Chamber of Commerce created "INCOTERMS" in 1936. INCOTERMS are designed to create a bridge between different members of the industry by acting as a uniform language they can use. Each INCOTERM refers to a type of agreement for the purchase and shipping of goods internationally. There are 11 different terms, each of which helps users deal with different situations involving the movement of goods. For example, the term FCA is often used with shipments involving Ro/Ro or container transport. INCOTERMS also deal with the documentation required for global trade, specifying which parties are responsible for which documents. Determining the paperwork required to move a shipment is an important job, since requirements vary so much between countries. Two items, however, are standard: the commercial invoice and the packing list. INCOTERMS were created primarily for people inside the world of global trade. Outsiders frequently find them difficult to understand. Seemingly common words such

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as "responsibility" and "delivery" have different meanings in global trade than they do in other situations. In global trade, "delivery" refers to the seller fulfilling the obligation of the terms of sale or to completing a contractual obligation. "Delivery" can occur while the merchandise is on a vessel on the high seas and the parties involved are thousands of miles from the goods. In the end, however, the terms wind up boiling down to a few basic specifics: Costs: who is responsible for the expenses involved in a shipment at a given point in the shipment's journey? Control: who owns the goods at a given point in the journey? Liability: who is responsible for paying damage to goods at a given point in a shipment's transit? It is essential for shippers to know the exact status of their shipments in terms of ownership and responsibility. It is also vital for sellers & buyers to arrange insurance on their goods while the goods are in their "legal" possession. Lack of insurance can result in wasted time, lawsuits, and broken relationships. INCOTERMS can thus have a direct financial impact on a company's business. What is important is not the acronyms, but the business results. Often companies like to be in control of their freight. That being the case, sellers of goods might choose to sell CIF, which gives them a good grasp of shipments moving out of their country, and buyers may prefer to purchase FOB, which gives them a tighter hold on goods moving into their country. In this glossary, we'll tell you what terms such as CIF and FOB mean and their impact on the trade process. In addition, since we realize that most international buyers and sellers do not handle goods themselves, but work through customs brokers and freight forwarders, we'll discuss how both fit into the terms under discussion. INCOTERMS are most frequently listed by category. Terms beginning with F refer to shipments where the primary cost of shipping is not paid for by the seller. Terms beginning with C deal with shipments where the seller pays for shipping. E-terms occur when a seller's responsibilities are fulfilled when goods are ready to depart from their facilities. D terms cover shipments where the shipper/seller's responsibility ends when the goods arrive at some specific point. Because shipments are moving into a country, D terms usually involve the services of a customs broker and a freight forwarder. In addition, D terms also deal with the pier or docking charges found at virtually all ports and determining who is responsible for each charge. Recently the ICC changed basic aspects of the definitions of a number of INCOTERMS, buyers and sellers should be aware of this. Terms that have changed have a star alongside them.

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EXW (EX-Works) One of the simplest and most basic shipment arrangements places the minimum responsibility on the seller with greater responsibility on the buyer. In an EX-Works transaction, goods are basically made available for pickup at the shipper/seller's factory or warehouse and "delivery" is accomplished when the merchandise is released to the consignee's freight forwarder. The buyer is responsible for making arrangements with their forwarder for insurance, export clearance and handling all other paperwork. FOB (Free On Board) One of the most commonly used-and misused-terms, FOB means that the shipper/seller uses his freight forwarder to move the merchandise to the port or designated point of origin. Though frequently used to describe inland movement of cargo, FOB specifically refers to ocean or inland waterway transportation of goods. "Delivery" is accomplished when the shipper/seller releases the goods to the buyer's forwarder. The buyer's responsibility for insurance and transportation begins at the same moment. FCA (Free Carrier) In this type of transaction, the seller is responsible for arranging transportation, but he is acting at the risk and the expense of the buyer. Where in FOB the freight forwarder or carrier is the choice of the buyer, in FCA the seller chooses and works with the freight forwarder or the carrier. "Delivery" is accomplished at a predetermined port or destination point and the buyer is responsible for Insurance. FAS (Free Alongside Ship)* In these transactions, the buyer bears all the transportation costs and the risk of loss of goods. FAS requires the shipper/seller to clear goods for export, which is a reversal from past practices. Companies selling on these terms will ordinarily use their freight forwarder to clear the goods for export. "Delivery" is accomplished when the goods are turned over to the Buyers Forwarder for insurance and transportation. CFR (Cost and Freight) This term formerly known as CNF (C&F) defines two distinct and separate responsibilities-one is dealing with the actual cost of merchandise "C" and the other "F" refers to the freight charges to a predetermined destination point. It is the shipper/seller's responsibility to get goods from their door to the port of destination. "Delivery" is accomplished at this time. It is the buyer's responsibility to cover insurance from the port of origin or port of shipment to buyer's door. Given that the shipper is responsible for transportation, the shipper also chooses the forwarder. CIF (Cost, Insurance and Freight) This arrangement similar to CFR, but instead of the buyer insuring the goods for the maritime phase of the voyage, the shipper/seller will insure the merchandise. In this arrangement, the seller usually chooses the forwarder. "Delivery" as above, is accomplished at the port of destination.

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CPT (Carriage Paid To) In CPT transactions the shipper/seller has the same obligations found with CIF, with the addition that the seller has to buy cargo insurance, naming the buyer as the insured while the goods are in transit. CIP (Carriage and Insurance Paid To) This term is primarily used for multimodal transport. Because it relies on the carrier's insurance, the shipper/seller is only required to purchase minimum coverage. When this particular agreement is in force, Freight Forwarders often act in effect, as carriers. The buyer's insurance is effective when the goods are turned over to the Forwarder. DAT (Delivered At Terminal) This term is used for any type of shipments. The shipper/seller pays for carriage to the terminal, except for costs related to import clearance, and assumes all risks up to the point that the goods are unloaded at the terminal. DAP (Delivered At Place) DAP term is used for any type of shipments. The shipper/seller pays for carriage to the named place, except for costs related to import clearance, and assumes all risks prior to the point that the goods are ready for unloading by the buyer. DDP (Delivered Duty Paid) DDP term tend to be used in intermodal or courier-type shipments. Whereby, the shipper/seller is responsible for dealing with all the tasks involved in moving goods from the manufacturing plant to the buyer/consignee's door. It is the shipper/seller's responsibility to insure the goods and absorb all costs and risks including the payment of duty and fees.

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Central excise
1. LEVY OF EXCISE DUTY The power to levy a duty of excise manufactured or produced in India derives its authority from entry 84 of the Union List (List I) of Seventh Schedule read with Article 246 of the Constitution of India. Thus, Central Excise is a tax on the act of manufacture or production. Section 3 of the Central Excise Act, 1944 (hereinafter referred to as "the Act") is the charging section, which specifies the conditions under which Excise Duty is leviable on all excisable goods which are manufactured or produced in India. Education Cess is a duty of excise which is to be levied @ 2% of the aggregate duty of excise (vide Finance Act, 2004). As Education Cess and Higher Education Cess is a new levy it will not be payable on the opening stock of finished goods as on day 8-7-2004. The Secondary and Higher Education cess is payable at the rate of 1% on excise duty payable under section 3 of Central Excise Act with effect from 1-3-2007. 2. MEANING OF "MANUFACTURE" 2.1 The taxable event for Central Excise duty to be attracted is manufacture or production in India of excisable goods. Section 2(f) of the Act defines the term "manufacture" in an inclusive manner so as to include any process: (i) Incidental or ancillary to the completion of a manufactured product; and (ii) Which is specified in relation to any goods in the Section or Chapter notes of the Schedule to the Central Excise Tariff Act, 1985 as amounting to manufacture; and (iii) Which in relation to goods specified in the Third Schedule to the Central Excise Tariff Act, 1985, involves packing or repacking of such goods in a unit, container or labelling or re-labelling of containers or declaration or alteration of retail sale price or any other treatment to render the product marketable to consumer. (The clauses (ii) and (iii) above are termed as deemed manufacture.) The aforesaid definition gives a wider content to the expression "manufacture" as several processes which would not ordinarily be understood as amounting to manufacture are specifically included therein. However, the most commonly used test for ascertaining "manufacture" for the purpose of attracting Central Excise duty has taken place was evolved by the Supreme Court in the case of Delhi Cloth and General Mills 1977 (1) ELT (J 199). In terms of this decision, the activity or process in order to amount to "manufacture" must lead to emergence of a new commercial product, different from the one with which the process started. In other words, it must be an article with different name, character or use. Thus, a process which simply changes the form or size of the same article or substance would not ordinarily amount to manufacture and no excise duty would be payable unless it is deemed to be manufacture as follows:

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In a particular case by a section or Chapter note of the Tariff; or In relation to goods, which are specified under MRP based assessment under section 4A, packing or repacking of such goods, labelling or re-labelling of containers including declaration or alteration of retail sales price shall amount to manufacture.

2.2. MEANING OF "GOODS" Central Excise duty is levied on goods which are manufactured or produced. The understanding of term goods is of vide importance in determining the leviability of Excise Duty. The Act does not define the term "goods". The judgment of the Supreme Court in the case of Delhi Cloth and General Mills (supra) is considered to be the landmark judgment in this regard, where it is held that an an article can be called "goods" if it is known to the market as such and can ordinarily come to the market for being bought and sold. Actual sale of the article is not important but it must be capable of being bought and sold. The Explanation is added by Finance Act, 2008 under section 2(d) provides that goods includes any article, material or substance which is capable of being sold for consideration and such goods shall be deemed to be marketable. 2.3. MANUFACTURER DUTY LIABILITY The definition of manufacturer under the Act is an inclusive one and broadly specifies two categories of manufacturer; i.e., one who manufactures on his own account or one gets the goods manufactured through hired labour. Thus we can construe the meaning of the word manufacturer as understood in common terminology. Manufacturer may be understood as any person who is the creator, initiator and architect of the activities and the processes, which bring in existence a new and identifiable product/goods in the market. Thus a manufacturer is the one who undertakes manufacturing activity in reality. A purchaser of goods does not become manufacturer, he can only be termed as a supplier of raw material, if applicable or a person who gets goods manufactured according to his specifications or with his brand name. Here, it is worthwhile to mention that such contracts are on a principal to principal basis. A person supplying the raw material cannot be considered as hiring the job worker if he does not supervise and control the activities of the job worker. However if the manufacturer is a dummy or fake unit, then the raw material supplier or the brand name owner is deemed to be the actual manufacturer. Section 3A incorporated in the Statute by Finance Act, 2008 provides power to the Central Government to charge excise duty on the basis of capacity to manufacture by manufacturer himself in respect of notified goods. Till today, the product under this subsection has not been notified. Once the product has been notified, excise duty will be payable on the basis of capacity.

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3. PRINCIPALS OF CLASSIFICATION 3.1 The charging section; i.e., section 3 specifies that the rates of Central Excise Duty shall be the rates as are specified in the Schedules to the Central Excise Tariff Act, 1985 (hereinafter referred to as "the Tariff"). The classification of goods in the Central Excise Tariff Act is comprised in two schedules; the First Schedule specifies the basic rate of excise duty and the Second Schedule specifies the special rate of excise duty. The first contains 96 Chapters grouped into 20 sections and has been selectively aligned with the Harmonised System of Nomenclature (The International Nomenclature adopted by more than 130 countries for international trade). The correct classification of goods is necessary to ascertain the rate of duty on it. Thus, it is essential to determine the right heading or sub-heading of the Tariff under which the goods fall. This process of determining the right place of the goods in the tariff is called classification of goods. The chapter description read along with the section and chapter give us the classification statutorily, and in absence thereof the classification has to be done on trade or commercial parlance. The schedule to the Central Excise Act provides the following rules for interpretation of the tariff to aid in the classification of goods: (i) A reference to a product includes an incomplete or unfinished product provided that the incomplete or unfinished product has the essential character of complete or finished goods. (ii) A reference in heading to a material includes the reference to a mixture or combination of that product. The classification of goods consisting of more than one material shall be decided on the basis of the material which gives the essential character to the product. (iii) A specific heading should be preferred to the more general heading. (iv) In case the classification cannot be decided on the basis of above principle, the product shall be classified under a heading, which occurs last in the chapter/heading/sub-heading. 3.2 Importance of notification The rate of duty prescribed against each of sub-heading specified in schedule to the Central Excise Tariff Act is known as tariff rate. The effective rate of duty must be ascertained by considering the various notification issued from time to time. The tariff rate read with the rate prescribed in the notification determined the effective rate of duty payable on clearance of goods.

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4. VALUATION 4.1 Introduction The levy of duty requires the valuation of the goods under consideration after establishing the duty liability and the classification of the goods. Except in cases where specific duty has been provided for on the basis of certain unit like weight, length, etc. as in case of goods like cigarettes (length basis), cement clinkers (per ton basis), for most of the goods the rates are specified on an ad valorem basis; i.e., expressed as a percentage of value of goods. Thus for calculating the amount of duty payable, first the assessable value of the goods has to be determined under the provisions. 4.2 The

modes of valuation of goods under the Excise Act are:

(A) Tariff value The Central Government is authorized under the provisions of section 3(2) of the Act, to fix the tariff value for any goods which may be different for different classes of goods. This is also termed as the notional value. The duty in such cases is the % of such tariff value and not the Assessable Value. (B) M.R.P. value The Central Government under section 4A of the Act can notify goods on which excise duty will be payable on the MRP less % of abatement. Such value shall be deemed to be the assessable value in such cases. The provisions of this section are applicable to products which are statutorily required to put MRP under the Standards of Weight and Measures Act, 1976, or any other law and in respect of which specific notification has been issued. (C) Transaction value (i) In respect of all other goods which are not covered by the above-mentioned provisions, their assessable value would be in terms of "transaction value" as provided in section 4 of the Act. The assessable value would be the transaction value when the goods are sold by an assessee for delivery at the time and place of removal, where the assessee and the buyer are not related and price is the sole consideration. In all other cases, which do not fulfil the aforesaid conditions, value shall be determined as per the Central Excise Valuation Rules, 2000. The definition of transaction value as per section 4(3)(d) means the price actually paid or payable for the goods when sold, and includes in addition to the amount charged as price, any amount that the buyer is liable to pay to or on behalf of, the assessee by reason of or in connection with the sale, whether at the time of sale or any other time. The definition gives an inclusive but not exhaustive list of additions and deductions from the invoice price in respect of certain amounts.

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(ii) The valuation rules have to be followed when transaction value cannot be determined under section 4(1); which are enumerated below: (a) If goods are not sold at the time of removal, the value of excisable goods shall be value of goods sold by the manufacturer for delivery at any other time nearest to the time of removal of goods except in cases of stock /branch transfer, sale to related person, job work where specific provisions have been made. (Rule 4) (b) In case goods are sold for delivery at any other place other than the place of removal, the value will be the price less the actual cost of transportation from place of removal to the place of delivery. (Rule 5) (c) In case the price is not the sole consideration in respect of any transaction, the value of goods shall be the aggregate of such transaction value and the amount of money value of additional consideration flowing directly or indirectly from buyer to the assessee. (Rule 6) (d) In case where goods are cleared to depot, consignment agent etc., transaction value shall be the normal transaction value of such goods sold from such other place at or about the same time. The normal transaction value is the price at which the greatest aggregate quantity of goods are sold. (Rule 7) (e) In case of consumption of goods captively; i.e., consumed by the assessee or on his behalf, the value shall be 110% of the cost of production. (Rule 8) (f) In case of sale of goods to a related person, the value shall be the price at which the related person has sold the goods to an unrelated person. In case a related person does not sell the goods but uses or consumes the goods in production or manufacture of the article, the value shall be 115% of the cost of production. (Rule 9) (iii) The following deduction can be made from the transaction value for determination of value under section 4 (a) Trade discount The Board has clarified as follows: "Discount of any type or description given on any normal price payable for any transaction will not form part of the transaction value for the goods; e.g., quantity discount for goods purchased or cash discount for the prompt payment etc. will therefore not form part of the transaction value. However, it is important to establish that the discount has actually been passed on to the buyer of the goods. The different type of discounts extended as per commercial considerations on different transactions to unrelated buyers if extended is also permissible and different actual prices paid or payable for various transactions are to be accepted."

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"The Larger Bench of Tribunal in the case of Arvind Mills Ltd. 2006 (204) ELT 570 (Tri LB) has held that even the new section 4 introduced w.e.f. 1-7-2000, quantum of cash discount offered to the customer should be allowed as deduction even if some of the customers has not availed the benefit of cash discount. Cash discount in such case will not be passed on to the customers as the customers has not paid within the stipulated period". (b) Tax and duties The definition of transaction value stipulate that excise duty, sales tax and other taxes paid or payable shall be excluded from the transaction value. (c) Freight The cost of transportation can be excluded even when freight is averaged and also there is no condition that the cost of transportation should be shown separately in the invoice. The cost of transportation will include the cost of insurance during transportation of goods. (d) Interest for delayed payment Interest for delayed payments is a normal practice in industry. Interest under a financing arrangement entered between the assessee and the buyer relating to the purchase of excisable goods shall not be regarded as part of the assessable value provided that: The interest charges are clearly distinguished from the price actually paid or payable for the goods. The financing arrangement is made in writing; and Where required, assessee demonstrates that such goods are actually sold at the price declared as the price actually paid or payable. (e) Erection, installation and commissioning charges If the product after erection, installation and commissioning is not excisable the question of including these charges in the assessable value of the product does not arise. (iv) Inclusion in the price Some of the expenditures like packing charges, designing and engineering charges, handling charges incurred within the factory are required to be included in the price if they are not already included.

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5. REGISTRATION Section 6 provides that any person who is engaged in the production or manufacture of specified goods or the wholesaler engaged in purchase or sale or the storage of any specified goods shall be liable to get himself registered with the proper officer as per provision contained in Rule 9 of the Central Excise Rules. Thus manufacturers or dealers who intend to issue cenvatable invoices should get registered themselves. Application for registration has to be made in Form A-1 in the office of the jurisdictional AC/DC. The assessee will be issued a 15 digit registration number and a registration certificate on completion of the registration procedure. The notification No. 36/2001 (NT) provides exemption from registration to the following persons: (i) Person who manufactures those goods which are chargeable to NIL rate of duty or remains fully exempt from whole of duty. However if the exemption from payment of whole of duty is based on the value of clearance made in a financial year, the value of clearance shall not exceed Rs. 1.5 crore. Such manufacturer shall file the declaration in prescribed form with the jurisdictional AC/DC if his value of clearance in the previous financial year exceeds Rs. 90 lakhs. (ii) Person manufacturing excisable goods by following the warehousing procedure as provided in the Custom Act, 1962. (iii) Person engaged in the wholesale trade except first stage dealer and second stage dealer. (iv) Person who uses excisable goods in any purpose other than processing or manufacture of any goods availing benefit of exemption.

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6. PROCEDURE FOR CLEARANCE OF GOODS FROM FACTORY As per Rules 8, 10, 11 & 12 of Central Excise Rules, 2002, registered person is required to follow the following procedure for clearance of goods: (a) Maintain Daily Stock Account (DSA) indicating the opening balance, quantity produced, inventory of goods, quantity removed, assessable value, the amount of duty payable and duty paid on manufactured goods. (b) The goods should be removed under invoice. The invoice shall be prepared in triplicate. Original for buyer, duplicate for transporter and triplicate for assessee. It shall be serially numbered and shall contain the registration number, name of the consignee, description, classification, time and date of removal, mode of transportation, vehicle registration number, rate of duty, quantity and value of goods and duty payable thereon. (c) The excise duty on the goods removed shall be paid by 5th of the following month but the goods removed during the month of March the duty shall be paid by 31st March. However, in case of small scale manufacturer the duty is payable by 5th of the following month after end of the quarter. In this case also the duty for quarter Jan to March is payable by 31st March. (d) The ER-1 return shall be filed within 10 days from the close of the month to which the return relates. However where the assessee has availed the benefit of the notification providing exemption based on value of clearance in a financial year, he shall file the return within 10 days after the end of quarter. 7. RULE 7 Rule 7 of the Central Excise, 2002 provides that where assessee is unable to determine the value of excisable goods or the rate of duty he shall request the Assistant Commissioner or Deputy Commissioner for permitting him to make the assessment provisional. The Assistant Commissioner will ask the assessee to execute bond supported by Bank Guarantee to make the assessment provisional. 8. SMALL SCALE BENEFIT 8.1 This notification provides exemption from whole of duty leviable on goods specified in annexure to the notification up to the aggregate value of clearance of Rs. 1,50,00,000/- . In computing 1,50,00,000/- the following clearance shall not be taken in account: a) Clearances, which are exempt from the whole of the excise duty leviable thereon ( other than an exemption based on quantity or value of clearances) under any other notification or on which no excise duty is payable for any other reason;

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b) Clearances bearing the brand name or trade name of another person, which are ineligible for the grant of this exemption in terms of paragraph 4; c) Clearances of the specified goods which are used as inputs for further manufacture of any specified goods within the factory of production of the specified goods; 8.2 The benefit is available to small scale manufacturer where: a) The value of clearance in the previous financial year shall not be exceeds Rs. 4 crore b) The goods have not been affixed with the brands name of other person. In computing the value of clearance of Rs. 4 crores. The following clearance shall not be considered : a) Clearance of excisable goods without payment of duty i) To a unit in a free trade zone or ii) To a unit in a special economic zone; or iii) To a hundred percent export oriented undertaking; or iv) To a unit in an Electronic Hardware Technology Park or Software Technology Park; or v) Supplied to the United Nations or an international organization for their official use or supplied to projects funded by them, on which exemption of duty is available under notification No. 108/95. b) Clearance bearing the brand name or trade name of another person, which are ineligible for the grant of this exemption in terms of paragraph 4 of the notification. c) Clearance of the specified goods which are used as inputs for further manufacture of any specified goods within the factory of production of the specified goods. d) Clearance, which are exempt from the whole of the excise duty leviable thereon under notification No. 214/86-Central Excise or No. 83/94-Central Excise or 84/94Central Excise. 8.3 If a manufacturer clears the specified goods from one or more factory the exemption shall applicable to the aggregate value of clearance of all the products cleared by the manufacturer from all the factories.

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8.4 Where the specified goods are cleared by one or more manufacturer from the facto the exemption shall apply to aggregate value of clearance of specified goods by all the manufacturers. The exemption will not available separately to each manufacturer. 9. RECOVERY OF DUTY As per the provision of section 11A the show cause notice for recovery of duty short paid, short levied or not paid or not levied or refunded erroneously shall be served by the proper officer within a period of one year from the relevant date. In case the demand for duty arises on account of fraud, collusion, misstatement or suppression for facts or contravention of any of the provisions of the Act or rules with intent to evade payment of duty the period of one year will be extended to 5 years. The Central Excise Officer after considering the submission made in reply to show cause notice as well as during personal hearing shall pass the order called Order-InOriginal either confirming the demand or dropping the demand or partly confirming the demand and levy of penalty and interest. An appeal can be filed by the aggrieved person against order-in-original. 9.1 Interest is also payable on the demand of duty under section 11AB of Central Excise Act. The interest on demand of duty is payable from the date of the month succeeding the month in which duty ought to have been paid under this Act or from the date of erroneous refund granted as the case may be. 10. APPELLATE PROCEDURE 10.1 Powers of Committee of Chief Commissioner of Central Excise or Commissioner of Central Excise The Committee of Chief Commissioner of Central Excise shall examine the records of any order passed by the Commissioner of Central Excise as Adjudicating Authority under this Act and if they are not satisfied as to the legality or proprietary of any such decision or order, they shall direct the Commissioner to file an appeal to the Appellate Tribunal for determination of such points arising out of the decision or order. The Committee of Commissioner of Central Excise shall examine the records of any proceedings in which officer subordinate to him has passed the adjudicating order under this act for the purpose of satisfying as to the legality or proprietary of such decision. In case the Commissioner of Central Excise is not satisfied, he shall direct such authority or any Central Excise officer to appeal to the Commissioner of Central Excise (Appeal) for decision.

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10.2 Time Limit and appellate authority The time limit for filing an appeal before Commissioner of Appeals will be sixty days against the order-in-original passed by an officer of Excise/Customs below the rank of Commissioner. In the case of an appealable order passed by the Commissioner (Additional Commissioner is not regarded as Commissioner for this purpose) or by Commissioner of Appeals, appeal can be filed before the CESTAT within three months. The Larger Bench of the Tribunal has held in Eicher Motors vs. Commissioner 2000 (116) ELT 306 that only one appeal to the Tribunal need be filed where the impugned order is one irrespective of the number of show cause notices or bills of entry it relates to. 10.3 Appeal to Customs, Excise and Service Tax Appellate Tribunal An appeal against the order passed by the Commissioner of Excise/Customs as an adjudicating authority or an order passed by the Commissioner (appeals) lies to the Customs, Excise and Service Tax Appellate Tribunal [earlier CEGAT (Customs Excise and Gold (Control) Appellate Tribunal)] which is formed under the provisions of the Act. However, under Excise in matters of loss of goods occurring in transit from factory to warehouse, rebate on duty of goods exported and goods exported without payment of duty, and similarly under the custom provisions in matters of order in relation to baggage, goods short-landed, or payment of duty drawback by the Commissioner (Appeals), the Tribunal is not empowered to admit the appeal. In such cases, a revision application has to be filed to the Government under the provisions of section 35EE of the Central Excise Act, 1944 (parallel section 129DD of the Customs Act). Section 35G of the Central Excise Act, 1944 (parallel section 130 of the Customs Act) is amended regarding appeals from the orders of the CESTAT. 10.3.2 Appeals against the orders of the Tribunal on matters other than relating to the determination of any question having a relation to the rate of duty of customs or to the value of goods shall be filed in the High Court. The High Court will formulate the question of law after satisfying itself that substantial question of law is involved. The new provision shall apply to the orders of the Tribunal on or after 1st of July, 2003. The appeal is to be filed within 180 days of the receipt of the order appealed against by the Commissioner or the other party. The amendment in the Central Excise Act empowers the High Court to condone the delay in filing of the appeal in cases where the appeal is filed beyond 180 days and there is sufficient cause for non filing of appeal within time. 10.3.3 An appeal shall lie to the Supreme Court from Any judgment of the High Court delivered (a) (i) In an appeal made under section 35G of the Central Excise Act, 1944 (parallel section 130 of the Customs Act); (ii) On a reference made under section 35G of the Central Excise Act, 1944 by the Tribunal before 1st July, 2003 (parallel section 130 of the Customs Act); 34

(iii) On the reference made under section 35H of the Central Excise Act, 1944 (parallel section 130A of the Customs Act), In any other case, which on its own motion on an oral application made by or on behalf of the party aggrieved, immediately after passing of the judgement, the High Court certifies to be a fit one for appeal to the Supreme Court. (b) in an appeal against any order passed by the Appellate Tribunal relating, among other things, to the determination of any question having a relation to the rate of duty of Excise/ Customs or to the value of goods for purposes of assessment under either acts. 10.4 Procedure to be followed The Appellate Tribunal is required to hear and decide every appeal within a period of three years from the date on which the appeal is filed, where it is possible to do so ( vide the Finance Act, 2002). But where the Appellate Tribunal has made an order of stay in any proceedings relating to an appeal, the Appellate Tribunal shall dispose of the appeal within a period of one hundred and eighty days (six months approximately) from the date of the stay order. If the appeal is not so disposed of the stay order shall, on the expiry of the said period, stand vacated. However in the case of IPCL vs. CCE Vadodara, 2004 (63) RLT 1, the Honble CESTAT-LB has held that the Tribunal has the jurisdiction to grant stay even after the expiry of 180 days from the date of initial order of stay. 11. SETTLEMENT COMMISSION The procedure for settlement of any dispute with Settlement Commission under the Central Excise Act is as follows: (A) Application for settlement of case The assessee shall make full and true disclosure of his duty liability which has not been disclosed before the Central Excise Officer by filing the application form declaring the additional excise duty accepted to be payable by him. The application shall be admitted if the applicant has (a) filed return showing production, clearance of excise duty paid in the prescribed manner (b) Received Show cause notice for recovery of duty (c) Additional amount of duty accepted is not less than Rs. 3 lakhs with effect from 1-6-2007, (d) Paid admitted duty liability and the amount of interest if the application is made after 1-6-2007. (e) Made payment of fee of Rs. 1,000/-. (B) Settlement Commission, issue notice to the applicant to explain in writing as to why the application made by him should be allowed to be proceeded with and after taking into consideration of the explanation, allow the application to be proceeded with or reject the application as the case may be. If no notice is issued within 7 days the application is deemed to have been accepted. (C) The Settlement Commission shall call for report within 7 days after the application has been accepted from the Commissioner of Central Excise/Customs having jurisdiction over the assessee. The Commissioner shall furnish the report within 30 days 35

from the date of communication. In case no report is received the Settlement Commission shall proceed further in the matter without report. (D) After receipt of report, the Settlement Commission may after examining the report ask / direct the Commissioner (Investigation) to make further enquiry. The Settlement Commission shall issue direction within 15 days from the date of receiving the report from Jurisdictional Commissioner who then shall furnish the report within 90 days from the receipt of communication from Settlement Commission. (E) The Settlement Commission shall grant opportunity, to the applicant and the Commissioner, of personal hearing. (F) The Settlement Commission shall pass final order within 9 months from last date of the month in which the application is made failing which the settlement proceedings will abate and the adjudicating authority shall have the power to dispose of the show cause notice. (G) Every order of the Settlement Commission passed under rule 32F will be final. The Settlement Commission has power to grant immunity of prosecution and penalty under the Central Excise Act or Customs Act. 12. REFUND Section 11B of Central Excise Act provides that any person claiming refund of duty of excise shall make an application for such amount to the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise in such form and manner as may be prescribed. The application shall be accompanied by the documentary evidence which evidences payment of duty and also other documents to substantiate that incidence of duty has been borne by the applicant. In case it is not substantiated that the incidence of duty has not been borne by the applicant, the refund amount shall be credited to Consumer Welfare Fund. A refund application should be filed within one year firm the date of payment of Duty. By Finance Act, 2008 even interest paid by the manufacturer shall also refunded. The period of one year shall not apply where any duty has been paid under protest. 12.1 Interest on delay in granting fund In case the refund has not been granted within a period of 3 months from the date of application, the applicant shall be entitled to the interest @ 9% of the duty amount from the date immediately after the expiry of 3 months from the date of receipt of such application.

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13. PENALTY 13.1 Section 11AC of the Act, provides for levy of penalty equal to the duty amount where the demand for duty has been confirmed by reason of fraud, collusion or any wilful missstatement or suppression of fact or contravention of any of the provision of Act. with intend to evade payment of duty. The Honble Supreme Court has in the case of Dhamendra Textile has held that the penalty in section 11AC shall be levied even if the duty and interest has been paid prior to issue of show cause notice. Where details of the transactions are available in the specified records, the maximum penalty amount under section 11AC shall be equal to 50% of the duty so determined. However, first proviso to section 11AC provides that if the duty/interest is paid within 30 days of the communication of the order, the amount of penalty shall be reduced to 25% of the duty determined provided penalty is also paid. 13.2 Rule 25 of the Central Excise Rules provides for levy of penalty on manufacturer, Registered person of warehouse or registered dealer where such person a) Removes any excisable goods in contravention of any of the provisions of these rules or the notification issued under these rules; or b) does not account for any excisable goods produced or manufactured or stored by him; or c) Engages in the manufacturer, production or storage of any excisable goods without having applied for the registration certificate required under section 6 of the Act; or d) Contravenes any of the provisions of these rules or the notifications issued under these rules with intent to evade payment of duty, Then the goods in respect of which the contravention has been made shall also be confiscated and penalty not more than the duty amount or Rs. 2000/- whichever is higher shall be levied. 13.3 Rule 26 of the Central Excise Rules, provides that any person who issues- i) An excise duty invoice without delivery of goods specified therein or abets in making such invoice or ii) Any other document or abets in making such document, on the basis of which user of said invoice or document is likely to take of has taken any ineligible benefit under the Act or the rules made there under like claiming of CENVAT credit under the CENVAT Credit Rules, 2004 or refund,shall be liable to a penalty not exceeding the amount of such benefit or five thousand rupees, whichever is greater.

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13.3.1 Any person who acquires possession of, or is in any way concerned in transporting , removing , depositing, keeping, concealing, selling or purchasing, or in any other manner deals with, any excisable goods which he knows or has reason to believe are liable to confiscation under the Act or these rules. 13.4 In case, any other penalty is provided under the rule, the penalty shall not exceeded beyond Rs. 5000/- and goods shall be confiscated. 14. PROCEDURE RELATING TO SPECIAL AUDIT Section 14A of the Act empowers the Chief Commissioner of Central Excise to appoint the cost accountant (now also Chartered Accountant) for auditing the records of any manufacturer in order to determine the value of the goods manufactured by him. As per the provisions if at any stage of enquiry, investigation or other proceedings before any Assistant Commissioner or Deputy Commissioner, it is felt that the value has been correctly declared or determined, the Assistant Commissioner or Deputy Commissioner may send the proposal for audit of the records at factory, office, depot, distributor etc. Similarly, if the Commissioner has reason to believe that the credit of duty availed or utilized is not within any normal limits, having regard to the nature of exciseable goods produced, he may appoint Cost Accountant (now also Chartered Accountant) for verifying the availment and utilization of credit. 15. PROSECUTION If a person commits any of the following offence a) Possesses the goods in excess of the quantity prescribed for the notified goods or of any variety of such goods. b) Transport the goods which are prohibited absolutely or with such exceptions or conditions notified by central government. c) does not obtain registration under the Act d) evade payment of duty e) Removes any excisable goods in contravention of provision of any of the Act or concerns himself with removal. f) acquires possession of, or in any way concerns himself in transporting, depositing, keeping, concealing, selling or purchasing, or in any other manner deals with any excisable goods which he knows or has reason to believe are liable to confiscation under this Act or any rule made there under;

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g) contravenes any of the provisions of this Act or the rules made there under in relation to credit of any duty allowed to be utilized towards payment of excise duty on final products. h) fails to supply any information which is required by rules or supplies false information i) attempts to commit or abet commission of any of the offence specified in (a) to (d) above. then the person shall be punishable 1) whether the duty exceeds Rs. 1 lac with imprisonment for a term which may extend to 7 years and with fine 2) in any other case for imprisonment which may extend to three years or with fine or both.

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Customs
1. LEVY OF CUSTOMS DUTY The charging section of the Customs Act, 1962 is section 12 which provides for levy of duty on imports as well as on exports at the rates which are prescribed under the Customs Tariff Act, 1975 read along with the relevant exemption notification. The taxable event to attract customs duty is import into or export from India. The export duties are applicable to a handful of commodities. In the case of Apar India Ltd., the Honble Supreme Court has held that rate of duty will be the rate prevailing on the da te of filing of bill of entry under section 46 or granting permission for entry inwards whichever is later." 2. TYPES OF DUTIES The various types of customs duties are: i. Basic duty It may be at the standard rate or in the case of import from some countries, at the preferential rate. The effective rate shall be determined after considering the notification, if any. ii. Additional customs duty This is equal to the Central Excise duty leviable on the product manufactured in India and if the said product is not manufactured in India then on like product manufactured in India. Proviso to section 3(2) of the Customs Tariff Act provides that (a) where the imported goods are notified under section 4A of Central Excise Act, and (b) in relation to the goods on which the MRP is required to be printed either under the provisions of Standards of Weights & Measures Act, or the rules made there under, or under any other law then in such case the value of imported goods shall be deemed to be the retail price declared on the imported article less abatement allowed as per the notification issued under sub-section (2) of section 4A of Central Excise Act. As per the proviso to section 3(2) of the Custom Tariff Act in case of an article imported into India for which tariff value has been fixed under section 3(2) of the Central Excise Tariff Act, the value for the purpose of computing CVD would be deemed to be tariff value.

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iii. Additional duty of customs in lieu of sales tax This is leviable in order to provide a level playing field to indigenous goods, which have to bear sales tax, local tax and other charges. Notification No. 102/2007-Cus dated 14-9-2007 allows refund of said duty if the importer on subsequent sale of goods has paid appropriate amount of sales tax or VAT as the case may be. The importer shall have neither taken the credit of additional duty of customs nor shall not have passed on credit of such additional duty of customs to any person. The importer is also required to substantiate that the incidence of duty has been borne by him. iv. Antidumping/safeguard duty This is leviable with a view to protecting domestic manufacturer of certain goods from unfair injury out of international competitive rates. v. Education Cess This is leviable at the rate of 2% on aggregate of basic customs duty and additional customs duty. (vide Finance (VI) Act, 2004) Secondary and Higher Education Cess. is leviable at the rate of 1% on aggregate of basic customs duty and additional customs duty w.e.f. 1-3-2007. (vide Finance Act, 2007). 3. PROCEDURE OF IMPORT-EXPORT Goods may be imported in or exported from India through sea, air, land, by post or as a baggage with passengers. The procedure to be followed would vary depending on the mode of import or export. Normally, import procedures have to be followed by both; i.e., the importer as well as by the person-in-charge of conveyance. Import Manifest As per the provisions of section 30 of the Customs Act, the person-in-charge of a vessel or an aircraft or a vehicle carrying imported goods or any other person as specified by the Government shall deliver to the proper officer an Import Manifest or Import Report as per the following time limit: (i) in the case of a vessel or an aircraft prior to arrival of the vessel or the aircraft and (ii) in the case of a vehicle within 12 hours after its arrival in the customs station.

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In case of default, a penalty up to rupees fifty thousand can be levied on the person-incharge if he does not deliver the manifest or report to the proper officer within the time period and does not show sufficient cause for the delay. Procedures for Import The importer is required to submit necessary details like the description of the product, name of the supplier, invoice number, bill of lading number, quantity of goods, classification, rate per unit etc. in order to get the bill of entries prepared under EDI (Electronic Data Interchange system). However in case of custom house, where manual bills of entries are processed, the importer either himself or through agent is required to submit the bill of entry along with the documents mentioned above. The bill of entry can be for the purpose of warehousing of goods or for clearance for home consumption. The following steps are normally taken for the clearance of goods: (i) Filling of Bill of Entry for home consumption or warehouse or in case of EDI system submitting the details. (ii) Appraisement of Bill of Entry In case of first appraisement, inspection is done first then duty is assessed. In case of second appraisement, assessment is done first and duty is assessed. (iii) Payment of duty The duty assessed has to be paid. (iv) Inspection of cargo is done where second appraisement method is followed. (v) The cargo is then delivered. In case of exports instead of Bill of Entry the exporter has to submit Shipping Bill or submit the data, like description of export product, FOB value, quantity unit, invoice No., Bill of Lading, etc, to enable authorities to prepare shipping bill in EDI system. Section 17 as replaced by the Finance Act, 2011 has introduced the self assessment procedure. The importer is now along with the above information is required to give details of duty payment required to be made on importation of goods. The self assessment will be verified by the proper officer and if required he may tests imported goods. He may also ask for various records in addition to the documents already submitted. In case after examination of documents it is found that the duty is to be reassessed he will reassessed the duty. The proper officer shall pass an order with in 15 days from the date of reassessment of the Bill of entry, in case importer or the exporter does not agree with the reassessment. Warehousing The importer of goods can file the warehouse Bill of Entry and may store such goods in an authorised warehouse upon execution of bond and clear the goods from such 42

warehouse as and when needed as per the provisions of the Act. Goods other than capital goods intended for use in a 100% EOU can be warehoused for a period of three years and for capital goods to be used in a 100% EOU the time period is five years. In relation to any other goods, except those mentioned aforesaid the time limit is one year. The interest free period for which goods may remain warehoused is up to ninety days, for goods other than to be used by a 100% EOU. The owner of any warehoused goods can relinquish his title to the goods upon payment of rents, interests, other charges and penalties, before the proper officer has made an order for clearance of goods for home consumption. 4. CLASSIFICATION OF GOODS UNDER THE ACT Section 2 of the Customs Tariff Act, 1975 provides that the custom duty shall be levied at the rate specified in the schedules to the Act read with exemption notification if any. Thus the customs duty is leviable under the Customs Act, 1962 on the basis of value or quantity as specified in the Import Tariff to the Customs Tariff Act, 1975. Basic customs duty is charged in accordance with the First Schedule to the Customs Tariff Act, 1975 which is import Tariff. There are 21 sections in the Import Tariff, divided into 98 Chapters in all, with section notes and chapter notes. These notes are statutorily binding in nature. The interpretation of the Tariff schedule is strictly governed by six "Interpretative Rules" incorporated in First Schedule itself. Imported goods are to be classified under the appropriate headings, sub-headings, sub-division to sub-headings strictly, in accordance with section notes, chapter notes that are appearing in the Tariff. In the event when classification cannot be made as above and when more than one classification appear appropriate under the Tariff and goods imported do not find appropriate classification, then a resort to, "Interpretative Rules" may be taken. 5. VALUATION OF GOODS The quantification of customs duty payable essentially requires the calculation of the value for customs purpose. As per the provisions, customs duty is payable as a percentage of value often called Assessable Value or Customs Value. The value may either be (a) Value as defined in section 14(1) of Customs Act, or (b) Tariff Value prescribed under section 14(2) of Customs Act. Tariff value Tariff value is the value that is fixed by Central Government for any class of imported goods or exported goods. Government takes into consideration trends of value of such or like goods while fixing tariff value. Once so fixed, duty is payable as percentage of this value.

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Customs value Customs value as calculated as per section 14(1) is the value normally used for calculating customs duty payable. As per section 14(1) value for the purpose of customs duty is the (a) Price at which such or like goods are ordinarily sold or offered for sale and the (b) Price is for delivery at the time and place of importation and such (c) Price is in course of international trade, where neither seller nor buyer has interest in the business of the other or one of them has no interest in the business of the other and the, (d) Price is the sole consideration for sale or offer for sale. The price mentioned above has to be computed for customs duty purpose at the rate of exchange, as on date of submission of bill of entry, as fixed by the Central Government. As per the provisions contained in section 14(1A) of the Act, the price referred to above, in case of imported goods has to be determined in accordance of the Customs Valuation Rules, 1988. Subject to three conditions laid down in section 14(1) of Customs Act, 1962, of time, place and special circumstances, price of imported goods is to be determined in terms of provisions contained in section 14(1A) and in accordance with the provisions contained in Valuation (Determination of Price of Imported Goods) Rules, 1988. The Special Circumstances have been statutorily provided in Rule 4(2) and in the absence of these exceptions it is mandatory for customs authorities to accept the price actually paid or payable for the goods in a particular transaction. Valuation Rule 4(2) deals with the extraordinary or special circumstances under which the transaction value of the goods cannot be accepted. They are as follows: (a) The sale is not in the ordinary course of trade under fully competitive conditions. (b) The sale involves any abnormal discount or reduction from the ordinary competitive price. (c) The sale involves special discount limited to exclusive agents. (d) Non-existence of objective and quantifiable data with regard to the adjustments required to be made, under the provisions of rule 9, to the transaction value. (e) Restrictions of a non-statutory nature or non-commercial nature on the disposition or use of the goods after import, which substantially affect the value of the goods. (f) Sale or price being subject to some condition or consideration for which a value cannot be determined.

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(g) There exists an additional consideration, direct or indirect. (h) Buyer and seller are related and the relationship has influenced the price. The assessable value has to be adjusted where the buyer has undertaken some valueadding activities in relation to the goods, and such activities fall under the adjustments provided under rule 9 of the valuation rules. If no such adjustment is provided in rule 9, and the activities of the buyer are on his own account; i.e., they do not result in an indirect payment to the seller even though they result in a benefit to the seller, then the assessable value need not be adjusted. Costs for construction, erection, assembly, maintenance or technical assistance undertaken after the import of goods like plant, machinery or equipment should be distinguished, in the contract or invoice, to ensure that these costs are not included in the assessable value. The onus is now on the customs department to prove that the invoice price is not genuine or that the price is unbelievably or ridiculously low. The department cannot plead that it has discharged the onus by merely producing the manufacturers price list or quotation or published prices or computer print outs of previous imports by other importers as evidence of the so called ordinary international price. The department must establish the existence of special circumstances mentioned in the law. If they (revenue authorities) do not establish this by leading adequate evidence, they will have to accept the transaction value under rule 4(1). The transaction value need not be uniform for all customers. It has been consistently held by the Honble Supreme Court that all customers have bargaining power and as long as the discount is based on commercial considerations, the same is permissible and the assessable shall be net of discount. According to Rule 5 of the Valuation Rules, the transaction value to be determined on the basis of identical goods imported into India at the same time. Rule 6 allows this on the basis of the value of similar goods imported into India at the same time. The CEGAT laid down in the Hydro Krimp case that comparable goods should be of same quality and specification and from same manufacturer and country of production. They should be roughly in the same quantity. The imports should belong to the same commercial world. Rule 7 of the Valuation Rules allows the value to be determined on the basis of deductive method in cases where there are no contemporaneous imports. Here also the decision of the CEGAT is relevant. The deductive value is based on the unit price at which the imported goods or identical goods or similar imported goods are sold in the greatest aggregate quantity to unrelated persons in India. The following deductions are available: (i) the commission usually paid or agreed to be paid or the additions usually made for profits and general expenses in connection with sales in India of imported goods of the same class or kind. (ii) usual costs of transport and insurance and associated costs incurred within India.

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(iii) the customs duties and other taxes payable in India by reason of importation or sale of goods. Alternatively, transaction/assessable value may be determined under rule 7A. It consists of the following: (a) the cost or value of material and fabrication or other processing employed in producing the imported goods; (b) an amount for profit and general expenses equal to that usually reflected in sales of goods of the same class or kind as the goods being valued which are made by producers in the country of exportation for export to India; (c) the cost or value of all other relevant expenses. In a case, where the value cannot be determined by any of the aforesaid rules, then resort will be made to Rule 8, Residual Method, under which the value shall be determined using reasonable means consistent with the principles and the general provisions of the rule. 6. RATE OF DUTY AND VALUATION AND TIME OF LEVY/INCIDENCE The rate of duty and tariff valuation shall be as applicable on (a) In the case of goods directly cleared for home consumption the date of the presentation of the bill of entry. (b) In case of goods cleared from warehouse, the date when bill of entry is presented for home clearance of such goods from the warehouse. In case, bill of entry is submitted prior to arrival of the vessel or the aircraft, the date would be the later of the date of submission of the bill of entry and the grant of entry inward to the vessel. 7. ADVANCE RULINGS The provisions relating to advance rulings are covered in Chapter VB of the Act. Advance rulings can be sought by a residents and/ or non-residents in case of joint ventures in India, and by wholly owned subsidiaries of foreign companies proposing to undertake business activity in India. The Advance Ruling can be sought on matters regarding classification and valuation of goods, notifications having a bearing on rate of duty and notifications issued under the Customs Tariff Act and any other duty chargeable in the manner as duty of customs, under any other law for the time being in force. The advance ruling authority created under section 245(O) of the Income-tax Act, 1961 will be considered as advance ruling authority under the Central Excise Act and the Customs Act also.

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8. ASSESSMENT OF CUSTOMS DUTY Under the Customs Act there are basically two systems for assessment of duty. These are: (a) First appraisement: In case of First appraisement the assessment of goods is done only after the goods are examined first. This system is generally not resorted to except in cases where complete documents are not submitted by the importer, it is not possible for the appraiser to determine the value or classification of the goods or for any other reasons, on the basis of the documents as produced by the importer, or the importer himself requests for the examination of goods before payment of goods. (b) Second appraisement: This type of system is normally followed practically. Second appraisement means making the assessment on the basis of the declaration and submission made by the importer; i.e., on the strength of documents such as invoice, catalogue, literature showing the composition and use, price lists etc. as produced by the importers. Under this system goods are examined after assessment and collection of duty. The goods are examined on a selective basis on the basis of risk assessment or on the basis of specific intelligence report. However, on importation of any goods capable of being easily identified, any duty has been paid on clearance of such goods for home consumption, such duty shall be refunded to the person if the goods are found defective or otherwise not in conformity with the specification agreed upon provided the goods have not been repaired or used after importation. The following conditions shall be satisfied :- (a) The goods are identified to the satisfaction of the Assistant Commissioner or Deputy Commissioner. (b) The importer does not claim drawback under any of the provisions of the Act. (c) The goods are exported or the importer relinguishes its title to the goods and abandons them to customs or such goods are destroyed. 9. DEMAND, RECOVERY AND REFUND OF DUTY A demand for duty arises in cases where duty on goods has not been levied though such goods are leviable to duty or duty has been short levied or refunded erroneously. The Act provides the provisions for the recovery of such duty. Section 28 specifies the procedure to the department for recovery thereof by service of a show cause notice for demand within the specified time limits and thereafter by considering the representation, if any, made by the person on whom such demand notice is served.

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The notice must be issued within one year from relevant date. The above period of limitation is extended to five years in case the short levy or non-levy or refund was due to collusion, misstatement, suppression of facts or fraud by the Importer/ Exporter. Where the assessee notices the short levy or non-levy, he can pay it along with interest, without a show cause notice and inform the jurisdictional officer accordingly. If the assessee does not pay the short levy or non-levy in full, he will be liable to pay interest under sections 28AA and 28AB on the whole amount including the amount part paid. Refunds The refund of duty is subject to the principle of no unjust enrichment. Refund of duty is granted to the importer only when he is able to substantiate that the burden of the customs duty levied and paid under Customs Act claimed in refund has not been passed on to the customer. The Honble Supreme Court in the case of Solar Pesticides has held that, even in case of imported goods that have been consumed in the manufacture of final product, the importer is required to substantiate similarly. Application for refund must be made in the prescribed form in duplicate within one year from the relevant date one year as the case may be. If application is found complete in all respects, the applicant will be issued an acknowledgement in prescribed form within ten days. If application is found incomplete, it will be returned and a fresh application shall be filed removing the deficiencies. 10. CUSTOMS DUTY DRAWBACKS The term drawback refers to the amount of duties of Customs and Central Excise, whether in whole or in part, levied on the inputs of goods exported, which is remitted or paid back by Government on export of commodities. The goods to be entitled for drawback, they must be exported to a foreign port. The object of the relief provided by the drawback provision is to enable the goods to be disposed of in a foreign market as if they had never been taxed on account of Customs and Central Excise duties. Drawback for Customs purposes means, the refund of duty of customs and duty of Central Excise that are chargeable on imported and indigenous materials used in the manufacture of exported goods. Drawback, as the name itself suggests, is procedure to relieve export goods of duties suffered by them at various stages of manufacture. Sections 74 to 76 and notifications issued thereunder provide for the quantification of the amounts of and the procedure to claim drawback. The drawback is in respect of duties paid on: (a) Imported goods which are exported as such (without use) (b) Imported goods which are exported after use (c) Imported materials used in the manufacture of goods exported. According to Finance Act, 2003, exporters may be able to claim refund of duty and interest paid by him, if he has not passed on the incidence of such duty and interest to any other person. Section 48

27 of the Customs Act is amended for the purpose. Section 75A of the Customs Act has been amended so as to reduce the period from two months to one month beyond which interest is payable to the claimant, after filing a drawback claim. 11. APPELLATE PROVISIONS AND PROCEDURES The Appellate provisions in Customs are almost the same as in Excise, which have already been covered under the respective article, which may please be referred to. 12. PENALTIES Penalty for improper importation of goods 12.1 For improper importation of goods (i) any person who does or omits to do any act or abets doing or omission of such act on goods which are liable for confiscation or (ii) who acquires possession or in any way concerned with carrying, removing, depositing, harbouring, keeping, concealing, selling or purchasing, or in any other manner dealing with any goods which he knows or has reason to believe are liable to confiscation under section 11. shall be liable for penalty of the various amounts specified in section 112 12.2 For short levy or non levy of duty in certain cases As per section 114(A) where demand for duty arises on account of collusion, or any wilful misstatement or suppression of fact, the person is liable for penalty equal to the duty amount. As per first proviso if the duty, interest is paid within 30 days from the date of communication of the order, the penalty amount shall be reduced to 25% of the duty. However, the benefit of reduction in penalty is available only when the penalty amount is also paid. 12.3 For use of false and incorrect materials As per section 114(AA), if any person knowingly or intentionally makes, signs, or uses or causes to make any declaration, statement or document which falls or is incorrect in any material particular, he shall be liable for penalty not exceeding 5 times the value of goods.

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12.4 For not expressly mentioned Any person who contravenes the provision of this Act or abets in such contravention and where no expressed penalty is provided elsewhere shall be liable for penalty up to Rs. 1 lakh under section 117. 13. PROSECUTION Section 135 of the Customs Act provides that any person a) In respect of any goods knowingly concerned in mis declaration of value or any fraudulent evasion or attempt of evasion of any duty or any prohibition for the time being imposed under the Act or b) acquires possession of or is in any way concerned in carrying, removing, depositing, harbouring, keeping, concealing, selling or purchasing or in any other manner dealing with any goods which he knows or has reason to believe are liable to confiscation or c) attempts to export any goods which he knows or has reason to believe are liable to confiscation or d) fraudulently avails of or attempts to avail of drawback or any exemption from duty provided under this Act in connection with export of goods. he shall be punishable with an offence (i) in case the offence relates to goods, market price of which exceeds Rs. 1 crore, evasion of duty exceeding Rs. 30 lakhs, such categories of prohibited goods notified by central government or fraudulently availing drawback exceeding Rs. 30 lakhs with an imprisonment for term which may extend to seven years or with fine. (ii) in any other case, for imprisonment which may extend to three years or fine or both.

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EXPORT
The term export means shipping the goods and services out of the port of a country. The seller of such goods and services is referred to as an "exporter" who is based in the country of export whereas the overseas based buyer is referred to as an "importer". In International Trade, "exports" refers to selling goods and services produced in the home country to other markets

TWO CLASSES OF EXPORTS:

Physical Exports: If the goods physically go out of the country or services are rendered outside the country then it is called as physical export. Deemed Exports: Where the goods do not go out of the country physically they can be termed as deemed exports. This will be subject to certain conditions as prescribed by the DGFT. Under Deemed Exports, the goods may be supplied to the manufacturer exporter who ultimately export a finished product of which this supply forms a part and ultimately go out of the country. E.g. Supply of fabrics to the garment exporter who exports the garments made out of the said fabric. The government may announce from time to time the types of supplies that may be considered as deemed export. The Foreign Trade Policy gives the list of supplies considered under the Deemed Export Category. The policies and procedures are different for Physical Exports and Deemed Exports as also the benefits available. In a nut shell, Deemed Exports do not enjoy all the benefits that are available under Physical Export. The Foreign Trade defines exports as taking out of India any goods by land, sea, air. Although the act does not term them as Physical Exports, we have to put phrase to distinguish it from Deemed Exports which is sales in India but considered as exports for limited purpose.

TYPES OF EXPORTERS
Exporters can be basically classified into two groups Manufacturer Exporter: As the exporter has the facility to manufacturer the product he intends to export and hence he exports the products manufactured by him. Merchant Exporter: An exporter who does not have the facility to manufacture an item. But, he procures the same from other manufacturers or from the market and exports the same. An exporter can be both a manufacturer exporter as well as a merchant exporter, he can export product manufactured by him or he can export items bought from the market .Once it is decided to export, it is mandatory on your part to follow certain procedures, rules and regulations as prescribed by various regulatory authorities such as DGFT, RBI, and 51

Customs. These procedures, rules and regulations are laid down in the Exim Policy 2004-0, Exchange Control Manual, Customs Act etc. Accordingly Export documents are required to be prepared keeping in view of the requirement of the foreign buyers and our regulatory authorities. HOW TO SET UP AN EXPORT ORGANISATION The proper selection of organization depends upon Ability to raise finance. Capacity to bear the risk. Desire to exercise control over the business. Nature of regulatory framework applicable to anyone

If the size of the business is small, it would be advantageous to form a sole proprietary business organization. It can be set up easily without much expenses and legal formalities. It is subjected to only few governmental regulations. However, the biggest disadvantage of sole proprietorship business is limited ability to raise funds which restricts the growth. Besides the owner has unlimited personal liabilities. In order to avoid this disadvantage, it is advisable to form a partnership firm. The partnership firm can also be set up with ease and economy. Business can take benefit of the varied experiences and expertise of the partners. The liability of the partners though joint and several, is practically distributed amongst the various partners, despite the fact that the personal liability of the partner is unlimited. The major disadvantage of partnership firm of business organization is that conflict amongst the partners is a potential threat to the business. It will not be out of place to mention here that partnership firms are governed by the Indian Partnership Act, 1932 and, therefore they should be formed within the parameters laid down by the Act. Company is another form of business organization, which has the advantage of distinct legal identity and limited liability to the share holders .It can be a private limited company or a public limited company. A private limited can be formed by just two persons subscribing to its share capital. However, the number of its shareholders cannot exceed 50, public cannot be invited to subscribe to its capital and the members right to transfer their share is restricted. On the other hand, a pubic limited company has a minimum of seven members. There is no limit on the maximum number of its members. It can invite the public to subscribe to its capital and permit the transfer of share. A public limited company offers enormous potential for growth because of access to substantial funds. The liquidity of investment is high because of easiness of transfer of shares. However its formation can be recommended only when the size of the business is large. For small business, a sole proprietary concern or a partnership firm will be the most suitable form of business organization.

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In case it I decided to incorporate a private limited company, the same is to be registered with the Registrar of Companies. CHOOSING APPROPRIATE MODE OF OPERATIONS: You can choose any of the following modes of operations Merchant Exporter i.e. buying the goods from the market or from the manufacturer and then selling it to foreign buyers. Manufacturer Exporter i.e. manufacturing the goods yourself for export. Sales Agent / Commission Agent / Indenting Agent i.e. acting on behalf of the seller and charging the Commission. Buying Agent i.e. acting on behalf of the buyer and charging Commission. Service provider i.e. providing service from India to another country. NAMING THE BUSINESS Whatever form of business organization has been finally decided, naming the business is an essential task for every exporter. The name and style should be soft, attractive, short and meaningful. Open a current account in the name of the organization in whose name you intend to export. It is advisable to open the account with a bank which authorized to deal in Foreign Exchange.

STRUCTURE OF AN EXPORT ORGANISATION marketing manager for generating sales Commercial manager for looking activities of the execution of the orders. staff personnel for carrying out the day-to-day activities namely O Preparation of pre - shipment documents. O coordinating with clearing agents on the progress of the shipment to be made. O Coordinating with the ware house\C. excise department regarding packing and clearance of the goods for export. O Preparation of post shipment documents foe banks. 53

O Follow-up with the bank on dispatch of documents, receipt of payment, a ailment of bank loans etc. To look into the requirement of licenses, claiming of export benefits filling of documents with the Government Authorities in Discharge of Export Obligations ,if any, filing of returns to the various Government Agencies which are mandatory, prepare and keep an information bank of various transaction of the company, their domestic as well as international competitors. A clearing and forwarding agent to handle the documents and the goods in the customs premises\ in the ports of lading. Depending upon the size of the business the numbers of personnel under each category may increase. For example if a company is transacting substantial volume of business in more than one product. Then it is necessary to have marketing manager for each product so that the person can concentrate on a particular trade to enhance the business. REGISTRATION WITH REGIONAL LICENCING AUTHORITIES OBTAINING IMPORTER EXPORTER CODE (IEC) NUMBER. The Customs Authorities will now allow the exporter to export or import goods into or from India unless he holds a valid IEC number. Before applying for IEC number it is necessary to open a bank account in the name of the company with any commercial bank authorized to deal in foreign exchange. The duly signed application form should be supported by the following documents. Bank receipt ( in duplicate ) / Demand Draft for payment of the fees of Rs. 1000/Certificate from the banker of the applicant firm as per Annexure 1 to the formgiven. One copy of PAN number issued by Income Tax Authorities duty attested by the applicant. One copy of Passport Size photographs of the applicant duly attested by the banker to the applicant. Declaration by the applicant that the proprietor/partners/directors as the case may be of the applicant company, are not associated as proprietor/partners/directors in any other firm, which has been caution, listed by the RBI. Where the applicant declares that they are associated as proprietor/partners/directors in any other firm, which has been caution, listed by the RBI, they will be allotted IEC No. but with an additional condition that they can export only with RBIs prior approval and they should approach RBI for the purpose. Each importer/exporter shall be required to file importer/exporter profile once with the licensing authority shall enter the information furnished in Appendix 2 in their database 54

so as to dispense with changes in the information given inAppendix-2, importer/exporter shall intimate the same to the licensing authority. IEC EXEMPTED CATEGORIES. The following importer exporter is exempted from the requirement of IEC code number. Ministries \ Department of Central or State Government Person importing or exporting goods for their personal use not connected with trade or manufacture or agriculture. Persons importing\exporting goods from\to Nepal & Myanmar provided the CIF value of single consignment does exceed Indian Rs. 25000\-. APPLICATION FOR OBTAINING AN IEC NUMBER For obtaining IEC number apply in the prescribe form along with the documents listed above to Regional Licensing Authority (Office of the Regional DGFT). The registered office or the head office may apply for allotment of IEC No .Whenever, there is a change in the name, address or constitution of the holder of IEC No., such change should be intimated within 30 days to the concern authorities.IEC certificate will be issued in the form (copy enclosed). A copy of IEC No. is also endorsed to the concerned banker. VALIDITY :The IEC No allotted to a firm/company will be valid for all its branches/divisions units/factories as indicated in the IEC No. Import/Export of any commodity by that firm/company. There being no date of expiry, the IEC once allotted is valid till it is revoked. But, if no import or export is effected in the previous financial year, the same will be made inoperative. However, this can be made operative by a formal request to the DGFT. IDENTITY CARD (For conducting transactions with the office of DGFT): As it is not always possible for the top man or directors, promoters of the company to visit DGFT frequently. There is a provision of issuance of identity cards to the proprietors/partners/directors and their authorized representatives. An application of Issuance of an identity card may be made in the form (Appendix-5) The document/License/Certificate/Permissions may be delivered to the identity card holder and officials of the Licensing Authority(DGFT)shall not be responsible for any loss etc. In case of loss of an identity card a duplicate card may be issued on the basis of an FIR & affidavit. In addition to obtaining the IEC No. the exporter is also required to obtain Business Identification No(BIN). For this exporter is required to contact DGFT online on web site. The licensing authority issues BIN in coordination with customs authorities.

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This BIN is required to be mentioned on the shipping bills at the time of customs clearance of the export cargo . RCMC (Registration-Cum-Membership Certificate) REGISTRATION WITH EXPORT PROMOTION COUNCILS In order to enable the exporter to obtain benefits/concessions under the Foreign Trade Policy, the exporter is required to register himself with an appropriate export promotion agency by obtaining registration-cum-membership certificate. (RCMC). If the export product is that it is not covered by any EPC, RCMC in respect thereof may be issued by FIEO. An application for registration should be accompanied by a self certified copy of the Importer-Exporter Code number issued by the regional licensing authority concerned and bank certificate in support of the applicants financial soundness. The RCMC shall be valid for 5 years ending 31 St March of the licensing year. REGISTRATION WITH SALES TAX AUTHORITIES: Goods that are to be shipped out of the country for export are eligible for exemptions from both Sales Tax and Central Sales Tax. For this purpose, exporter should get himself registered with the Sale Tax Authority of is state after following the procedures prescribed under the Sales Tax Act applicable to his state. HOW ONE BEGINS TO DO EXPORT Before entering into the venture of exports, one must look for the product to be exported and the market where he intends to export. In case of a manufacturer, obviously he would like to export the product he manufactures as is or with possible modification as may be required by the market. However, in case of a merchant exporter or a trader, one has to identity the product to export. If the exporter is already in the trade in the domestic market and is familiar with the product it would be an advantage to export the said product of which he has reasonable knowledge. Before selecting a product, one must simultaneously made a study and find out the prospective market. For finding out the market for the selected product, the following methods will help. Get statistical information as to imports of the product by various countries and their growth prospects in the respective countries Approach the chamber of commerce for their guidance to find out the market. Approach the Export Promotion Council dealing in the product of selection to get more information.

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The Preliminary Once you are ready with the product you wish to export and have found the market for the same, you are ready to proceed further. Following sequences can be followed: Any one, who wishes to export, must first of all get an Importer Exporter Code Number (IE Code). This can be obtained by making a formal application to the office of the Regional Directorate General of Foreign Trade (DGFT). Get yourself registered with the related Export Promotion Council and become a member . Also arrange to obtain Registration-Cum-Membership Certificate (RCMC) from the council. This has twin objectives: Under the Foreign Trade Policy, it is mandatory that an exporter gets him registered with the Export Promotion Council to avail of various export facilities. O Being a member, you will have access to all the information relating to the product that could be made available by the council O Many foreign buyers send their enquiries for the imports to the Export Promotion Council. Hence you will have few customers interested in your product. If you are a manufacturer, find out the provisions under the EXIM Policy of getting the raw materials duty free. Get familiar with the excise formalities as goods meant for export can be cleared without payment of Excise duty on the finished product subject to compliance of certain formalities. Understand the local government regulations in relations to the export of the product. Get information of the governments regulations of the importing country as to restrictions on the quantity, product specification, packing regulations, customs regulations, requirement of specific documents/information etc. Availability of Vessels/Airlines, the transport charges, frequency of operation etc., To look for a Custom House Agent (CHA) (also know as freight forwarders or clearing agents) for handling the documents/cargo in the customs.

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If the product is covered under any quota regulation, find out the agency/council who are handling the quota distribution for the product and the availability of quota for exports. FINDING CUSTOMERS Once you have selected the market, the next step is to find a prospective customer. This you can get From the directory of importers of the country By writing to the Embassy of India in that country for assistance By writing to the chamber of commerce of that country By means of participation in a Fair/Exhibition abroad either directly or through the Export Promotion Council By participating in international fair if organized locally Through the personal contacts in that country. By these processes one can only have the list of customers. One has to dialogue or correspond with these customers by sending samples, getting feedback from the customers etc. to ultimately select the customer with whom to deal with. It is necessary to know the financial standing of the company which can be obtained through the bank channel or through the office of ECGC. NEGOTIATING CONTRACT. Once the prospective customer is found, the business deal has to be concluded. The following aspects may be considered before entering into a final contract with the buyer. Credit Worthiness of the Customer. Availability of the Steamer/Airlines and the frequency The freight charges The full product specification The quantity, Price Terms of Payment Type of packing and markings on the packages 58

Mode of shipment & Shipment schedule Tolerance of quantity to be shipped Documentation requirement for the customer Documentation requirement of the government of importing country Compliance of the local governmental rules and regulations Before entering into contract one should take note of the above factors. While these are indicative, the requirements will vary from country to country, product to product and buyer to buyer EXPORT SALES & CONTRACT TERMS & CONDITIONS Very often exporters do not enter into any formal contract and finalize the trade deal through the exchange of letters, cable, telex etc. It is, however, expedient that the parties (exporters & importers) incorporate all important terms & conditions of their trade deal in a separate document or contract that will avoid disputes arising out of uncertainty or ambiguity. Export contract may be sent in duplicate along with the Proforma Invoice to the overseas buyer . NATURE OF INTERNATIONAL TRADE COUNTRACTS. There are certain, peculiar characteristics of international trade contract which are not present in those for sales of goods in the domestic market Whereas the parties to a domestic trace contract normally needs only agree on the elements which are necessary for their particular trade transactions like price, description ,quality and quantity of goods, delivery terms etc the situation will be quite different when the buyer and the seller to sale/purchase contract belong to different countries. The parties to all international trade contracts provide all their relative rights and obligations in several ways For example, they may agree to adopt either the Law of the country of the buyer or that of the seller. The traders are normally reluctant to leave the determination of the rights and obligations by implications under the legal system of eithers country. They prefer to make explicit provisions regarding the rights and obligations by including a set of detailed and precise terms and conditions in their contract. EXPORT OF SAMPLES\GIFTS. Exports of bonafied trade and technical samples of freely exportable items shall be allowed without any limit. Goods including edible items of value not exceeding Rs.100000/- in a licensing year, may be exported as a gift. However items mentioned as restricted for exports in ITC(HS) shall not be exported as a gift without alicence/certificate/permission, except in the case of edible items.

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STANDARD CONTRACT FOMS: Notwithstanding the efforts made by various national/international organizations like the United Nations Commission on the International Trade Law, there is still no perfection or a device which would give the parties an accurate and complete idea of each others understanding of various trade terms, the commercial practices and the rights and the obligations vis--vis each other so that the misunderstandings are practically eliminated. Nevertheless, the Indian Council of Arbitration published in 1966 a booklet on Standard Contract Forms and Model Arbitration Clause for use in Foreign Trade Contracts. It was revised and reprinted in 1969 and 1977. It can be referred to by exporter for various clause to be incorporated in the Export Contract.

ENTERING INTO AN EXPORT CONTRACT In order to avoid disputes, it is necessary to enter into an export contract with the overseas buyer. For this purpose, export contract should be carefully drafted incorporating comprehensive but in precise terms, all relevant and important conditions of the trade deal. There should not be any ambiguity regarding the exact specifications of goods and terms of sale including export price, mode of payment, storage and distribution methods, type of packaging, port of shipment, delivery schedule etc. The different aspects of an export contract are enumerated as under: Product, Standards and Specifications Quantity Inspection Total Value of Contract Terms of Delivery Taxes, Duties and Charges Period of Delivery/Shipment Packing, Labeling and Marking Terms of Payment-- Amount/Mode & Currency Discounts and Commissions Licenses and Permits

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Insurance Documentary Requirements Guarantee Force Majeure of Excuse for Non-performance of contract Remedies Arbitration clause It will not be out of place to mention here the importance of arbitration clause in an export contract Court proceedings do not offer a satisfactory method for settlement of commercial disputes, as they involve inevitable delays, costs and technicalities. On the other hand, arbitration provides an economic, expeditious and informal remedy for settlement of commercial disputes. Arbitration proceedings are conducted in privacy and the awards are kept confidential. The Arbitrator is usually an expert in the subject matter of the dispute. The dates for arbitration meetings are fixed with the convenience of all concerned. Thus, arbitration is the most suitable way for settlements of commercial disputes and it may invariably be used by businessmen in their commercial dealings. ARBITRATION : Arbitration clause recommended by the Indian Council of Arbitration: All disputesor differences whatsoever arising between the parties out of / relating to the meaning,construction and operation or effect of this contract or the breach thereof shall be settled by arbitration in accordance with the rules of Arbitration of the Indian Council of Arbitration and the award made in pursuance thereof shall be binding on the parties (or any other arbitration clause that may be agreed upon between the parties) PROCESSING AN EXPORT ORDER You should not be happy merely on receiving an export order. You should first acknowledge the export order, and then proceed to examine carefully in respect of Items Specification Pre-shipment inspection Payment conditions Special packaging

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Labeling and marketing requirements Shipment and delivery date Marine insurance Documentation requirement etc. If you are satisfied on these aspects, a formal confirmation should be sent to the buyer, otherwise clarification should be sought from the buyer before confirming the order. After confirmation of the export order immediate steps should be taken for procurement/manufacture of the export goods. In the meanwhile, you should proceed to enter into a formal export contract with the overseas buyer. Before accepting any order necessary homework should have been done as to availability of the production capacity, raw material e.t.c. It would be in the interest of the exporter to look into entering into forward contract to safeguard against exchange rate fluctuations. Ensure that the mode of payment is also agreed upon. In case of shipment against letter of credit, the buyer should be advised to open the credit well in advance before effecting the shipment FINANCIAL RISKS INVOLVED IN FOREIGN TRADE As an exporter while selling goods abroad, you encounter various types of risks. The major risks which you have to undergo are as follows: Credit Risk Currency Risk Carriage Risk Country Risk You can protect yourself against the above risks by initiating appropriate steps. Credit Risks : You can cover your credit risk against the foreign buyer by insisting upon opening a letter of credit in your favor. Alternatively one can avail of the facility offered by various credit risk agencies. A specific insurance cover can also be obtained from ECGC(Exports Credit & Guarantee Corporation) to cover your country risk besides covering credit risk. Currency Risks: As regards covering the currency risk, due to the exchange rate fluctuations, you can request your banker to book a forward contract. 62

Carriage Risk: The carriage risk can be covered by taking an appropriate general insurance policy. Country Risk: ECGC provides cover to protect the exporter from country risks. A detailed procedure how an exporter can get himself protected against the above risks are given in separate chapters later. EXPORT DOCUMENTS Any export shipment involved various documents required by various authorities such as customs, excise, RBI, Inspection and according depending upon the requirements, there are categorized into 2 categories, namely commercial documents and regulatory documents. A. Commercial Documents. : Commercial documents are required for effecting physical transfer of goods and their title from the exporter to the importer and the realization of export sale proceeds. Out of the 16 commercial documents in the export documentation framework 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 of quality control, insurance declaration, certificate' of insurance, mate's receipt, bill of lading or combined transport document, application for certificate origin, certificate of origin, shipment advice and letter to the bank for collection or negotiation of documents. However, shipping order and bill of exchange could not be brought within the fold of the Aligned Documentation System, 1.Commercial Invoice: Commercial invoice is an important and basic export document. It is also known as a 'Document of Contents' as it contains all the information required for the preparation of other documents. It is actually a seller's bill of merchandise. It is prepared by the exporter after the execution of export order giving details about the goods shipped. It is essential that the invoice is prepared in the name of the buyer or the consignee mentioned in the letter of credit. It is a prima facie evidence of the contract of sale or purchase and therefore, must be prepared strictly in accordance with the contract of sale. Contents of Commercial Invoice Name and address of the exporter. Name and address of the consignee. Name and the number of Vessel or Flight. Name of the port of loading. 63

Name of the port of discharge and final destination. Invoice number and date. Exporter's reference number. Buyer's reference number and date. Name of the country of origin of goods. Name of the country of final destination. Terms of delivery and payment. Marks and container number. Number and packing description. Description of goods giving details of quantity, rate and total amount in terms of internationally accepted price quotation. Signature of the exporter with date. Significance of Commercial Invoice It is the basic document useful in preparation of various other shipping documents. It is used in various export formalities such as quality and pre-Shipment inspection excise and customs procedures etc. It is also useful in negotiation of documents for collection and claim of incentives. It is useful for accounting purposes to both exporters as well as importers. 2 Inspection Certificate: The certificate is issued by the inspection authority such as the export inspection agency. This certificate states that the goods have been inspected before shipment, and that they confirm to accepted quality standards 3Marine insurance policy: Goods in transit are subject to risk of loss of goods arising due to fire on ship, perils of sea, theft etc. marine insurance protects losses incidental to voyages and in land transportation. Marine insurance policy is one of the most important document used as collateral security because it protects the interest of all those who have insurable interest at the time of loss. The exporter is bound to insure the goods in case of CIF quotation, but he can also insure the goods in case of FOB contract, at the request of the importer, but the premium payment will be made by the exporter. There are different types of policies such as SPECIFIC POLICY: This policy is taken to cover different risks for a single shipment. For a regular exporter, this policy is not advisable as he will have to take a separate policy every time a shipment is made, so this policy is taken when exports are in frequent. Floating Policy: This is taken to cover all shipments for some months. There is no time limit, but there is a limit on the value of goods and once this value is crossed by several shipments, then it has to be renewed.

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Open Policy: This policy remains in force until cancelled by either partite. insurance company or the exporter. Open Cover Policy: This policy is generally issued for 12 months period, for all shipments to one or more destinations. The open cover may specify the maximum value of consignment that may be sent per ship and if the value exceeded, the insurance company must be informed by the exporter. Insurance Premium: Differs upon product to product and a number of such other factors, such as, distance of voyage, type and condition of packing, etc. Premium for air consignments are lowered as compared to consignments by sea. 4.Consular Invoice: Consular invoice is a document required mainly by the Latin American countries like Kenya, Uganda, Tanzania, Mauritius, New Zealand, Myanmar, Iraq, Australia, Fiji, Cyprus, Nigeria, Ghana, Guinea, Zanzibar, etc. This invoice is the most important document, which needs to be submitted for certification to the Embassy of the importing country concerned. The main purpose of the consular invoice is to enable the authorities of the importing country to collect accurate information about the volume, value, quality, grade, source, etc., of the goods imported for the purpose of assessing import duties and also for statistical purposes. In order to obtain consular invoice, the exporter is required to submit three copies of invoice to the Consulate of the importing country concerned. The Consulate of the importing country certifies them in return for fees. One copy of the invoice is given to the exporter while the other two are dispatched to the customs office of the importer's country for the calculation of the import duty. The exporter negotiates a copy of the consular invoice to the importer along with other shipping documents. Significance of Consular Invoice for the Exporter It facilitates quick clearance of goods from the customs in exporter's as well as importer's country. Certification' of goods by the Consulate of the importing country indicate that the importer has fulfilled all procedural and licensing formalities for import of goods. It also assures the exporter of the payment from the importing country. Significance of Consular Invoice for the Importer It facilitates quick clearance of goods from the customs at the port destination and therefore, the importer gets quick delivery of goods. The importer is assured that the goods imported are not banned for imported in his country.

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Significance of Consular Invoice for the Customs Office It makes the task of the customs authorities easy. It facilitates quick calculation of duties as the value of goods as determine by the Consulate is considered for the purpose 5.Certificate of Origin: The importers in several countries require a certificate of origin without which clearance to import is refused. The certificate of origin states that the goods exported are originally manufactured in the country whose name is mentioned in the certificate. Certificate of origin is required when:The goods produced in a particular country are subject to preferential tariff rates in the foreign market at the time importation. The goods produced in a particular country are banned for import in the foreign market. Types of the Certificate of Origin (a) Non-preferential Certificate, of Origin : - Non-preferential certificate of origin is required in general by all countries for clearance of goods by the importer, on which no preferential tariff is given. It is issued by: The authorized Chamber of Commerce of the exporting country. Trade Association. Of the exporting country. (b) Certificate of Origin for availing Concessions under GSP :- Certificate of origin required for availing of concessions under Generalized System of Preferences(GSP) extended by certain, countries such as France, Germany, Italy, BENELUX countries, UK, Australia; Japan, USA, etc. This certificate can be obtained from specialized agencies, namely; Export Inspection Agencies. Jt. Director General of Foreign Trade.. Commodity Boards and their regional offices. Development Commissioner, Handicrafts. Textile Committees for textile products. Marine Products Export Development Authority for marine products. Development Commissioners of EPZs

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

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(d) Certificate for availing Concessions under other Systems of Preference:Certificate of origin is also required for tariff concessions. under the Global System of Trade Preferences (GSTP), Bangkok Agreement(BA) and SAARC Preferential Trading Arrangement (SAPTA) under which India grants and receives tariff concessions On imports and exports. Export Inspection Council (EIC) is the sole authority to print blank Certificates of Origin under BA, SAARC and SAPTA which can be issued by such agencies as EPCs, DCs of EPZs, EIC, APEDA,MPEDA, FIEO, etc... Contents of Certificate of Origin Name and logo of chamber of commerce. Name and address of the exporter. Name and address of the consignee. Name and the number of Vessel of Flight Name of the port of loading. Name of the port of discharge and place of delivery. Marks and container number. Packing and container description. Total number of containers and packages. Description of goods in terms of quantity. Signature and initials of the concerned officer of the issuing authority. Seal of the issuing authority Significance of the Certificate of Origin Certificate of origin is required for availing of concessions under Generalised System of Preferences (GSP) as well as under Commonwealth Preferences(CWP). It is to be submitted to the customs for the assessment of duty clearance of goods with concessional duty. It is required when the goods produced in a particular country are banned for import in the foreign market. It helps the buyer in adhering to the import regulations of the country. Sometimes, in order to ensures that goods bought from some other country have-not been reshipped by a seller, a certificate of origin IS required. 6.Bill of Lading: The bill of lading is a document issued by the shipping company or its agent acknowledging the receipt of goods on board the vessel, and undertaking to deliver the goods in the like order and condition as received, to the consignee or his order, provided the freight and other charges as specified in the bill have been duly paid. It is also a document of title to the goods and as such, is freely transferable by endorsement and delivery. Bill of Lading serves three main purposes: As a document of title to the goods; As a receipt from the shipping company; and 67

As a contract for the transportation of goods.

Types of Bill of Lading Clean Bill of Lading: A bill of lading acknowledging receipt of the goods apparently in good order and condition and without any qualification is termed as a clean bill of lading Callused Bill of Lading: A bill of lading qualified with certain adversaries marks such as, "goods insufficiently packed in accordance with the Carriage of Goods by Sea Act," is termed as a callused bill of lading. Transshipment or Through Bill of Lading: When the carrier uses other transport facilities, such as rail, road, or another steamship company in addition to his own, the carrier issues a through or transshipment bill of lading. Stale Bill of Lading: A bill of lading that has been held too long before it is passed on to a bank for negotiation or to the consignee is called a stale bill of lading. Freight Paid Bill of Lading: When freight is paid at the time of shipment or in advance, the bill of landing is marked, freight paid. Such bill of lading is known as freight bill of lading. Freight Collect Bill of lading :When the freight is not paid and is to be collected from the consignee on the arrival of the goods, the bill of lading is marked, freight collect and is known as freight collect bill of lading Contents of Bill of Lading Name and logo of the shipping line. Name and address of the shipper. Name and the number of vessel. Name of the port of loading. Name of the port of discharge and place of delivery. Marks and container number. Packing and container description. Total number of containers and packages, Description of goods in terms of quantity. 68

Container status and seal number. Gross weight in kg. and volume in terms of cubic meters. Amount of freight paid or payable Shipping bill number and date. Signature and initials of the Chief Officer. . Significance of Bill of Lading for Exporters It is a contract between the shipper and the shipping company for carriage of the goods to the port of destination. It is an acknowledgement indicating that the goods mentioned in the document have been received on board for the Purpose of shipment. A clean bill of lading certifies that the goods received on board the ship are in order and good condition. It is useful for claiming incentives offered by the government to exporters The exporter can claim damages from the shipping company if the goods are lost or damaged after the issue of a clean bill of lading.

Significance of Bill of Lading for Importers It acts as a document of title to goods, which is transferable endorsement and delivery. The exporter sends the bill of lading to the bank of the importer so as to enable him to take the delivery of goods. The exporter can give an advance intimation to the foreign buyer about the shipment of goods by sending him a non-negotiable copy of bill of lading Significance of Bill of Lading for Shipping Company It is useful to the shipping company for collection of transport charges from the importer, if not collected from the exporter. 7. Airway Bill: An airway bill, also called an air consignment note, is a receipt issued by an airline for the carriage of goods. As each shipping company has its own bill of lading, so each airline has its own airway bill. Airway Bill or Air Consignment Note is not treated as a document of title and is not issued in negotiable form. Contents of Airway Bill Name of the airport of departure and destination. The names and addresses of the consignor, consignee and the first carrier. Marks and container number. Packing and container description. Total number of containers and packages. Description of goods in terms of quantity. Container status and seal number. 69

Amount of freight paid or payable. Signature and initials of the issuing carrier or his agent.

Importance of Airway Bill: It is a contract between the airlines or his agent to carry goods to the destination. It is the document of instructions for the airline handling staff. It acts as a customs declaration form. Since, it contains details about freight it also represents freight bill. 7.Shipment Advice to Importer:After the shipment of goods, the exporter intimates the importer about the shipment of goods giving him details about the date of shipment, the name of the vessel, the destination, etc. He should also send one copy of non-negotiable bill of lading to the importer. 8. Packing List: The exporter prepares the packing list to facilitate the buyer to check the shipment. It contains the detailed description of the goods packed in each case, their gross and net weight, etc. The difference between a packing note and a packing list is that the packing note contains the particulars of the contents of an individual pack, while the packing list is a consolidated statement of the contents of a number of cases or packs. 9. Bill of Exchange The instrument is used in receiving payment from the importer. The importer may prefer Bill of Exchange to LC as it does not involve blocking of funds. A bill of exchange is drawn by the exporter on the importer, to make payment on demand at sight or after a certain period of time. B/E is a means to collect payment. B/E is a means to demand payment. B/E is a means to extent the credit. B/E is a means to promise the payment. B/E is an official acknowledgement of receipt of payment. Financial documents perform the function of obtaining the finance collection of payment etc. 2 sets. Each one bearing the exclusion clause making the other part of the draft invalid. Sight B/E. Usance B/E. It is known as draft. Immediate payment Sight draft. There are two copies of draft. Each one bears reference to the other part A&B. when any one of the draft is paid, the second draft becomes null and void.

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Parties to bill of exchange. 1.The drawer: The exporter / person who draws the bill. 2.The drawee: The importer / person on whom the bill is drawn for payment. 3.The payee: The person to whom payment is made, generally, the exporter /supplier of the goods

Auxiliary Documents:
These documents generally form the basic documents based on which the commercial and or regulatory documents are prepared. These documents also do not have any fixed formats and the number of such documents will wary according to individual requirements. 1. Proforma Invoice: The starting point of the export contract is in the form of offer made by the exporter to the foreign customer. The offer made by the exporter is in the form of a proforma invoice. It is a quotation given as a reply to an inquiry. It normally forms the basis of all trade transactions. Contents of Proforma Invoice Name and address of the exporter. Name and address of the importer. Mode of transportation, such as Sea or Air or Multimodal transport. Name of the port of loading. Name of the port of discharge and final destination. Provisional invoice number and date. Exporter's reference number. Buyer's reference number and date. Name of the country of origin of goods. Name of the country of final destination. Marks and container number.. Number and packing description. Description of goods giving details of quantity, rate and total amount in terms of internationally accepted price quotation. Signature of the exporter with date. Importance of Proforma Invoice It forms the basis of all trade transactions. It may be useful for the importer in obtaining import license or foreign exchange 2.Intimation for Inspection:

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Whenever the consignment requires the pre-shipment inspection, necessary application is to be made to the concerned inspection agency for conducting the inspection and issue of certificate thereof. 3.Declaration of Insurance: Where the contract terms require that the insurance to be covered by the exporter, the shipper has to give details of the shipment to the insurance company for necessary insurance cover. The detailed declaration will cover: Name of the shipper \ exporter. Name & address of buyer. Details of goods such as packages, quantity, value in foreign currency as well as in Indian Rs. Etc. Name of the Vessel \ Aircraft. Value for which insurance to be covered. 4. Application of the Certificate Origin: In case the exporter has to obtain Certificate of Origin from the concerned authorities, an application has to be made to the concerned authority with required documents. While the simple invoice copy will do for getting C\O from the chamber of commerce, in respect of obtained the same from the office of the Textile Committee or Export Promotion Council, the documents requirement are different. 5. Mate's Receipt : Mate's receipt is a receipt issued by the Commanding Officer of the ship when the cargo is loaded on the ship. The mate's receipt is a prima facie evidence that goods are loaded in the vessel. The mate's receipt is first handed over to the Port Trust Authorities. After making payment of all port dues, the exporter or his agent collects the mate's receipt from the Port Trust Authorities. The mate's receipt is freely transferable. It must be handed over to the shipping company in order to get the bill of lading. Bill of lading is prepared on the basis of the mate's receipt. Types of Mate's Receipts Clean Mate's Receipt: The Commanding Officer of the ship issues a clean mate's receipt, if he is satisfied that the goods are packed properly and there is no defect in the packing of the cargo or package. Qualified Mate's Receipt: The Commanding Officer of the ship issues qualified mate's receipt, when the goods are not packed properly and the shipping company does not take any responsibility of damage. to the goods during transit.

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Contents of Mate's Receipt Name and logo of the shipping line. Name and address of the shipper. Name and the number of vessel. Name of the port of loading. Name of the port of discharge and place of delivery. Marks and container number. Packing and container description. Total number of containers and packages. Description of goods in terms of quantity. Container status and seal number. Gross weight in kg. and volume in terms of cubic meters. Shipping bill number and date. Signature and initials of the Chief Officer. Significance of Mate's Receipt It is an acknowledgement of goods received for export on board the ship. It is a transferable document. It must be handed over to the shipping company in order to get the bill of lading Bill of lading, which is the title of goods, is prepared on the basis of the mate's receipt. It enables the exporter to clear port trust dues to the Port Trust Authorities. Obtaining Mate's Receipt The goods are then loaded on board the ship for which the Mate or the Captain of the ship issues Mate's Receipt to the Port Superintendent. 6. Shipping order: it is issued by the Shipping/Conference Line intimating the exporter about the reservation of space for shipment of cargo which the exporter intends to ship. Details of the vessel, poet of the shipment, and the date on which the goods are to be shipped are mentioned. This order enables the exporter to make necessary arrangements for customs clearance and loading of the goods. 7. Shipping Instructions: at the pre-shipment stage, when the documents are to sent to the CHA for customs clearance, necessary instructions are to be give with relevance to The export promotion scheme under which goods are to be exported. Name of the specific vessel on which the goods are to beloaded. If goods are to be FCL or LCL. If freight amount are to be paid / collected. If shipment are covered under A.R.E.-1 procedure. Instructions for obtaining Bill of Lading etc.

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8. Bank letter for negotiation of documents: at the post shipment stage, the exporter has to submit the documents to a bank for negotiation or discounting or collection for forwarding the same to the customer and also for realization of export proceeds. The bank letter is the set of instruction for the bank as to how to handle the documents by them and by the bank at the buyers country which may include Name and address of the buyer. Details of various documents being sent and the number of the copies thereof. Name and address of the buyers bank if available. If the documents are sent L/C or on open terms. If the proceeds are to adjusted against any pre-shipment packing credit loan. If the bill amount is to be adjusted against any forward exchange cover. In case of credit bill who has to bear the interest, either exporter or if the same is to be collected from the buyer. Instructions in case non-acceptance/non-payment by the buyer. C. Regulatory Document: Regulatory pre-shipment export documents are prescribed by the different government departments and bodies in order to comply with various rules and regulations under the relevant laws governing export trade such as export inspection, foreign exchange regulation, ex port trade control, customs, etc. Out of 9regulatory documents four have been standardised and aligned. These are shipping bill or bill of export, exchange control declaration (GR from), export application dock challan or port trust copy of shipping bill and receipt for payment of port charges. 1. Shipping Bill: Shipping bill is the main customs document, required by the customs authorities for granting permission for the shipment of goods. The cargo is moved inside the dock area only after the shipping bill is duly stamped, i.e. certified by the customs. Shipping bill is normally prepared in five copies :Customs copy. Drawback copy. Export promotion copy. Port trust copy. Exporter's copy. Types of Shipping Bill Based on the incentives offered by the government, customs authorities have introduced three types of shipping bills:Drawback Shipping Bill: Drawback shipping bill is useful for claiming the customs drawback against goods exported. 74

Dutiable Shipping Bill : - Dutiable shipping bill is required for goods which are subject to export duty. Duty-free Shipping Bill: Duty-free shipping bill is useful for exporting goods on which there is no export duty. In order to facilitate easy recognition and quick processing, following colors have been provided to different kinds of shipping bills : Types of goods By Sea By Air Drawback shipping bill Green Dutiable shipping bill Yellow Pink Duty-Free shipping bill WhitePink Contents of Shipping Bill Name and address of the exporter. Name and address of the importer. Name of the vessel, master or agents and flag. Name of the port at which goods are to be discharged. Country of final destination. Details about packages, description of goods, marks and numbers, quantity and details of each case. FOB price and real value of goods as defined in the Sea Customs Act. Whether Indian or foreign merchandise to be re-exported Total number of packages with total weight and value. Significance of Shipping Bill a) Shipping bill is the main customs document, required by the customs authorities for granting permission for the shipment of goods. b)The cargo is moved inside the dock area only after the shipping bill is duly stamped, i.e. certified by the customs. c)Duly endorsed shipping bill is also necessary for the collection of export incentives offered by the government. d)It is useful to the Customs Appraiser while determining the actual value of goods exported. 2. A.R.E. 1 form (Central excise): this form ARE-1 is prescribed under CentralExcise rules for export of goods. In case goods meant for export are cleareddirectly from the premises of a manufacturer, the exporter can avail thefacility of exemption from payment of terminal excise duty. The goods may be cleared for export either under claim for rebate of duty paid or under bondwithout payment of duty. In both the events the goods are to be cleared under form A.R.E-1 which will show the details of the goods being exported, therelevant duty involved and if the duty is paid or goods being cleared under bond, details of goods being sealed either by the exporter or Central Exciseofficials etc. 75

3.Exchange Control declaration Form (GR/PP/SOFTEX): under the exchange control regulations all exporters must declare the details of shipment for monitoring by the Reserve Bank of India. For this purpose, RBI has prescribed different forms for different types of shipments like GRI, PP forms etc. These declaration forms must be presented to the customs officials at the time of passing of export documentation. Under the EDI processing of shipping bill in the customs, these forms have been dispensed with and a new form SDF has to be submitted to the customs in the place of above forms. 4.Export Application: this is the application to be made to the customs officials before shipment of goods. The prescribed form of the application is the Shipping Bill/Bill of Export. Different types are required for shipment like ex- bond, duty free goods, and dutiable goods and for export under different export promotion schemes such as claims for duty drawback etc. 5.Vehicle Ticket/Cart Ticket/Gate Pass etc.: before the goods are being taken inside the port for loading, necessary permission has to be obtained for moving the vehicle into the customs area. This permission is granted by the Port Trust Authority. This document will contain the detail of the export cargo, name and address of the shippers, lorry number, marks and number of the packages, drivers license details etc. 6. Bank Certificate of Realisation: this is the form prescribed under the Foreign Trade Policy, wherein the negotiating bank declares the fob value of exports and for the date of realisation of the export proceeds. This certificate is required fore obtaining the benefit under various schemes and this value of fob is reckoned as fob value of exports. D. Other Document: Black List Certificate: it certifies that the ship/aircraft carrying the cargo has not touched the particular country on its journey or that the goods are not from the particular country. This is required by certain nations who have strained political and economical relations with the so called Black Listed Countries. Language Certificate: Importers in the European Community require a language certificate along with the GSP certificate in respect of handloom cotton fabrics classifiable under NAMEX code 55.09.Generally four copies of language certificate are prepared by the concerned authority who issues GSP certificate. Three copies are handed over to the exporter. A copy is sent along with the other documents for realisation of export proceeds. Freight Payment Certificate: in most of the cases, the B/L or AWB will mention the transportation and other related charges. However if the exporter does not want these details to be disclosed to the 76

buyer, the shipping company may issue a separate certificate for payment of the freight charges instead of declaring on the main transport documents. This document showing the freight payment is called the freight certificate. Insurance Premium Certificate: this is the certificate issued by the Insurance Company as acknowledgement of the amount of premium paid for the insurance cover. This certificate is required by the bank for arriving at the fob value of the goods to be declared in the bank certificate of realisation. Combined Certificate of Origin and Value: this certificate is required by the Commonwealth Countries. This certificate is printed in a special way by the Commonwealth Countries. This certificate should contain special details as to the origin and value of goods, which are useful for determining import duty. All other details are generally the same as that of Commercial Invoice, such as name of the exporter and the importer, quality and quantity of the goods etc. Customs Invoice: this is required by the countries like Canada, USA for imposing preferential tariff rates. Legalized Invoice: this is required by the certain Latin American Countries like Mexico. It is just like consular invoice, which requires certification from Consulate or authorized mission, stationed in the exporters country. Special Provision under Uniform Customs and practice for Documentary Credit UCP-500, for Commercial Invoice. Article-37: Commercial Invoice O Must appear on their face to be issued by the beneficiary named in the credit. O Must be made out in the name of the applicant. O Need not be signed Banks may refuse Commercial Invoice issued for amounts in excess of the amount permitted by the credit except otherwise stated. The description of the goods in the commercial invoice must correspond with the description of the credit. In all other documents the goods may be described in the General in general terms not inconsistent with description in the credit. In all documents goods may be described in general terms not inconsistent with the Description of the goods in the credit. Pre-Shipment Documents: Shipping bill. Export order/Sales contract/Purchase order. Letter of Credit Commercial invoice. Packing list. Certificate of origin. Guaranteed Remittance (G.R/SDF/PP/SOFTEX),or SDF. 77

Certificate of Inspection. Various declarations required as per custom procedure. Exchange Control Declaration Form: all exports to which the requirement of declaration apply must be declared on appropriate forms as indicated below unless the consignment is of samples and of No Commercial Value GR FORM: to be completed in duplicate for exports otherwise than by post including export of software in physical form i.e. magnetic tape/discs and paper media. SDF FORM: to be completed in duplicate and appended to the Shipping Bill for export declare to the customs offices notified by the Central Government which have introduced EDI system for processing Shipping Bill. PP FORM: to be completed in duplicate for export by post. SOFTX: to be completed in triplicate for export of software otherwise than in the physical form i.e. magnetic tapes/discs and paper media. These forms are available for sale in Reserve Bank of India Export declaration forms have utmost importance and are binding on the exporters. It is, therefore, necessary that enough care is taken while declaring exports on these forms, with special reference on the following points. Name and address of the authorized dealer through whom proceeds of exports have been or will be realized should be specified in the relevant column of the form. Details of commission and discount due to foreign agent or buyer should be correctly declared otherwise difficulties may arise at the time of remittance of such commission. It should be clearly indicated in the form whether the export is on outright sale basis or on consignment basis and irrelevant clauses must be stuck out Under the term analysis of full export value a break up of full export value of goods under F.O.B value, freight and insurance should be furnished in all cases, irrespective of the terms of contract. All documents relating to the export of goods from India must pass-through the medium of an authorized dealer in foreign exchange in India within 21 days of shipment The amount representing the full export value of goods must be realized within six months from date of shipment. Disposal of Copies of Export Documentation Form GR forms covering export of goods other than jeweler should be completed by the exporter in duplicate and both the copies should be submitted to customs at the port of Shipment. Customs will give their running serial number on both the copies of the GR forms after verifying the particulars and admitting the corresponding shipping bill. The value declared by the exporter will also be verified by the customs and they will also record the assessed value. Duplicate copy will be returned to the exporter and the 78

original will be remained by the customs for onward submission to the Reserve Bank. Duplicate form of the GR form will again be presented to the customs at the time of actual shipment. After examination of goods and certifying the quantity passed for shipment the duplicate copy will again be returned to exporter for submission to an authorized dealer. However, an exception to submission of GR forms to the Customs authorities have been made in case of deep sea fishing. (a)PP forms are to be first presented to an authorized dealer for countersignature. The form will be countersigned by the authorized dealer only if the post parcel is addressed to his branch or correspondent bank in the country or import. The concerned overseas branch or correspondent is to be instructed to deliver the post parcel against payment or acceptance of relevant bill, as the case may be. (b)For post parcel addressed directly to the consignee, the authorised dealer will countersign the form, provided (i)an irrevocable letter of credit for the full value of export has been opened in favor of exporter and has been advised through authorized dealer concerned; or (ii)the full value of shipment has been received in advance by the exporter through an authorized dealer; or (iii)On receipt of full value of shipment declared on this form the authorized dealer will forward to RBI the duplicate copy along with the certified copy of shippers invoice.(iv) The authorized is satisfied on the basis of standing and track record of the exporter and arrangements made for realization of the export proceed that he cold do so. If the authorised dealer is not satisfied about standing etc. of the exporter, the application is rejected. No reference is entertained by the Reserve Bank in such cases. (c)The original PP form countersignature will be returned to the exporter by the authorised dealer and the duplicate will be retained by him. Original PP form should then be submitted to the post office along with the parcel. The post office through the goods have been dispatched will forward the original to RBI. The export of computer software may be undertaken in physical form i.e. software prepared on magnetic tape and paper media as well as in non-physical form by direct data transmission through dedicated earth stations/satellite links. The export of computer software in physical form is subject to normal declaration on GR/PP form and regulations applicable there to will also be applicable to such exports. However, export of non- physical form should be declared on SOFTEX Form. Besides computer software, export of video / T.V. Software and all other types of software products / packages should also be declared on the SOFTEX forms. Since export of software is fraught with many risks and special guidelines have been framed for handling such exports. OCTROI Octroi is the local tax levied by the civic body on goods entering into the city. There are three procedures for clearing goods which are meant for export. Procedure 1, Export on payment of octroi duty and refund thereof after export. Pay the Octroi Duty and apply for refund of payment made. At Octroi Naka form B is issued with cash receipt for the payment of Octroi Duty. 79

Cargo is moved to the docks. At Docks Octroi officer prepares formC & endorses Shipping Bill Number & Steamers Name After shipment exporter prepares claim for refund by submitting following documents: Covering Letter for refund of Octroi Duty. Original receipt of Octroi paid. Original Form B. Original Form C. Invoice under which material was bought to the city. Export invoice issued by the Exporter to the importer. Export Promotion Copy of Shipping Bill Photo Copy. Bill of Lading or Airway Bill Copy. Procedure 2, Export without payment of Octroi Duty. N Form Procedure. Prepares form N in 3 copies. Checking of documents Shipping Bill, Carting order, Export Invoice by Octroiofficer. Under taking that the goods will be cleared for export within 7 days of clearance through the octroi post. Octroi officer at Docks will endorse the Shipping Bill number & shipment details on N form. Proof of export... N form with above endorsement to be submitted to the Head Office along with copies of Shipping Bill, Bill of Lading, Export Invoice etc. Procedure 3 E.P (Export Promotion) Form. Registration form + IEC / RCMC + CA Certificate. Number will be allotted. Fees Rs. 500/Documents Checked Factory Challan cum Invoice. ARE 1. EP forms 3 copies. Export order. Shipping Bill. Consignment Removed to Docks and Proof of Export to be given to Octroi authorities. Companys Letter. EP form. EPC. Bill of Lading. Shipping Bill 6.25% Service charge.

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Bar Coding It is the endeavor of the Central Government to enhance export competitiveness of the Indian products and to promote substantially. Compliance with prevalent international best practices. National task force has recommended adoption of Bar-coding for all Indian products within five years. Bar coding, using International Symbologies / Numbering, systems would enable timely and accurate capture of product information and its communication acrossthe supply chain ahead of physical product flow. With the ultimate objective of facilitating adoption of Bar-coding for all products using international Symbologies numbering systems all exports of finished and packaged items meant for retail sale shall incorporate barcodes from a date to be notified by DGFT. MARINE INSURANCE POLICY Goods in transit are subject to risks of loss of goods arising due to fire on the ship, perils of sea, thefts etc. Marine insurance protects losses incidental to voyages and in land transportation. Marine Insurance Policy is one of the most important document used as collateral security because it protects the interest of all those who have insurable interest at the time of loss. The exporter is bound to insure the goods in case of CIF quotation, but he can also insure the goods in case of FOB contract, at the request of the importer, but the premium payment will be made by the exporter. There are different types of policies such as Specific Policy: This policy is taken to cover different risks for a single shipment. For regular exporter, this policy is not advisable as he will have to take a separate policy every time the shipment is made, so this policy is taken when exports are infrequent. Floating Policy: This policy is taken to cover all shipments for same months. There is no time limit, but there is a limit on the value of goods and once this value is crossed by several shipments, then it has to be renewed. Open Policy: This policy remains in force until cancelled by either party, i.e. insurance company or the exporter Open Cover Policy: This policy is generally issued for 12 months period, for all shipments to one or all destinations. The open cover may specify the maximum value of consignment that may be sent pre ship and if the value exceeded, the insurance company must be informed by the exporter.

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Insurance Premium: Differs upon from product to product and a number of other such factors, such as, distance of voyage, type and condition of packing etc. Premium for air consignments are lower as compared to consignments by sea. The Insurance Policy Normally Contains: The name and address of the insurance company. The name of the assured & description of the risk covered. A description of the consignment. The sum insured & the date of issue. The place where claims are payable together with details of the agent to whom claims may be directed & Any other details, as applicable.

QUALITY CONTROL AND PRE-SHIPMENT INSPECTION Realizing the importance of the need for supplying quality goods as per internationalstandards, the Government of India has introduced Compulsory Quality Control and Pre-Shipment Inspection of over 1050 items of export under Export (Quality Control and Pre-Shipment Inspection) Act 1963.At present, the export items that are subjected to compulsory inspection includes foodand agricultural products, chemicals, engineering, coir, jute and footwear. Compulsory Pre-shipment Inspection : Foods and Agriculture & Fishery Mineral & Ore Organic & Inorganic Chemicals Refectories & Rubber Products Foot wear & Foot wear components Ceramic Products & Pesticides Light Eng. Products Steel ;Products Jute Products Coir & Coir Products Exemption from compulsory Pre-shipment Inspection: Status Houses Certification by Units IPQC approved by EIA EUO/EPZ/SEZ Firm Letter from the overseas buyer Specified products such as Eng/Fishery average level of Rs.1.5 Cr.for the last three years no compliant. For monitoring pre-shipment inspection, Govt. of India has set up Export Inspection Council (EIO) The EIC has set up 5 Export Inspection Agencies (EIA). The EIAs are located one each at Mumbai, Calcutta, Cochin, Delhi and Chennai. The EIAs has network of nearly 60 offices throughout India. Each EIA is given certain

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jurisdiction for inspection purpose. For instance, EIA of Mumbai has jurisdiction over Maharashtra, Gujarat and Goa. Systems of Quality Control :For the purpose of pre-shipment inspection, EIC has recognized three systems of inspection namely: Self-Certification In-Process Quality Control Consignment Wise Inspection Self-Certification: Under this system, complete authority is given to the manufacturing units to certify their own products and issue certificates for export. The manufacturing units which have been recognized under this scheme have to pay a nominal yearly fee at the rate of 0.1% of FOB price subject to minimum of Rs.2,500/- and maximum of Rs.1 lakh in a year to the concerned EIA In-Process Quality Control (IPQC): In this system, companies/units adjusted as having adequate level of quality control right from raw material stage to the finished product stage including packaging are eligible to get the inspection certificate on a formal request by the exporter. Over 800 units all over India are operating under this system. Constant vigil and surveillance are kept on units approved under IPQC and self-certification system. Units approved under the above two systems are often known as Export worth Units, because of their consistent standards of quality. Consignment wise Inspection: Under this system, each and every consignment is subject to compulsory inspection. The exporter has to follow a certain procedure such as: He has to make an application to Export Inspection Agency with certain documents. The EIA deputes inspector to inspect the goods After the inspection, the goods are repacked with EIA seal The inspector then makes a report to Deputy Director of EIA The Dy. Director of EIA then issues Inspection Certificate in triplicate if the inspection report is favorable If the inspection report is not favorable, a rejection note is issued O It is to be noted that goods marked with ISI/AGMARK/BIS14000/ISO9000 are not required to be inspected by any agency O Overseas buyer may depute his own inspection team to inspect the goods O Inspection of textile goods is conducted by Textile Committee in respect of those exporters who are registered with the textile committee.

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Norms: Adequate Testing Facility Raw Material Testing & Process Control After Sales Services & Maintaining Product Quality Control on bought out components Meteorological Control & PKG. Independent Quality Audit & Houses. Fumigation: For ensuring that no insects or bacteria are carried with the exportcertain types of export products are fumigated before shipment. The fumigation iscarried out in the port of shipment.

SHIPPING AND CUSTOMS FORMALITIES (As per the Prevailing Law i.e., ICA 62) The shipment of export cargo has to be made with prior permission of, and under the close supervision of the custom authorities. The goods cannot be loaded on board the ship unless a formal permission is obtained from the custom authorities. The custom authorities grant this permission only when it is being satisfied that the goods being exported are of the same type and value as have been declared by the exporter or his C&F agent, and that the duty has been properly determined and paid, if any.The custom procedure can be briefly explained as follows Submission of Documents: The exporter or his agent submits the necessary documents along with the shipping bill to the Custom House. The documents include: O ARE-1 (Original and duplicate) O Excise gate pass (Original and duplicate transporters copy O Proforma Invoice O Packing List O GRI form (Original and duplicate) O Customs Invoice (where required in the importing country) O Original letter of credit/contract O Declaration form in triplicate O Quality Certificate O Purchase memo O Labels O Licence (if any required) including advance licence copy O Railway receipt/lorry way bill O Inspection Certificate by Export Inspection Agency

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Verification of Documents: The Customs Appraiser verifies the documents and appraises the value of goods. He then makes an endorsement of Examination Order on the duplicate copy of shipping bill regarding the extent of physical examination of the goods at the docks. All documents are returned back to the agent or exporter, except O Original Copy of GR to be forwarded to RBI O Original copy of shipping bill O One copy of commercial invoice Carting Order: The exporters agent has to obtain the carting order from the Port Trust Authorities. Carting Order is the permission to bring the goods inside the docks. The carting order is issued by the superintendent of Port Trust. Carting Order is issued only after verifying the endorsement on the duplicate copy of shipping bill. The Carting Order enables the exporters agent to cart goods inside the docks and store them in proper sheds. Storing the Goods in the Sheds: After securing the carting order, the goods are moved inside the docks. The goods are then stored in the sheds at the docks. Examination of Goods: The exporters agent then approaches the customs examiner to examine the goods. The customs examiner examines the cargo and records his report on the duplicate copy of the shipping bill. The customs examiner then sings the Let Export Order Let Export Order: The Let Export Order is then shown to the CustomsPreventive Officer, along with other documents. The CPO is in charge of supervision of loading operations on the vessel. If CPO finds everything in order, he endorses the duplicate copy of shipping bill with the Let Ship Order This order helps the exporter/shipper to load the goods on the ship. Loading Goods: The goods are then loaded on the ship. The CPO supervises the loading operations. After loading is completed, the Chief Mate (Cargo Officer) of the ship issues the Mates Receipt. The Mates Receipt is sent to the Port Trust Office. The C&F agent pays the port trust dues and collects the mates receipt. The C&F agent then approaches the CPO and gets the certification of shipment of goods on AR Forms and other documents Obtaining Bill of Lading: The Mates Receipt is then handed over to the shipping company (on whose vessel the goods are loaded). The shipping company issues bill of lading. The Bill of Lading is issued in: 85

O 3 negotiable copies of Bill of Lading. O 10 to 12 Non-negotiable copies of Bill of Lading. The negotiable copies have title to goods; whereas non-negotiable copies do not have title to goods but are used for record purpose. PROCEDURE OF EXCISE CLEARANCE: The common procedure of excise clearance under bond and under rebate is discussed as follows: Preparing of Invoice: The export goods have to be cleared from the factory under invoice. The invoice contains details like name of the exporter, value of goods, excise duty chargeable, etc. The invoice is to be prepared in triplicate. Incase of export under Bond, the invoice should be marked as For Export without payment of duty . In addition to the invoice, a prescribed for ARE 1 has to be filed in by exporter. Filling up of ARE-1 form (Annexure-20): The ARE-1 form needs to be filled in four copies. A fifth (Optional) may be filled in by the exporter, which can be used at the time of claiming other export incentives. The ARE-1 copies have distinct color for the purpose of verification and processing. Application to Assistant Commissioner of Central Excise (ACCE): The exporter has to make an application to ACCE regarding the removal of goods from the factory/warehouse for export purpose. Information to Range Superintendent of Central Excise (RSCE): The ACCE will inform the RSCE under whose jurisdiction the goods are intended to be cleared for export Deputation of Inspector: The RSCE will then depute an inspector to clear the goods, either at the factory or warehouse, and in certain cases at the port. Processing of ARE-1 Form: The Excise Officer/Inspector will make endorsement on all copies of ARE-1. The handling of ARE-1 Form is done as follows : O The inspector returns the original and duplicate copies to the exporter O The triplicate copy is sent to officer (ACCE or Maritime Commissioner (MCCE) to whom bond was executed or letter of undertaking (LUT) was given. This copy can also be handed over to the exporter in a tamper proof sealed cover to be submitted to ACCE/MCCE. O The 4th copy will be retained by the excise inspector. O The 5th copy is also handed over to the exporter.

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O At the time of export, original, duplicate and the 5th copy (optional)will be submitted to customs officer. The customs officer will examine these copies and then export will be allowed. O The customs officer will then make endorsement of export on all copies of ARE-1. He will cite shipping bill number and date and other particulars of export on ARE-1. O The original copy and quintuplicate (optional) will be returned to the exporter. The duplicate copy will be sent directly to the ACCE\MCCE i.e. excise officer with whom bond was executed will get 2 copies, one from RSCE (or excise inspector) when goods are cleared from factory and other Custom Officer after export. This will enable him to keep track to ensure that all goods cleared from factory or warehouse without payment of duty are actually exported. In case of export after payment of duty, under claim of rebate, the basic procedure is same as above, except that the triplicate copy (by excise inspector) and duplicate copy(by customs officer)will be sent to the officer to whom rebate claim is filed. If claim of rebate is by electronic submission, these copies well be sent to excise rebate audit section at the place of export. Refund or Release of Bond: The exporter should make an application to the excise officer for refund or release of bond. The application must be supported by original copy of ARE-1 form. The excise officer crosschecks the original copy of ARE-1 form and the duplicate and triplicate copies of ARE-1 form, which he had received earlier. If the copies match, then refund is given or the bond is released. FACTORY STUFFING OF CARGO Clearance of goods to docks: If the goods meant for export is of a small quantity which may not be sufficient to make one full container, the cargo is said to be less than container load (LCL) cargo. Such cargo has to be taken to the docks where the goods will be consolidated (combining the cargo of other exporters to make up quantity for a full container) by the agent and loaded into a container. Here the examination of the cargo is done at the docks.(There are also inland container depots approved by the customs where the goods can be consolidated and stuffed into the container by the agent under the supervision of the customs officer)If the goods meant for export is of sufficient quantity to make up a full container, the exporter has the option to take the goods to the docks and get them examined and stuffed into a separate container. An exporter gets the benefit on the freight amount for a full container. (Generally called box rate)Alternatively, he can have a container allotted to him and get the same to his Mills Premises. The goods meant for exports can be stuffed into the container under the supervision of the regional Central Excise Authority. Here the exporter has to Obtain permission from the Customs for getting the container to his mills premises for stuffing (House Stuffing) Inform the C.Excise Authorities at least 24 hours before bringing the container for loading. The C.Excise Authority will supervise the loading, seal the container and certify the invoice as directed in the permission given by the custom authorities. A special Lock 87

is used to lock the doors of the container. Samples from the goods will be drawn, if necessary, as required under the customs permission. Such samples will be sealed and forwarded along with the container. The examiner in the docks may arrange to send the sample for testing. Then the container is moved to the dock for loading. Generally, such containerized goods are not subject to further examination in the customs. They will be directly taken for loading. SALES TAX EXEMPTION PROCEDURE Export good are exempted from the payment of sales tax. The exporter can claim exemption from sales tax (on purchases or sales for export purpose), provide the exporter is registered with the Sales-Tax Department. If the exporter is not registered with the sales tax department, he cannot utilize the facility of sales tax exemption. Therefore, it is necessary for the exporter to get his organization registered with sales tax department. Registration Procedure Application: The exporter must apply to the Sales Tax Officer (STO)under whose jurisdiction the head/ registered office of the exporter is located Deputation of Inspector: The STO may depute an inspector to visit the office of the exporter and inspect: O Relevant books showing sales/ purchases. O Partnership Deed or Memorandum and Articles of Association along with Incorporation Certificate. O Other Relevant documents. Inspection : The inspector visits the office of the exporter and inspects the necessary books and other documents. Report by Inspector: The Sales Tax Inspector makes a report to the STO for registration or otherwise. The STO verifies the inspector report. The STO, before granting the ST Reg. Number may cal the exporter for necessary clarifications, if required. Security Bond: The STO normally requires the exporter to provide a security bond from another firm which is registered with the Sales Tax Department. Granting of Sales Tax Reg. Number: After completing necessary formalities, the STO grants Sales Tax Reg. Number to the exporter. II. Exemption Procedure 88

 Obtaining Form H: the registered exporters need to apply to the concerned STO for obtaining Form H. the exporter should submit: O A copy of Letter of Credit O A copy of Letter of Credit /Export Order. O Copy of the Invoice , where goods are already purchased for export purchase. O A copy of shipping bill duty certified by customs The exporter has to affix the prescribed court fee stamp on each of the Form H issued. The STO then affixes the exporters company stamp on the Form H. Filling the details in Form H : After export of goods, the exporter fills the relevant details in Form H. The Form H needs to be prepared in triplicate. The exporter retains one copy, and other two copies are sent to the seller from whom the exporter purchased the goods for export purpose. The seller than sends on copy of FormH to STO along with the Return of Sales Tax. The other copy is retained by seller. The STO may issue refund order to the exporter. METHODS OF RECEIVING PAYMENT AGAINST EXPORTS Before we proceed to understand the concept of Letter of Credit, let us understand the various types of payment methods available against export. METHODS OF PAYMENT There are three methods of payment depending upon the terms of payment, and each method of payment involves varying degrees of risks for the exporter. The methods are: Payment in advance Documentary Bills Letter of Credit Open Account Counter Trade A.PAYMENT IN ADVANCE This method does not involve any risk of bad debts, provided entire amount has been received in advance. At times, a certain per cent is paid in advance, say 50% and the rest on delivery. This method of payment is desirable when: The financial position of the buyer is weak or credit worthiness of the buyer is not known. The economic/ political conditions in the buyers country are unstable. The seller is not willing to assume credit risk, as un the case of open account method. However, this is the most unpopular methods as a foreign buyer would not be willing to pay advance of shipment unless: The goods are specifically designed for the customer, and There is heavy demand for the goods (a sellers market situation).

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B. DOCUMENTARY BILLS: Under this method, the exporter agrees to submit the documents to his bank along with the bill of exchange. The minimum documents required are full set of bill of lading commercial Invoice Marine Insurance policy and other document, if required There are two main types of documentary bills: Documents against Payment, Documents against Acceptance. Documents against payment (D/P): The documents are released to the importer against payment. This method indicates that the payment is made against Sight Draft. Necessary arrangements will have to be made to store the goods, if a delay in payment occurs. The risk involved that the importer may refuse to accept the documents and to pay against them. The reason for non-acceptance may be political or commercial ones. In India, ECGC covers losses arising out of such risks. Under this system, as compared to D/A, the exporter has certain advantages: The document remain in the hands of the bank and the exporter does not lose possession or the ownership of goods till payment is made, Other reason may include that the exporter may not be able to allow credit and wait for payment. Documents Against acceptance (D/A): The document are released against acceptance of the Time Draft i.e. credit allowed for a certain period, say 90 days. However, the exporter need not wait for payment till bill is met on due date, as he can discount the bill with the negotiating bank and can avail of funds immediately after shipment of goods. In case of D/A as compared to D/P bills, the risk involved is much grater, as the importer has already taken possession of goods which may or may not be in his custody on the maturity date of the bill. If the importer fails to pay on due date, the exporter, will have to start civil proceedings to receive his payment, if all other alternatives fails. The risk involved can be insured with ECGC. C. LETTER OF CREDIT (L/C): This method of payment has become the most popular form in recent times, it is moresecured as company to other methods of payment (other than advance payment).A letter of credit can be defined as an undertaking by importers bank stating that payment will be made to the exporter if the required documents are presented to the bank within the variety of the L/C.

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Introduction The cycle of a business transaction can be said to be complete prima facie when the buyer has received the product he desires to buy and the seller gets his payment in due consideration of the product supplied While the seller is keen to receive the payment for his supplies, the buyer is equally keen that he gets what he wants by the paying for the same. Tough there are many merit and demerits in each of the different mode of payments we have discussed earlier, in relation either to the buyer or to the seller, we shall now deal in detail about the mode of payment under the Documentary Credit. Generally, though exporters are complacent once they get the letter of Credit on hand feeling that their payment is secured, let me say it is as much a dubious instrument as is a safe instrument. If one does not understand the implications of the terms and condition of a letter of credit, the provisions under UCP 500, how co-operative are the exporters bank and how good are the L/C opening bank and the reimbursement bank, he is sure to land in trouble at once stage or another. There are ample cases of frauds under the Letter of Credit. More and more ingenious methods are adopted to circumvent the provisions of UPC 500 by fair or foul means. Hence, even the safety and security under the Letters of Credit may prove to be no better than a mirage for a man in the desert. Hence, sufficient care is to be taken by the exporter to ensure that instrument is received in order and the conditions of the L/C can be well complied with, and there are no clauses of ambiguity. What is a Documentary Credit? To say in simple language, this is an Undertaking by a Bank associated with the buyer to make the payment for the supply of goods by a seller subject to compliance of various requirements that may be specified in the document of undertaking by the Bank. This document is known as Documentary Credit. A Documentary Credit is also called a Letter of Credit (L/C) CONTENTS OF A LETTER OF CREDIT A letter of credit is an important instrument in realizing the payment against exports. So, needless to mention that the letter of credit when established by the importer must contain all necessary details which should take care of the interest of Importer as well as Exporter. Let us see shat a letter of credit should contain in the interest of the exporter. This is only an illustrative list. name and address of the bank establishing the letter of credit letter of credit number and date The letter of credit is irrevocable Date of expiry and place of expiry Value of the credit Product details to be shipped Port of loading and discharge Mode of transport Final date of shipment

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 Details of goods to be exported like description of the product, quantity, unit rate, terms of shipment like CIF, FOB etc. Type of packing Documents to be submitted to the bank upon shipment Tolerance level for both quantity and value If L/C is restricted for negotiation Reimbursement clause PROCEDURE INVOLVED IN THE LETTER OF CREDIT The following are the step in the process of opening a letter of credit: Exporters Request: The exporter requests the importer to issue LC in his favor.LC is the most secured form of payment in foreign trade Importers Request to his Bank: The importer requests his bank to open a L/C. He May either pay the amount of credit in his current account with the bank. Issue of LC: The issuing bank issues the L/C and forwards it to its correspondent bank with also request to inform the beneficiary that the L/C has been opened. The issuing bank may also request the advising bank to add its confirmation to the L/C, if so required by the beneficiary. Receipt of LC: the exporter takes in his possession the L/C. He should see it that the L/C is confirmed. Shipment of Goods: Then exporter supplies the goods and presents the full set of documents along with the draft to the negotiating bank. Scrutiny of Documents: The negotiating bank then scrutinizes the documents and if they are in order makes the payment to the exporter. Negotiation: The exporters bank negotiates the document against the letter of credit and forwards the export documents to the L/C opening bank or as per their instructions. Realization of payment: The issuing bank will reimburse the amount (which is paid to the exporter) to the negotiating bank. Document to Importer: the issuing in turn presents the documents to the importer and debits his account for the corresponding amount. In order to have uniformity and to avoid disputes, the ICC Paris has evolved uniform customs and practices of documentary credit (UCPDC), in short known as UCP 500effective from 1-1-96. These are rules have been adopted by more than 150 countries. They provide the comprehensive and practical working aid to banker, lawyer, importers, exporters, Exporters, transporters, executives involved in international trade. Note: as soon as an L/C is received ensure that the same is authenticated. Meaning that the genuineness of the L/C is certified by the Advising Bank by an endorsement with the marking AUTHENTICATED OR ELSE THE L/C IS OF NO USE.

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Different Type of Documentary Credits. There are various types of Documentary Credit opened by a bank in favour of its customer depending upon the requirement. Let us talk about few types of Documentary Credit which are in common use. Revocable / Irrevocable Documentary Credit :A Revocable Documentary Credit can be revoked (cancelled) by the buyer at his own discretion and this does not require the consent of the seller. The risk factor here is that the L/C may be cancelled even after the shipment is done and before the beneficiary present the documents to the bank for claiming the reimbursement. Hence, a revocable L/C is as goods as no L/C. obviously, no seller will entertain a revocable L/C. Contrary to this, an Irrevocable Documentary Credit once established and advised to the beneficiary, cannot be revoked or cancelled unilaterally by the buyer without the consent of the beneficiary (Seller).A Seller must always ask for an Irrevocable Letter of Credit. Restricted/ Unrestricted Documentary Credit: A Documentary Credit stipulates the name of the bank who is authorized to negotiate the document for clamming the reimbursement. In this case the beneficiary is obliged to negotiate the documents only through the specified bank i.e. Negotiation of document is restricted to that particular bank. On the contrary if no specific bank is nominated for negotiation, it may say Negotiation by any bank which means the beneficiary is free to negotiate the document through the bank of his choice. This is beneficial because he can negotiate the documents through his own bank where he is having an account. Since the bank is not alien to him, he will not face any practical/procedural difficulty in negotiating the document. It is suggested to have an unrestricted L/C or L/C which may be restricted to the bank of the beneficiarys choice. Confirmed/Unconfirmed Documentary Credit: Confirmed Documentary Credit is one in which the beneficiary has the option to have the L/C confirmed by a bank in the beneficiary country i.e. the bank who confirms the L/C takes the responsibility of making the final payment to the beneficiary upon negotiation of the document in strict compliance with the terms and conditions of the Letter of Credit. By this process the final payment will be made in the beneficiarys country by the bank which confirms the L/C immediately upon negotiation of the documents. The beneficiary do not stand the risk of waiting for the document to reach the opening bank who will have the final say so to the compliance under the/C before making the payment. Further, the payment is also made immediately after negotiation and without recourse to the beneficiary i.e. the payment once made by the confirmed bank cannot be revoked. Moreover, if the importing countrys regulation changes and the money is not allowed to be repatriated, this will eliminate the risk. On the contrary, in an unconfirmed L/C, the negotiating bank only accepts the documents and pays for the same with recourse i.e. if as and when the documents reach the opening bank, and the opening find some discrepancy in the documents it may refuse to make the payment or seek clarification for the applicant before reimbursement. The beneficiary is fully at the mercy of the opening bank for payment. It is suggested to ask for a Confirmed L/C.

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With Resource and Without (Sans) Resource Letter of Credit: The revocable or irrevocable LC can further be classified as with resource and without resource LC. O With resource LC: In this type the exporter is held liable to the paying/ negotiating bank, if the draft drawn against LC is not honored by the importer/issuing bank. The negotiating bank can make the exporter to pay the amount along with the interest, which it has already paid to the beneficiary. O Without (Sans) Resource LC: In the case of sans (without) resource letter of credit, the negotiating bank has no recourse to the exporter, but only to the issuing bank or to the confirming bank. Normally, the negotiating bank makes advance payment to the exporter in resource of letter of credit either by discounting bills against letter of credit or by purchasing the bills of exchange. In such an instance, if the issuing bank fails to make payment or dishonor the letter of credit, then the negotiating bank cannot get the money back from the exporter or hold him liable to pay the amount. However, in the case of with resource letter of credit, the negotiating bank can ask the exporter to pay back the money along with certain other expenses. For the exporter, sans Resource letter of credit is more safe as compared to With Resource letter of credit. Transferable/Non-transferable Documentary Credit: In a transferable L/C, the beneficiary can transfer the L/C opened in his name in favor of a third party who may effect the shipment and negotiate the documents and claim payment under the said L/C. Revolving Documentary Credit: Where an exporter is having a regular shipment for a particular customer and the value of each shipment may also be of more or less equal value, and then one can call for a Revolving Documentary Credit. The salient feature of this L/C is that the buyer opens an L/C which can take care of shipments, say, may be for a period of one year on a monthly basis. For e.g. an exporter enters into a contract for supply of 5000 pairs of Trousers valued approx.US.$.75,000/- to be shipped every month. The buyer can open anL/C for a value of US.$.75000/- with validity for 12 months stipulating shipment every month for a value of US$. 75000/-and by adding a clause to make 12shipment of like value the L/C stands replenished for the full value of the L/C after each shipment is made the documents are negotiated for which payment are also made immediately for the value of the shipment. The main benefit in this L/Cis that the buyer, the bank and the exporter are saved from the routine of opening one L/C every month, the anxiety of non-receipt of the L/C on time, the amendments that may be warranted every time, the bank charges for opening number of L/Cs etc.,. A revolving Documentary Credit may have cumulative effect i.e. if a particular shipment is not made, then the value is added to the value for future utilization. In an automatic Revolving Credit, the bank is liable for the total amount covering the entire shipment and where it is non-automatic it responsibility is restricted to the value of one shipment. In automatic Revolving Credit the value of the credit is automatically replenished by an amendment. Where there are continuous shipments like the one stated above one can call for revolving Letter of Credit. Assignable Documentary Credit: In this type of L/C the benefit is shared between the first beneficiary and the parties whose names are assigned on the L/C. The assignee is not a party to the letter of credit but he only derives the benefit as per the L/C. this is 94

more beneficial to the assignee because he receives his part of the money once the documents are negotiated by the first beneficiary in whose name the L/C is opened. Calls for an L/C as necessary. Stand by Letter of Credit: This is aimed at providing a security to a se ller in case the buyer fails to perform his part. Thus this L/C is used in case of non- performance while the other types of L/Cs are generally for some performance. Such credits are paying on first presentation and the only document required therein is a simple declaration of nonperformance along with the statement of claim. This type of L/C is mainly common in U.S.A.A standby Documentary Credit is generally common on open account trading where the seller may expect some security for getting his payment. This is not permitted in India. Red Clause LC: The red clause LC is the usual irrevocable LC with further authorities the negotiating bank to make advance to the beneficiary for the purpose of processing the export goods. Thus, the red LC enables the exporter to obtain packing credit facility for the purpose of processing the goods. It is called are d-cause LC because it is generally printed/ typed in red ink. Green Clause LC: The Green LC in addition to permitting packing credit advance also provides for the storing facilities at the port of shipment. Green LCs is extensively used in Australian wool creditors. Back-to-Back LC: Back-to Back LC is a domestic letter of credit. It is a ancillary credit created by a bank based on a confirmed export LC received by the direct exporters. The direct exporter keep the original LC (received from issuing bank)with the negotiating or some other bank in India, as a security, and obtains another LC in favor of domestic supplier. Through this route the domestic supplier gains direct access to a pre-shipment loan based on the receipt of domestic or back-to-back LC. Documentary LC: Most of the L\C is documentary L\C. Payment is being made by the bank against delivery of the full set of documents as laid down by the terms of credit. The important documents required to be submitted by the exporter under documentary LC includes the following: O Bill of Lading /Airway Bill or any other transport document O Commercial Invoice O Insurance Policy O Shipping Bill O Certificate of Origin O Combined Invoice and Certificate of Value and Origin O GSP/CWP certificate O Packing List O Certificate of Quality Inspection O Bill of Exchange

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O Any other document if required. A letter of credit may call for some or most of the above documents and may also call for some other documents specific to the shipment. Travelers LC: Travelers LC is issued to the person who intends to make a journey abroad. The correspondent/ agent of the bank honors all the cheques drawn on this credit by its holder up to the amount mentioned in LC. Traveler LC has more advantages as compared to travelers cheques. In case of cheque, the holder can withdraw up to the amount of the cheque. Again, he has to carry a number of cheque. In case of travelers LC, the holder can draw any amount up to the limit mentioned in the LC, and he need to carry only one paper of LC. Types of Payments under a Documentary Credit. Payment under a documentary credit can be of the following types: payment at Sight: In this mode, the payment is made by the L/C opening bank or its nominated bank or by a confirming bank on presentation of the documents in full conformity with the L/C. The L/C may or may not call for draft at sight for the full value of the documents. Deferred Payment Scheme: In this case the payment is to be made at a future date as stipulated in the L/C. Here, generally NO draft is required as the due date of payment is defined in the L/C. In case of a confirmed L/C, the final payment is made by the confirmed bank on due date and by the issuing bank or its nominated bank if the L/C is not confirmed. Acceptance Credit : This type of credit requires a usance draft to be drawn on a nominated or accepting bank. The payment is made by the nominated/accepting bank on the due date as per instructions of the negotiating bank. In case of a confirmed L/C the payment on due date is made by the negotiating bank (confirming bank). Negotiation Credit: Here the payment is made by the negotiating bank upon negotiation of the documents if it prepares to take the risk and will recourse to the beneficiary. If the credit is confirmed, then the negotiation bank is obliged to make the payment upon submission of a clean document by the beneficiary. Expect in the case of confirmed L/C there is always a time lag between the date of negotiation of the document and the date of receipt of the payment. This is a grey area. If the bank acts swiftly and without prejudice, one gets payment within a weeks time. If the payment is delayed beyond this time, though an exporter has every right to ask for compensation, in actual practice, no justice is done to the exporter for the delayed payment. Very rarely, on persistent approach by the exporter/their banker, does a defaulting bank comes forward to compensate for the delayed payment. Generally the exporter has to forego lot of money in correspondence through the negotiating bank because every communication of the bank is charged to the exporter. It is no surprise many exporter suffer this loss silently.

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Feature of a Documentary Credit A documentary credit is a document in writing issue by the bank on behalf of its customer (The Buyer). Documentary Credit must stipulate the Type of Credit as detailed above and inter alia will also stipulate the Following details : the name of the Bank issuing the Documentary Credit.(The L/C Opening Bank) the name and address of the buyer on whose behalf the credit is Issued.(The Applicant) the name and address of a bank in the country of the seller the credit through Whom the L/C is to be advised to the seller. The name and address of the Seller (Beneficiary) The Maximum Value the opening bank undertakes to pay to the Beneficiary. The date of issue of the credit. The Expiry Date of the L/C The Validity Date for shipment. The Details of the product to be shipped.(Description) Details of document required for claiming the payment from the Opening bank. The name and address of the bank authorized to negotiate the documents. The Reimbursement Clause.As soon as an L/C is received ensure that the L/C is authenticated. If the L/C received in mail the signatures are got to be verified by the advising bank. In case of telex/swift the bank should endorse on the document authenticated and then only the L/C is a valid document. While the above details are the minimum that a Documentary Credit may have in actual practice there can be other stipulations mutually agreeable to the buyer, seller and the opening bank as also the negotiating bank. The guidelines for the interpretation and usage of Letter of Credit are governed by the UCP 500 (Uniform Customs Practice for Documentary Credit) published by the International Chamber of Commerce (ICC). The UPC 500 covers all the procedural aspects relating to the transactions under a Letter of Credit. Hence one is suggested to be familiar with all the 49 Articles as detailed in the UCP 500 of 1994.While all the elements and events that one may encounter in each and every organization can not be explained, the UCP 500 has attempted to take care most of the queries that one may encounter normally. The ICC Uniform Customs and Practice was first published in 1993. Taking into the consideration of the various developments in the transactions under the Documentary Credit the ICC has been reviewing these rules and updating the same. As time changes and the international transactions faces new aspects, attempts will be made to get the UCP 500 revised. Scrutiny of letter of credit Mere receipt of letter of credit is no guarantee of payment. There are many ifs and buts before the documents are submitted to the bank against the letter of credit for realization of proceeds from the opening bank. As soon as the letter of credit is received a through scrutiny is to be undertaken to ensure that First and foremost that the credit is properly authenticated by the advising bank. The letter of credit has been opened in accordance with the terms of the cont ract. 97

The name and address of the beneficiary has been spelt properly. The details of product description, quality, and value are in order. The validity of shipment and expiry are correct. The documents that are required can be submitted. There is sufficient % of tolerance of quantity and value. The unit price and the terms of contract are correct. The terms and conditions stipulated can be complied with. That the credit is available for negotiation without restriction. In case of exports requires the credit to be confirmed by the local, then necessary clause is incorporated by the opening bank on the credit. Last but not the least; the credit has a reimbursing clause enabling the negotiation bank to get reimbursement of the money paid to the exporter against the documents. There are only few suggestions. The requirement may differ for different exporter and the scrutiny has be done relative to the requirement. AMENDMENTS TO THE CREDIT On scrutiny of the letter of credit, if the exporter finds that some change are required to be made in the credit, he should immediately request the buyer to make necessary change in the letter of credit and the opening bank issued necessary amendment in this respect. Any oral and written agreement by the importer about change in the credit directly to the exporter should not be accepted as it is not valid under the credit. Any change must be advised by the importer through the opening bank only as a sort of amendment to the original credit. DOCUMENTARY CREDIT IN GENERAL Of all the various type of payments, the most safest as far as the exporter is concerned is to get an advance payment in full for the value of shipment to be effected. Obviously, this puts the buyer totally at the mercy of the seller and unless the buyer feels unavoidable he will not be prepared to make advance payment. Hence, of the rest of the modes of payment, the best is calling for a Documentary Credit for any shipment. Now let us see how we can take care of the interest of the exporter while an L/C is established. It is suggested that the exporter gives the full details as to the various requirements to the buyer for incorporation in the L/C. this will avoid the necessary of asking for amendments and will save both time and money. Bear in mind every amendment costs you badly. Care are should be taken to ensure that there are NO spelling mistakes, omission and commission of , or, or such small things. A discrepancy is a discrepancy and there is nothing like minor discrepancy or major discrepancy as far as the bank is concerned. A bank strictly deals in documents and the documents are expected to be cent percent in line with details give in the Documentary Credit. Ensure that the Validity for shipment and for negotiation of documents can be complied with. If not possible, call for amendment extending the validity as required. Unless the L/C specifies the tolerance for the quantity and value, the exporter should follow the quantity and value as stipulated in the L/C. There is provision for a tolerance of the quantity up to 5 percent more or less than stipulated in the L/C even if the L/C does not specify tolerance exclusively and unless tolerance is prohibited 0 specifically. 98

However, the value of documents, on no account, could exceed the limits of the L/C. Check the description of the product properly, the rates if specified, and quantity of each of the items. Ask for amendment where you cannot copy with the terms. Make sure that all the documents as called for by the Credit can be submitted without any exception. The last but not the least is the Reimbursement clause (Getting the funds for the shipment made). An L/C without this clause is no L/C. if there is no provision as to from where the exporter is going to get paid for, the whole exercise of the L/C is futile. The opening bank may specify the reimbursement clauses as follows The negotiating bank to send the documents to the opening bank who will, upon receipt of the documents, arrange for reimbursement as claimed by the negotiation bank. The negotiating bank can claim reimbursement directly from a nominated bank (say ABC Bank, New York) either upon negotiation of documents or after a period of days of negotiation subject to the documents being submitted by the beneficiary is strictly in conformity with terms and condition of the letter of credit. I for one prefer the reimbursement clause as in b) so that on one hand my bank sends the documents to the opening bank and at the same times claims the reimbursement from nominated bank.These are some of the aspects one should take care to ensure that the L/C established inhis favor is in order and that he can comply with all the provision thereof. However, oneis advised to make a checklist and take a note of each and every condition of the L/C for compliance at the right time. PARTIES TO LETTER OF CREDIT Applicant: the buyer or importer of goods. Issuing Bank: importers bank who issues the L/C. Beneficiary: the party to whom the L/C is addressed. The seller or supplier of goods. Advising Bank: issuing banks branch or correspondent bank in the exporters country to which the L/C is sent for onward transmission to the beneficiary. Confirming Bank: the bank in beneficiarys country which guarantees the creditor the request of the issuing bank. (Many a times the advising bank and confirming bank are one and the same). Negotiation Bank: the bank to whom the beneficiary present his documents for Payment u Under L/C. Reimbursing Bank: the bank which will reimburse the negotiating bank for the value of the credit. Where an L/C stipulates that the Negotiation is restricted to a specific bank which is not the Advising Bank or Where the L/C is not restricted, and the seller desires to negotiate the document which is not the advising bank, then we have a separate Negotiating Bank. Where the opening bank prefers to advise the L/C through its own branch in the beneficiary country or through another bank of its choice, then the L/C may be advised to the beneficiary directly by this bank or if it instructed to advise the L/C through the buyers nominated bank then it does so. Here, we have two advising bank. As far as possible, one should restrict the involvement of the number of the banks to the minimum. More the number of the banks, more the time in the transmission of the L/C, in addition to multiplicity of bank charges.

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SPECIAL NOTE Though one may strongly feel that a Letter of Credit is the safest mode of payment, one will face innumerous practical difficulties in so far as compliance with the terms and conditions of the L/C. since several documents are involved, there are every possible of discrepancy in the documents either between different documents or between the document or between the document and the L/C. the Negotiating bank soft pedal some of the discrepancies which they feel may not be pointed out by the opening bank as discrepancy to favour its customer. In the like manner the opening bank, to safeguard the interest of the buyer, would like to ensure that the document submitted against a Letter of Credit are strictly in full conformity of the L/C.For mastery of the operation under the Letter of Credit one is advised to completely study the various articles of the UCP 500 so that one can be clear in his mind as to the various provisions available under the Documentary Credit which will stand good while negotiating the documents with the bank. While the articles of UCP 500 come safeguard the interest of both the buyer and the seller, there are certain elements which may be outside the definition of the UPC 500. Also there is certain flexibility provisions in the UPC 500 which one might like to exploit to his favour . So, in spite of the L/C being the safest method to ensure the payment, unless both the buyer and the seller follow the business ethics there is every chance that one gets cheated by the other. As a prudent exporter one should be very careful in selecting his customer apart from taking other safety measures. If the customer is too good, and you have been dealing with them for a long time, one may relax and term the L/C as the best method to receive payment. If the customer turnout to be unscrupulous then he can play havoc. This is applicable to both the seller and the buyer. There are books on fraudulent us of the Documentary Credits. Sometimes it may be the buyer who is at the receiving end and some time it may be the other way. A study of such book as above may help one to take adequate care. But, the brain is always working in multi directions. It will be no surprise if one comes across newer and newer dubious methods being adopted by the contracting parties. TOTAL OPERATION UNDER THE LETTER OF CREDIT. The Unconfirmed L/C. The Buyer makes an application to his bank to open an L/C. Opening bank establishes the L/C. Opening bank advises the L/C through his associate or through the bank. Nominated by the beneficiary. The Bank in the beneficiary country which receives the L/C sends the Original L/C to the customer either directly or through the bank Specified in the L/C. The buyer complies with the L/C requirements and submits the relevant documents. To the bank for claiming reimbursement. The negotiating bank negotiates and sends the documents to the opening bank or as Directed. Meantime pays the beneficiary Advises the opening bank or the reimbursement bank the details of his Accounts and the nominated bank where the proceeds are to be credited. 100

Once the credit is received, the nominated bank advises the negotiating bank of the credit. Thus the negotiating bank gets the credit for the L/C documents. The Confirmed L/C. All the steps from 1to6 as far as the beneficiary are concerned since the payment is made to the beneficiary without recourse. However, the negotiating bank may have to follow the subsequent steps since he has to receive his money from the opening bank. PREPARATION AND SUBMISSION OF DOCUMENTS FOR BANK NEGOTTIATION /PURCHASE Document against exports should normally be realized through an authorized dealer foreign exchange. However payment of export can be received directly from the overseas buyer in the form of bank draft, pay order, bankers cheque, personal cheque foreign currency notes, foreign currency travelers cheque, etc. Without any monetary limit provided the exporters track record is good, he is a customer of the authorized dealers through whom documents are to be negotiated and prima facie the instrument of payment represents export proceeds realization. Take care to submit various documents in a proper manner and within the prescribed time schedule. Apply to the Reserve Bank for extension of time in case you feel there is likely to be a delay in realizing export proceeds. The following are the steps in realizing export proceeds: Approaching a Bank: After dispatch of the goods, either by sea, or by air, the exporter should approach his bank (authorized dealer) with a formal request to realize sale proceeds from the foreign buyer. It is obligatory to submit the shipping documents to an authorized dealer within 21 days of the date of shipment (subject to certain exceptions). In India, the exporters have to realize the full value of exports within 180 days from the date of shipment, (unless the payment terms offered are deferred payment terms). Where it is not possible to realize the sale proceeds within the prescribed period, the exporter should apply for extension in prescribed form ETX (in duplicate) to RBI. Submission of Documents to the Bank: The exporter should submit the following documents O Bill of Exchange O Full set of Bill of Lading O Commercial Invoice Copies O Certificate of Origin O Insurance Policy O Inspection Certificate O Packing List O GR (duplicate copy to forward it to RBI) O Bank Certificate O Other relevant documents The above documents need to be submitted in two complete sets, because it iscustomary to dispatch two sets of documents, one after the other. This is because,if

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one set is misplaced or delayed in transit, the importer can get at least the other set and clear the goods. Verification of Documents: The bank will verify the documents to find O Whether the required documents are in order. O Whether the required documents are attested by customs and other authorities. Letter of Indemnity: If the exporter wants immediate payment from his bankers, then his bankers may provide advance payment only when the exporter signs an indemnity letter. The implications of an indemnity letter is that in the event of refusal of payment by the issuing bank in respect of LC, then the negotiating bank can ask the exporter to pay back the money advanced along with necessary charges. Common Document Discrepancies O Credit Expired O Late shipment O Presented after permitted time from date of issue of shipping documents O Short Shipment O Credit Amount Exceeded O Underinsured O Description of goods on invoice differ from that of credit O Mark and numbers differ between documents O Bill of lading, Insurance documents, Bill of Exchange not endorsed correctly O Absence of Documents called for under credit O Insurance certificate submitted instead of policy. O Weight in different document differs. O Class of Bill of lading no acceptable-charter party or House B/L. O Insurance cover expressed in currency other than that of credit. O Absence of signature, where required on documents. O Bill of exchange not drawn as per tenor stated in credit. O Bill of exchange drawn on wrong party. O Insurance risks covered not being those specified in credit. O Absence of freight paid statement on B/L in CFR of CIF shipment. O Bill of lading doses not carry shipped on broad stamp. O Amount shown on invoice and bill of exchange differ. O Shipment not make to port specified. O Transshipment/part shipment undertaken where expressly forbidden. Discounting of bills: the bank may discount or negotiate the bills drawn against LC, and make immediate payment to the exporter, if so required. Dispatch of documents: before the submission of documents for negotiation/collection, the bank examines them thoroughly with reference to the terms and conditions of the buyers order. Letter of credit and the laws relating to foreign exchange control. If any scrutiny, the documents are in order, the bank dispatches them to its overseas branch/correspondent branch as early as possible. The overseas branch of the bank then submits the document to the importers bank, and the importers bank hands it over to the importer.

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SHIPMENT THROUGH COURIERS In addition to the exporter by sea, air, rail or road, exports are also allowed by courier under the courier imports or exporters (clearance) Regulation Act, 1998.These regulations shall apply for clearance of goods carried by authorized courier on outgoing flights on behalf of exports. Consigner for a commercial consideration. Export Terms & conditions:Export of any item can be affected by courier, except the following. Goods which are subject to cess. Goods proposed to be exported with claim of duly drawback. Goods proposed to be exported under DEPB, EPCG, AL (Advance License) Where the value of goods is more than Rs. 25,0000/Goods where weight of individual packet is more than 32 kg CUSTOM PROCEDURE FOR EXPORT UNDER EDI SYSTEM It is brought to the notice of all exporters, importers, CHAs, Trade and General Public that the computerized processing of Shipping Bills under the Indian Customs EDI(Electronic Data Interchange) System (Exports), will commence w.e.f.1`5-092004.The computerized processing of shipping bills would be in respect of the following categories: Duty Free white shipping bills Dutiable shipping bills (Cess) DEEC Shipping Bills EPCG Shipping Bills DEPB Shipping Bills DFRC Shipping Bills 100% EOU Shipping Bills Re export, Jobbing Shipping Bills Drawback Shipping Bills Other NFEI Shipping Bills The procedure to be followed in respect of filing of shipping bills under the Indian customs EDI System-Exports at CFS-Mulund shall be as follows: 2.DATA ENTRY FOR SHIPPING BILLS 2.1Exporters/CHAs are required to register their IE codes, CHAs Licence Nos, and the Bank A/C No.(for credit of Drawback amount) in the Customs Computer Systems before an EDI Shipping Bill is filed. 2.2Exporters/CHAs would be required to submit at the SERVICE CENTRE the following documents. A declaration in the specified format SDF declaration Quota/Inspection Certificate Drawback/DEEC/DFRC/DEPB Declarations etc., as applicable

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2.3 The formats should be duly completed in all respects and should be signed by the exporter or his authorized CHA . Forms, which are incomplete or unsigned will not be accepted for data entry 2.4Initially, data entry for Shipping Bills will be allowed to be made only atthe Service centre. After the exporters/CHAs become conversant with theEDI procedures, the option of Remote EDI System would also be madeavailable. In the Remote EDI system (RES) Exporters/CHAs canelectronically file their shipping bills from their offices. 2.5The schedule of charges to be levied for data entry at the Service Centre isas follows:Charges for S/Bills having up to five items ... Rs.60/-Charges for additional block of five items ...Rs.10/-Amendment fees (for a block of five items) ...Rs.10/-Printing of a S/Bill for Remote EDI System ...Rs.20/2.6The Service Centre operators shall carefully enter the data on the basis of declarations made by the CHAs/Exporters. After completion of data entry,the checklist will be printed by the Data Entry Operator and shall behanded over to the Exporters/CHAs for confirmation of the correctness.Thereafter, the CHA/Exporters will make corrections, if any, in thechecklist and return the same to the operator duly signed. The operator shall make the corresponding corrections in the date and shall submit theshipping bill. The operator shall not make any amendment after generationof the checklist and before submission in the system unless the corrections94 made by the CHAs/Exporters are clearly indicated on the checklist againstthe respective fields and duly authenticated by CHA/Exporters signature. 2.7The system automatically generates the S/Bill Number. The operator shallendorse the same on the checklist in clear and bold figures. It should benoted that no copy of the S/Bill would be available at this stage. 2.8The declarations would be accepted at the service centre from 10.00 hrs to16.30 hrs. Declarations received up to 16.30 hrs will be entered in thecomputer system on the same day. 2.9The validity of the S/Bill in EDI System is fifteen days only. After expiryof fifteen days from the date of filing of shipping bill, the exporter has tofile the declaration afresh. 3PROCEDURE FOR GR-1 3.1 Under the revised EDI procedure there would be no GR-1 Procedure. Exporters(including CHAs) would be required to file a declaration in the form SDF. It would be filed at the stage of goods arrival One copy of the declaration would be attached to the original copy of the S/Bill generated by the system and retained by the customs. The second copy would be attached to the duplicate S/B (the exchange control copy) and surrendered by the exporter to the authorized dealer for collection/negotiations. 104

3.2 The exporters are required to obtain a certificate from the bank through which they would be realizing the export proceeds. If the exporter wishes to operate through different banks for the purpose, a certificate would have to be obtained from each of the banks. The certificates would be submitted to customs and registered in the system. These would have to be submitted once a year for confirmation or whenever the bank is changed. 3.3 In the declaration form to be filled by the exporters for the electronic processing of export documents, the exporters would need to mention the name of the bank and the branch code as mentioned in the certificate from the bank. The customs will verify the details in the declaration with the information captured in the system through the certificates registered earlier. 3.4 In the case of S/Bs processed manually, the existing arrangement of filingGR-1 forms would continue. OCTROI PROCEDURES, QUOTA ALLOCATION AND OTHER CERTIFICATION. 1.1 The processing of S/Bs involving allocation of ready-made garmentsquota by the Apparel Export Promotion Council (AEPC) will change withthe introduction of the system. The quota allocation label will be pasted onthe export invoice instead of S/B. Allocation number of AEPC would beentered in the system at the time of S/B data entry. The quota certificationon export invoice should be submitted to Customs along with other original documents at the time of examination of export cargo. 1.2 As a transitional measure, AEPC certification even on S/B form would beaccepted. However, in these cases, S/B number should be indicated on theinvoice when goods are presented for examination. This transitionalfacilitation measure will be available for a period of two months i.e., upto30th November 2004. 1.3 For determining the validity date of the quota, the relevant date would bethe date on which the full consignment is presented for examination andthe date to recorded in the system. 1.4 The certificate of other agencies, such as, the Cotton Textiles ExportPromotion Council; the Wildlife Inspection Agency under CITES; theEngineering Export Promotion Council; the Agricultural Produce ExportDevelopment Agency (APEDA), the Central Silk Board and the All IndiaHandicraft Board should also be obtained on the invoice. Similarly, the noobjection of the Asst. Drug Controller and of the Archaeological of SurveyIndia would be obtained on the Invoice The transitional arrangements would be the same as in the case of AEPCcertification. 1.5 105

The exporters would have to make use of export invoice or such other documents as required by the Octroi Authorities for the purpose of octroiexemption. 2.ARRIVAL OF GOODS AT EXPORT EXAMINATION SHEDS IN CFS 2.1 The existing procedure of permitting entry of goods, brought for the purpose of examination (and subsequent: Let export Order) in the CFSon the strength of S/B shall be discontinued. The CONCOR will permitentry of the goods on the strength of the checklist, the date entry form andthe declaration. The CONCOR would endorse the quantity of goodsentering the CFS on the reverse of the checklist 2.2 The goods should be brought for examination within 15 days of filing of declaration in the Centre. In case of delay, a fresh declaration would needto be filed 2.3 If at any stage subsequent to the entry of goods in CFS it is noticed thatthe declaration has not been registered in the system, the exporters andCHAs will be responsible for the delay in shipment of goods and anydamage, deterioration or pilferage, without prejudice to any other actionthat may be taken. 3.PROCESSING OF SHIPPING BILLS 3.1 The S/B shall be processed by the system on the basis of declaration made by the exporter. However, the following S/B shall require clearance of theAssistant Commissioner/Dy. Commissioner (AC/DC Exports): Duty free S/B for FOB value above Rs.10 lakh Free Trade Sample S/B for FOB value above Rs.25,000 Drawback S/B where the drawback exceeds Rs. One lakh 3.2 Subject to the provisions of para 20.3 of this PN the following categoriesof S/Bills shall be processed buy the Appraiser (Export Assessment) firstand then by the Asstt/Dy. Commissioner: DEEC DEPB DFRC EOU EPCG 3.3 Apart from verifying the value and other particulars for assessment, theAO / AC / DC may call for the sample s for confirming the declared valueor the checking classification under the drawback schedule / DEEC /DEPB / DFRC / EOU etc., He may also give special instruction for examination of goods.

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3.4 If the S/B falls in the categories indicted in para 6.1 above, the exporter should check up with the query counter at the Centre, whether the S/B has been cleared by Asstt. Commissioner /Dy. commissioner, before the goodsare taken for examination. In case AC / DC raises any query, it should bereplied through the Service Centre or, in case of EDI connectivity, throughterminals of the Exporter / CHA. After all the queries have beensatisfactorily replied to, AC / DC will pass the S/B 4.CUSTOMS EXAMINATION OF EXPORT CARGO 4.1 On receipt of the goods in the Export Shed in the CFS, the exporter willcontact the system examining officer (SEO)and present the checklist withthe endorsement of CONCOR on the declaration, along with all originaldocuments such as Invoice, Packing List, ARE-1(AR-4)etc. He will also present additional particulars in the prescribed form. 4.2 SEO will verify the quantity of the goods actually received against thatentered in the system. He will enter the particulars in the system. Thesystem would identify the Examining Officer (if more than one are available)who would be carrying out physical examination of goods. Thesystem would also indicate the packages(the quantity and the serialnumbers) to be subjected to examination. SEO would write thisinformation on the checklist and hand it over to the exporter. He wouldhand over the original documents to the Examining Officer. Noexamination order shall be given unless the goods have been physicallyreceived in the Export Shed. It may, however, be clarified that Customsmay examine all the packages/goods in case of any discrepancy. 4.3 The Examining Officer may inspect and/or examine the shipment, as per instructions contained in the checklist and enter the examination report inthe system. There will be no written examination report. He will then mark the Electronic S/B and forward the checklist along with the originaldocuments to the Appraiser/Supdt. in Charge. If the Appraiser/Supdt. issatisfied that the particulars entered in the system conform to thedescription given in the original documents (including AEPC quota andother certifications) and the ;physical examination, he will proceed to give:Let Export order for the shipment and inform the exporter. TheAppraiser/Supdt. would retain the checklist, the declaration and alloriginal documents with him. 4.4 In case of any variation between the declaration in S/B and the documentsor physical examination report, the Appraiser/Supdt. will mark theelectronic S/B to AC/DC Exports. He will also forward the documents toAC/DC and advise the exporters to meet the AC/DC for further actionregarding settlement of dispute. In case the Exporter agrees with theviews of the Department, the S/B would be processed finally. Where the exporter disputes the views of the Department, the case would beadjudicated following the principles of natural justice.

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5.GENERATION OF SHIPPING BILLS 5.1 As soon as the Shed Appraiser/Supdt.gives Let Export order, the systemwould print 6 copies of the S/B in case of Free and scheme S/B. In case of DEPB there are 7 S/B. If the S/B (DEPB) is assessed provisionally, then EP copy will be generated only after AC/DC finalises the assessment. Onthe examination report the Appraiser/Shed Supt.will sign. On all thecopies, the Appraiser/Shed Supdt., Examination Offer as well asexporters representative/CHA will sign. Name and ID Card number of the exporters representative/CHA should be clearly mentioned below hissignature. 5.2 The distribution of S/Bills is as follows:DEPB Scheme S/BillsOther Scheme S/Bills 1.Exporters copy1. Exporters copy 2.Customs Copy2.Customs copy 3.Exchange Control Copy3. ExchangeControl Copy 4.Scheme Bill Copy4. E.P.Copy 5.E.P.Copy5.TR-1. TR-2 Copies 6.TR-1, TR-2 Copies 5.3 The original AEPC quota and other certificates will be retained with theS/Bills and recorded in the Export Shed. 6.PAYMENT OF MERCHANT OVERTIME (MOT) 6.1 For the time being the present manual system for payment of MerchantOvertime (MOT) charges will continue. 6.2 MOT charges will be required to be paid by exporter when the goods areexamined by Customs for allowing Let Export beyond the normal officehours. No charges would be required to be paid on normal working dayswhen the examination itself is being done for Let Export upto 05.oo PM.In addition, no charges would be required to be paid if the exporter wantsthe goods to be entered in CONCOR (CFS) only for meeting the quotadeadlines 7.DRAWAL OF SAMPLES 7.1 Where the Appraiser of Customs orders for samples to be drawn andtested, the Examining Officers will proceed to draw two samples from theconsignment and enter the particulars thereof along with name of thetesting agency in the system. No registers will be maintained for recordingdates of samples drawn. Three copies of the test memo will be spreparedand signed by the Examining Officer, the Appraiser and Exporter. Thedisposal of the three copies would be as follows: Original to be sent along with the sample to the testing agency Duplicate copy to be retained with the second sample 108

Triplicate to be handed over to the exporter. 7.2 AC/DC may, if he deems necessary, order for sample to be drawn for purposes other than testing such as visual inspection and verification of description, market value enquiry etc. 11QUERIES 11.1With the discontinuation of the assessment of S/B in the ExportDepartment, there should not be any queries. The exporter, duringexamination, can clarify doubts, if any. In case where the need arises for the detailed answer from the exporter, a query can be raised in the system buy the Appraiser, but would need prior approval of AC/DC (Exports) TheS/B will remain pending and cannot be printed till the exporter replies tothe query to the satisfaction of the Assistant Commissioner/Dy.Commissioner 12AMENDMENTS: 12.1 Corrections/amendments in the checklist can be made at the service centre provided the system has not generated the S/B number. Where correctionsare required to be made after the generation of the S/B No. or, after the goods have been brought in the docks/CFS, amendments will be carriedout in the following manner. If the goods have not yet been allowed Let Export, Assistant Commissioner/Dy. Commissioner may allow the amendment. Where the Let Export order has been given, the Addl./Joint Commissioner (Exports) would allow the amendments 12.2 In both the cases, after the permission for amendments has been granted, theAsstt./Dy. Commissioner(Exports) will approve the amendments on thesystem. Where the print out of the S/B has already been granted, the exporter will surrender all copies of the S/Bill to the Appraiser for cancellation beforeamendment is approved in the system. 13.SHORT SHIPMENTS, SHUT OUT, CANCELLATION AND BACK TO TOWN PERMISSIONS. 13.1 AC/DE (Export) will give permission for issue of short shipmentcertificate, shut out or cancellation of S/B, on the basis of an applicationmade by the exporter. The S/B particulars would need to be cancelled/modified in the system before granting such permission. AC/DC shouldcheck the status of the goods, before granting permission. 14.AMENDMENT OF FREIGHT AMOUNT 14.1 If the freight/insurance amount undergoes a change before Let Exportsis given, corresponding changes would also need to be made in the S/Bwith the approval of AC/DC Exports. But if the change has taken placeafter the Let Exports Order, 109

approval of Additional/Jt.Commissioner would be required. Non-intimation of such changes would amount to mis-declaration and may attract penal action under Customs Act 1962. 15.RECONSTRUCTION OF LOST DOCUMENTS 15.1Duplicate print out of EDI S/B cannot be allowed to be generated if it islost, since extra copies of S/B are liable to be misused. However, acertificate can be issued by the Customs stating that Let Exports order has been passed in the system to enable the goods to be accepted by theShipping Line, for export. Drawback will be sanctioned on the basis of theLet Export order already recorded on the system. 16 RE-PRINT OF SHIPPING BILL: 16.1 Similarly, reprints can be allowed where there is a system failure, as aresult of which the print out(after the Let Export order) has not beengenerated or there is a misprint. Permission of AC/DC (exports) would benecessary for the purpose. The misprint copy shall be cancelled beforesuch permission is granted 17 EXPORT OF GOODS UNDER CESS 17.1For export items, which are subject to export cess the corresponding serialnumber of the Cess Schedule should be clearly mentioned. A printedchallan generated by the system would be handed over to the exporter.The cess amount indicated should be paid in the Bank of India, ExtensionBranch of CFS, under a receipt. 18.EXPORT OF GOODS UNDER CLAIM FOR DRAWBACK 18.1 The scheme of computerized processing of drawback claims under theIndian Customs EDI system-Exports will be applicable for all exportsthrough CFS. 18.2 In respect of goods to be exported under claim for drawback, the exporterswill file declaration in the form. The declaration in the form would also berequired to be filed when the export goods are presented at the ExportShed for examination & Let Export 18.3 The exporters who intend to export the goods through CFS under claim for drawback are advised to open their account with the Bank of India branchsituated at CFS-Mulund. This is required to be done to enable direct creditof the drawback amount to the exporters account, obviating the need for issue of separate cheque by post. The exporters are required to indicatetheir account number opened with the Bank of India branch at CFS-Mulund. It would not be possible to accept any shipment for export under claim for drawback in case the account number of the exporter in the bank is not indicated in the declaration form. 18.4 The exporters are also required to give their account number along withthe details of the bank through which the export proceeds are to berealized. 18.5

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Export declarations involving a drawback amount of more than rupees onelakh will be processed on screen by the AC/DC before the goods can be brought for examination and for allowing Let Export: 18.6 The drawback claims are sanctioned subject to the provisions of theCustoms Act 1962, the Customs and Central Excise duties drawback rules1995 and conditions prescribed under different sub-headings of the AllIndustry rates as per notification number 26/2003Cus(NT) dated 1.4.2003as amended by notification number 12/2004-Cus(NT) dated 2901-04.18.7After actual export of the goods, the drawback claims will be processedthrough EDI system by the officers of drawback branch on first come firstserve basis. There is no need for filing separate drawback claim. Theclaims will be processed, based on the Train Summary/Inward way bill,submitted by CONCOR. The status of the S/Bill and sanction of drawback claim can be ascertained from the query counter set up at theservice centre. If any query has been raised or deficiency n oticed, the samewill be shown on the terminal and a printout of the query/deficiency may be obtained by the authorized person or the exporter from the servicecentre. The exporters are advised to reply to such queries expeditiouslyand such replies shall be got entered in the EDI system at the service centre . The claim comes in queue of the EDI system after reply toqueries/deficiencies is entered by the service centre.18.8Shipping Bills in respect of goods under claim for drawback against brandrates would also be processed in the same manner, except that drawback would be sanctioned only after the original band rate letter is produced before the designated customs officer in the office of Asstt/Dy.Commissioner (Export) and is entered in the system. The exporter shouldspecify the SS No. of drawback as 98.01 for provisional drawback.18.9All the claims sanctioned in a particular day will be enumerated in a scrolland transferred to the Bank through EDI. The bank will credit thedrawback amount in the Account of the exporter on the next day and willhandle accounts of the exporters as per their instructions. Bank will alsosend a fortnightly statement to the exporters about the payments of their drawback claims. 19.EXPORT OF GOODS UNDER DEPB 19.1While filing information as per the format, exporters are required to ensurethat correct Group Code No. of the goods being exported and the item No.of relevant Group is clearly mentioned (item-wise details). The exporters/CHAs are advised to fill Item No, in the same manner as givenin the Public Notices issued by DGFT. 19.2DEPB Credit in respect of items like formulations, injections etc. of groupcode No.62 (Chemicals) are at a specific percentage of credit rate for therelevant bulk drug. For proper calculations of DEPB rate, exporters/CHAsare advised to claim export under the specific Sl.No. if they are exportinginjections and thereafter mention Sl.No. of Group Code 62 of the bulk drug of which such injections have been made. The system will calculatethe said specific percentage of the DEPB rate of such bulk drugs,formulations of which are being exported.

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19.3 All the DEPB S/Bills having FOB value less than Rs.5 lakhs and/or DEPBrates less than 20% will be assessed by Appraiser/Supdt. (DEPB Cell) However, the S/Bill having FOB value more than Rs.5 lakhs and/or creditrate 20% or more will be assessed by AC/DC (Export) . Any query at thetime assessing by Appraiser (DEPB cell) or AC/DC (Export) may beobtained from the service centre and reply to the query has to be furnishedthrough service centre. 19.4 If the group code No., Item No. and FOB value declared is accepted by theAppraiser/Supdt (DEPB Cell) or Asstt./Dy. Commissioner(Export), goodsmay be brought and entered in the system. The examining officer will feedthe examination report and Let Export order will be given byAppraiser/Supdt. in the EDI system. Seven copies of S/Bill will be printedfor the purposes mentioned against each as under :Customs CopyFor record of CustomsExporters copyFor record of ExportersE.P.CopyFor office of DGFTDPB copyFor use in the import cell of ICD Bangalore for registration of licence.Exchange Control CopyFor negotiating the export documents in bank TR-1TR-2 copies 19.5 There is a provision for changing the Group Code No./Item No./Value for DEPB credit purposes and such changes will be reflected in the print outof the S/Bill. Such charges may be done by Appraiser/Supdt. (DEPB Cell)AC/DC(Export) as well as by Appraiser/Supdt.(Exam.) The credit will beallowed by the DGFT at the rate/value (for credit purposes only) asapproved by Customs. The EP copy of the shipping bill shall be used bythe Exporters to obtain DEPB licence from DGFT. 19.6 In case, for credit purposes, the exporter accepts the lower value asdetermined by customs, such lower value will be entered by Appraiser (DEPB Cell) AC/DC (Export) or by Appraiser (Exam) for each item(s)Printout of S/Bill at item level will indicate for FOB value as well valuefor DEPB credit purposes. Exporters are required to apply for the DEPBLicence at the B value accepted by Customs and not the value declared bythem. However, as DEPB is issued on the basis of exchange rateapplicable on the date of Let Export, exporters are advised to apply for DEPB Licence at the value accepted by Customs at the time of exportmultiplied by exchange rate on the date of Let Export(LEO) (As per para4.43 of EXIM Policy 2003 edition) 19.7 In case the exporter does not accept the value determined by the customs,the exports will be allowed provisionally after taking samples for marketenquiry. The words NOT VALID FOR DEPB will be printed on all thecopies of S/Bill and the exporters will be not be eligible for DEPB licenceagainst provisionally assessed S/Bills. In such cases, EP copy of S/Billwill not be printed and only 6 copies will be printed. However, marketenquiries about value will be conducted in such cases and either after issueof the Show Cause Notice the market value will be determined or may beaccepted by the 112

Exporters on his own. In such cases where samples aredrawn subject to market enquiry the copy of the S/Bill for claiming DEPBwill be generated after determination of value on the basis of marketenquiry and handed over to the exporters duly signed by Appraiser/Supdt.of Customs. In such cases wherever market value has been found to beless than twice the credit claimed, the market value will be mentioned inthe EP copy of S/Bill as under :Market value of the goods is Rs..and credit not to exceed 50% of the market valueSample may also be drawn for the other purposes such as Chemical test,.DEPB entitlement etc. The procedure of Provisional Assessment shall beapplicable mutates mutandis to above cases as well and the cases will befinalized after necessary reports etc. arte received and unprinted copy of S/Bill meant for DEPB Licence shall be released thereafter for printing. 19.8 Registration of DEPB Licence The DEPB Licence in respect of exports made from this customs stationwill be required to be registered at the same station. Before registration,the concerned officer will verify the S/Bill(s) in the Licence from thecomputer ensure that exports have been affected and value mentioned is asdetermined by customs at the time of export. In cases of S/Bills assessed provisionally, the verification will not be possible because S/Bill will not be in the verification queue. The exporters are advised to obtain licencesfor the items exported un DEPB scheme and not for non-DEPB items. If the lower value for credit purposes has been accepted at the time of export,the licenses shall be obtained only for such lower value and not for FOBvalue declared in S/Bill or as per Bank realisation certificate. Similarly incases where market value of the goods is less than twice the credit availed,the licence shall be obtained for 50% of the present market value of thegoods. The computer at the time of registration of licence will calculateadmissible credit on the basis of exchange rate on the date of realisation of export proceeds (as per bank realisation certificate) for DEPB items onlyand at customs approved value at the time of export. If the amount of licence is more than the amount of credit calculated by the system, it willnot be possible to register a licence and reference will be made to DGFTfor correction of amount of credit. If the amount of credit as per customscomputer matches with the credit as per DEPB licence, computer willgenerate printout regarding verification of the exports giving details likeS/Bill No. date , rate of credit, FOB value as approved by customs andamount of credit etc. DEPB licence will be registered on the basis of printout of verification report duly signed by AC/DC (Export). If a DEPBLicence is having S/Bills exported from other ports in the same city the exporters can get the licence registered at any of the ports from where heintends to import the goods in the city after verification about exports fromother ports from where exports were affected. The same procedure will befollowed for DFRC Licences also

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20.EXPORT OF GOODS UNDER 100% EOU SCHEME 20.1 The exporters can get the export goods examined by CentralExcise/Customs Officer at the factory even prior to filling of S/Bill. Self sealing facility is also available. He shall obtain the examination report inthe form to this Public Notice duty signed and stamped by the examiningofficer and supervision officer at the factory. The export invoice shall also be signed and stamped by both the officers at the factory. Thereafter thegoods shall be brought to the concerned customs warehouse for the purpose of clearance and subsequent Let Export. The exporters/CHAshall present the goods for registration along with Examination Report,ARE-1, Export Invoice duly signed by the Examining Officer andsupervising officer at the factory, check list, declaration in form and other documents such as document of transportation, ARE-1, etc., to theexaminer in the concerned shed. After registration of goods, the shipping bill will be marked to an examiner for verification of documents and seal.If seal is found intact the S/Bill will be recommended for LEO, which will be given by the shed appraiser. However if seal is not found intact, thegoods will be marked for examination and LEO will be given if the goodsare found in order. 21.EXPORT OF GOODS UNDER EPCG SCHEME 21.1All the exporters intending to file shipping bills under the EPCG scheme shouldfirst get their EPCG licence registered with the Export section. For registration of EPCGlicence, the exporter/CHA shall produce the Xerox copy of EPCG licence to the servicecentre for data entry. A printout of the relevant particulars entered will be given to the exporter/CHA for his confirmation. After verifying the correctness of the particularsentered, the said printout will be signed by the exporter. Thereafter, the original EPCGlicence along with the attested copy of the licence and the signed printout of the particulars shall be presented to the Appraiser/Supt (EPCG Cell)The Appraiser/Supdt.(EPCG Cell) would verify the particulars entered in the computer with original licence and register the same in EDI system. The registration number of the EPCG Licencewould be furnished to the exporters/CHA, who shall note the same carefully for futurereference. The said registration number would need to be mentioned against respectiveitem on the declaration form filed for data entry of the s/bill, at the time of export of goods. All the EPCG S/Bill would be processed on screen by the Appraiser/Supdt.(EPCGCell) and the AC/DC (Export). After processing of the EPCG S/Bill by the Appraiser EPCG Cell and AC/DC Export, the goods can be presented at the Customs warehouse for registration, examination and Let Export as in the case of other export goods. After train summary is submitted to CONCOR, the S/Bill will be put to Appraiser queue for logging/printing of ledger. After logging/printing of ledger, the EPCG bill will be movedto history tables.

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22EXPORT OF GOODS UNDER THE DEEC SCHEME 22.1 Only shipping bills pertaining to DEEC books issued on or after 1.4.95 will be processed on the EDI system. 22.2 All the exporters intending to file s/bills under the DEEC scheme including thoseunder the claim for drawback should first get their DEEC Book registered with the CFSMulund. The registration can be done in the service centre.The original DEEC book would need to be produced at the service centre for data entry.A print out of the relevant particulars entered will be given to the exporter/CHA. TheDEEC Book would need to be presented to the Appraiser/Supdt., DEEC Cell, who wouldverify the particulars entered in the computer with the original DEEC and register thesame in the EDI system. The registration No. of the DEEC Book would be furnished tothe exporter/CHA, which would need to be mentioned on the declaration forms at theCFS for export of goods It would not be necessary thereafter for the exporter/CHA to produce the original DEEC book for processing of the export declarations 22.3 Each book will be allotted a Registration No. should be indicated on the shipping bills in the relevant columns 22.4 Exporters/CHAs that will be filling S/Bills for export of goods under the DEECScheme would be required to file additional declarations regardingavailment/non-availment of MODVAT or regarding observance/non-observanceof specified procedures prescribed in the Central Excise 1944 in the form. Thedeclaration should be supported by necessary certificates (ARE-1 or for non-availment of MODVAT) issued by the jurisdiction Central Excise authorities.Let Export would be allowed only after verification of all these certificates atthe time of examination of goods. The fact that the prescribed DEEC declarationis being made should be clearly stated at the appropriate place in the declaration being filled in the service centre or through RES-Mode. 22.5 All the export declarations for DEEC would be processed on screen by theAppraiser/Supdt., Export Department and the AC/DC Exports. The said processing would be akin to the processing of Bill of Entry on the EDI Systemwith provisions for query/reply. After the declarations have been so processed andaccepted, the goods can be presented at the Export Shed along with DEEC Booksregistered in the4 EDI System so that the export declarations are processedexpeditiously. 22.6 Further, exporters availing of DEEC benefits in terms of various notificationsshould file the relevant declarations.22.7It is further clarified as follows: While giving details relating to DEEC operations in the form the exporters/CHAsshould indicate the S.No. of the goods being exported in the column titled ITEMS.NO.IN DEEC BOOK PART E If inputs mentioned in DEEC Import book only have been used in themanufacture of the goods under export, in column titled Item Sr.No. in DEECBook Part C the

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exporters/CHAs are required to give S.No. of inputs in Part-C of the DEEC Book and Exporters need not fill up column titled DESCRIPTION OFRAW MATERIALS If some inputs which are not in Part-C of the DEEC Book have been used in themanufacture of the goods under export and the exporter wants to declare such inputs, he shall give the description of such inputs in column titledDESCRIPTION OF RAW MATERIALS In the Col. IND/IMP, the exporters are required to write N, if the inputs usedare indigenous and M. if the inputs used are imported. In column titled Cess Schedule Sl.No. the relevant Sl.No. of the Schedulerelating to Cess should be mentioned. 23.EXPORT OF GOODS UNDER DFRC SCHEME: The details pertaining to export products i.e. input materials utilized as per SION should be clearly mentioned in the declaration mentioned at Annexure A at the time of filing. 24.EXPORT GENERAL MANIFEST: 24.1 All the steamer agents shall furnish the Export General Manifest, House Bill of Landing wise, t the Customs electronically. In the beginning, the steamer agentsare required to enter the manifest in the Customs Computer System through theService Centre on payment of the prescribed fee. (In due course, arrangementswill be made for the electronic delivery of Export General Manifest throughEDI Service Providers. Till such time, all the EGMs will have to be entered atthe Customs Computer System only.) 25.GRIEVANCE HANDLING 25.1 The Asstt. Commissioner/ Dy. Commissioner of Customs, CFS-Mulund may beapproached by exporters or their CHAs for settlement of any problems faced atany stage of the export clearance. THE ECGC COVER The abbreviated form for Export Credit and Guarantee Corporation is ECGC. As thename indicates this is a sort of guarantee or a sort of cover for the exporter. Let us nowsee what this is all about. Needless to say that an exporter before entering into a contract with the overseas buyer for making any supply, takes care to ensure that the customer with whom he is dealinghave some credit worthiness. This he may be able to do either through the local agentwho is in a better position to know about the customer or through a bank or through anyof the exporters associates if happens to be in the area of the customer etc., But, in a business things may change. The financial status of a customer may take drastic turn andan established customer may go bankrupt within a short period of time.Moreover, the buyer may be willing to make the payment, but there are other environment which prevents him from effecting the transfer of funds through the bank.For e.g., there could be break out of war, the balance of payment position of the countrymay become unfavourable, there may be some coup of the government etc., and alltransactions could be sealed.These are the risk factors for the exporters. What is 116

the guarantee that he will get paid for the supplies he has made?With a view to provide support to Indian exporters, the Govt. of India set up the ExportRisk Insurance Corporation (ERIC) in 1957. This was transformed into Export Credit &Guarantee Corporation Ltd. in 1964. In order to give the Indian identity a sharper focusthe name was again changed to Export Credit & Guarantee Corporation of India Ltd., in1983. This is a company wholly owned by the Govt. of India and functions under theadministrative control of the Ministry of Commerce and managed by the Board of Directors representing Government, Banking, Insurance, Trade, Industry etc.Though one may insist for a Letter of Credit, still there could be some elements of risk which we will study later here. Except getting an advance payment for the full value of the supplies, any other mode of payment will have some risk. Take the case of an exporter who has made supplies and before the payment is receivedthe buyer goes bankrupt or there comes some new provision or policy of Government of the importing country preventing repatriation of the funds to other countries whatrecourse the exporter has to recover his dues. The litigation procedure might be timeconsuming and the exporter can never be sure of getting his full payment. An ECGCcover a safeguard his interest to a great extent.An exporter can either agree for sight payment or can made shipment on credit terms for say 60 days, 90 days etc., In project exports the period of payment may extend to someyears. Longer the period of cre3dit given to the customer, more will be the risk factor for the exporter.In respect of sight bill, there is almost no risk because the customer has to make paymentfirst before he retires the documents. Therefore, before the title of the goods is passed onto the customer, the importer makes the3 payment. However, in respect of usance bill(credit bills) the buyer retires the documents by accepting the usance draft and takesdelivery of the goods. In case the customer goes bankrupt or become insolvent, before thedue date of payment, the exporter is totally at a loss. While big units may be able toabsorb the one time loss, small exporters will get broke even with one such transaction.Here the ECGC comes into picture. It takes up the responsibility of paying the funds tothe exporter and makes all efforts including legal proceedings to recover the dues fromthe customer, provided the exporter has taken an ECGC cover. WHAT ECGC OFFERS FOR PROTECTION OF EXPORTERS INTEREST ? ECGC offers various types of insurance cover to protect the exporters interest. For eachtype of cover an exporter has to take Policy specific to the respective requirements. ThePolicy that is most commonly taken by the exporters is the Standard Policy or otherwisecalled the Shipments (Comprehensive Risks) Policy. SHIPMENTS (COMPREHENSIVE RISKS) POLICY also called STANDARD POLICY For exporters with an annual export turnover in excess of Rs.50 lakhs, the Shipments(Comprehensive Risks) Policy is the one intended for covering shipments on cash basisor on short-term credit basis. (Credits not exceeding 180 days)The risks covered this Policy is as follows effective from the date of shipment.: Commercial Risks Insolvency of the buyer Failure of the buyer to make payment within a specified period.Buyers failure to accept the goods subject to certain conditions. 117

Political Risks Imposition of restrictions by the Govt. of the buyers country or anygovernment action which may block or delay the transfer of payment made bythe buyer. War, civil war, revolution or civil disturbances in the buyers country New import restrictions or cancellation of a valid import licence Interruption or diversion of voyage outside India resulting in payment of additional freight or insurance charges which cannot be recovered from the buyer. Any other cause of loss neither occurring outside India nor normally insured by general insurers and beyond the control of both the e porters and the buyer. Risks not covered under the PolicyThe Standard Policy does not cover losses on account of following risks Commercial disputes including quality disputes raised by the buyer unlessthe exporter obtains a decree from a competent court of law in the buyerscountry in his favour Causes inherent in the nature of the goods Buyers failure to obtain necessary import or exchange control clearancefrom authorities concerned Insolvency or default of the agent of the exporter or of the collecting bank Loss or damage to goods which can be covered by general insurers. Exchange rate fluctuations Failure of the exporter to fulfill the terms of the export contract or negligence on his part. Shipments Covered The Standard Policy is meant to cover all the shipments that may be made by an exporter during a period of 24 months ahead. The policy cannot be issued for selected shipments,selected buyer or selected markets. For specific requirements an exporter can opt for different policy from the various services offered by the corporation Exclusions: Shipments made against advance payments received or shipments against confirmedletters of credit which has the confirmation from the bank in India may be excluded.However, shipments against confirmed L/C may be covered for political risks only. The premium for cover under political risks will be less than that under the comprehensive policy. ECGC may also agree to exclude certain items if the exporter is dealingt indifferent distinct products. Shipments to Associates:Shipments to buyers i.e. the foreign buyers in whose business the exporter has financialinterest, are normally excluded from the Policy. However such shipments can be coveredagainst political risks. Shipments on Consignment basis:Shipments on consignment basis can be covered only against political risks. Shipments by Air Since the buyer is able to take delivery of the goods even without retiring the bank documents, shipments by air are not covered under the policy. However, the exporter may cover such shipments for payments under open terms. The exporter can 118

have cover for such shipments, if he has obtained Credit Limit on such buyers on open deliveryterms and also pays the premium at rates applicable to open delivery terms. HOW TO GET ECGC COVER Step 1. Open Policy: An exporter desiring to get the ECGC cover has to approach the office of the ECGCmaking a Proposal. He must make his home work and be clear as to what will be his totalturnover during a year ad what will be the maximum amount he expects to be outstandingfrom various buyers at a given point of time. Once this is clear he can apply for an OpenPolicy for the maximum amount that he expects to be outstanding at a given point of time. Suppose, he expects that at any given time his outstanding will be say Rs.50/- lakhsthen he can apply for a policy for this amount. After verification of the details of the exporter, the ECGC may issue a open policy for Rs.50 lakhs with a validity of say 2years. This is the first step. Step 2.- Credit Limit on Individual Buyer Once the open policy is taken, as a next step the exporter must make out the list of the customers to whom he expects to make shipment. For each and every customer he has to apply to the ECGC to have a limit of liability fixed. That is to say, he has to declare the maximum amount of bills he expects to be outstanding from each customer at a given point of time. Based on the value of business dealing, suppose the exporter expects that from customer A the outstanding may be Rs.10 lakhs. Then the exporter has to apply to ECGC in the prescribed form for getting limit fixed for the customer. On receipt of the application, ECGC will check for the credit worthiness of the customer either through their own net work of offices globally, or through the customers bank or through some reputed independent agency. Based on the credit report, ECGC will determine the limit that can be fixed for the customer. If it feels that a limit of Rs.10 lakhs is in order, it will advise the exporter of the same. Similarly, the exporter can have the limit fixed to all his customers. Once the limit is taken from ECGC, the exporter is free to make his shipments to the various customers. If shipment for any customer is made before getting the limit fixed by ECGC, no risk will be covered for that shipment. Step 3 Payment of Premium and filing of monthly returns For the risk the ECGC takes, it charges a premium on the value of the shipments actually made. This is calculated as per the table to be supplied by ECGC which shows the premium per Rs.100 of exports. This table which gives the premium amount payable is framed based on the following. The various countries around the globe are divided into different groups and are classified as A1, A2, B1, B2, C1,C2 & D. The countries are grouped according to their economic standard. For e.g. USA. Canada, UK are grouped in category A. The premium amount will be less for group A countries and will be increased gradually to group B, C & D countries The premium for group D countries will be more because they are all economically weaker countries and payment risks are high Again the premium table is based on the

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period of credit. The slab is for credits up to 90days, 120 days, 180 days etc. Longer the credit period greater is the premium. Thus, the premium will be least for group A countries and for the shorter creditperiod and will be maximum for group D countries and for maximum credit period

FILING OF MONTHLY RETURNS: The exporter has to send a monthly return in the prescribed form to ECGC declaring the list of various shipments made and the amount of premium payable as per the premium table. The exporter has to work out the total premium applicable on the shipment effected and make payment to the ECGC The exporter is also expected to file a Monthly Return in a separate form listing all the Bills which are not paid on due date, if any, so that ECGC is periodically aware of the defaulters .In case of any eventuality when the buyer goes bankrupt, he may prefer a claim with ECGC for payment .The policy that is issued for shipment not covered under L/C is called Comprehensive Policy meaning that the policy will cover both the commercial and political risks. While commercial risk is that of the buyer going bankrupt, the political risk relates to the countrys policies which may prevent the repatriation of funds or there could be outbreak of war preventing financial transactions etc. All the above relates to shipments not covered under L/C. However, an exporter can have a separate ECGC Policy for shipments under L/C. Here the exporter will have the policy covering only the political risk since under L/C, the bank stands as a guarantor and there is no commercial risk An exporter must cover all his exports under ECGC, including bills on sight basis, and are NOT under L/C. He cannot be selective to certain countries or certain buyer. The cover is on whole turnover basis. For all shipments under L/C, the buyer may take a separate policy to cover the political risks. The premium for L/C shipments will be relatively less than that on comprehensive policy. Note: ECGC cover is not for nonpayment on account of dispute on quality, damages to the goods, theft, pilferage etc. The cover is only when the party goes insolvent or there are some political risk due to which the exporter is not in a position to get the payment immediately or on due date. This cover must be distinguished from the general insurance.

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VARIOUS POLICIES OFFERED BY ECGC: 1.STANDARD POLICY An exporter whose annual export turnover is more than Rs.50 lakhs is eligible for this policy Period of the Policy: 24 Months Exclusions permitted : Export to Associates Letters of Credit Consignment Exports Risk Covered :Commercial Risks Political Risks LC Opening Bank Risks Percentage of Cover :90% Minimum Premium :Rs.10, 000/- adjustable Important Obligations of the Exporter Obtaining valid credit limit on buyers and banks Monthly Declaration of shipments and payment of premium Declaration of payment overdue by more than 30 days Filing of claim within 24 months Sharing of recovery Highlights Lowest Premium Rate NCB OF 5% every year Discrepancy cover of LC Automatic Approval fort resale/shipment upto 25% of GIV Increased discretionary limit 2.SMALL EXPORTERS POLICY Period of the Policy:12 Months Exclusions Permitted: Exports to Associates Letters of Credit Consignment Exports Risk Covered: Commercial Risks Political Risks LC Opening Bank Risks Percentage of Cover:95% for commercial risks/100% for political risks Minimum Premium:Rs.2, 000 adjustable Important Obligations of the Exporter: Obtaining valid credit limit on buyers and banks Quarterly Declaration of shipment and payment of premium. Declaration of payment overdue by more than 30 days Filing of claim within 24 months Sharing of recovery.

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Highlights Highest coverage/compensation Lowest premium rate NCB of 5% every year Discrepancy cover for LC Automatic approval for resale/shipment upto 25% of GIV Increased discretionary limit 3.SPECIFIC SHIPMENT POLICIES SHORT TERM (SSP-ST) These policies can be availed of by exporters who do not hold our Standard Policy or by exporters having standard policy, in respect of shipment permitted to be excluded from the purview of the standard policy. Exporters can pick and choose the contract/shipment to be covered and indicate the type of cover required.

Period of Policy The policy would be valid for shipment(s) made from the date of the policy upto last date allowed under the relevant contract for shipment. Risk Covered: Commercial Risks Political risks LC Opening Bank Risk Insolvency risk on agent on conditions Percentage of Cover:80%Important Obligations of the exporters: Upfront premium payment Statement of shipment made Payment Advice slip Statement Of Overdue Filing of Claim within 12 months from due date Sharing of recovery Highlights: Selection for Insurance cover Other exports not to be declared Add on Marine Insurance Cover Premium rate reduced proportionately on higher share of loss to exporter. 4 . EXPORTS (SPECIFIC BUYERS) POLICY The specific buyer policy provides cover for shipments made to a particular buyer or set of buyers. An exporter not holding the standard policy can avail of this to cover their shipments to one or more buyers. Exporters holding Standard Policy can also avail this Policy for covering shipments to individuals Buyers, if all shipments to such buyers have been permitted to be excluded from the purview of the Standard Policy.

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Period of the Policy: 12 Months Risk Covered: Commercial Risks Political Risks Insolvency or default of LC Opening Bank Percentage of Cover: 80% Important Obligation of the Exporters: 1.Deposit Premium on Quarterly in advance 2.Submission of shipment declaration quarterly 3.Declaration of payment overdue for more than 30 days 4.Filing of the within 12 months from due date5.Sharing of recovery Highlights: 1Selective buyer can be insured 2Option to exclude LC exports 3Premium rate can be reduced proportionately 5. EXPORTS TURNOVER POLICY Turnover Policy is for the benefit of large exporters who contribute not less than Rs.10lakhs per annum towards premium. The policy envisages projection of the export turnover of the policyholder for a year and the initial determination on the premium payable on that basis, subject to adjustment at the end of the year based on actual Period of the Policy: 12 Months Risk covered: Commercial Risks Political Risks LC Opening Bank Risks Percentage of Cover: 90% Important Obligation of the Exporter 1.Premium will be payable in four equal quarterly installments inadvance 2.Submission of quarterly statement of shipments 3.Declaration of overdue payments 4.Filling of claim within 24 months from due date 5.Sharing of recovery Highlights: 1.Simplified procedure for payment of premium 2.10% of projected premium is waived when exports increase beyond projection 3.Increased discretionary limit 6.BUYER EXPOSURE POLICY : The Buyer Exposure Policy is to insure the exporters having large number of shipment s with simplified procedure and rationalized premium. An exporters can chose to obtain exposure based cover on the selected buyer. The cover would be cover against commercial and political risk. The option to exclude LC shipment is available. If the exporter has opted for commercial and political risks cover, failure of LC opening bank with World Rank up to 25,000 as per latest Bankers Almanac is available. If exporters opts for only political risks for LC exports premium at a less rate is offered 123

Period of the Policy:12 months Risk covered: Buyer Risk LC Opening Bank Risks Political Risks Percentage of Cover:90% for Standard policyholder and 80% for others Important Obligations of the Exporter: 1Premium Payable in advance 2Option to pay the premium quarterly in advance is available 3Premium non refundable 4Obtaining approval for extension in due date beyond 180 days 5Declaration of overdue payments 6Filing of claim within 12 months from due date 7Sharing of recovery Highlights: 1.5% discount premium if paid in advance 2.Declaration procedure waived 3.Exporter to approach only for default in claim 4.One Policy for one buyer 7.MULTI-BUYER EXPOSURE POLICY Some exporters export to large number of buyers. The number of shipments made by them is also quite high. In order to meet the needs of such exporters, Multi buyer exposure policy is introduced. Cover would be available for exports to the buyers in countries listed under open cover category as long as the buyer is not in default buyers list maintained by the Corporation and available on its websitewww.ecgcindia.com. If the transaction is on LC terms, failure of the LC opening bank in respect of exportsagainst LC will also covered, For banks with World Rank upto 25000 as per Latest Bankers Almanac Cover in respect of exports to restricted over countries would not be available under this policy Period of Policy:12 Months Risk Covered: Buyer Risks Political Risks LC Opening Bank Risks Percentage of Cover:80% Important Obligations of the Exporters: 1.Premium payable in advance 2.Option to pay the premium quarterly in advance is available 3.Premium non refundable 4.Obtaining approval for extension is due date beyond 180 days 5.Declaration of overdue payments 6.Filing of claim within 12 months from due date 7.Sharing of recovery Highlights: 1.Policy is best suited for exporters who make frequent shipments 2.Reduced premium rates available on conditions 3.5% reduction on total premium on lump sum payment 124

4. No declaration required 5.All buyers in open countries covered on conditions 6.Protection up to Aggregate Loss Limit and Individual buyer up to 10% of All. 8. CONSIGNMENT EXPORTS POLICY (STOCKHOLDING AGENT) Economic liberalization and gradual removal of international barriers for trade and commerce are opening up various new avenues of exports opportunities to Indian exporters of quality goods. A method increasingly adopted by Indian exporters is consignment exports where goods are shipped and held in stock overseas ready for sale to overseas buyers, as and when orders are received. Thus separate Credit Insurance Policy is introduce to cover exclusively shipments on consignment basis taking into account their special features, providing adequate incentives and simplifying procedures considerably Period of the Policy:12 Months Risks covered: Commercial Risks on stockholding agent and/or ultimate buyer Political Risks Percentage of Cover:90% for Standard Policyholders and 80% for others Important obligations of Exporters: Advance deposit of premium in advance on quarterly or monthly basis Obtaining credit limit on ultimate buyers beyond the discretionary limit Quarterly/Monthly statement of actual exports Overdue declaration Filing of claim Sharing of recovery Highlights: Covers only the consignments exports Rationalized premium for 360 days Automatic cover for ultimate buyers upto discretionary limit Commercial risks on agents covered Extended period for realization upto 360 days 9CONSIGNMENT EXPORTS POLICY (GLOBAL ENTITY) A method adopted by India exporters is consignment exports where goods are shipped to their own branch office overseas ready for sale to overseas buyers, as and when orders are received. Thus separate credit insurance policy is introduce to cover exclusively shipments by the exporters to their branches overseas on consignment basis taking into account their special features, providing adequate incentives and simplifying the procedures considerably. Period of the Policy:12 Months Risks covered: Commercial Risks on overseas branch on conditions 125

Percentage of Cover:90% for Standard Policyholders and 80% for others Important obligations of Exporters: Advance deposit of premium in advance on quarterly or monthly basis Obtaining credit limit on ultimate buyers beyond the discretionary limit Quarterly/Monthly statement of actual exports Overdue declaration Filing of claim Sharing of recovery Highlights: Covers only the consignments exports Rationalized premium for 360 days Automatic cover for ultimate buyers upto discretionary limit Commercial risks on agents covered Extended period for realization upto 360 days 10. SERVICES POLICIES Services Policies offer protection to Indian firms against payments risks involved in rendering services to foreign parties. A wide range of services, hiring or leasing can be covered under these policies. The exporters can opt for whole Turnover Services Policy or for Specific Services Policy depending on the nature of services provided. The premium rates applicable. To standard policy will be applied for whole turnover services policy and specific shipment policy (SSP-ST) premium rates will be applied for Specific Service Policy. Period of the Policy:12/24 Months Risks covered: Commercial Risks on ultimate buyers Political Risks LC Opening Bank Risks Percentage of Cover:90% for Standard Policyholders and 80% for others Important obligations of Exporters: Advance deposit of premium in advance to cover premium Obtaining credit limit on services receiver Monthly statement of actual service provided Overdue declaration Filing of claim Sharing of recovery Highlights: Option to select the type of cover.8. MATURITY FACTORING The Maturity Factoring scheme, as designed by ECGC has unique features and does not exactly fit into the conventional mould of maturity factoring. The changes devised are intended to give the clients the benefits of full factoring services through the maturity 126

factoring scheme, thus effectively addressing the needs of exporters to avail of prefinance (advance) on the receivable, for their working capital requirements. One important feature is the very role and special benefits envisaged for banks under the scheme Benefits: 100% credit guarantee protection against had debts Sales register maintenance in respects of factored transaction Regular monitoring of outstanding credits, facilitating collection of receivable ondue date, recovery, at its own cost, of all recoverable had debt Setting up Charges and Factoring Charges The factoring application fee payable initially is Rs.10,000/- For setting up permitted limits on each of the overseas customers, the exporter will have to pay a processing fee equal to 0.05% of the permitted limit sought subject to minimumof Rs.2000/- after of this, the factoring charges payable as and when an exports bill is to be factored depends on the country to which the exports is made and thecredit period. Exporters Obligations: Registration and obtaining permitted limit on the buyer Payment of factoring charges with statement of exports made Inform developments

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