EXPORT PROCEDURE & DOCUMENTATION

INDEX

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

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

2010, up from the present level of less than 1%. Export is one of the
lucrative business activities in India. The government also provides
various promotional schemes to the exporters for earning valuable
foreign exchange for the country and for meeting their requirements
for importing modern technology and essential inputs. Besides, the
income from export business is also exempted to the specified extent
under the Income Tax Act, 1961, Refund of Central Excise and Custom
Duty on export is also made under the Duty Drawback Scheme and
other export promotion schemes of the Government.
Exports can be of goods or services which can be moved physically
from one country to another or can be rendered.
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. 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
1 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.
2 Merchant Exporter: An exporter who does not have the facility to
manufacture an item. But, he procures the same from other
manufacturers or from the market and exports the same.
An exporter can be both a manufacturer exporter as well as a
merchant exporter, he can export product manufactured by him or he
can export items bought from the market.
Once it is decided to export, it is mandatory on your part to follow
certain procedures, rules and regulations as prescribed by various
regulatory authorities such as DGFT, RBI, and Customs. These
procedures, rules and regulations are laid down in the Exim Policy
2004-09, Exchange Control Manual, Customs Act etc. Accordingly
Export documents are required to be prepared keeping in view of the
requirement of the foreign buyers and our regulatory authorities.
HOW TO SET UP AN EXPORT ORGANISATION

The proper selection of organization depends upon

1 Ability to raise finance.
2 Capacity to bear the risk.
3 Desire to exercise control over the business.
4 Nature of regulatory framework applicable to anyone.
On close evaluation of once capacity with regard to above four
variables, export organization cam is set up as proprietorship business,
partnership firm, private limited company or public limited company.
CHOOSING APPROPRIATE MODE OF OPERATIONS:
You can choose any of the following modes of operations
1 Merchant Exporter i.e. buying the goods from the market or from the
manufacturer and then selling it to foreign buyers.
2 Manufacturer Exporter i.e. manufacturing the goods yourself for
export.
3 Sales Agent / Commission Agent / Indenting Agent i.e. acting on
behalf of the seller and charging the Commission.
4 Buying Agent i.e. acting on behalf of the buyer and charging
Commission.
5 Service provider i.e. providing service from India to another country.
NAMING THE BUSINESS
Whatever form of business organization has been finally decided,
naming the business is an essential task for every exporter. The name
and style should be soft, attractive, short and meaningful. Open a
current account in the name of the organisation in whose name you
intend to export. It is advisable to open the account with a bank which
is authorised to deal in Foreign Exchange.
STRUCTURE OF AN EXPORT ORGANISATION

1 marketing manager for generating sales

2 Commercial manager for looking activities of the execution of the
orders.
3 staff personnel for carrying out the day-to-day activities namely
o Preparation of pre - shipment documents.
o Co-ordinating with clearing agents on the progress of the shipment
to be made.
o Co-ordinating with the ware house\C. excise department regarding
packing and clearance of the goods for export.
o Preparation of post shipment documents foe banks.
o Follow-up with the bank on dispatch of documents, receipt of
payment, availment of bank loans etc.
4 To look into the requirement of licenses, claiming of export benefits
fiiling of documents with the Government Authorities in Discharge of
Export Obligations, if any, filing of returns to the various Government
Agencies which are mandatory, prepare and keep an information bank
of various transaction of the company, their domestic as well as
international competitors.
5 An office boy for doing leg work.
6 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.
1 Bank receipt ( in duplicate ) / Demand Draft for payment of the fees
of Rs. 1000/-
2 Certificate from the banker of the applicant firm as per Annexure 1
to the form given.
3 One copy of PAN number issued by Income Tax Authorities duty
attested by the applicant.
4 One copy of Passport Size photographs of the applicant duly attested
by the banker to the applicant.
5 Declaration by the applicant that the proprietor/partners/directors as
the case may be of the applicant company, are not associated as
proprietor/partners/directors in any other firm, which has been
caution, listed by the RBI. Where the applicant declares that they are
associated as proprietor/partners/directors in any other firm, which
has been caution, listed by the RBI, they will be allotted IEC No. but
with an additional condition that they can export only with RBI’s prior
approval and they should approach RBI for the purpose.
6 Each importer/exporter shall be required to file importer/exporter
profile once with the licensing authority shall enter the information
furnished in Appendix 2 in their database so as to dispense with
changes in the information given in Appendix-2, importer/exporter
shall intimate the same to the licensing authority.
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 individual/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 affected 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. This BIN is required to be
mentioned on the shipping bills at the time of customs clearance of the
export cargo.
RCMC (Registration-Cum-Membership Certificate) – REGISTRATION
WITH EXPORT PROMOTION COUNCILS –
In order to enable the exporter to obtain benefits/concessions under
the Foreign Trade Policy, the exporter is required to register himself
with an appropriate export promotion agency by obtaining
registration-cum-membership certificate. (RCMC). If the export
product is that it is not covered by any EPC, RCMC in respect thereof
may be issued by FIEO. An application for registration should be
accompanied by a self certified copy of the Importer-Exporter Code
number issued by the regional licensing authority concerned and bank
certificate in support of the applicants financial soundness. The RCMC
shall be valid for 5 years ending 31st March of the licensing year.

REGISTRATION WITH SALES TAX AUTHORITIES:

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

HOW ONE BEGINS TO DO EXPORT

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

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

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

Before selecting a product, one must simultaneously made a study and

find out the prospective market. For finding out the market for the
selected product, the following methods will help.
• Get statistical information as to imports of the product by various
countries and their growth prospects in the respective countries
• Approach the chamber of commerce for their guidance to find out the
market.
• Approach the Export Promotion Council dealing in the product of
selection to get more information.
The Preliminary
Once you are ready with the product you wish to export and have
found the market for the same, you are ready to proceed further.
Following sequences can be followed:
1 Any one, who wishes to export, must first of all get an Importer
Exporter Code Number (IE Code).This can be obtained by making a
formal application to the office of the Regional Directorate General of
Foreign Trade (DGFT).
• Get yourself registered with the related Export Promotion Council
and become a member. Also arrange to obtain Registration-Cum-
Membership Certificate (RCMC) from the council. This has twin
objectives:
o Under the Foreign Trade Policy, it is mandatory that an exporter gets
him registered with the Export Promotion Council to avail of various
export facilities.
o Being a member, you will have access to all the information relating
to the product that could be made available by the council
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.
2 If you are a manufacturer, find out the provisions under the EXIM
Policy of getting the raw materials duty free.
3 Get familiar with the excise formalities as goods meant for export
can be cleared without payment of C. Excise duty on the finished
product subject to compliance of certain formalities.
4 Understand the local government regulations in relations to the
export of the product.
5 Get information of the government’s regulations of the importing
country as to restrictions on the quantity, product specification,
packing regulations, customs regulations, requirement of specific
documents/information etc.
6 Availability of Vessels/Airlines, the transport charges, frequency of
operation etc.,
7 To look for a Custom House Agent (CHA) (also know as freight
forwarders or clearing agents) for handling the documents/cargo in the
customs.
8 If the product is covered under any quota regulation, find out the
agency/council who is handling the quota distribution for the product
and the availability of quota for exports.
FINDING A CUSTOMER

Once you have selected the market, the next step is to find a
prospective customer. This you can get
1 From the directory of importers of the country you intend to export
to
2 By writing to the Embassy of India in that country for assistance
3 By writing to the chamber of commerce of that country
4 By means of participation in a Fair/Exhibition abroad either directly
or through the Export Promotion Council
5 By participating in international fair if organized locally
6 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.
1 Credit Worthiness of the Customer.
2 Availability of the Steamer/Airlines and the frequency
3 The freight charges
4 The full product specification
5 The quantity, Price
6 Terms of Payment
7 Type of packing and markings on the packages
8 Mode of shipment & Shipment schedule
9 Tolerance of quantity to be shipped
10 Documentation requirement for the customer
11 Documentation requirement of the government of importing
country
12 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 CONTRACTS:
There are certain, peculiar characteristics of international trade
contract which are not present in those for sales of goods in the
domestic market
Whereas the parties to a domestic trace contract normally needs only
agree on the elements which are necessary for their particular trade
transactions like price, description, quality and quantity of goods,
delivery terms etc the situation will be quite different when the buyer
and the seller to sale/purchase contract belong to different countries.
The parties to all international trade contracts provide all their relative
rights and obligations in several ways
For example, they may agree to adopt either the Law of the country of
the buyer or that of the seller. The traders are normally reluctant to
leave the determination of the rights and obligations by implications
under the legal system of either’s country. They prefer to make explicit
provisions regarding the rights and obligations by including a set of
detailed and precise terms and conditions in their contract.
EXPORT OF SAMPLES\GIFTS:
Exports of bonafide trade and technical samples of freely exportable
items shall be allowed without any limit. Goods including edible items
of value not exceeding Rs. 100000/- in a licensing year, may be
exported as a gift. However items mentioned as restricted for exports
in ITC (HS) shall not be exported as a gift without a
licence/certificate/permission, except in the case of edible items.
STANDARD CONTRACT FORMS:

Notwithstanding the efforts made by various national/international

organizations like the United Nations Commission on the International
Trade Law, there is still no perfection or a device which would give the
parties an accurate and complete idea of each others understanding of
various trade terms, the commercial practices and the rights and the
obligations vis-à-vis each other so that the misunderstandings are
practically eliminated.
Nevertheless, the Indian Council of Arbitration published in 1966 a
booklet on “Standard Contract Forms and Model Arbitration Clause for
use in Foreign Trade Contracts”. It was revised and reprinted in 1969
and 1977. It can be referred to by exporter for various clause to be
incorporated in the Export Contract.
ENTERING INTO AN EXPORT CONTRACT
In order to avoid disputes, it is necessary to enter into an export
contract with the overseas buyer. For this purpose, export contract
should be carefully drafted incorporating comprehensive but in precise
terms, all relevant and important conditions of the trade deal.
There should not be any ambiguity regarding the exact specifications
of goods and terms of sale including export price, mode of payment,
storage and distribution methods, type of packaging, port of shipment,
delivery schedule etc. The different aspects of an export contract are
enumerated as under:
• Product, Standards and Specifications
• Quantity
• Inspection
• Total Value of Contract
• Terms of Delivery
• Taxes, Duties and Charges
• Period of Delivery/Shipment
• Packing, Labeling and Marking
• Terms of Payment-- Amount/Mode & Currency
• Discounts and Commissions
• Licenses and Permits
• Insurance
• Documentary Requirements
• Guarantee
• Force Majeure of Excuse for Non-performance of contract
• Remedies
• Arbitration clause
It will not be out of place to mention here the importance of arbitration
clause in an export contract Court proceedings do not offer a
satisfactory method for settlement of commercial disputes, as they
involve inevitable delays, costs and technicalities. On the other hand,
arbitration provides an economic, expeditious and informal remedy for
settlement of commercial disputes. Arbitration proceedings are
conducted in privacy and the awards are kept confidential. The
Arbitrator is usually an expert in the subject matter of the dispute. The
dates for arbitration meetings are fixed with the convenience of all
concerned. Thus, arbitration is the most suitable way for settlements
of commercial disputes and it may invariably be used by businessmen
in their commercial dealings.

ARBITRATION:

Arbitration clause recommended by the Indian Council of

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

TERMS OF SHIPMENTS – INCOTERMS

The INCOTERMS (International Commercial Terms) is a universally

recognized set of definition of international trade terms, such as FOB,
CFR & CIF, developed by the International Chamber of Commerce
(ICC) in Paris, France. It defines the trade contract responsibilities and
liabilities between buyer and seller. It is invaluable and a cost-saving
tool. The exporter and the importer need not undergo a lengthy
negotiation about the conditions of each transaction. Once they have
agreed on a commercial terms like FOB, they can sell and buy at FOB
without discussing who will be responsible for the freight, cargo
insurance and other costs and risks.
The INCOTERMS was first published in 1936 --- INCOTERMS 1936 ---
and it is revised periodically to keep with changes in the international
trade needs. The complete definition of each term is available from the
current publication --- INCOTERMS 2000. Under INCOTERMS 2000, the
international commercial terms are grouped into E, F, C and D,
designated by the first letter of the term, relating to the final letter of
the term. E.g. EXW—exworks comes under grouped ‘E’.
The purpose of Incoterms is to provide a set of international rules for
the interpretation of the most commonly used trade terms in foreign
trade. Thus, the uncertainties of different interpretations of such terms
in different countries can be avoided or at least reduced to a
considerable degree. The scope of Incoterms is limited to matters
relating to the rights and obligations of the parties to the contract of
sale with respect to the delivery of goods. Incoterms deal with the
number of identified obligations imposed on the parties and the
distribution of risk between the parties.
In international trade, it would be best for exporters to refrain,
wherever possible, from dealing in trade terms that would hold the
seller responsible for the import customs clearance and/or payment of
import customs duties and taxes and/or other costs and risks at the
buyer’s end, for example the trade terms DEO (Delivery Ex Quay) and
DDP (Delivered Duty Paid)
Quite often, the charges and expenses at the buyer’s end may cost
more to the seller than anticipated. To overcome losses, hire a reliable
customs broker or freight forwarder in the importing country to handle
the import routines.
Similarly, it would be best for importers not to deal in EXW (Ex Works)
which would hold the buyer responsible for the export customs
clearance, payment of export customs charges and taxes, and other
costs and risks at the seller’s end
MORE CLARIFICATION ON INCOTERMS
EXW {+the named place}
Ex Works: Ex means from. Works means factory, mill or warehouse,
which are the seller’s premises. EXW applies to goods available only at
the seller’s premises. Buyer is responsible for loading the goods on
truck or container at the sellers premises and for the subsequent costs
and risks. In practice, it is not uncommon that the seller loads sthe
goods on truck or container at the sellers pre4mises without charging
loading fee. N the quotation, indicate the named place (sellers
premises) after the acronym EXW for example EXW Kobe and EXW
San Antonio.
The term EXW is commonly used between the manufacturer (seller)
and export-trader(buyer), and the export-trader resells on other trade
terms to the foreign buyers. Some manufacturers may use the term Ex
Factory, which means the same as Ex Works.
FCA {+the named point of departure}
Free Carrier: The delivery of goods on truck, rail car or container at
the specified point(depot) of departure, which is usually the sellers
premises, or a named railroad station or a named cargo terminal or
into the custody of the carrier, at sellers expense. The point(depot) at
origin may or may not be a customs clearance centre. Buyer is
responsible for the main carriage/freight, cargo insurance and other
costs and risks.
In the air shipment, technically speaking, goods placed in the custody
of an air carrier are considered as delivery on board the plane. In
practice, many importers and exporters still use the term FOB in the
air shipment. The term FCA is also used in the RO/RO (roll on/roll off)
services
In the export quotation, indicate the point of departure (loading) after
the acronym FCA, for example FCA Hong Kong and FCA Seattle. Some
manufacturers may use the former terms FOT (Free on Trucks) and
FOR (Free on Rail) in selling to export-traders.
FAS {+the named port of origin}
Free Alongside Ship: Goods are placed in the dock shed or at the side
of the ship, on the dock or lighter, within reach of its loading
equipment so that they can be loaded aboard the ship, at seller’s
expense. Buyer is responsible for the loading fee, main
carriage/freight, cargo insurance, and other costs and risks In the
export quotation, indicate the port of origin(loading)after the acronym
FAS, for example FAS New York and FAS Bremen. The FAS term is
popular in the break-bulk shipments and with the importing countries
using their own vessels.
FOB {+the named port of origin)
Free on Board: The delivery of goods on the board the vessel at the
named port of origin (Loading) at seller’s expense. Buyer is
responsible for the main carriage/freight, cargo insurance and other
costs and risks. In the export quotation, indicate the port of origin
(loading) after the acronym FOB, for example FOB Vancouver and FOB
Shanghai.
Under the rules of the INCOTERMS 1990, the term FOB is used for
ocean freight only. However, in practice, many importers and
exporters still use the term FOB in the air freight. In North America,
the term FOB has other applications. Many buyers and sellers in
Canada and the USA dealing on the open account and consignment
basis are accustomed to using the shipping terms FOB Origin and FOB
destination.
FOB Origin means the buyer is responsible for the freight and other
costs and risks. FOB Destination means the seller is responsible for the
freight and other costs and risks until the goods are delivered to the
buyer’s premises which may include the import custom clearance and
payment of import customs duties and taxes at the buyer’s country,
depending on the agreement between the buyer and seller. In
international trade, avoid using the shipping terms FOB Origin and FOB
Destination, which are not part of the INCOTERMS (International
Commercial Terms).
CFR {+the named port of destination}
Cost and Freight: The delivery of goods to the named port of
destination (discharge) at the sellers expenses. Buyer is responsible
for the cargo insurance and other costs and risks. The term CFR was
formerly written as C&F. Many importers and exporters worldwide still
use the term C&F.
In the export quotation, indicate the port of destination (discharge)
after the acronym CFR, for example CFR Karachi and CFR Alexandria.
Under the rules of the INCOTERMS 1990, the term Cost and Freight is
used for ocean freight only. However, in practice, the term Cost and
Freight (C&F) is still commonly used in the air freight.
CIF {+named port of destination}
Cost, Insurance and Freight: The cargo insurance and delivery of
goods to the named port of destination (discharge) at the seller’s
expense. Buyer is responsible for the import customs clearance and
other costs and risks.
In the export quotation, indicate the port of destination (discharge)
after the acronym CIF, for example CIF Pusan and CIF Singapore.
Under the rules of the INCOTERMS 1990, the term CIFI is used for
ocean freight only. However, in practice, many importers and
exporters still use the term CIF in the air freight.
CPT {+the named place of destination}
Carriage Paid To: The delivery of goods to the named port of
destination (discharge) at the sellers expenses. Buyer assumes the
cargo insurance, import custom clearance, payment of custom duties
and taxes, and other costs and risks. In the export quotation, indicate
the port of destination (discharge) after the acronym CPT, for example
CPT Los Angeles and CPT Osaka.
CIP {+ the named place of destination)
Carriage and Insurance Paid To: The delivery of goods and the cargo
insurance to the named place of destination (discharge) at seller’s
expense. Buyer assumes the importer customs clearance, payment of
customs duties and texes, and other costs and risks.
In the export quotation, indicate the place of destination (discharge)
after the acronym CIP, for example CIP Paris and CIP Athens.
DAF {+ the names point at frontier}
Delivered At Frontier: The delivery of goods to the specified point at
the frontier at sellers expense. Buyer is responsible for the import
custom clearance, payment of custom duties and taxes, and other
costs and risks.
In the export quotation, indicate the point at frontier (discharge) after
the acronym DAF, for example DAF Buffalo and DAF Welland.
DES {+named port of destination}
Delivered Ex Ship: The delivery of goods on board the vessel at the
named port of destination (discharge) at sellers expense. Buyer
assumes the unloading free, import customs clearance, payment of
customs duties and taxes, cargo insurance, and other costs and risks.
In the export quotation, indicate the Port of destination (discharge)
after the acronym DES, for example DES Helsinki and DES Stockholm.
DEQ {+ the named port of destination
Delivered Ex Quay: The delivery of goods to the Quay (the port) at the
destination at buyers expense. Seller is responsible for the importer
customs clearance, payment of customs duties and taxes, at the
buyers end. Buyer assumes the cargo insurance and other costs and
risks. In the export quotation, indicate the Port of destination
(discharge) after the acronym DEQ, for example DEQ Libreville and
DEQ Maputo.
DDU {+ the named point of destination}
Delivered Duty Unpaid: The delivery of goods and the cargo insurance
to the final point at destination, which is often the project site or
buyers premises at sellers expense. Buyer assumes the import
customs clearance, payment of customs duties and taxes. The seller
may opt not to insure the goods at his/her own risks.
In the export quotation, indicate the point of destination (discharge)
after the acronym DDU for example DDU La Paz and DDU N’djamena.
DDP {+ the named point of destination)
Delivered Duty Paid: The seller is responsible for most of the expenses
which include the cargo insurance, import custom clearance, and
payment of custom duties, and taxes at the buyers end, and the
delivery of goods to the final point of destination, which is often the
project site or buyers premise. The seller may opt not to insure the
goods at his/her own risk. In the export quotation, indicate the point
of destination (discharge) after the acronym DDP, for example DDP
Bujumbura and DDP Mbabane.

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

immediate predecessor, groups the term in four categories denoted by
the first letter in the three-letter abbreviation.
1 Under the “E”-TERM (EXW), the seller only makes the goods
available to the buyer at the seller’s own premises. It is the only one
of that category.
2 Under the “F”-TERM (FCA, FAS, &FOB), the seller is called upon to
deliver the goods to a carrier appointed by the buyer.
3 Under the “C”-TERM (CFR, CIF, CPT, & CIP), the seller has to
contract for carriage, but without assuming the risk of loss or damage
to the goods or additional cost due to events occurring after shipment
or discharge.
4 Under the “D”-TERM (DAF, DEQ, DES, DDU & DDP), the seller has to
bear all costs and risks needed to bring the goods to the place of
destination.
All terms list the seller’s and buyer’s obligations. The respective
obligations of both parties have been grouped under up to 10 headings
where each heading on the seller’s side “mirrors” the equivalent
position of the buyer. Examples are Delivery, Transfer of risks, and
Division of costs. This layout helps the user to compare the parties
respective obligations under each Incoterms.

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
1 Items
2 Specification
3 Pre-shipment inspection
4 Payment conditions
5 Special packaging
6 Labeling and marketing requirements
7 Shipment and delivery date
8 Marine insurance
9 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:
10 Credit Risk
11 Currency Risk
12 Carriage Risk
13 Country Risk
You can protect yourself against the above risks by initiating
appropriate steps.
Credit Risks :
You can cover your credit risk against the foreign buyer by insisting
upon opening a letter of credit in your favour. Alternatively one can
avail of the facility offered by various credit risk agencies. A specific
insurance cover can also be obtained from ECGC (Exports Credit &
Guarantee Corporation) to cover your country risk besides covering
credit risk.
Currency Risks:
As regards covering the currency risk, due to the exchange rate
fluctuations, you can request your banker to book a forward contract.
Carriage Risk:
The carriage risk can be covered by taking an appropriate general
insurance policy.
Country Risk:
ECGC provides cover to protect the exporter from country risks. A
detailed procedure how an exporter can get himself protected against
the above risks are given in separate chapters later.

EXPORT DOCUMENTS

Any export shipment involved various documents required by various

authorities such as customs, excise, RBI, Inspection and according
depending upon the requirements, there are categorized into 2
categories, namely commercial documents and regulatory documents.
A. Commercial Documents. : - Commercial documents are required for
effecting physical transfer of goods and their title from the exporter to
the importer and the realisation of export sale proceeds. Out of the 16
commercial documents in the export documentation framework as
many as 14 have been standardised and aligned to one another. These
are proforma invoice, commercial invoice, packing list, shipping
instructions, intimation for inspection, certificate, of inspection of
quality control, insurance declaration, certificate' of insurance, mate's
receipt, bill of lading or combined transport document, application for
certificate origin, certificate of origin, shipment advice and letter to the
bank for collection or negotiation of documents. However, shipping
order and bill of exchange could not be brought within the fold of the
Aligned Documentation System,
1. Commercial Invoice: Commercial invoice is an important and basic
export document. It is also known as a 'Document of Contents' as it
contains all the information required for the preparation of other
documents. It is actually a seller's bill of merchandise. It is prepared
by the exporter after the execution of export order giving details about
the goods shipped. It is essential that the invoice is prepared in the
name of the buyer or the consignee mentioned in the letter of credit. It
is a prima facie evidence of the contract of sale or purchase and
therefore, must be prepared strictly in accordance with the contract of
sale.
Contents of Commercial Invoice
1 Name and address of the exporter.
2 Name and address of the consignee.
3 Name and the number of Vessel or Flight.
4 Name of the port of loading.
5 Name of the port of discharge and final destination.
6 Invoice number and date.
7 Exporter's reference number.
8 Buyer's reference number and date.
9 Name of the country of origin of goods.
10 Name of the country of final destination.
11 Terms of delivery and payment.
12 Marks and container number.
13 Number and packing description.
14 Description of goods giving details of quantity, rate and total
amount in terms of internationally accepted price quotation.
15 Signature of the exporter with date.
Significance of Commercial Invoice
1 It is the basic document useful in preparation of various other
shipping documents.
2 It is used in various export formalities such as quality and pre-
Shipment inspection excise and customs procedures etc.
3 It is also useful in negotiation of documents for collection and claim
of incentives.
4 It is useful for accounting purposes to both exporters as well as
importers.
5 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.
6 Marine insurance policy: Goods in transit are subject to risk of loss of
goods arising due to fire on ship, perils of sea, theft etc. marine
insurance protects losses incidental to voyages and in land
transportation. Marine insurance policy is one of the most important
document used as collateral security because it protects the interest of
all those who have insurable interest at the time of loss. The exporter
is bound to insure the goods in case of CIF quotation, but he can also
insure the goods in case of FOB contract, at the request of the
importer, but the premium payment will be made by the exporter.
There are different types of policies such as
• SPECIFIC POLICY: This policy is taken to cover different risks for a
single shipment. For a regular exporter, this policy is not advisable as
he will have to take a separate policy every time a shipment is made,
so this policy is taken when exports are in frequent.
• Floating Policy: This is taken to cover all shipments for some months.
There is no time limit, but there is a limit on the value of goods and
once this value is crossed by several shipments, then it has to be
renewed.
• Open Policy: This policy remains in force until cancelled by either
party i.e. insurance company or the exporter.
• Open Cover Policy: This policy is generally issued for 12 months
period, for all shipments to one or more destinations. The open cover
may specify the maximum value of consignment that may be sent per
ship and if the value exceeded, the insurance company must be
informed by the exporter.
• Insurance Premium: Differs upon product to product and a number
of such other factors, such as, distance of voyage, type and condition
of packing, etc. Premium for air consignments are lowered as
compared to consignments by sea.
4. Consular Invoice: Consular invoice is a document required mainly
by the Latin American countries like Kenya, Uganda, Tanzania,
Mauritius, New Zealand, Myanmar, Iraq, Australia, Fiji, Cyprus,
Nigeria, Ghana, Guinea, Zanzibar, etc. This invoice is the most
important document, which needs to be submitted for certification to
the Embassy of the importing country concerned. The main purpose 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
1 It facilitates quick clearance of goods from the customs in exporter's
as well as importer's country.
2 Certification' of goods by the Consulate of the importing country
indicarer that the importer has fulfilled all procedural and licensing
formalities for import of goods.
3 It also assures the exporter of the payment from the importing
country.
Significance of Consular Invoice for the Importer
1 It facilitates quick clearance of goods from the customs at the port
destination and therefore, the importer gets quick delivery of goods.
2 The importer is assured that the goods imported are not banned for
imported in his country.
Significance of Consular Invoice for the Customs Office
1 It makes the task of the customs authorities easy.
2 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:-
1 The goods produced in a particular country are subject to’
preferential tariff rates in the foreign market at the time importation.
2 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:
¬
1 The authorised Chamber of Commerce of the exporting country.
2 Trade Association. Of the exporting country.
(b) Certificate of Origin for availing Concessions under GSP :-
Certificate of origin required for availing of concessions under
Generalised System of Preferences (GSP) extended by certain,
countries such as France, Germany, Italy, BENELUX countries, UK,
Australia; Japan, USA, etc. This certificate can be obtained from
specialised agencies, namely;
1 Export Inspection Agencies.
2 Jt. Director General of Foreign Trade..
3 Commodity Boards and their regional offices.
4 Development Commissioner, Handicrafts.
5 Textile Committees for textile products.
6 Marine Products Export Development Authority for marine products.
7 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, i.e. Canada
and New Zealand of the Commonwealth. For concession under
Commonwealth preferences, the certificates or origin have to be
submitted in special forms obtainable, from the High Commission of
the country concerned.

(d) Certificate for availing Concessions under other Systems of

Preference:- Certificate of origin is also required for tariff concessions.
under the Global System of Trade Preferences (GSTP), Bangkok
Agreement(BA) and SAARC Preferential Trading Arrangement (SAPTA)
under which India grants and receives tariff concessions On imports
and exports. Export Inspection Council (EIC) is the sole authority to
print blank Certificates of Origin under BA, SAARC and SAPTA which
can be issued by such agencies as EPCs, DCs of EPZs, EIC, APEDA,
MPEDA, FIEO, etc...
Contents of Certificate of Origin
1 Name and logo of chamber of commerce.
2 Name and address of the exporter.
3 Name and address of the consignee.
4 Name and the number of Vessel of Flight
5 Name of the port of loading.
6 Name of the port of discharge and place of delivery.
7 Marks and container number.
8 Packing and container description.
9 Total number of containers and packages.
10 Description of goods in terms of quantity.
11 Signature and initials of the concerned officer of the issuing
authority.
12 Seal of the issuing authority.
Significance of the Certificate of Origin

1 Certificate of origin is required for availing of concessions under

Generalised System of Preferences (GSP) as well as under
Commonwealth Preferences (CWP).
2 It is to be submitted to the customs for the assessment of duty
clearance of goods with concessional duty.
3 It is required when the goods produced in a particular country are
banned for import in the foreign market.
4 It helps the buyer in adhering to the import regulations of the
country.
5 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:
1 As a document of title to the goods;
2 As a receipt from the shipping company; and
3 As a contract for the transportation of goods.
Types of Bill of Lading
1 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.
2 Claused Bill of Lading: - A bill of lading qualified with certain
adversere marks such as, "goods insufficiently packed in accordance
with the Carriage of Goods by Sea Act," is termed as a claused bill of
lading.
3 Transhipment or Through Bill of Lading: - When the carrier uses
other transport facilities, such as rail, road, or another steamship
company in addition to his own, the carrier issues a through or
transhipment bill of lading.
4 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.
5 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.
6 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
1 Name and logo of the shipping line.
2 Name and address of the shipper.
3 Name and the number of vessel.
4 Name of the port of loading.
5 Name of the port of discharge and place of delivery.
6 Marks and container number.
7 Packing and container description.
8 Total number of containers and packages,
9 Description of goods in terms of quantity.
10 Container status and seal number.
11 Gross weight in kg. and volume in terms of cubic meters.
12 Amount of freight paid or payable.
13 Shipping bill number and date.
14 Signature and initials of the Chief Officer. .
Significance of Bill of Lading for Exporters
1 It is a contract between the shipper and the shipping company for
carriage of the goods to the port of destination.
2 It is an acknowledgement indicating that the goods mentioned in the
document have been received on board for the Purpose of shipment.
3 A clean bill of lading certifies that the goods received on board the
ship are in order and good condition.
4 It is useful for claiming incentives offered by the government to
exporters
5 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
1 It acts as a document of title to goods, which is transferable
endorsement and delivery.
2 The exporter sends the bill of lading to the bank of the importer so
as to enable him to take the delivery of goods.
3 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
1 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
2 Name of the airport of departure and destination.
3 The names and addresses of the consignor, consignee and the first
carrier.
4 Marks and container number.
5 Packing and container description.
6 Total number of containers and packages.
7 Description of goods in terms of quantity.
8 Container status and seal number.
9 Amount of freight paid or payable.
10 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.
Parties to bill of exchange.
1. The drawer: The exporter / person who draws the bill.
2. The drawee: The importer / person on whom the bill is drawn for
payment.
3. The payee: The person to whom payment is made, generally, the
exporter / supplier of the goods.
B Auxiliary Documents: These documents generally form the basic
documents based on which the commercial and or regulatory
documents are prepared. These documents also do not have any fixed
formats and the number of such documents will wary according to
individual requirements.
1. Proforma Invoice: The starting point of the export contract is in the
form of offer made by the exporter to the foreign customer. The offer
made by the exporter is in the form of a proforma invoice. It is a
quotation given as a reply to an inquiry. It normally forms the basis of
all trade transactions.
Contents of Proforma Invoice
• Name and address of the exporter.
• Name and address of the importer.
• Mode of transportation, such as Sea or Air or Multimodal transport.
• Name of the port of loading.
• Name of the port of discharge and final destination.
• Provisional invoice number and date.
• Exporter's reference number.
• Buyer's reference number and date.
• Name of the country of origin of goods.
• Name of the country of final destination.
• Marks and container number. .
• Number and packing description.
• Description of goods giving details of quantity, rate and total amount
in terms of internationally accepted price quotation.
• Signature of the exporter with date.
Importance of Proforma Invoice
• It forms the basis of all trade transactions.
• It may be useful for the importer in obtaining import licence or
foreign exchange.
2. Intimation for Inspection: Whenever the consignment requires the
pre-shipment inspection, necessary application is to be made to the
concerned inspection agency for conducting the inspection and issue of
certificate thereof.
3. Declaration of Insurance: Where the contract terms require that the
insurance to be covered by the exporter, the shipper has to give
details of the shipment to the insurance company for necessary
insurance cover. The detailed declaration will cover:
• Name of the shipper \ exporter.
• Name & address of buyer.
• Details of goods such as packages, quantity, value in foreign
currency as well as in Indian Rs. Etc.
• Name of the Vessel \ Aircraft.
• Value for which insurance to be covered.
4. Application of the Certificate Origin: In case the exporter has to
obtain Certificate of Origin from the concerned authorities, an
application has to be made to the concerned authority with required
documents. While the simple invoice copy will do for getting C\O from
the chamber of commerce, in respect of obtained the same from the
office of the Textile Committee or Export Promotion Council, the
documents requirement are different.
5. Mate's Receipt: Mate's receipt is a receipt issued by the
Commanding Officer of the ship when the cargo is loaded on the ship.
The mate's receipt is a prima facie evidence that goods are loaded in
the vessel. The mate's receipt is first handed over to the Port Trust
Authorities. After making payment of all port dues, the exporter or his
agent collects the mate's receipt from the Port Trust Authorities. The
mate's receipt is freely transferable. It must be handed over to the
shipping company in order to get the bill of lading. Bill of lading is
prepared on the basis of the mate's receipt.
Types of Mate's Receipts
• Clean Mate's Receipt: - The Commanding Officer of the ship issues a
clean mate's receipt, if he is satisfied that the goods are packed
properly and there is no defect in the packing of the cargo or package.
• Qualified Mate's Receipt: - The Commanding Officer of the ship
issues qualified mate's receipt, when the goods are not packed
properly and the shipping company does not take any responsibility of
damage. to the goods during transit.
Contents of Mate's Receipt
1 Name and logo of the shipping line.
2 Name and address of the shipper.
3 Name and the number of vessel.
4 Name of the port of loading.
5 Name of the port of discharge and place of delivery.
6 Marks and container number.
7 Packing and container description.
8 Total number of containers and packages.
9 Description of goods in terms of quantity.
10 Container status and seal number.
11 Gross weight in kg. and volume in terms of cubic meters.
12 Shipping bill number and date.
13 Signature and initials of the Chief Officer.
Significance of Mate's Receipt
1 It is an acknowledgement of goods received for export on board the
ship.
2 It is a transferable document. It must be handed over to the
shipping company in order to get the bill of lading.
3 Bill of lading, which is the title of goods, is prepared on the basis of
the mate's receipt.
4 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
1 The export promotion scheme under which goods are to be
exported.
2 Name of the specific vessel on which the goods are to be loaded.
3 If goods are to be FCL or LCL.
4 If freight amount are to be paid / collected.
5 If shipment are covered under A.R.E.-1 procedure.
6 Instructions for obtaining Bill of Lading etc.
8. Bank letter for negotiation of documents: at the post shipment
stage, the exporter has to submit the documents to a bank for
negotiation or discounting or collection for forwarding the same to the
customer and also for realization of export proceeds. The bank letter is
the set of instruction for the bank as to how to handle the documents
by them and by the bank at the buyer’s country which may include
1 Name and address of the buyer.
2 Details of various documents being sent and the number of the
copies thereof.
3 Name and address of the buyer’s bank if available.
4 If the documents are sent L/C or on open terms.
5 If the proceeds are to adjusted against any pre-shipment packing
credit loan.
6 If the bill amount is to be adjusted against any forward exchange
cover.
7 In case of credit bill who has to bear the interest, either exporter or
if the same is to be collected from the buyer.
8 Instructions in case non-acceptance/non-payment by the buyer.

C. Regulatory Document: Regulatory pre-shipment export documents

are prescribed by the different government departments and bodies in
order to comply with various rules and regulations under the relevant
laws governing export trade such as export inspection, foreign
exchange regulation, ex port trade control, customs, etc. Out of 9
regulatory documents four have been standardised and aligned. These
are shipping bill or bill of export, exchange control declaration (GR
from), export application dock challan or port trust copy of shipping bill
and receipt for payment of port charges.
1. Shipping Bill: Shipping bill is the main customs document, required
by the customs authorities for granting permission for the shipment of
goods. The cargo is moved inside the dock area only after the shipping
bill is duly stamped, i.e. certified by the customs. Shipping bill is
normally prepared in five copies :-
1 Customs copy.
2 Drawback copy.
3 Export promotion copy.
4 Port trust copy.
5 Exporter's copy.
Types of Shipping Bill
Based on the incentives offered by the government, customs
authorities have introduced three types of shipping bills:-
1 Drawback Shipping Bill: - Drawback shipping bill is useful for
claiming the customs drawback against goods exported.
2 Dutiable Shipping Bill: - Dutiable shipping bill is required for goods
which are subject to export duty.
3 Duty-free Shipping Bill: - Duty-free shipping bill is useful for
exporting goods on which there is no export duty.
In order to facilitate easy recognition and quick processing, following
colours have been provided to different kinds of shipping bills :
Types of goods By Sea By Air
Drawback shipping bill Green Green
Dutiable shipping bill Yellow Pink
Duty-Free shipping bill White Pink
Contents of Shipping Bill
1 Name and address of the exporter.
2 Name and address of the importer.
3 Name of the vessel, master or agents and flag.
4 Name of the port at which goods are to be discharged.
5 Country of final destination.
6 Details about packages, description of goods, marks and numbers,
quantity and details of each case.
7 FOB price and real value of goods as defined in the Sea Customs Act.
8 Whether Indian or foreign merchandise to be re-exported
9 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
Central Excise rules for export of goods. In case goods meant for
export are cleared directly from the premises of a manufacturer, the
exporter can avail the facility of exemption from payment of terminal
excise duty. The goods may be cleared for export either under claim
for rebate of duty paid or under bond without payment of duty. In both
the events the goods are to be cleared under form A.R.E-1 which will
show the details of the goods being exported, the relevant duty
involved and if the duty is paid or goods being cleared under bond,
details of goods being sealed either by the exporter or Central Excise
officials etc.
3. Exchange Control declaration Form (GR/PP/SOFTEX): under the
exchange control regulations all exporters must declare the details of
shipment for monitoring by the Reserve Bank of India. For this
purpose, RBI has prescribed different forms for different types of
shipments like GRI, PP forms etc. These declaration forms must be
presented to the customs officials at the time of passing of export
documentation. Under the EDI processing of shipping bill in the
customs, these forms have been dispensed with and a new form SDF
has to be submitted to the customs in the place of above forms.
4. Export Application: this is the application to be made to the customs
officials before shipment of goods. The prescribed form of the
application is the Shipping Bill/Bill of Export. Different types are
required for shipment like ex-bond, duty free goods, and dutiable
goods and for export under different export promotion schemes such
as claims for duty drawback etc.
5. Vehicle Ticket/Cart Ticket/Gate Pass etc.: before the goods are
being taken inside the port for loading, necessary permission has to be
obtained for moving the vehicle into the customs area. This permission
is granted by the Port Trust Authority. This document will contain the
detail of the export cargo, name and address of the shippers, lorry
number, marks and number of the packages, driver’s licence details
etc.
6. Bank Certificate of Realisation: this is the form prescribed under the
Foreign Trade Policy, wherein the negotiating bank declares the fob
value of exports and for the date of realisation of the export proceeds.
This certificate is required fore obtaining the benefit under various
schemes and this value of fob is reckoned as fob value of exports.
D. Other Document:
1 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”.
2 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.
3 Freight Payment Certificate: in most of the cases, the B/L or AWB
will mention the transportation and other related charges. However if
the exporter does not want these details to be disclosed to the buyer,
the 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.
4 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.
5 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.
6 Customs Invoice: this is required by the countries like Canada, USA
for imposing preferential tariff rates.
7 Legalized Invoice: this is required by the certain Latin American
Countries like Mexico. It is just like consular invoice, which requires
certification from Consulate or authorised mission, stationed in the
exporter’s country.
Special Provision under Uniform Customs and practice for
Documentary Credit UCP-500, for Commercial Invoice:
1 Article-37: Commercial Invoice
2 Must appear on their face to be issued by the beneficiary named in
the credit.
3 Must be made out in the name of the applicant.
4 Need not be signed
5 Banks may refuse Commercial Invoice issued for amounts in excess
of the amount permitted by the credit except otherwise stated.
6 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:
1 Shipping bill.
2 Export order/Sales contract/Purchase order.
3 Letter of Credit
4 Commercial invoice.
5 Packing list.
6 Certificate of origin.
7 Guaranteed Remittance (G.R/SDF/PP/SOFTEX),or SDF.
8 Certificate of Inspection.
9 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’
1 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.
2 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.
3 PP FORM: to be completed in duplicate for export by post.
4 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.
1 Name and address of the authorised dealer through whom proceeds
of exports have been or will be realized should be specified in the
relevant column of the form.
2 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.
3 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
4 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.
5 All documents relating to the export of goods from India must pass
through the medium of an authorised dealer in foreign exchange in
India within 21 days of shipment.
6 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
1 GR forms covering export of goods other than jewellery should be
completed by the exporter in duplicate and both the copies should be
submitted to customs at the port of Shipment. Customs will give their
running serial number on both the copies of the GR forms after
verifying the particulars and admitting the corresponding shipping bill.
The value declared by the exporter will also be verified by the customs
and they will also record the assessed value. Duplicate copy will be
returned to the exporter and the original will be remained by the
customs for onward submission to the Reserve Bank. Duplicate form of
the GR form will again be presented to the customs at the time of
actual shipment. After examination of goods and certifying the
quantity passed for shipment the duplicate copy will again be returned
to exporter for submission to an authorised dealer. However, an
exception to submission of GR forms to the Customs authorities have
been made in case of deep sea fishing.
2 (a) PP forms are to be first presented to an authorised dealer for
countersignature. The form will be countersigned by the authorised
dealer only if the post parcel is addressed to his branch or
correspondent bank in the country or import. The concerned overseas
branch or correspondent is to be instructed to deliver the post parcel
against payment or acceptance of relevant bill, as the case may be.
(b) For post parcel addressed directly to the consignee, the authorised
dealer will countersign the form, provided —
(i) an irrevocable letter of credit for the full value of export has been
opened in favour of exporter and has been advised through authorised
dealer concerned; or
(ii) the full value of shipment has been received in advance by the
exporter through an authorised dealer; or
(iii) On receipt of full value of shipment declared on this form the
authorised dealer will forward to RBI the duplicate copy along with the
certified copy of shipper’s invoice.
(iv) The authorised is satisfied on the basis of standing and track
record of the exporter and arrangements made for realisation of the
export proceed that he cold do so. If the authorised dealer is not
satisfied about standing etc. of the exporter, the application is
rejected. No reference is entertained by the Reserve Bank in such
cases.
(c) The original PP form countersignature will be returned to the
exporter by the authorised dealer and the duplicate will be retained by
him. Original PP form should then be submitted to the post office along
with the parcel. The post office through the goods have been
dispatched will forward the original to RBI.
The export of computer software may be undertaken in physical form
i.e. software prepared on magnetic tape and paper media as well as in
non-physical form by direct data transmission through dedicated earth
stations/satellite links. The export of computer software in physical
form is subject to normal declaration on GR/PP form and regulations
applicable there to will also be applicable to such exports. However,
export of non-physical form should be declared on SOFTEX Form.
Besides computer software, export of video / T.V. Software and all
other types of software products / packages should also be declared
on the SOFTEX forms. Since export of software is fraught with many
risks and special guidelines have been framed for handling such export

OCTROI

1 Octroi is the local tax levied by the civic body on goods entering into
the city.
2 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.
1 At Octroi Naka form B is issued with cash receipt for the payment of
Octroi Duty.
2 Cargo is moved to the docks.
3 At Docks Octroi officer prepares form”C” & endorses Shipping Bill
Number & Steamers Name.
4 After shipment exporter prepares claim for refund by submitting
following documents:
5 Covering Letter for refund of Octroi Duty.
6 Original receipt of Octroi paid.
7 Original Form B.
8 Original Form C.
9 Invoice under which material was bought to the city.
10 Export invoice issued by the Exporter to the importer.
11 Export Promotion Copy of Shipping Bill – Photo Copy.
12 Bill of Lading or Airway Bill Copy.

Procedure – 2, Export without payment of Octroi Duty.

N Form Procedure.
1 Prepares form N in 3 copies.
2 Checking of documents Shipping Bill, Carting order, Export Invoice
by Octroi officer.
3 Under taking that the goods will be cleared for export within 7 days
of clearance through the octroi post.
4 Octroi officer at Docks will endorse the Shipping Bill number &
shipment details on N form.
5 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:
1 Registration form + IEC / RCMC + CA Certificate.
2 Number will be allotted.
3 Fees Rs. 500/-
Documents Checked
1 Factory Challan cum Invoice.
2 ARE –1.
3 EP forms 3 copies.
4 Export order.
5 Shipping Bill.
Consignment Removed to Docks and Proof of Export to be given to
Octroi authorities.
1 Company’s Letter.
2 EP form.
3 EPC.
4 Bill of Lading.
5 Shipping Bill – 6.25% Service charge.
Bar Coding
1 It is the endeavor of the Central Government to enhance export
competitiveness of the Indian products and to promote substantially.
2 Compliance with prevalent international best practices.
3 National task force has recommended adoption of Bar-coding for all
Indian products within five years.
4 Bar coding, using International Symbologies / Numbering, systems
would enable timely and accurate capture of product information and
its communication across the supply chain ahead of physical product
flow.
5 With the ultimate objective of facilitating adoption of Bar-coding for
all products using international Symbologies numbering systems all
exports of finished and packaged items meant for retail sale shall
incorporate barcodes from a date to be notified by DGFT.
MARINE INSURANCE POLICY
Goods in transit are subject to risks of loss of goods arising due to fire
on the ship, perils of sea, thefts etc. Marine insurance protects losses
incidental to voyages and in land transportation.
Marine Insurance Policy is one of the most important document used
as collateral security because it protects the interest of all those who
have insurable interest at the time of loss. The exporter is bound to
insure the goods in case of CIF quotation, but he can also insure the
goods in case of FOB contract, at the request of the importer, but the
premium payment will be made by the exporter.
There are different types of policies such as
Specific Policy: This policy is taken to cover different risks for a single
shipment. For a regular exporter, this policy is not advisable as he will
have to take a separate policy every time the shipment is made, so
this policy is taken when exports are infrequent.
Floating Policy: This policy is taken to cover all shipments for same
months. There is no time limit, but there is a limit on the value of
goods and once this value is crossed by several shipments, then it has
to be renewed.
Open Policy: This policy remains in force until cancelled by either
party, i.e. insurance company or the exporter.
Open Cover Policy: This policy is generally issued for 12 months
period, for all shipments to one or all destinations. The open cover
may specify the maximum value of consignment that may be sent pre
ship and if the value exceeded, the insurance company must be
informed by the exporter.
Insurance Premium: Differs upon from product to product and a
number of other such factors, such as, distance of voyage, type and
condition of packing etc. Premium for air consignments are lower as
compared to consignments by sea.
The Insurance Policy Normally Contains:
1 The name and address of the insurance company.
2 The name of the assured & description of the risk covered.
3 A description of the consignment.
4 The sum insured & the date of issue.
5 The place where claims are payable together with details of the
agent to whom claims may be directed & Any other details, as
applicable.

QUALITY CONTROL AND PRE-SHIPMENT INSPECTION

Realizing the importance of the need for supplying quality goods as per
international standards, the Government of India has introduced
Compulsory Quality Control and Pre-Shipment Inspection of over 1050
items of export under Export (Quality Control and Pre-Shipment
Inspection) Act 1963.
At present, the export items that are subjected to compulsory
inspection includes food and agricultural products, chemicals,
engineering, coir, jute and footwear.
Compulsory Pre-shipment Inspection:
1 Foods and Agriculture & Fishery
2 Mineral & Ore
3 Organic & Inorganic Chemicals
4 Refectories & Rubber Products
5 Foot wear & Foot wear components
6 Ceramic Products & Pesticides
7 Light Eng. Products
8 Steel ;Products
9 Jute Products
10 Coir & Coir Products
Exemption from compulsory Pre-shipment Inspection:
1 Status Houses
2 Certification by Units IPQC – approved by EIA
3 EUO/EPZ/SEZ
4 Firm Letter from the overseas buyer
5 Specified products such as Eng/Fishery average level of Rs.1.5 Cr.for
the last three years no compliant.
For monitoring pre-shipment inspection, Govt. of India has set up
Export Inspection Council (EIO) The EIC has set up 5 Export Inspection
Agencies (EIA). The EIAs are located one each at Mumbai, Calcutta,
Cochin, Delhi and Chennai. The EIAs has a network of nearly 60 offices
throughout India. Each EIA is given certain jurisdiction for inspection
purpose. For instance, EIA of Mumbai has jurisdiction over
Maharashtra, Gujarat and Goa.
Systems of Quality Control:
For the purpose of pre-shipment inspection, EIC has recognized three
systems of inspection namely:
1 Self-Certification
2 In-Process Quality Control
3 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:
1 He has to make an application to Export Inspection Agency with
certain documents.
2 The EIA deputes inspector to inspect the goods
3 After the inspection, the goods are repacked with EIA seal
4 The inspector then makes a report to Deputy Director of EIA
5 The Dy. Director of EIA then issues Inspection Certificate in triplicate
if the inspection report is favorable
6 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/ISO
9000 are not required to be inspected by any agency
o Overseas buyer may depute his own inspection team to inspect the
goods
o Inspection of textile goods is conducted by Textile Committee in
respect of those exporters who are registered with the textile
committee.
Norms:
1 Adequate Testing Facility
2 Raw Material Testing & Process Control
3 After Sales Services & Maintaining Product Quality
4 Control on bought out components
5 Meteorological Control & PKG.
6 Independent Quality Audit & Houses.
Fumigation: For ensuring that no insects or bacteria are carried with
the export certain types of export products are fumigated before
shipment. The fumigation is carried out in the port of shipment.

SHIPPING AND CUSTOMS FORMALITIES

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

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

1 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
2 Carting Order: The exporter’s agent has to obtain the carting order
from the Port Trust Authorities. Carting Order is the permission to
bring the goods inside the docks. The carting order is issued by the
superintendent of Port Trust. Carting Order is issued only after
verifying the endorsement on the duplicate copy of shipping bill. The
Carting Order enables the exporter’s agent to cart goods inside the
docks and store them in proper sheds.
3 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.
4 Examination of Goods: The exporter’s agent then approaches the
customs examiner to examine the goods. The customs examiner
examines the cargo and records his report on the duplicate copy of the
shipping bill. The customs examiner then sings the “Let Export Order”
5 Let Export Order: The Let Export Order is then shown to the
Customs Preventive Officer, along with other documents. The CPO is in
charge of supervision of loading operations on the vessel. If CPO finds
everything in order, he endorses the duplicate copy of shipping bill
with the “Let Ship Order” This order helps the exporter/shipper to load
the goods on the ship.
6 Loading Goods: The goods are then loaded on the ship. The CPO
supervises the loading operations. After loading is completed, the Chief
Mate (Cargo Officer) of the ship issues the “Mate’s Receipt”. The
Mate’s Receipt is sent to the Port Trust Office. The C&F agent pays the
port trust dues and collects the mate’s receipt. The C&F agent then
approaches the CPO and gets the certification of shipment of goods on
AR Forms and other documents
7 Obtaining Bill of Lading: The Mate’s Receipt is then handed over to
the shipping company (on whose vessel the goods are loaded). The
shipping company issues bill of lading. The Bill of Lading is issued in:
o 3 negotiable copies of Bill of Lading
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:
1 Preparing of Invoice: The export goods have to be cleared from the
factory under invoice. The invoice contains details like name of the
exporter, value of goods, excise duty chargeable, etc. The invoice is to
be prepared in triplicate. In case of export under Bond, the invoice
should be marked as “For Export without payment of duty”. In addition
to the invoice, a prescribed for ARE 1 has to be filed in by exporter.
2 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.
3 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.
4 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
5 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.
6 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.
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.
7 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
1 Obtain permission from the Customs for getting the container to his
mills premises for stuffing (House Stuffing)
2 Inform the C.Excise Authorities at least 24 hours before bringing the
container for loading.
The C.Excise Authority will supervise the loading, seal the container
and certify the invoice as directed in the permission given by the
custom authorities. A special Lock is used to lock the doors of the
container. Samples from the goods will be drawn, if necessary, as
required under the customs permission. Such samples will be sealed
and forwarded along with the container. The examiner in the docks
may arrange to send the sample for testing. Then the container is
moved to the dock for loading. Generally, such containerized goods
are not subject to further examination in the customs. They will be
directly taken for loading.

SALES TAX EXEMPTION PROCEDURE

Export good are exempted from the payment of sales tax. The
exporter can claim exemption from sales tax (on purchases or sales for
export purpose), provide the exporter is registered with the Sales-Tax
Department. If the exporter is not registered with the sales tax
department, he cannot utilize the facility of sales tax exemption.
Therefore, it is necessary for the exporter to get his organization
registered with sales tax department.
I Registration Procedure
1 Application: The exporter must apply to the Sales Tax Officer (STO)
under whose jurisdiction the head/ registered office of the exporter is
located.
2 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.
3 Inspection: The inspector visits the office of the exporter and
inspects the necessary books and other documents.
4 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.
5 Security Bond: The STO normally requires the exporter to provide a
security bond from another firm which is registered with the Sales Tax
Department.
6 Granting of Sales Tax Reg. Number: After completing necessary
formalities, the STO grants Sales Tax Reg. Number to the exporter.
II. Exemption Procedure
1 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 exporter’s company stamp
on the Form ’H’.
1 Filling the details in Form ‘H’: After export of goods, the exporter fills
the relevant details in ‘Form H’. The Form ‘H’ needs to be prepared in
triplicate.
The exporter retains one copy, and other two copies are sent to the
seller from whom the exporter purchased the goods for export
purpose. The seller than sends on copy of Form ‘H’ to STO along with
the Return of Sales Tax. The other copy is retained by seller. The STO
may issue refund order to the exporter.

METHODS OF RECEIVING PAYMENT AGAINST EXPORTS

Before we proceed to understand the concept of Letter of Credit, let us
understand the various types of payment methods available against
export.
METHODS OF PAYMENT
There are three methods of payment depending upon the terms of
payment, and each method of payment involves varying degrees of
risks for the exporter. The methods are:
2 Payment in advance
3 Documentary Bills
4 Letter of Credit
5 Open Account
6 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:
1 The financial position of the buyer is weak or credit worthiness of the
buyer is not known.
2 The economic/ political conditions in the buyer’s country are
unstable.
3 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:
1 The goods are specifically designed for the customer, and
2 There is heavy demand for the goods (a seller’s market situation).
B. DOCUMENTARY BILLS:
Under this method, the exporter agrees to submit the documents to
his bank along with the bill of exchange. The minimum documents
required are
1 full set of bill of lading
2 commercial Invoice
3 Marine Insurance policy and other document, if required.
There are two main types of documentary bills:
1 Documents against Payment,
2 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:
1 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,
2 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 more secured as company to other methods of payment
(other than advance payment).
A letter of credit can be defined as “ an undertaking by importer’s
bank stating that payment will be made to the exporter if the required
documents are presented to the bank within the variety of the L/C”.
THE LETTER OF CREIDT
Introduction
The cycle of a business transaction can be said to be complete prima
facie when the buyer has received the product he desires to buy and
the seller gets his payment in due consideration of the product
supplied.
While the seller is keen to receive the payment for his supplies, the
buyer is equally keen that he gets what he wants by the paying for the
same.
Tough there are many merit and demerits in each of the different
mode of payments we have discussed earlier, in relation either to the
buyer or to the seller, we shall now deal in detail about the mode of
payment under the Documentary Credit.
Generally, though exporters are complacent once they get the letter of
Credit on hand feeling that their payment is secured, let me say it is as
much a dubious instrument as is a safe instrument.
If one does not understand the implications of the terms and condition
of a letter of credit, the provisions under UCP 500, how co-operative
are the exporter’s bank and how good are the L/C opening bank and
the reimbursement bank, he is sure to land in trouble at once stage or
another.
There are ample cases of frauds under the Letter of Credit. More and
more ingenious methods are adopted to circumvent the provisions of
UPC 500 by fair or foul means. Hence, even the safety and security
under the Letters of Credit may prove to be no better than a mirage
for a man in the desert.
Hence, sufficient care is to be taken by the exporter to ensure that
instrument is received in order and the conditions of the L/C can be
well complied with, and there are no clauses of ambiguity.

What is a Documentary Credit?

To say in simple language, this is an Undertaking by a Bank associated
with the buyer to make the payment for the supply of goods by a
seller subject to compliance of various requirements that may be
specified in the document of undertaking by the Bank. This document
is known as Documentary Credit. A Documentary Credit is also called a
Letter of Credit (L/C).
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.
1 name and address of the bank establishing the letter of credit
2 letter of credit number and date
3 The letter of credit is irrevocable
4 Date of expiry and place of expiry
5 Value of the credit
6 Product details to be shipped
7 Port of loading and discharge
8 Mode of transport
9 Final date of shipment
10 Details of goods to be exported like description of the product,
quantity, unit rate, terms of shipment like CIF, FOB etc.
11 Type of packing
12 Documents to be submitted to the bank upon shipment
13 Tolerance level for both quantity and value
14 If L/C is restricted for negotiation
15 Reimbursement clause

PROCEDURE INVOLVED IN THE LETTER OF CREDIT

The following are the step in the process of opening a letter of credit:
1 Exporter’s Request: The exporter requests the importer to issue LC
in his favor. LC is the most secured form of payment in foreign trade.
2 Importer’s Request to his Bank: The importer requests his bank to
open a L/C. He May either pay the amount of credit in his current
account with the bank.
3 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.
4 Receipt of LC: the exporter takes in his possession the L/C. He
should see it that the L/C is confirmed.
5 Shipment of Goods: Then exporter supplies the goods and presents
the full set of documents along with the draft to the negotiating bank.
6 Scrutiny of Documents: The negotiating bank then scrutinizes the
documents and if they are in order makes the payment to the
exporter.
7 Negotiation: The exporter’s bank negotiates the document against
the letter of credit and forwards the export documents to the L/C
opening bank or as per their instructions.
8 Realization of payment: The issuing bank will reimburse the amount
(which is paid to the exporter) to the negotiating bank.
9 Document to Importer: the issuing in turn presents the documents
to the importer and debits his account for the corresponding amount.
In order to have uniformity and to avoid disputes, the ICC Paris has
evolved uniform customs and practices of documentary credit
(UCPDC), in short known as UCP 500 effective from 1-1-96. These are
rules have been adopted by more than 150 countries. They provide
the comprehensive and practical working aid to banker, lawyer,
importers, exporters, Exporters, transporters, executives involved in
international trade.
Note: as soon as an L/C is received ensure that the same is
authenticated. Meaning that the genuineness of the L/C is certified by
the Advising Bank by an endorsement with the marking
‘AUTHENTICATED’ OR ELSE THE L/C IS OF NO USE.
Different Type of Documentary Credits.
There are various types of Documentary Credit opened by a bank in
favour of it’s customer depending upon the requirement. Let us talk
about few types of Documentary Credit which are in common use.
1 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.
2 Restricted/ Unrestricted Documentary Credit: A Documentary Credit
stipulates the name of the bank who is authorized to negotiate the
document for claming the reimbursement. In this case the beneficiary
is obliged to negotiate the documents only through the specified bank
i.e. Negotiation of document is restricted to that particular bank. On
the contrary if no specific bank is nominated for negotiation, it may
say ‘Negotiation by any bank’ which means the beneficiary is free no
negotiate the document through the bank of his choice. This is
beneficial because he can negotiate the documents through his own
bank where he is having an account. Since the bank is not alien to
him, he will not face any practical/procedural difficulty in negotiating
the document. It is suggested to have an unrestricted L/C or L/C which
may be restricted to the bank of the beneficiary’s choice.

1 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 beneficiary’s country
by the bank which confirms the L/C immediately upon negotiation of
the documents. The beneficiary do not stand the risk of waiting for the
document to reach the opening bank who will have the final say so to
the compliance under the L/C before making the payment. Further, the
payment is also made immediately after negotiation and without
recourse to the beneficiary i.e. the payment once made by the
confirmed bank cannot be revoked. Moreover, if the importing
country’s regulation changes and the money is not allowed to be
repatriated, this will eliminate the risk. On the contrary, in an
unconfirmed L/C, the negotiating bank only accepts the documents
and pays for the same with recourse i.e. if as and when the documents
reach the opening bank, and the opening find some discrepancy in the
documents it may refuse to make the payment or seek clarification for
the applicant before reimbursement. The beneficiary is fully at the
mercy of the opening bank for payment. It is suggested to ask for a
Confirmed L/C.
2 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.
1 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.
2 Revolving Documentary Credit: Where an exporter is having a
regular shipment for a particular customer and the value of each
shipment may also be of more or less equal value, and then one can
call for a Revolving Documentary Credit. The salient feature of this L/C
is that the buyer opens an L/C which can take care of shipments, say,
may be for a period of one year on a monthly basis.
For e.g. an exporter enters into a contract for supply of 5000 pairs of
Trousers valued approx.US.$.75,000/- to be shipped every month. The
buyer can open an L/C for a value of US.$.75000/- with validity for 12
months stipulating shipment every month for a value of US$. 75000/-
and by adding a clause to make 12 shipment of like value the L/C
stands replenished for the full value of the L/C after each shipment is
made the documents are negotiated for which payment are also made
immediately for the value of the shipment. The main benefit in this L/C
is that the buyer, the bank and the exporter are saved from the
routine of opening one L/C every month, the anxiety of non-receipt of
the L/C on time, the amendments that may be warranted every time,
the bank charges for opening number of L/Cs etc.,. A revolving
Documentary Credit may have cumulative effect i.e. if a particular
shipment is not made, then the value is added to the value for future
utilization. In an automatic Revolving Credit, the bank is liable for the
total amount covering the entire shipment and where it is non-
automatic its responsibility is restricted to the value of one shipment.
In automatic Revolving Credit the value of the credit is automatically
replenished by an amendment.
Where there are continuous shipments like the one stated above one
can call for a Revolving Letter of Credit.
1 Assignable Documentary Credit: In this type of L/C the benefit is
shared between the first beneficiary and the parties whose names are
assigned on the L/C. The assignee is not a party to the letter of credit
but he only derives the benefit as per the L/C. this is more beneficial
to the assignee because he receives his part of the money once the
documents are negotiated by the first beneficiary in whose name the
L/C is opened. Calls for an L/C as necessary.
2 Stand by Letter of Credit: This is aimed at providing a security to a
seller in case the buyer fails to perform his part. Thus this L/C is used
in case of non-performance while the other types of L/Cs are generally
for some performance. Such credits are paying on first presentation
and the only document required therein is a simple declaration of non-
performance along with the statement of claim. This type of L/C is
mainly common in U.S.A.
A standby Documentary Credit is generally common on open account
trading where the seller may expect some security for getting his
payment. This is not permitted in India.
1 Red Clause LC: The red clause LC is the usual irrevocable LC with
further authorities the negotiating bank to make advance to the
beneficiary for the purpose of processing the export goods. Thus, the
red LC enables the exporter to obtain packing credit facility for the
purpose of processing the goods. It is called a red-cause LC because it
is generally printed/ typed in red ink.
2 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.
3 Back-to-Back LC: Back-to Back LC is a domestic letter of credit. It is
a ancillary credit created by a bank based on a confirmed export LC
received by the direct exporters. The direct exporter keep the original
LC (received from issuing bank) with the negotiating or some other
bank in India, as a security, and obtains another LC in favour of
domestic supplier. Through this route the domestic supplier gains
direct access to a pre-shipment loan based on the receipt of domestic
or back-to-back LC.
4 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:
5 Bill of Lading /Airway Bill or any other transport document
6 Commercial Invoice
7 Insurance Policy
8 Shipping Bill
9 Certificate of Origin
10 Combined Invoice and Certificate of Value and Origin
11 GSP/CWP certificate
12 Packing List
13 Certificate of Quality Inspection
14 Bill of Exchange
15 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.
1 Traveler’s LC: Traveler’s LC is issued to the person who intends to
make a journey abroad. The correspondent/ agent of the bank honors
all the cheques drawn on this credit by its holder up to the amount
mentioned in LC. Traveler’s LC has more advantages as compared to
traveler’s cheques. In case of cheque, the holder can withdraw up to
the amount of the cheque. Again, he has to carry a number of cheque.
In case of traveler’s LC, the holder can draw any amount up to the
limit mentioned in the LC, and he need to carry only one paper of LC.
Types of Payments under a Documentary Credit.
Payment under a documentary credit can be of the following types:
1 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.
2 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.
3 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).
4 Negotiation Credit: Here the payment is made by the negotiating
bank upon negotiation of the documents if it prepares to take the risk
and will recourse to the beneficiary. If the credit is confirmed, then the
negotiation bank is obliged to make the payment upon submission of a
clean document by the beneficiary.
Expect in the case of confirmed L/C there is always a time lag between
the date of negotiation of the document and the date of receipt of the
payment. This is a grey area. If the bank acts swiftly and without
prejudice, one gets payment within a week’s time. If the payment is
delayed beyond this time, though an exporter has every right to ask
for compensation, in actual practice, no justice is done to the exporter
for the delayed payment. Very rarely, on persistent approach by the
exporter/their banker, does a defaulting bank comes forward to
compensate for the delayed payment. Generally the exporter has to
forego lot of money in correspondence through the negotiating bank
because every communication of the bank is charged to the exporter.
It is no surprise many exporter suffer this loss silently.
Feature of a Documentary Credit
A documentary credit is a document in writing issue by the bank on
behalf of its customer (The Buyer). Documentary Credit must stipulate
the Type of Credit as detailed above and inter alia will also stipulate
the
Following details :
1 the name of the Bank issuing the Documentary Credit.(The L/C
Opening Bank)
2 the name and address of the buyer on whose behalf the credit is
Issued.(The Applicant)
3 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.
4 The name and address of the Seller (Beneficiary)
5 The Maximum Value the opening bank undertakes to pay to the
Beneficiary.
6 The date of issue of the credit.
7 The Expiry Date of the L/C
8 The Validity Date for shipment.
9 The Details of the product to be shipped.(Description)
10 Details of document required for claiming the payment from the
Opening bank.
11 The name and address of the bank authorized to negotiate the
documents.
12 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
1 First and foremost that the credit is properly authenticated by the
advising bank.
2 The letter of credit has been opened in accordance with the terms of
the contract.
3 The name and address of the beneficiary has been spelt properly.
4 The details of product description, quality, and value are in order.
5 The validity of shipment and expiry are correct.
6 The documents that are required can be submitted.
7 There is sufficient % of tolerance of quantity and value.
8 The unit price and the terms of contract are correct.
9 The terms and conditions stipulated can be complied with.
10 That the credit is available for negotiation without restriction.
11 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.
12 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.
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:
1 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.
2 The negotiating bank can claim reimbursement directly from a
nominated bank (say ABC Bank, New York) either upon negotiation of
documents or after a period of ¾ days of negotiation subject to the
documents being submitted by the beneficiary is strictly in conformity
with terms and condition of the letter of credit.
I for one prefer the reimbursement clause as in b) so that on one hand
my bank sends the documents to the opening bank and at the same
times claims the reimbursement from nominated bank.
These are some of the aspects one should take care to ensure that the
L/C established in his favor is in order and that he can comply with all
the provision thereof. However, one is advised to make a checklist and
take a note of each and every condition of the L/C for compliance at
the right time.
PARTIES TO LETTER OF CREDIT
1 Applicant: the buyer or importer of goods.
2 Issuing Bank: importer’s bank who issues the L/C.
3 Beneficiary: the party to whom the L/C is addressed. The seller or
supplier of goods.
4 Advising Bank: issuing bank’s branch or correspondent bank in the
exporter’s country to which the L/C is sent for onward transmission to
the beneficiary.
5 Confirming Bank: the bank in beneficiary’s country which guarantees
the credit on the request of the issuing bank. (Many a times the
advising bank and confirming bank are one and the same).
6 Negotiation Bank: the bank to whom the beneficiary present his
documents for Payment u Under L/C.
7 Reimbursing Bank: the bank which will reimburse the negotiating
bank for the value of the credit.
Where an L/C stipulates that the Negotiation is restricted to a specific
bank which is not the Advising Bank or Where the L/C is not restricted,
and the seller desires to negotiate the document which is not the
advising bank, then we have a separate Negotiating Bank.
Where the opening bank prefers to advise the L/C through its own
branch in the beneficiary country or through another bank of its
choice, then the L/C may be advised to the beneficiary directly by this
bank or if it instructed to advise the L/C through the buyer’s
nominated bank then it does so. Here, we have two advising bank.
As far as possible, one should restrict the involvement of the number
of the banks to the minimum. More the number of the banks, more the
time in the transmission of the L/C, in addition to multiplicity of bank
charges.
SPECIAL NOTE
Though one may strongly feel that a Letter of Credit is the safest mode
of payment, one will face innumerous practical difficulties in so far as
compliance with the terms and conditions of the L/C. since several
documents are involved, there are every possible of discrepancy in the
documents either between different documents or between the
document or between the document and the L/C. the Negotiating bank
soft pedal some of the discrepancies which they feel may not be
pointed out by the opening bank as discrepancy to favour its
customer. In the like manner the opening bank, to safeguard the
interest of the buyer, would like to ensure that the document
submitted against a Letter of Credit are strictly in full conformity of the
L/C.
For mastery of the operation under the Letter of Credit one is advised
to completely study the various articles of the UCP 500 so that one can
be clear in his mind as to the various provisions available under the
Documentary Credit which will stand good while negotiating the
documents with the bank. While the articles of UCP 500 come
safeguard the interest of both the buyer and the seller, there are
certain elements which may be outside the definition of the UPC 500.
Also there is certain flexibility provisions in the UPC 500 which one
might like to exploit to his favour.
So, in spite of the L/C being the safest method to ensure the payment,
unless both the buyer and the seller follow the business ethics there is
every chance that one gets cheated by the other. As a prudent
exporter one should be very careful in selecting his customer apart
from taking other safety measures.
If the customer is too good, and you have been dealing with them for
a long time, one may relax and term the L/C as the best method to
receive payment. If the customer turns out to be unscrupulous then he
can play havoc. This is applicable to both the seller and the buyer.
There are books on fraudulent us of the Documentary Credits.
Sometimes it may be the buyer who is at the receiving end and some
time it may be the other way.
A study of such book as above may help one to take adequate care.
But, the brain is always working in multi directions. It will be no
surprise if one comes across newer and newer dubious methods being
adopted by the contracting parties.

TOTAL OPERATION UNDER THE LETTER OF CREDIT.

The Unconfirmed L/C.
1 The Buyer makes an application to his bank to open an L/C.
2 Opening bank establishes the L/C.
3 Opening bank advises the L/C through his associate or through the
bank. Nominated by the beneficiary.
4 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.
5 The buyer complies with the L/C requirements and submits the
relevant documents. To the bank for claiming reimbursement.
6 The negotiating bank negotiates and sends the documents to the
opening bank or as Directed. Meantime pays the beneficiary.
7 Advises the opening bank or the reimbursement bank the details of
his Accounts and the nominated bank where the proceeds are to be
credited.
8 Once the credit is received, the nominated bank advises the
negotiating bank of the credit. Thus the negotiating bank gets the
credit for the L/C documents.
The Confirmed L/C.
All the steps from 1to6 as far as the beneficiary are concerned since
the payment is made to the beneficiary without recourse. However,
the negotiating bank may have to follow the subsequent steps since he
has to receive his money from the opening bank.
PREPARATION AND SUBMISSION OF DOCUMENTS FOR BANK
NEGOTTIATION /PURCHASE
Document against exports should normally be realized through an
authorized dealer foreign exchange. However payment of export can
be received directly from the overseas buyer in the form of bank draft,
pay order, banker’s cheque, personal cheque foreign currency notes,
foreign currency traveler’s cheque, etc. Without any monetary limit
provided the exporter’s track record is good, he is a customer of the
authorized dealers through whom documents are to be negotiated and
prima facie the instrument of payment represents export proceeds
realization. Take care to submit various documents in a proper manner
and within the prescribed time schedule. Apply to the Reserve Bank for
extension of time in case you feel there is likely to be a delay in
realizing export proceeds.
The following are the steps in realizing export proceeds:
1 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.
2 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 is customary to dispatch two sets of documents, one after
the other. This is because, if one set is misplaced or delayed in transit,
the importer can get at least the other set and clear the goods.
2 Verification of Documents: The bank will verify the documents to find
3 Whether the required documents are in order.
4 Whether the required documents are attested by customs and other
authorities.
5 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
1 Credit Expired
2 Late shipment
3 Presented after permitted time from date of issue of shipping
documents
4 Short Shipment
5 Credit Amount Exceeded
6 Underinsured
7 Description of goods on invoice differ from that of credit
8 Mark and numbers differ between documents
9 Bill of lading, Insurance documents, Bill of Exchange not endorsed
correctly
10 Absence of Documents called for under credit.
11 Insurance certificate submitted instead of policy.
12 Weight in different document differs.
13 Class of Bill of lading no acceptable-charter party or House B/L.
14 Insurance cover expressed in currency other than that of credit.
15 Absence of signature, where required on documents.
16 Bill of exchange not drawn as per tenor stated in credit.
17 Bill of exchange drawn on wrong party.
18 Insurance risks covered not being those specified in credit.
19 Absence of freight paid statement on B/L in CFR of CIF shipment.
20 Bill of lading doses not carry shipped on broad stamp.
21 Amount shown on invoice and bill of exchange differ.
22 Shipment not make to port specified.
23 Transshipment/part shipment undertaken where expressly
forbidden.
• Discounting of bills: the bank may discount or negotiate the bills
drawn against LC, and make immediate payment to the exporter, if so
required.
• Dispatch of documents: before the submission of documents for
negotiation/collection, the bank examines them thoroughly with
reference to the terms and conditions of the buyer’s order. Letter of
credit and the laws relating to foreign exchange control. If any
scrutiny, the documents are in order, the bank dispatches them to its
overseas branch/correspondent branch as early as possible. The
overseas branch of the bank then submits the document to the
importer’s bank, and the importer’s bank hands it over to the
importer.
SHIPMENT THROUGH COURIERS
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.
1 Goods which are subject to cess.
2 Goods proposed to be exported with claim of duly drawback.
3 Goods proposed to be exported under DEPB, EPCG, AL (Advance
License)
4 Where the value of goods is more than Rs. 25,0000/-
5 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`5-09-2004. The computerized
processing of shipping bills would be in respect of the following
categories:
1 Duty Free white shipping bills
2 Dutiable shipping bills (Cess)
3 DEEC Shipping Bills
4 EPCG Shipping Bills
5 DEPB Shipping Bills
6 DFRC Shipping Bills
7 100% EOU Shipping Bills
8 Re export, Jobbing Shipping Bills
9 Drawback Shipping Bills
10 Other NFEI Shipping Bills
The procedure to be followed in respect of filing of shipping bills under
the Indian customs EDI System-Exports at CFS-Mulund shall be as
follows:

2. DATA ENTRY FOR SHIPPING BILLS

2.1 Exporters/CHAs are required to register their IE codes, CHAs
Licence Nos, and the Bank A/C No.(for credit of Drawback amount) in
the Customs Computer Systems before an EDI Shipping Bill is filed.
2.2 Exporters/CHAs would be required to submit at the SERVICE
CENTRE the following documents.
1 A declaration in the specified format
2 SDF declaration
3 Quota/Inspection Certificate
4 Drawback/DEEC/DFRC/DEPB Declarations etc., as applicable
2.3 The formats should be duly completed in all respects and should
be signed by the exporter or his authorized CHA . Forms, which are
incomplete or unsigned will not be accepted for data entry
2.4 Initially, data entry for Shipping Bills will be allowed to be made
only at the Service centre. After the exporters/CHAs become
conversant with the EDI procedures, the option of Remote EDI System
would also be made available. In the Remote EDI system (RES)
Exporters/CHAs can electronically file their shipping bills from their
offices.
2.5 The schedule of charges to be levied for data entry at the Service
Centre is as follows:
Charges for S/Bills having up to five items ... Rs.60/-
Charges for additional block of five items ... Rs.10/-
Amendment fees (for a block of five items) ... Rs.10/-
Printing of a S/Bill for Remote EDI System ... Rs.20/-
2.6 The Service Centre operators shall carefully enter the data on the
basis of declarations made by the CHAs/Exporters. After completion of
data entry, the checklist will be printed by the Data Entry Operator
and shall be handed over to the Exporters/CHAs for confirmation of the
correctness. Thereafter, the CHA/Exporters will make corrections, if
any, in the checklist and return the same to the operator duly signed.
The operator shall make the corresponding corrections in the date and
shall submit the shipping bill. The operator shall not make any
amendment after generation of the checklist and before submission in
the system unless the corrections made by the CHAs/Exporters are
clearly indicated on the checklist against the respective fields and duly
authenticated by CHA/Exporters signature.
2.7 The system automatically generates the S/Bill Number. The
operator shall endorse the same on the checklist in clear and bold
figures. It should be noted that no copy of the S/Bill would be available
at this stage.
2.8 The declarations would be accepted at the service centre from
10.00 hrs to 16.30 hrs. Declarations received up to 16.30 hrs will be
entered in the computer system on the same day.
2.9 The validity of the S/Bill in EDI System is fifteen days only. After
expiry of fifteen days from the date of filing of shipping bill, the
exporter has to file the declaration afresh.

3 PROCEDURE FOR GR-1

3.1 Under the revised EDI procedure there would be no GR-1

Procedure. Exporters(including CHAs) would be required to file a
declaration in the form SDF. It would be filed at the stage of “goods
arrival” One copy of the declaration would be attached to the original
copy of the S/Bill generated by the system and retained by the
customs.The second copy would be attached to the duplicate S/B (the
exchange control copy) and surrendered by the exporter to the
authorized dealer for collection/negotiations.
3.2 The exporters are required to obtain a certificate from the bank
through which they would be realizing the export proceeds. If the
exporter wishes to operate through different banks for the purpose, a
certificate would have to be obtained from each of the banks. The
certificates would be submitted to customs and registered in the
system. These would have to be submitted once a year for
confirmation or whenever the bank is changed.
3.3 In the declaration form to be filled by the exporters for the
electronic processing of export documents, the exporters would need
to mention the name of the bank and the branch code as mentioned in
the certificate from the bank. The customs will verify the details in the
declaration with the information captured in the system through the
certificates registered earlier.
3.4 In the case of S/Bs processed manually, the existing arrangement
of filing GR-1 forms would continue.

• OCTROI PROCEDURES, QUOTA ALLOCATION AND OTHER

CERTIFICATION.

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

garments quota by the Apparel Export Promotion Council (AEPC) will
change with the introduction of the system. The quota allocation label
will be pasted on the export invoice instead of S/B. Allocation number
of AEPC would be entered in the system at the time of S/B data entry.
The quota certification on export invoice should be submitted to
Customs along with other original documents at the time of
examination of export cargo.
1.2 As a transitional measure, AEPC certification even on S/B form
would be accepted. However, in these cases, S/B number should be
indicated on the invoice when goods are presented for examination.
This transitional facilitation measure will be available for a period of
two months i.e., upto 30th November 2004.
1.3 For determining the validity date of the quota, the relevant date
would be the date on which the full consignment is presented for
examination and the date to recorded in the system.
1.4 The certificate of other agencies, such as, the Cotton Textiles
Export Promotion Council; the Wildlife Inspection Agency under CITES;
the Engineering Export Promotion Council; the Agricultural Produce
Export Development Agency (APEDA), the Central Silk Board and the
All India Handicraft Board should also be obtained on the invoice.
Similarly, the no objection of the Asst. Drug Controller and of the
Archaeological of Survey India would be obtained on the Invoice.
The transitional arrangements would be the same as in the case of
AEPC certification.
1.5 The exporters would have to make use of export invoice or such
other documents as required by the Octroi Authorities for the purpose
of octroi exemption.
1. ARRIVAL OF GOODS AT EXPORT EXAMINATION SHEDS IN CFS
1.6 The existing procedure of permitting entry of goods, brought for
the purpose of examination (and subsequent: “Let export” Order) in
the CFS on the strength of S/B shall be discontinued. The CONCOR will
permit entry of the goods on the strength of the checklist, the date
entry form and the declaration. The CONCOR would endorse the
quantity of goods entering the CFS on the reverse of the checklist
1.7 The goods should be brought for examination within 15 days of
filing of declaration in the Centre. In case of delay, a fresh declaration
would need to be filed
1.8 If at any stage subsequent to the entry of goods in CFS it is
noticed that the declaration has not been registered in the system, the
exporters and CHAs will be responsible for the delay in shipment of
goods and any damage, deterioration or pilferage, without prejudice to
any other action that may be taken.
2. PROCESSING OF SHIPPING BILLS

1.9 The S/B shall be processed by the system on the basis of

declaration made by the exporter. However, the following S/B shall
require clearance of the Assistant Commissioner/Dy. Commissioner
(AC/DC Exports):
1 Duty free S/B for FOB value above Rs.10 lakh
2 Free Trade Sample S/B for FOB value above Rs.25,000
3 Drawback S/B where the drawback exceeds Rs. One lakh
1.10 Subject to the provisions of para 20.3 of this PN the following
categories of S/Bills shall be processed buy the Appraiser (Export
Assessment) first and then by the Asstt/Dy. Commissioner:
4 DEEC
5 DEPB
6 DFRC
7 EOU
8 EPCG
1.11 Apart from verifying the value and other particulars for
assessment, the AO / AC / DC may call for the sample s for confirming
the declared value or the checking classification under the drawback
schedule / DEEC / DEPB / DFRC / EOU etc., He may also give special
instruction for examination of goods.
1.12 If the S/B falls in the categories indicted in para 6.1 above, the
exporter should check up with the query counter at the Centre,
whether the S/B has been cleared by Asstt. Commissioner /Dy.
commissioner, before the goods are taken for examination. In case
AC / DC raises any query, it should be replied through the Service
Centre or, in case of EDI connectivity, through terminals of the
Exporter / CHA. After all the queries have been satisfactorily replied
to, AC / DC will pass the S/B

3. CUSTOMS EXAMINATION OF EXPORT CARGO

1.13 On receipt of the goods in the Export Shed in the CFS, the
exporter will contact the system examining officer (SEO)and present
the checklist with the endorsement of CONCOR on the declaration,
along with all original documents such as Invoice, Packing List, ARE-
1(AR-4)etc. He will also present additional particulars in the prescribed
form.
1.14 SEO will verify the quantity of the goods actually received against
that entered in the system. He will enter the particulars in the system.
The system would identify the Examining Officer (if more than one are
available)who would be carrying out physical examination of goods.
The system would also indicate the packages(the quantity and the
serial numbers) to be subjected to examination. SEO would write this
information on the checklist and hand it over to the exporter. He would
hand over the original documents to the Examining Officer. No
examination order shall be given unless the goods have been
physically received in the Export Shed. It may, however, be clarified
that Customs may examine all the packages/goods in case of any
discrepancy.
1.15 The Examining Officer may inspect and/or examine the shipment,
as per instructions contained in the checklist and enter the
examination report in the system. There will be no written examination
report. He will then mark the Electronic S/B and forward the checklist
along with the original documents to the Appraiser/Supdt. in Charge. If
the Appraiser/Supdt. is satisfied that the particulars entered in the
system conform to the description given in the original documents
(including AEPC quota and other certifications) and the ;physical
examination, he will proceed to give “:Let Export” order for the
shipment and inform the exporter. The Appraiser/Supdt. would retain
the checklist, the declaration and all original documents with him.
1.16 In case of any variation between the declaration in S/B and the
documents or physical examination report, the Appraiser/Supdt. will
mark the electronic S/B to AC/DC Exports. He will also forward the
documents to AC/DC and advise the exporters to meet the AC/DC for
further action regarding settlement of dispute. In case the Exporter
agrees with the views of the Department, the S/B would be processed
finally. Where the exporter disputes the views of the Department, the
case would be adjudicated following the principles of natural justice.

4. GENERATION OF SHIPPING BILLS

1.17 As soon as the Shed Appraiser/Supdt.gives “Let Export” order,

the system would print 6 copies of the S/B in case of Free and scheme
S/B. In case of DEPB there are 7 S/B. If the S/B (DEPB) is assessed
provisionally, then EP copy will be generated only after AC/DC finalises
the assessment. On the examination report the Appraiser/Shed
Supt.will sign. On all the copies, the Appraiser/Shed Supdt.,
Examination Offer as well as exporter’s representative/CHA will sign.
Name and ID Card number of the Exporters representative/CHA should
be clearly mentioned below his signature.
1.18 The distribution of S/Bills is as follows:
DEPB Scheme S/Bills Other Scheme S/Bills
1 1. Exporter’s copy 1. Exporters copy
2 2. Custom’s Copy 2. Customs copy
3 3. Exchange Control Copy 3. ExchangeControl Copy
4 4. Scheme Bill Copy 4. E.P.Copy
5 5. E.P.Copy 5. TR-1. TR-2 Copies
6 6. TR-1, TR-2 Copies
1.19 The original AEPC quota and other certificates will be retained
with the S/Bills and recorded in the Export Shed.

5. PAYMENT OF MERCHANT OVERTIME (MOT)

1.20 For the time being the present manual system for payment of
Merchant Overtime (MOT) charges will continue.
1.21 MOT charges will be required to be paid by exporter when the
goods are examined by Customs for allowing “Let Export” beyond the
normal office hours. No charges would be required to be paid on
normal working days when the examination itself is being done for “Let
Export” upto 05.oo PM. In addition, no charges would be required to
be paid if the exporter wants the goods to be entered in CONCOR
(CFS) only for meeting the quota deadlines.

6. DRAWAL OF SAMPLES

1.22 Where the Appraiser of Customs orders for samples to be drawn

and tested, the Examining Officers will proceed to draw two samples
from the consignment and enter the particulars thereof along with
name of the testing agency in the system. No registers will be
maintained for recording dates of samples drawn. Three copies of the
test memo will be sprepared and signed by the Examining Officer, the
Appraiser and Exporter. The disposal of the three copies would be as
follows:
1 Original to be sent along with the sample to the testing agency
2 Duplicate copy to be retained with the second sample
3 Triplicate to be handed over to the exporter.
1.23 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.
4 QUERIES
11.1 With the discontinuation of the assessment of S/B in the Export
Department, there should not be any queries. The exporter, during
examination, can clarify doubts, if any. In case where the need arises
for the detailed answer from the exporter, a query can be raised in the
system buy the Appraiser, but would need prior approval of AC/DC
(Exports) The S/B will remain pending and cannot be printed till the
exporter replies to the query to the satisfaction of the Assistant
Commissioner/Dy. Commissioner
5 AMENDMENTS:
11.2 Corrections/amendments in the checklist can be made at the
service centre provided the system has not generated the S/B number.
Where corrections are required to be made after the generation of the
S/B No. or, after the goods have been brought in the docks/CFS,
amendments will be carried out in the following manner.
6 If the goods have not yet been allowed “Let Export”, Assistant
Commissioner/Dy. Commissioner may allow the amendment.
7 Where the “Let Export” order has been given, the Addl./Joint
Commissioner (Exports) would allow the amendments
11.3 In both the cases, after the permission for amendments has been
granted, the Asstt./Dy. Commissioner(Exports) will approve the
amendments on the system. Where the print out of the S/B has
already been granted, the exporter will surrender all copies of the
S/Bill to the Appraiser for cancellation before amendment is approved
in the system.
13. SHORT SHIPMENTS, SHUT OUT, CANCELLATION AND BACK TO
TOWN PERMISSIONS.
13.1 AC/DE (Export) will give permission for issue of short shipment
certificate, shut out or cancellation of S/B, on the basis of an
application made by the exporter. The S/B particulars would need to
be cancelled /modified in the system before granting such permission.
AC/DC should check the status of the goods, before granting
permission.
14. AMENDMENT OF FREIGHT AMOUNT
14.1 If the freight/insurance amount undergoes a change before “Let
Exports” is given, corresponding changes would also need to be made
in the S/B with the approval of AC/DC Exports. But if the change has
taken place after the “Let Exports” Order, approval of
Additional/Jt.Commissioner would be required. Non-intimation of such
changes would amount to mis-declaration and may attract penal action
under Customs Act 1962.
15. RECONSTRUCTION OF LOST DOCUMENTS:
15.1 Duplicate print out of EDI S/B cannot be allowed to be generated
if it is lost, since extra copies of S/B are liable to be misused. However,
a certificate can be issued by the Customs stating that “Let Exports”
order has been passed in the system to enable the goods to be
accepted by the Shipping Line, for export. Drawback will be sanctioned
on the basis of the “Let Export” order already recorded on the system.
16 RE-PRINT OF SHIPPING BILL:
16.1 Similarly, reprints can be allowed where there is a system failure,
as a result of which the print out(after the “Let Export” order) has not
been generated or there is a misprint. Permission of AC/DC (exports)
would be necessary for the purpose. The misprint copy shall be
cancelled before such permission is granted
17 EXPORT OF GOODS UNDER CESS
17.1 For export items, which are subject to export cess the
corresponding serial number of the Cess Schedule should be clearly
mentioned. A printed challan generated by the system would be
handed over to the exporter. The cess amount indicated should be
paid in the Bank of India, Extension Branch of CFS, under a receipt.
18. EXPORT OF GOODS UNDER CLAIM FOR DRAWBACK
18.1 The scheme of computerized processing of drawback claims
under the Indian Customs EDI system-Exports will be applicable for all
exports through CFS.
18.2 In respect of goods to be exported under claim for drawback, the
exporters will file declaration in the form. The declaration in the form
would also be required to be filed when the export goods are
presented at the Export Shed for examination & “Let Export”
18.3 The exporters who intend to export the goods through CFS under
claim for drawback are advised to open their account with the Bank of
India branch situated at CFS-Mulund. This is required to be done to
enable direct credit of the drawback amount to the exporters account,
obviating the need for issue of separate cheque by post. The exporters
are required to indicate their account number opened with the Bank of
India branch at CFS-Mulund. It would not be possible to accept any
shipment for export under claim for drawback in case the account
number of the exporter in the bank is not indicated in the declaration
form.
18.4 The exporters are also required to give their account number
along with the details of the bank through which the export proceeds
are to be realized.
18.5 Export declarations involving a drawback amount of more than
rupees one lakh will be processed on screen by the AC/DC before the
goods can be brought for examination and for allowing “Let Export”:
18.6 The drawback claims are sanctioned subject to the provisions of
the Customs Act 1962, the Customs and Central Excise duties
drawback rules 1995 and conditions prescribed under different sub-
headings of the All Industry rates as per notification number 26/2003-
Cus(NT) dated 1.4.2003 as amended by notification number 12/2004-
Cus(NT) dated 29-01-04.
18.7 After actual export of the goods, the drawback claims will be
processed through EDI system by the officers of drawback branch on
first come first serve basis. There is no need for filing separate
drawback claim. The claims will be processed, based on the Train
Summary/Inward way bill, submitted by CONCOR. The status of the
S/Bill and sanction of drawback claim can be ascertained from the
“query counter” set up at the service centre. If any query has been
raised or deficiency noticed, the same will be shown on the terminal
and a printout of the query/deficiency may be obtained by the
authorized person or the exporter from the service centre. The
exporters are advised to reply to such queries expeditiously and such
replies shall be got entered in the EDI system at the service centre .
The claim comes in queue of the EDI system after reply to
queries/deficiencies is entered by the service centre.
18.8 Shipping Bills in respect of goods under claim for drawback
against brand rates would also be processed in the same manner,
except that drawback would be sanctioned only after the original band
rate letter is produced before the designated customs officer in the
office of Asstt/Dy. Commissioner (Export) and is entered in the
system. The exporter should specify the SS No. of drawback as 98.01
for provisional drawback.
18.9 All the claims sanctioned in a particular day will be enumerated in
a scroll and transferred to the Bank through EDI. The bank will credit
the drawback amount in the Account of the exporter on the next day
and will handle accounts of the exporters as per their instructions.
Bank will also send a fortnightly statement to the exporters about the
payments of their drawback claims.

19. EXPORT OF GOODS UNDER DEPB

19.1 While filing information as per the format, exporters are required
to ensure that correct Group Code No. of the goods being exported
and the item No. of relevant Group is clearly mentioned (item-wise
details). The exporters/CHAs are advised to fill Item No, in the same
manner as given in the Public Notices issued by DGFT.
19.2 DEPB Credit in respect of items like formulations, injections etc.
of group code No.62 (Chemicals) are at a specific percentage of credit
rate for the relevant bulk drug. For proper calculations of DEPB rate,
exporters/CHAs are advised to claim export under the specific Sl.No. if
they are exporting injections and thereafter mention Sl.No. of Group
Code 62 of the bulk drug of which such injections have been made.
The system will calculate the said specific percentage of the DEPB rate
of such bulk drugs, formulations of which are being exported.
19.3 All the DEPB S/Bills having FOB value less than Rs.5 lakhs and/or
DEPB rates less than 20% will be assessed by Appraiser/Supdt. (DEPB
Cell) However, the S/Bill having FOB value more than Rs.5 lakhs
and/or credit rate 20% or more will be assessed by AC/DC (Export) .
Any query at the time assessing by Appraiser (DEPB cell) or AC/DC
(Export) may be obtained from the service centre and reply to the
query has to be furnished through service centre.
19.4 If the group code No., Item No. and FOB value declared is
accepted by the Appraiser/Supdt (DEPB Cell) or Asstt./Dy.
Commissioner(Export), goods may be brought and entered in the
system. The examining officer will feed the examination report and
“Let Export” order will be given by Appraiser/Supdt. in the EDI system.
Seven copies of S/Bill will be printed for the purposes mentioned
against each as under :
Customs Copy For record of Customs
Exporter’s copy For record of Exporters
E.P.Copy For office of DGFT
DPB copy For use in the import cell of ICD Bangalore for registration of
licence.
Exchange Control Copy For negotiating the export documents in bank
TR-1TR-2 copies
19.5 There is a provision for changing the Group Code No./Item
No./Value for DEPB credit purposes and such changes will be reflected
in the print out of the S/Bill. Such charges may be done by
Appraiser/Supdt. (DEPB Cell) AC/DC(Export) as well as by
Appraiser/Supdt.(Exam.) The credit will be allowed by the DGFT at the
rate/value (for credit purposes only) as approved by Customs. The EP
copy of the shipping bill shall be used by the Exporters to obtain DEPB
licence from DGFT.
19.6 In case, for credit purposes, the exporter accepts the lower value
as determined by customs, such lower value will be entered by
Appraiser (DEPB Cell) AC/DC (Export) or by Appraiser (Exam) for each
item(s) Printout of S/Bill at item level will indicate for FOB value as
well value for DEPB credit purposes. Exporters are required to apply
for the DEPB Licence at the B value accepted by Customs and not the
value declared by them. However, as DEPB is issued on the basis of
exchange rate applicable on the date of Let Export, exporters are
advised to apply for DEPB Licence at the value accepted by Customs at
the time of export multiplied by exchange rate on the date of Let
Export(LEO) (As per para 4.43 of EXIM Policy 2003 edition)
19.7 In case the exporter does not accept the value determined by the
customs, the exports will be allowed provisionally after taking samples
‘for market enquiry. The words “NOT VALID FOR DEPB” will be printed
on all the copies of S/Bill and the exporters will be not be eligible for
DEPB licence against provisionally assessed S/Bills. In such cases, EP
copy of S/Bill will not be printed and only 6 copies will be printed.
However, market enquiries about value will be conducted in such cases
and either after issue of the Show Cause Notice the market value will
be determined or may be accepted by the Exporters on his own. In
such cases where samples are drawn subject to market enquiry the
copy of the S/Bill for claiming DEPB will be generated after
determination of value on the basis of market enquiry and handed
over to the exporters duly signed by Appraiser/Supdt. of Customs. In
such cases wherever market value has been found to be less than
twice the credit claimed, the market value will be mentioned in the EP
copy of S/Bill as under :
“Market value of the goods is Rs………..and credit not to exceed 50% of
the market value”
Sample may also be drawn for the other purposes such as Chemical
test,. DEPB entitlement etc. The procedure of Provisional Assessment
shall be applicable mutates mutandis to above cases as well and the
cases will be finalized after necessary reports etc. arte received and
unprinted copy of S/Bill meant for DEPB Licence shall be released
thereafter for printing.
19.8 Registration of DEPB Licence:
The DEPB Licence in respect of exports made from this customs station
will be required to be registered at the same station. Before
registration, the concerned officer will verify the S/Bill(s) in the Licence
from the computer ensure that exports have been affected and value
mentioned is as determined by customs at the time of export. In cases
of S/Bills assessed provisionally, the verification will not be possible
because S/Bill will not be in the verification queue. The exporters are
advised to obtain licences for the items exported un DEPB scheme and
not for non-DEPB items. If the lower value for credit purposes has
been accepted at the time of export, the licenses shall be obtained
only for such lower value and not for FOB value declared in S/Bill or as
per Bank realisation certificate. Similarly in cases where market value
of the goods is less than twice the credit availed, the licence shall be
obtained for 50% of the present market value of the goods. The
computer at the time of registration of licence will calculate admissible
credit on the basis of exchange rate on the date of realisation of
export proceeds (as per bank realisation certificate) for DEPB items
only and at customs approved value at the time of export. If the
amount of licence is more than the amount of credit calculated by the
system, it will not be possible to register a licence and reference will
be made to DGFT for correction of amount of credit. If the amount of
credit as per customs computer matches with the credit as per DEPB
licence, computer will generate printout regarding verification of the
exports giving details like S/Bill No. date , rate of credit, FOB value as
approved by customs and amount of credit etc. DEPB licence will be
registered on the basis of printout of verification report duly signed by
AC/DC (Export). If a DEPB Licence is having S/Bills exported from
other ports in the same city the exporters can get the licence
registered at any of the ports from where he intends to import the
goods in the city after verification about exports from other ports from
where exports were affected. The same procedure will be followed for
DFRC Licences also.
20. EXPORT OF GOODS UNDER 100% EOU SCHEME
20.1 The exporters can get the export goods examined by Central
Excise/Customs Officer at the factory even prior to filling of S/Bill. Self
sealing facility is also available. He shall obtain the examination report
in the form to this Public Notice duty signed and stamped by the
examining officer and supervision officer at the factory. The export
invoice shall also be signed and stamped by both the officers at the
factory. Thereafter the goods shall be brought to the concerned
customs warehouse for the purpose of clearance and subsequent “Let
Export”. The exporters/CHA shall present the goods for registration
along with Examination Report, ARE-1, Export Invoice duly signed by
the Examining Officer and supervising officer at the factory, check list,
declaration in form and other documents such as document of
transportation, ARE-1, etc., to the examiner in the concerned shed.
After registration of goods, the shipping bill will be marked to an
examiner for verification of documents and seal. If seal is found intact
the S/Bill will be recommended for LEO, which will be given by the
shed appraiser. However if seal is not found intact, the goods will be
marked for examination and LEO will be given if the goods are found in
order.

21. EXPORT OF GOODS UNDER EPCG SCHEME

21.1 All the exporters intending to file shipping bills under the EPCG
scheme should first get their EPCG licence registered with the Export
section. For registration of EPCG licence, the exporter/CHA shall
produce the Xerox copy of EPCG licence to the service centre for data
entry. A printout of the relevant particulars entered will be given to the
exporter/CHA for his confirmation. After verifying the correctness of
the particulars entered, the said printout will be signed by the
exporter. Thereafter, the original EPCG licence along with the attested
copy of the licence and the signed printout of the particulars shall be
presented to the Appraiser/Supt (EPCG Cell)The Appraiser/Supdt.
(EPCG Cell) would verify the particulars entered in the computer with
original licence and register the same in EDI system. The registration
number of the EPCG Licence would be furnished to the exporters/CHA,
who shall note the same carefully for future reference. The said
registration number would need to be mentioned against respective
item on the declaration form filed for data entry of the s/bill, at the
time of export of goods. All the EPCG S/Bill would be processed on
screen by the Appraiser/Supdt.(EPCG Cell) and the AC/DC (Export).
After processing of the EPCG S/Bill by the Appraiser EPCG Cell and
AC/DC Export, the goods can be presented at the Customs warehouse
for registration, examination and “Let Export” as in the case of other
export goods. After train summary is submitted to CONCOR, the S/Bill
will be put to Appraiser queue for logging/printing of ledger. After
logging/printing of ledger, the EPCG bill will be moved to history
tables.
22 EXPORT OF GOODS UNDER THE DEEC SCHEME
22.1 Only shipping bills pertaining to DEEC books issued on or after
1.4.95 will be processed on the EDI system.
22.2 All the exporters intending to file s/bills under the DEEC scheme
including those under the claim for drawback should first get their
DEEC Book registered with the CFS Mulund. The registration can be
done in the service centre.
The original DEEC book would need to be produced at the service
centre for data entry. A print out of the relevant particulars entered
will be given to the exporter/CHA. The DEEC Book would need to be
presented to the Appraiser/Supdt., DEEC Cell, who would verify the
particulars entered in the computer with the original DEEC and register
the same in the EDI system. The registration No. of the DEEC Book
would be furnished to the exporter/CHA, which would need to be
mentioned on the declaration forms at the CFS for export of goods It
would not be necessary thereafter for the exporter/CHA to produce the
original DEEC book for processing of the export declarations
22.3 Each book will be allotted a Registration No. should be indicated
on the shipping bills in the relevant columns.
22.4 Exporters/CHAs that will be filling S/Bills for export of goods
under the DEEC Scheme would be required to file additional
declarations regarding availment/non-availment of MODVAT or
regarding observance/non-observance of specified procedures
prescribed in the Central Excise 1944 in the form. The declaration
should be supported by necessary certificates (ARE-1 or for non-
availment of MODVAT) issued by the jurisdiction Central Excise
authorities. “Let Export” would be allowed only after verification of all
these certificates at the time of examination of goods. The fact that
the prescribed DEEC declaration is being made should be clearly stated
at the appropriate place in the declaration being filled in the service
centre or through RES-Mode.
22.5 All the export declarations for DEEC would be processed on
screen by the Appraiser/Supdt., Export Department and the AC/DC
Exports. The said processing would be akin to the processing of Bill of
Entry on the EDI System with provisions for query/reply. After the
declarations have been so processed and accepted, the goods can be
presented at the Export Shed along with DEEC Books registered in
the4 EDI System so that the export declarations are processed
expeditiously.
22.6 Further, exporters availing of DEEC benefits in terms of various
notifications should file the relevant declarations.
22.7 It is further clarified as follows:
1 While giving details relating to DEEC operations in the form the
exporters/CHAs should indicate the S.No. of the goods being exported
in the column titled “ITEM S.NO.IN DEEC BOOK PART E”
2 If inputs mentioned in DEEC Import book only have been used in the
manufacture of the goods under export, in column titled “Item Sr.No.
in DEEC Book Part C” the exporters/CHAs are required to give S.No. of
inputs in Part-C of the DEEC Book and Exporters need not fill up
column titled “DESCRIPTION OF RAW MATERIALS”
3 If some inputs which are not in Part-C of the DEEC Book have been
used in the manufacture of the goods under export and the exporter
wants to declare such inputs, he shall give the description of such
inputs in column titled “DESCRIPTION OF RAW MATERIALS”
4 In the Col. “IND/IMP”, the exporters are required to write “N”, if the
inputs used are indigenous and “M”. if the inputs used are imported.
5 In column titled “Cess Schedule Sl.No.” the relevant Sl.No. of the
Schedule relating to Cess should be mentioned.
23. EXPORT OF GOODS UNDER DFRC SCHEME:
The details pertaining to export products i.e. input materials utilized as
per SION should be clearly mentioned in the declaration mentioned at
Annexure A at the time of filing.
24. EXPORT GENERAL MANIFEST:
24.1 All the steamer agents shall furnish the Export General Manifest,
House Bill of Landing wise, t the Customs electronically. In the
beginning, the steamer agents are required to enter the manifest in
the Customs Computer System through the Service Centre on
payment of the prescribed fee. (In due course, arrangements will be
made for the electronic delivery of Export General Manifest through
EDI Service Providers. Till such time, all the EGMs will have to be
entered at the Customs Computer System only.)
25. GRIEVANCE HANDLING
24.2 The Asstt. Commissioner/ Dy. Commissioner of Customs, CFS-
Mulund may be approached by exporters or their CHAs for settlement
of any problems faced at any stage of the export clearance.
THE ECGC COVER

The abbreviated form for Export Credit and Guarantee Corporation is

ECGC. As the name indicates this is a sort of guarantee or a sort of
cover for the exporter. Let us now see what this is all about.
Needless to say that an exporter before entering into a contract with
the overseas buyer for making any supply, takes care to ensure that
the customer with whom he is dealing have some credit worthiness.
This he may be able to do either through the local agent who is in a
better position to know about the customer or through a bank or
through any of the exporter’s associates if happens to be in the area of
the customer etc., But, in a business things may change. The financial
status of a customer may take drastic turn and an established
customer may go bankrupt within a short period of time.
Moreover, the buyer may be willing to make the payment, but there
are other environment which prevents him from effecting the transfer
of funds through the bank. For e.g., there could be break out of war,
the balance of payment position of the country may become
unfavourable, there may be some coup of the government etc., and all
transactions could be sealed.
These are the risk factors for the exporters. What is the guarantee that
he will get paid for the supplies he has made?
With a view to provide support to Indian exporters, the Govt. of India
set up the Export Risk Insurance Corporation (ERIC) in 1957. This was
transformed into Export Credit & Guarantee Corporation Ltd. in 1964.
In order to give the Indian identity a sharper focus the name was
again changed to Export Credit & Guarantee Corporation of India Ltd.,
in 1983. This is a company wholly owned by the Govt. of India and
functions under the administrative control of the Ministry of Commerce
and managed by the Board of Directors representing Government,
Banking, Insurance, Trade, Industry etc.
Though one may insist for a Letter of Credit, still there could be some
elements of risk which we will study later here. Except getting an
advance payment for the full value of the supplies, any other mode of
payment will have some risk.
Take the case of an exporter who has made supplies and before the
payment is received the buyer goes bankrupt or there comes some
new provision or policy of Government of the importing country
preventing repatriation of the funds to other countries what recourse
the exporter has to recover his dues. The litigation procedure might be
time consuming and the exporter can never be sure of getting his full
payment. An ECGC cover a safeguard his interest to a great extent.
An exporter can either agree for sight payment or can made shipment
on credit terms for say 60 days, 90 days etc., In project exports the
period of payment may extend to some years. Longer the period of
cre3dit given to the customer, more will be the risk factor for the
exporter.
In respect of sight bill, there is almost no risk because the customer
has to make payment first before he retires the documents. Therefore,
before the title of the goods is passed on to the customer, the
importer makes the3 payment. However, in respect of usance bill
(credit bills) the buyer retires the documents by accepting the usance
draft and takes delivery of the goods. In case the customer goes
bankrupt or become insolvent, before the due date of payment, the
exporter is totally at a loss. While big units may be able to absorb the
one time loss, small exporters will get broke even with one such
transaction. Here the ECGC comes into picture. It takes up the
responsibility of paying the funds to the exporter and makes all efforts
including legal proceedings to recover the dues from the customer,
provided the exporter has taken an ECGC cover.
WHAT ECGC OFFERS FOR PROTECTION OF EXPORTER’S INTEREST ?
ECGC offers various types of insurance cover to protect the exporter’s
interest. For each type of cover an exporter has to take Policy specific
to the respective requirements. The Policy that is most commonly
taken by the exporters is the Standard Policy or otherwise called the
Shipments (Comprehensive Risks) Policy.
SHIPMENTS (COMPREHENSIVE RISKS) POLICY also called STANDARD
POLICY
For exporters with an annual export turnover in excess of Rs.50 lakhs,
the Shipments (Comprehensive Risks) Policy is the one intended for
covering shipments on cash basis or on short-term credit basis.
(Credits not exceeding 180 days)
The risks covered this Policy is as follows effective from the date of
shipment.:
Commercial Risks
1 Insolvency of the buyer
2 Failure of the buyer to make payment within a specified period.
3 Buyer’s failure to accept the goods subject to certain conditions.
Political Risks
1 Imposition of restrictions by the Govt. of the buyer’s country or any
government action which may block or delay the transfer of payment
made by the buyer.
2 War, civil war, revolution or civil disturbances in the buyer’s country
3 New import restrictions or cancellation of a valid import licence
4 Interruption or diversion of voyage outside India resulting in
payment of additional freight or insurance charges which cannot be
recovered from the buyer.
5 Any other cause of loss neither occurring outside India nor normally
insured by general insurers and beyond the control of both the e
porters and the buyer.

Risks not covered under the Policy

The Standard Policy does not cover losses on account of following
risks:
1 Commercial disputes including quality disputes raised by the buyer
unless the exporter obtains a decree from a competent court of law in
the buyer’s country in his favour
2 Causes inherent in the nature of the goods
3 Buyer’s failure to obtain necessary import or exchange control
clearance from authorities concerned
4 Insolvency or default of the agent of the exporter or of the collecting
bank
5 Loss or damage to goods which can be covered by general insurers.
6 Exchange rate fluctuations
7 Failure of the exporter to fulfill the terms of the export contract or
negligence on his part.
Shipments Covered
The Standard Policy is meant to cover all the shipments that may be
made by an exporter during a period of 24 months ahead. The policy
cannot be issued for selected shipments, selected buyer or selected
markets. For specific requirements an exporter can opt for different
policy from the various services offered by the corporation
Exclusions:
Shipments made against advance payments received or shipments
against confirmed letters of credit which has the confirmation from the
bank in India may be excluded.
However, shipments against confirmed L/C may be covered for
political risks only. The premium for cover under political risks will be
less than that under the comprehensive policy. ECGC may also agree
to exclude certain items if the exporter is dealingt in different distinct
products.
Shipments to Associates:
Shipments to buyers i.e. the foreign buyers in whose business the
exporter has financial interest, are normally excluded from the Policy.
However such shipments can be covered against political risks.
Shipments on Consignment basis:
Shipments on consignment basis can be covered only against political
risks.
Shipments by Air
Since the buyer is able to take delivery of the goods even without
retiring the bank documents, shipments by air are not covered under
the policy. However, the exporter may cover such shipments for
payments under open terms. The exporter can have cover for such
shipments, if he has obtained Credit Limit on such buyers on open
delivery terms and also pays the premium at rates applicable to open
delivery terms.
HOW TO GET ECGC COVER
Step 1. Open Policy:
An exporter desiring to get the ECGC cover has to approach the office
of the ECGC making a Proposal. He must make his home work and be
clear as to what will be his total turnover during a year ad what will be
the maximum amount he expects to be outstanding from various
buyers at a given point of time. Once this is clear he can apply for an
Open Policy for the maximum amount that he expects to be
outstanding at a given point of time. Suppose, he expects that at any
given time his outstanding will be say Rs.50/- lakhs then he can apply
for a policy for this amount. After verification of the details of the
exporter, the ECGC may issue a open policy for Rs.50 lakhs with a
validity of say 2 years. This is the first step.

Step 2. - Credit Limit on Individual Buyer

Once the open policy is taken, as a next step the exporter must make
out the list of the customers to whom he expects to make shipment.
For each and every customer he has to apply to the ECGC to have a
limit of liability fixed. That is to say, he has to declare the maximum
amount of bills he expects to be outstanding from each customer at a
given point of time. Based on the value of business dealing, suppose
the exporter expects that from customer A the outstanding may be
Rs.10 lakhs. Then the exporter has to apply to ECGC in the prescribed
form for getting limit fixed for the customer. On receipt of the
application, ECGC will check for the credit worthiness of the customer
either through their own net work of offices globally, or through the
customer’s bank or through some reputed independent agency. Based
on the credit report, ECGC will determine the limit that can be fixed for
the customer. If it feels that a limit of Rs.10 lakhs is in order, it will
advise the exporter of the same. Similarly, the exporter can have the
limit fixed to all his customers.
Once the limit is taken from ECGC, the exporter is free to make his
shipments to the various customers. If shipment for any customer is
made before getting the limit fixed by ECGC, no risk will be covered for
that shipment.
Step 3 – Payment of Premium and filing of monthly returns
For the risk the ECGC takes, it charges a premium on the value of the
shipments actually made. This is calculated as per the table to be
supplied by ECGC which shows the premium per Rs.100 of exports.
This table which gives the premium amount payable is framed based
on the following.
The various countries around the globe are divided into different
groups and are classified as A1, A2, B1, B2, C1,C2 & D. The countries
are grouped according to their economic standard. For e.g. USA.
Canada, UK are grouped in category A. The premium amount will be
less for group A countries and will be increased gradually to group B, C
& D countries.
The premium for group D countries will be more because they are all
economically weaker countries and payment risks are high
Again the premium table is based on the period of credit. The slab is
for credits up to 90 days, 120 days, 180 days etc. Longer the credit
period greater is the premium.
Thus, the premium will be least for group A countries and for the
shorter credit period and will be maximum for group D countries and
for maximum credit period

FILING OF MONTHLY RETURNS:

The exporter has to send a monthly return in the prescribed form to

ECGC declaring the list of various shipments made and the amount of
premium payable as per the premium table. The exporter has to work
out the total premium applicable on the shipment effected and make
payment to the ECGC
The exporter is also expected to file a Monthly Return in a separate
form listing all the Bills which are not paid on due date, if any, so that
ECGC is periodically aware of the defaulters.
In case of any eventuality when the buyer goes bankrupt, he may
prefer a claim with ECGC for payment.
The policy that is issued for shipment not covered under L/C is called
Comprehensive Policy meaning that the policy will cover both the
commercial and political risks. While commercial risk is that of the
buyer going bankrupt, the political risk relates to the country’s policies
which may prevent the repatriation of funds or there could be outbreak
of war preventing financial transactions etc.
All the above relates to shipments not covered under L/C. However, an
exporter can have a separate ECGC Policy for shipments under L/C.
Here the exporter will have the policy covering only the political risk
since under L/C, the bank stands as a guarantor and there is no
commercial risk.
An exporter must cover all his exports under ECGC, including bills on
sight basis, and are NOT under L/C. He cannot be selective to certain
countries or certain buyer. The cover is on whole turnover basis.
For all shipments under L/C, the buyer may take a separate policy to
cover the political risks. The premium for L/C shipments will be
relatively less than that on comprehensive policy.
Note: ECGC cover is not for non-payment on account of dispute on
quality, damages to the goods, theft, pilferage etc.
The cover is only when the party goes insolvent or there are some
political risk due to which the exporter is not in a position to get the
payment immediately or on due date. This cover must be distinguished
from the general insurance.
VARIOUS POLICIES OFFERED BY ECGC:
1. STANDARD POLICY
An exporter whose annual export turnover is more than Rs.50 lakhs is
eligible for this policy
Period of the Policy: 24 Months
Exclusions permitted: Export to Associates
Letters of Credit
Consignment Exports
Risk Covered: Commercial Risks
Political Risks
LC Opening Bank Risks
Percentage of Cover: 90%
Minimum Premium: Rs.10, 000/- adjustable
Important Obligations of the Exporter
1 Obtaining valid credit limit on buyers and banks
2 Monthly Declaration of shipments and payment of premium
3 Declaration of payment overdue by more than 30 days
4 Filing of claim within 24 months
5 Sharing of recovery
Highlights
1 Lowest Premium Rate
2 NCB OF 5% every year
3 Discrepancy cover of LC
4 Automatic Approval fort resale/shipment upto 25% of GIV
5 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:
1 Obtaining valid credit limit on buyers and banks
2 Quarterly Declaration of shipment and payment of premium.
3 Declaration of payment overdue by more than 30 days
4 Filing of claim within 24 months
5 Sharing of recovery.
Highlights
1 Highest coverage/compensation
2 Lowest premium rate
3 NCB of 5% every year
4 Discrepancy cover for LC
5 Automatic approval for resale/shipment upto 25% of GIV
6 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:
1 Commercial Risks
2 Political risks
3 LC Opening Bank Risk
4 Insolvency risk on agent on conditions
Percentage of Cover: 80%
Important Obligations of the exporters:
1 Upfront premium payment
2 Statement of shipment made
3 Payment Advice slip
4 Statement Of Overdue
5 Filing of Claim within 12 months from due date
6 Sharing of recovery
Highlights:
1 Selection for Insurance cover
2 Other exports not to be declared
3 “Add on” Marine Insurance Cover
4 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.
Period of the Policy: 12 Months
Risk Covered: Commercial Risks
Political Risks
Insolvency or default of LC Opening Bank
Percentage of Cover: 80%
Important Obligation of the Exporters:
1. Deposit Premium on Quarterly in advance
2. Submission of shipment declaration quarterly
3. Declaration of payment overdue for more than 30 days
4. Filing of the within 12 months from due date
5. Sharing of recovery
Highlights:
1 Selective buyer can be insured
2 Option to exclude LC exports
3 Premium rate can be reduced proportionately
5. EXPORTS TURNOVER POLICY
Turnover Policy is for the benefit of large exporters who contribute not
less than Rs.10 lakhs per annum towards premium. The policy
envisages projection of the export turnover of the policyholder for a
year and the initial determination on the premium payable on that
basis, subject to adjustment at the end of the year based on actual.

Period of the Policy : 12 Months

Risk covered: Commercial Risks
Political Risks
LC Opening Bank Risks
Percentage of Cover: 90%
Important Obligation of the Exporter
1. Premium will be payable in four equal quarterly installments in
advance
2. Submission of quarterly statement of shipments
3. Declaration of overdue payments
4. Filling of claim within 24 months from due date
5. Sharing of recovery

Highlights:
1. Simplified procedure for payment of premium
2. 10% of projected premium is waived when exports increase beyond
projection
3. Increased discretionary limit
4. BUYER EXPOSURE POLICY :
The Buyer Exposure Policy is to insure the exporters having large
number of shipments with simplified procedure and rationalized
premium. An exporters can chose to obtain exposure based cover on
the selected buyer. The cover would be cover against commercial and
political risk. The option to exclude LC shipment is available. If the
exporter has opted for commercial and political risks cover, failure of
LC opening bank with World Rank up to 25,000 as per latest Bankers
Almanac is available. If exporters opts for only political risks for LC
exports premium at a less rate is offered
Period of the Policy: 12 months
Risk covered: Buyer Risk
LC Opening Bank Risks
Political Risks
Percentage of Cover: 90% for Standard policyholder and 80% for
others
Important Obligations of the Exporter:
1 Premium Payable in advance
2 Option to pay the premium quarterly in advance is available
3 Premium non refundable
4 Obtaining approval for extension in due date beyond 180 days
5 Declaration of overdue payments
6 Filing of claim within 12 months from due date
7 Sharing of recovery

Highlights:
1. 5% discount premium if paid in advance
2. Declaration procedure waived
3. Exporter to approach only for default in claim
4. One Policy for one buyer

7. MULTI-BUYER EXPOSURE POLICY

Some exporters export to large number of buyers. The number of

shipments made by them is also quite high. In order to meet the
needs of such exporters, Multi buyer exposure policy is introduced.
Cover would be available for exports to the buyers in countries listed
under open cover category as long as the buyer is not in “default
buyers list” maintained by the Corporation and available on its website
www.ecgcindia.com. If the transaction is on LC terms, failure of the LC
opening bank in respect of exports against LC will also covered, For
banks with World Rank upto 25000 as per Latest Bankers Almanac
Cover in respect of exports to restricted over countries would not be
available under this policy
Period of Policy: 12 Months
Risk Covered: Buyer Risks
Political Risks
LC Opening Bank Risks
Percentage of Cover: 80%
Important Obligations of the Exporters:
1. Premium payable in advance
2. Option to pay the premium quarterly in advance is available
3. Premium non refundable
4. Obtaining approval for extension is due date beyond 180 days
5. Declaration of overdue payments
6. Filing of claim within 12 months from due date
7. Sharing of recovery

Highlights:
1. Policy is best suited for exporters who make frequent shipments
2. Reduced premium rates available on conditions
3. 5% reduction on total premium on lump sum payment
4. No declaration required
5. All buyers in open countries covered on conditions
6. Protection up to Aggregate Loss Limit and Individual buyer up to
10% of All.
8. CONSIGNMENT EXPORTS POLICY (STOCKHOLDING AGENT)
Economic liberalization and gradual removal of international barriers
for trade and commerce are opening up various new avenues of
exports opportunities to Indian exporters of quality goods. A method
increasingly adopted by Indian exporters is consignment exports
where goods are shipped and held in stock overseas ready for sale to
overseas buyers, as and when orders are received. Thus separate
Credit Insurance Policy is introduce to cover exclusively shipments on
consignment basis taking into account their special features, providing
adequate incentives and simplifying procedures considerably
Period of the Policy: 12 Months
Risks covered:
1 Commercial Risks on stockholding agent and/or ultimate buyer
2 Political Risks
Percentage of Cover: 90% for Standard Policyholders and 80% for
others
Important obligations of Exporters:
1 Advance deposit of premium in advance on quarterly or monthly
basis
2 Obtaining credit limit on ultimate buyers beyond the discretionary
limit
3 Quarterly/Monthly statement of actual exports
4 Overdue declaration
5 Filing of claim
6 Sharing of recovery
Highlights:
1 Covers only the consignments exports
2 Rationalized premium for 360 days
3 Automatic cover for ultimate buyers upto discretionary limit
4 Commercial risks on agents covered
5 Extended period for realization upto 360 days
9 CONSIGNMENT EXPORTS POLICY (GLOBAL ENTITY)
A method adopted by India exporters is consignment exports where
goods are shipped to their own branch office overseas ready for sale to
overseas buyers, as and when orders are received. Thus separate
credit insurance policy is introduce to cover exclusively shipments by
the exporters to their branches overseas on consignment basis taking
into account their special features, providing adequate incentives and
simplifying the procedures considerably.
Period of the Policy: 12 Months
Risks covered:
3 Commercial Risks on overseas branch on conditions
Percentage of Cover: 90% for Standard Policyholders and 80% for
others
Important obligations of Exporters:
7 Advance deposit of premium in advance on quarterly or monthly
basis
8 Obtaining credit limit on ultimate buyers beyond the discretionary
limit
9 Quarterly/Monthly statement of actual exports
10 Overdue declaration
11 Filing of claim
12 Sharing of recovery
Highlights:
6 Covers only the consignments exports
7 Rationalized premium for 360 days
8 Automatic cover for ultimate buyers upto discretionary limit
9 Commercial risks on agents covered
10 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:
4 Commercial Risks on ultimate buyers
5 Political Risks
6 LC Opening Bank Risks
Percentage of Cover: 90% for Standard Policyholders and 80% for
others

Important obligations of Exporters:

13 Advance deposit of premium in advance to cover premium
14 Obtaining credit limit on services receiver
15 Monthly statement of actual service provided
16 Overdue declaration
17 Filing of claim
18 Sharing of recovery
Highlights:
11 Option to select the type of cover.
7. MATURITY FACTORING
The Maturity Factoring scheme, as designed by ECGC has unique
features and does not exactly fit into the conventional mould of
maturity factoring. The changes devised are intended to give the
clients the benefits of full factoring services through the maturity
factoring scheme, thus effectively addressing the needs of exporters to
avail of pre- finance (advance) on the receivable, for their working
capital requirements. One important feature is the very role and
special benefits envisaged for banks under the scheme.
Benefits:
12 100% credit guarantee protection against had debts
13 Sales register maintenance in respects of factored transaction
14 Regular monitoring of outstanding credits, facilitating collection of
receivable on due date, recovery, at its own cost, of all recoverable
had debts
Setting up Charges and Factoring Charges
1 The factoring application fee payable initially is Rs.10, 000/- For
setting up permitted limits on each of the overseas customers, the
exporter will have to pay a processing fee equal to 0.05% of the
permitted limit sought subject to minimum of Rs.2000/- after of this,
the factoring charges payable as and when an exports bill is to be
factored depends on the country to which the exports is made and the
credit period.

Exporters Obligations:
2 Registration and obtaining permitted limit on the buyer
3 Payment of factoring charges with statement of exports made
4 Inform developments