EXPORT INCENTIVES IN INDIA

In order to promote exports and to obtain foreign exchange, the Government of India has framed
several schemes. These schemes grant incentives and other benefits. The few important export
incentives, from the point of view of indirect taxes are briefed below:

Free Trade Zones & Tax Heavens

Trade Zones like Special Economic Zones (SEZs), Export Oriented Units (EOUs), Electronics Hardware
Technology Parks (EHTPs), Software Technology Parks (STPs) and Bio-Technology Parks (BTPs) has been
given consent by the Government in order to promote exports. No excise duties are payable on goods
manufactured in these zones provided they are made for export purpose only. Goods being brought
in these zones from different parts of the country are brought without the payment of any excise
duty. Moreover, no customs duties are payable on imported raw material and components used in the
manufacture of such goods being exported.
Export Promotion Capital Goods Scheme (EPCG)

According to this scheme, a domestic manufacturer can import machinery and plant without paying
customs duty or settling at a concessional rate of customs duty.

Deemed Exports

The Indian suppliers are entitled for the following benefits in respect of deemed exports:

- Refund of excise duty paid on final products

- Duty drawback
- Imports under DEEC scheme
- Special import licenses based on value of deemed exports

The following categories are treated as deemed exports for seller if the goods are manufactured in
India:

- Supply of goods against duty free licences under DEEC scheme

- Supply of goods to a 100 % EOU or a unit in a free trade zone
or a unit in a software technology park or a unit in a hardware technology park
- Supply of goods to holders of licence under the EPCG scheme
- Supply of goods to projects financed by multilateral or
bilateral agencies or funds notified by the Finance Ministry
under international competitive bidding or under limited
tender systems in accordance with the procedures of those
agencies or funds where legal agreements provide for tender
evaluation without including customs duty
- Supply of capital goods and spares upto 10% of the FOR value
to fertilizer plants under international competitive bidding
- Supply of goods to any project or purpose in respect of which
the Ministry of Finance permits by notification the import of
goods at zero customs duty along with benefits of deemed
exports to domestic supplies
- Supply of goods to power, oil and gas sectors in respect of
which the Ministry of Finance permits by notification
benefits of deemed exports to domestic supplies

Manufacture under Bond

This scheme furnishes a bond with the manufacturer of adequate amount to undertake the export of
his production. Against this the manufacturer is allowed to import goods without paying any customs
duty, even if he obtain it from the domestic market without excise duty. The production is made under
the supervision of customs or excise authority.

Duty Drawback

It means the rebate of duty chargeable on imported material or excisable material used in the
manufacturing of goods in and is exported. The exporter may claim drawback or refund of excise and
customs duties being paid by his suppliers. The final exporter can claim the drawback on material used
for the manufacture of export products. In case of re-import of goods the drawback can be claimed.
The following are Drawbacks:

- Customs paid on imported inputs plus excise duty paid on

indigenous imports.
- Duty paid on packing material.
- Drawback is not allowed on inputs obtained without payment of
customs or excise duty. In part payment of customs and excise
duty, rebate or refund can be claimed only on the paid part.

In case of re-export of goods, it should be done within 2 years from the date of payment of duty when
they were imported. 98% of the duty is allowable as drawback, only after inspection. If the goods
imported are used before its re-export, the drawback will be allowed as at reduced percent.

As suggested by the Trade and Industry, instead of number of schemes like Quantity Based Advance
Licence (QBAL), Value Based Advance Licence (VABAL), Special VABAL Schemes in respect of
Electronics, Engineering, Ready-made Garments, Pharmaceuticals and Pass Book Scheme, the new EXIM
Policy has only two schemes i.e. Advance Licensing Scheme corresponding to QBAL and a new scheme
known as Duty Entitlement Pass Book Scheme (DEPB).

Advance Licence / Duty Exemption Entitlement Scheme (DEEC)

In this scheme advance licence, either quantity based (QBAL) or value based (VABAL), is given to an
exporter against which the raw materials and other components may be imported without payment of
customs duty provided the manufactured goods are exported. These licenses are transferable in the
open market at a price.

DEPB Scheme incorporates the concept of the old Pass Book but with simplified procedures and greater
coverage and transparency in the matter of giving credit entitlements. The entitlement rate will be
pre-determined so that the exporters at the time of exports can do their costing accordingly. It is a
transparent scheme and does away with any discretion to the Licensing Authority or Custom Authority.
Export Documents

Introduction
An exporter without any commercial contract is completely exposed of foreign exchange risks that
arises due to the probability of an adverse change in exchange rates. Therefore, it becomes important
for the exporter to gain some knowledge about the foreign exchange rates, quoting of exchange rates
and various factors determining the exchange rates. In this section, we have discussed various topics
related to foreign exchange rates in detail.
Export from India required special document depending upon the type of product and destination to
be exported. Export Documents not only gives detail about the product and its destination port but are
also used for the purpose of taxation and quality control inspection certification.

Shipping Bill / Bill of Export

Shipping Bill/ Bill of Export is the main document required by the Customs Authority for allowing
shipment. A shipping bill is issued by the shipping agent and represents some kind of certificate for all
parties, included ship's owner, seller, buyer and some other parties. For each one represents a kind of
certificate document.
Documents Required for Post Parcel Customs Clearance

In case of Post Parcel, no Shipping Bill is required. The relevant documents are mentioned below:
• Customs Declaration Form - It is prescribed by the Universal Postal Union (UPU) and
international apex body coordinating activities of national postal administration. It is known by
the code number CP2/ CP3 and to be prepared in quadruplicate, signed by the sender.
• Despatch Note- It is filled by the exporter to specify the action to be taken by the postal
department at the destination in case the address is non-traceable or the parcel is refused to
be accepted.
• Commercial Invoice - Issued by the exporter for the full realisable amount of goods as per
trade term.
• Consular Invoice - Mainly needed for the countries like Kenya, Uganda, Tanzania, Mauritius,
New Zealand, Burma, Iraq, Ausatralia, Fiji, Cyprus, Nigeria, Ghana, Zanzibar etc. It is prepared
in the prescribed format and is signed/ certified by the counsel of the importing country
located in the country of export.
• Customs Invoice - Mainly needed for the countries like USA, Canada, etc. It is prepared on a
special form being presented by the Customs authorities of the importing country. It facilitates
entry of goods in the importing country at preferential tariff rate.
• Legalised / Visaed Invoice - This shows the seller's genuineness before the appropriate
consulate or chamber or commerce/ embassy.
• Certified Invoice- It is required when the exporter needs to certify on the invoice that
the goods are of a particular origin or manufactured/ packed at a particular place and in
accordance with specific contract. Sight Draft and Usance Draft are available for this. Sight
Draft is required when the exporter expects immediate payment and Usance Draft is required
for credit delivery.
• Packing List - It shows the details of goods contained in each parcel / shipment.
• Certificate of Inspection– It is a type of document describing the condition of goods and
confirming that they have been inspected.
• Black List Certificate- It is required for countries which have strained political relation. It
certifies that the ship or the aircraft carrying the goods has not touched those country(s).
• Manufacturer's Certificate- It is required in addition to the Certificate of Origin for few
countries to show that the goods shipped have actually been manufactured and is available.
• Certificate of Chemical Analysis- It is required to ensure the quality and grade of certain
items such as metallic ores, pigments, etc.
• Certificate of Shipment- It signifies that a certain lot of goods have been shipped.
• Health/ Veterinary/ Sanitary Certification - Required for export of foodstuffs, marine
products, hides, livestock etc.
• Certificate of Conditioning- It is issued by the competent office to certify compliance of
humidity factor, dry weight, etc.
• Antiquity Measurement– It is issued by Archaeological Survey of India in case of antiques.
• Shipping Order- Issued by the Shipping (Conference) Line which intimates the exporter about
the reservation of space of shipment of cargo through the specific vessel from a specified port
and on a specified date.
• Cart/ Lorry Ticket - It is prepared for admittance of the cargo through the port gate and
includes the shipper's name, cart/ lorry No., marks on packages, quantity, etc.
• Shut Out Advice - It is a statement of packages which are shut out by a ship and is prepared by
the concerned shed and is sent to the exporter.
• Short Shipment Form - It is an application to the customs authorities at port which advises
short shipment of goods and required for claiming the return.
PROCESSING OF EXPORT ORDER
INTRODUCTION
Export order must confirm to the terms of contract and then sent to the overseas buyer.

But before its confirmation, it must be scrutinized with regards to products and their specifications,
terms of payment, price, delivery schedule etc.

The immediate task of exporter is to

The immediate task of exporter is to
acknowledge the export order which is
acknowledge the export order which is
The immediate task of exporter is to
acknowledge the export order which is
acknowledge the export order which is
The immediate task of exporter is to
acknowledge the export order which is
acknowledge the export order which is
different from its acceptance .
different from its acceptance .
Then he should proceed to examine the
Then he should proceed to examine the
export order with respect to following
export order with respect to following
parameters.
parameters.
The immediate task of exporter is to
acknowledge the export order which is
acknowledge the export order which is
different from its acceptance .
different from its acceptance .
Then he should proceed to examine the
Then he should proceed to examine the
export order with respect to following
export order with respect to following
parameters.
parameters.
The immediate task of exporter is to acknowledge the export order which is different from its
acceptance ferent from its acceptance .

Then he should proceed to examine the export order with respect to following parameters.

1. Nature:
:Export order is a document, communicating the decision of foreign buyer to purchase items from
exporter. It would clearly indicate the exporter’s pro-forma invoice/quotation number and its date,
including item, quantity, price, delivery date, shipping , marks, insurance, payment, terms, documents
required etc. Before acceptance, the export order should be scrutinized in all aspects
 2. Acknowledgement
2. Acknowled
gement:
2. Acknowledgement
The exporter should write a simple letter to overseas buyer thanking him for the export order and
stating that the confirmation of the same would be sent soon.

3. Security

The export order should be carefully scrutinized in terms of pro forma invoice/contract sent to the
foreign buyer, on the following aspects:
- The order has been received for same products for which quotation/offer was sent
- Size and specifications are also as per quotation/offer . Unit measurement needs to be specified as
well. It could be numbers, volume, or weight.
- Ordered quantity both in words and figures. This is essential to leave out any room for confusion.
- Pre-shipment inspection is as per agreed in pro forma invoice. Pre- shipment inspection can be done
by-
Exporter
• Inspection by exporter nominated agency
• Inspection by importer nominated agency
• Export Inspection Agency (EIA) GOI authorized agency
The inspection agency has to be agreed upon in pro forma invoice
Ø Payment conditions are same as stipulated
The order must provide all the details relating to kind of packaging required including the labels and the
marks to be put up. The instructions have to be explicit specifying requirements in full details as there
could be separate labels for the articles and for packaging.
Ø Shipment and delivery date is in conformity with the exporters production plan.
Ø Documents required are in conformity with those mentioned in pro forma invoice. Generally
following documents are required:
§ –Bill of Exchange
§ –Bill of Lading
 § –Certificate of Origin
§ –Packing List
§ –Insurance Policy/Certificate
§
4. Confirmation

If the exporter is satisfied on various aspects mentioned in the export order he aspects mentioned in
the export order he should send a formal confirmation to the overseas buyer.

5. Clarification
If the exporter is not completely satisfied with the terms of export order, clarification should be sought
from the buyer before its confirmation.
The clarification could be in terms of :

Quantity
Delivery schedule
Terms of payment
INCO terms etc.
The delivery period should be specific and not in terms like “immediate delivery,” or “as soon as
possible.”

Contents of export Contract

1. Product description and Specifications

Includes products name, technical name, quality specifications and grade, details as to
standards, sizes, reference to samples and their specifications.

2. Quantity
Ordered quantity both in words and figures. This is essential to leave out any room for confusion.
Unit measurement needs to be specified as well. It could be numbers, volume, or weight.
In addition care should be taken while stating the unit of measurement in international or country
specific terms, for example, Metric Ton is 1000 kgs. whereas the US Short Ton is 907 kgs. and the British
Long Ton is 1016 kgs
3.Packaging, Labeling and marking

The order must provide all the details relating to kind of packaging required including the labels and the
marks to be put up. The instructions have to be explicit specifying requirements in full details as there
could be separate labels for the articles and for packaging.

In each case of marking, information that has to be indicated on each package should be in easily
readable ink, giving the name of the consignee, contents of the package including name of the product,
net and sometimes also the gross weight, country of origin etc.

4 INCO terms, Price and Value

6.
IThe total value of order needs to be clearly stated both in numbers and words in the decided currency.
Price would of course depend upon terms of delivery and for this generally INCO terms are used.
CO terms are used.

5. Taxes, Duties & Other Charges

Other Charges
Who would bear which tax depends very much on how the prices are quoted and herein INCO terms
become relevant.
come relevant
6. Delivery Period
It is important that contract do clearly indicate stipulations with regard to delivery period. The delivery
period should be specific and not in terms like “immediate delivery,” or “as soon as possible.”
In case of late deliveries the importer can insist upon the payment to be made by the exporter by
way of liquidated damages, a sum equal to certain % of the contract price for every week of delay.

7. Consignee Detail
7.
If the consignee is different from the buyer, his complete name and address is required.

8. Transfer of Risk
INCO terms define the point at which risk passes on from exporter to importer.
Unless otherwise agreed between the parties, the risk passes from the exporter when the goods are
handed over to the first carrier for transmission to the importer.

9. Mode of Payment

The contract should clearly indicate the mode of payment- whether it is L/C, or Documentary Collection
D/C, or Document on Acceptance D/A.

10. . Inspection Clause

10
If a buyer wants a pre-shipment inspection carried out, it must be mentioned in the contract. The details
of the inspection agency must also be given

11. Test Certificate

At times, the importer may ask the exporter to conduct certain test son the material, for example, a
colour bleed test on fabric, and submit a test report by a prescribed agency. This must form a part of the
contract.
12. Commission/Discounts

In case exporter is required to pay any kind of commission or offer any discount to the buyer or his
agent, the export order must provide details of the same.

13. Insurance
The contract must clearly provide insurance instructions for the exporter, if he is to arrange insurance. In
case the buyer is responsible for insurance, the order must say so.

14. Documents Required

The export contract must specify all documents required to be submitted by the exporter to the
importer. The exporter then has to comply with all the documentation required very religiously.
Generally following documents are required

Shipping Advice
Commercial Invoice
Bill of Exchange
Bill of Lading
Certificate of Origin
Packing List
Insurance Policy/Certificate

15. ‘Force Majeure’ clause

Force Majeure literally means “greater-force”. This clause excuses a party from liability if some
unforeseen event beyond the control of that party prevents it from performing its obligation under
contract

Typically force majeure clauses cover natural disasters or “Acts of God”, war et It is important to
remember that
It is important to remember that force majeure clauses are intended to excuse a party only if
the failure to perform could not be avoided by the exercise of due care by that party.

International Chambers of Commerce via ICC Publication No. 421 has enumerated the following
circumstances as the one in which the force majeure clause will be applicable :
will be applicable :
War, civil war, riots and revolutions, acts of piracy
Natural disasters such as violent storms, cyclones, earthquakes, tidal waves, floods, destruction by
lightning
Explosions, fires, destruction of machines of factories and of any kind of installations.
Boycotts, strikes and lockouts off all kinds, go-slows, occupation of factories and premises and work
stoppages which occur in the enterprise of the party seeking relief.

16. Arbitration Clause

For settlement of disputes two options are available-

Ø Either go to Court of Law
Ø Or may chose to resort to arbitration

In international trading transactions, parties normally do not like to go to courts and instead decide
to go to Arbitration. The fact that the disputes are to be settled by resorting to Arbitration should be
clearly stated in the export contract, also mentioning therein whether Arbitration will be in accordance
with International Chamber of Commerce rules or the rules set out by UN Commission on International
Trade Law will be applicable.