Countervailing Duty Definition

Countervailing Duty is levied on the cost of imported goods and is equal to excise duty levied on like goods when manufactured in India.

The objective is to ensure that the protection provided by the import duty to domestic industry is not eroded.

Customs Surcharge

It is levied at the rate of 10% of the basic rate on all commodities except crude oil and petroleum products, GATT-bound items, gold and silver.

Basic Custom Duty

All goods imported into India are chargeable to duty as prescribed in the 1st Schedule of Customs Tariff Act. This Schedule is amended from time to time of Customs Tariff Act.

This duty can be levied either as a percentage of value of goods or at a specified rate.

Customs Duties are Levied in three Ways

Specific rate-at the rate prescribed per unit of item i.e. weight or number of length

Ad-valorem duty-levied on the value of the item Specific and

Advalorem-levied in both ways.

Customs Tariff Classification

The basic legislation is the Indian Customs Act, 1962 read with Customs Tariff Act, 1975. Section 12 of the Customs Act,'62 empowers levy of duties on goods imported into or exported from India.

However, the rates at which the different import export duties shall be leviable have been respectively specified in the First and Second Schedule to the Customs Tariff Act, 1975-called the import Tariff and Export Tariff respectively.

With effect from Feb. 28, 1986, the new tariff import schedule based on international convention of Harmonised Commodity and Coding system, commonly known as Harmonised Coding System came into being.

The basic features of the Import Tariff Nomenclature are outlined below: The headings, the Section and Chapter Notes and the interpretive Rules

Customs not specified elsewhere of all other works

Supervision and control over Customs Commissionerate of Mumbai, Calcutta, Chennai, Kandla, Bangalore, Cochin, Delhi , Visakhapatnam, Goa and Tuticorin and Customs Divisions of other Central Excise Commissioners, Assistant Commissionerates regarding Customs work handled by them.

Chemical laboratories

Directorate of Drawback

The Ministry of Finance (MoF) issues Customs Notifications to levy duty on the imported goods. The Changes are made each year on the Day of the Fiscal Budget. Customs clearance of the imported goods is done by the customs Authorities functioning under the overall charge of MoF. The hierarchy of the Authorities:

Central Board of Excise & Customs (CBEC) in the MoF Under which operates:Customs Commissionerates of Mumbai, Calcutta, Chennai, Kandla, Bangalore, Cochin, Delhi, Vizag, Goa and Tuticorin.

Directorate of Drawback Field Level:Principal Commissioners Customs ,Commissioners,Addl. Commissioners ,Dy. Commissioners,Asst. Commissioners,Port of clearance.

Member (Customs) looks after the following matters

Customs Law and its interpretation and application, policy and broad procedures(Other than those concerning anti-smuggling)
Enforcement of Import Export prohibitions
Foreign Travel and Cases on imports and exports
Baggage concessions and rules

Customs Valuations
Tariff Classification and Tariff advices
Customs procedures, Customs House Agents Regulations
Warehousing, inland Bonded Warehouses
FTZs, EPZs, 100% EOUs etc. Matters relating to Drawback
Customs Co-operations Council, GATT and ESCAP and international talks and agreements, organisations concerning customs

Customs Authorities

The customs administration vests in CBEC for implementing the provisions of the Customs Act.1962. There are two main wings of Customs House. In the 'Appraisement' wing the job of collection of revenue is assigned, while the 'Preventive' one aims at prevention of smuggling.

The Customs authority functions under the Ministry of Finance (MoF) with the Central Board of Excise & Customs at the apex. The board is headed by a Chairman and assisted by Members.

Custom Clearing Procedure

The appraising procedure may be of two types.


The First Custom Checks Procedure - Applicable only when appraisers/assessing group finds it difficult to complete the assessment on the basis of the documents made available.
The Scrutinising Appraiser in the group gives the examination order. The goods are then examined in the docks and the B/E rerutned to the Scrutinising Appraiser for completion and license debit. In this case the Customs 'out of charge' is given by the Accounts Department soon after the recovery of duty

The Second Custom Checks Procedure - Under this 80 to 90 percent of the consignments are cleared.

If the documents are adequate for determining the classification, value, ITC license, the form is completed by the Appraiser and then countersigned by The Assistant Collector. It is then forwarded to the License Department for licensing debit and audit. Then it is returned to the importers for payment of duty in the Accounts/Cash department. After recovery of duty the original B/E is retained in the Accounts Department and the duplicate and other copies are returned to the importer for getting the goods examined in the docks. In the docks, the Shed Appraiser/Examiner shall examine the goods and if in order, shall give the out of charge for taking delivery from the custodian of the goods viz. Port Trust, after payment of Port Trust charges.

Irrespective of the procedure, examination of cargo for assessment purpose is chiefly the function of the Appraising Department having special staff of examiners in the docks/Air cargo shed. The records of the examination and weighment should be declared, attested and dated at the time of the examination. If the examination spreads over more than one day, the result on each day's progress should be disclosed.

These apart some of the Customs house in India have introduced the simplified computer procedure for speedy clearance of consignment through B/E.

Imports Customs Clearance

Imports Customs Clearance and the Customs Clearing agents play the key role in the import of goods. All goods imported into India have to pass through the procedure of Customs clearance as they cross Indian border. The goods are examined, appraised, assessed, evaluated and then allowed to be taken out of charge of the Customs for use by the importer. The entire process of customs clearance is complex and to carry out this procedure smoothly, the help of accredited customs clearing agents has to be taken.

The importers need to present a Bill of Entry on receipt of the advise of the arrival ofthe vessel. The Bill of Entry is noted in Import Department, with corresponding endorsementmade against the consignment entry in the IGM along with the date. The Bill of Entry will then be presented in the Appraising Department with all the relevant documents like customs invoice, Bill of Lading, Import license and catalogue literature.

Postal Imports

Remittances against bills received for collection in respect of imports by post parcel may be made by authorised dealers, provided the goods imported are such as are normally despatched by post-parcel. In these cases the relative parcel receipts must be produced as evidence of dispatch through the post and on undertaking to submit importers should furnish post parcel wrappers within three months from the date of remittance.

If the parcel has already been received in India, the parcel wrapper should be produced in support of the remittance application. Where goods to be imported are not of a kind normally imported by post parcel or where authorised dealer is not satisfied about the bona fides of the applications the case should be referred to RBI for prior approval with full particulars together with relative parcel receipts/or wrappers.

Import Documentation

The importer should comply with certain obligations: submission of Exchange Control Copy of Bill of Entry for Home Consumption/Postal Wrappers to the authorised dealer. This will act as evidence that the goods for which the payment was made, have actually been imported into India.

Authorised dealers should ensure that in all cases, including cases of advance remittances permitted , these are submitted by their importer customers and are verified. In respect of imports made on D/A basis, since goods would normally be cleared before the due date of payment, authorised dealers should insist on production of documentary evidence of import i.e. Exchange Control Copy of Bill of Entry for Home Consumption/ postal wrappers at the time of effecting remittance of import bill. Authorised dealers should also advise this requirement to their importer customers in writing while delivering the documents against acceptance.

Time Limit for Import Remittance

The remittance against imports should be completed not later than 6 months from the date of shipment. Accordingly, deferred payment arrangements involving payments beyond 6months are not permissible without approval of RBI/Gol. However, no objection to importers withholding a small part of the cost of the goods not exceeding 15 percent towards guarantee of performance etc. Authorised dealers may make remittances of amounts so withheld provided the earlier remittance had been made through them. No interest payment should be allowed to be remitted on these withheld amounts.

Sometimes, settlement of import dues may be delayed due to disputes, financial difficulties, Authorised dealers are permitted by the RBI to make remittances in such cases even if the period of 6 months expires, provided-
Authorised dealer is satisfied about the bona fides of the circumstances leading to the delay in payment. No payment of interest is involved for the additional period.

In case, where the overseas supplier insists on payment of interest, it may be allowed in accordance with the provisions contained in para 7A.12 up to a maximum period of 60 days beyond 180days from the date of shipment provided the import bill is paid within that period. Remittances against import of books may be allowed without restrictions as to time-limit, providedno interest payment is involved nor has the importer forgone any part of the discount/rebate normally allowed to importers towards compensation for delay in settlement of dues.

Interest remittance on import bills-interest accrued on usance bills under 'normal interest clause' or of overdue interest paid on sight bills for a period. not exceeding 6 months from the date of shipment in respect of imports without prior approval of RBI. In case of pre-payment of usance import bills, remittances may be made only after reducing the proportionate interest for the unexpired portion of usance at the rate at which the interest has been claimed or the 'prime' rate (or its equivalent) of the country in the currency of which the goods are invoiced, whichever is higher. Where interest is not separately claimed remittances may be allowed after deducting the proportionate interest for the unexpired portion of usance at the prevalling 'prime'.

However, interest under normal interest clause would mean interest at the prime rate (or its equivalent) of the country in the currency of which the goods are invoiced.

Payment for import bills

Where the import bills are drawn in Indian Ruppes (INR), an equivalent amount(plus bank charges) is debited to the account of the importer by the authorised dealer and the amount remitted to the foreign seller. In case the bills are drawn in foreign currencies, the INR equivalent is arrived at by applying the appropriate foreign exchange rate.


Fixing of Re. Equivalent-In order to bring uniformity in the handling of import bills under L/C authorised dealers have been directed by the RBI of follow the following procedure:

Sight import bills received under L/C and conforming to credit terms, may be held in foreign currency for a maximum period of 10days from the date of receipt of documents by the Bank.

In case of non-payment by the drawee within 10days, the importer's liability on the foreign currency bill shall be crystallized by converting the foreign currency amount in to rupee at the B.C. Selling rate prevailing on the 10day or the forward exchange contract rate where applicable. Authorised dealers shall keep a proper record of the date of receipt of documents.

In case the 10th day is holiday or a Saturday, the importer's liability in rupees shall crystallise in the next following working day.

Authorised dealer shall carry swap costs from the customer.

Authorised dealer shall charge interest at the rate as prescribed by RBI for advances to non-priority sectors from time to time on rupees advances made against the import bills pending retirement by the customer. Such interest shall be recovered from the date of negotiation or the date of crystallisation of the rupee liability and thereafter penal interest shall be recovered.

When the rupee liability on an import bill is crystallised at the Forward Exchange Contract Rate and it results in early/late delivery, the charges as per FEDAI rule 9 shall be levied.

Authorised dealers shall charge commission/handling charges at the rate of 0.15% on the bill amount at the time of converting foreign currency into INR irrespective of the fact whether the bill is retired within 10 days or later.

Import Payment

Payments in retirement of bills drawn under L/C as well as bills received from abroad for collection against imports into India, must be received by authorised dealers, irrespective of amount, by debit to the account of the importer with themselves or by means of a crossed cheque drawn by him on his other bankers. Payment against bills should not be accepted in cash. This rule also applies to private imports where the amount involved is Rs. 20,000 or more.

Scrutiny for Insurance Documents

• whether the policy is taken out in the name of the shipper

• Certificate/policy is according to Letter of Credit terms

• Risk commences w.e.f. date of B/L

• Amount of insurance as per L/C terms

• Whether drawn in the same currency as the L/C

• Description of goods agree with B/L

• Risks as per L/C are covered

• The place where claims are payable is as per L/C terms

• Adequately stamped

• Details such as name of carrying vessel, ports of loading/destination, marks, agree with the B/L

• Certificate of analysis, weighment,etc.

• The certificates are issued by the authority stipulated in L/C

• Name of the shipper is properly shown

• The samples drawn relate to the goods actually shipped

• Date of sample verification is within the date of shipment

Invoice- check

• Is made out in the name of the person who had opened the L/C

• Quantity, unit price and value are quoted as per L/C

• Whether unit price and value are quoted as per L/C

• The description of the merchandise corresponds to the description in the L/C

• The arithmetical calculations are correct

• Import license/OGL/Contract No./Order No./Indent No. mentioned as per L/C

• No charge other than stipulated in L/C in included

• Additional copy for Exchange Control purposes is submitted

• The date and no. of the License/OGL indicated

• Bill of lading is submitted within 21days from the date of shipment, if no specific time is between the date of issue and expiry of L/C

• The date of shipment is between the date of issue and expiry of L/C

• Full quantity of goods is shipped, if part shipment is not allowed

• Full set is submitted

• Freight is shown as prepaid/payable at destination, as per L/C

• Bill of lading shows 'on board shipment'

• Parties are notified as per L/C terms

• Carrying vessel's name has been mentioned in Bill of Lading

• The beneficiary's name is shown as consignor, unless L/C terms permits third party bill of lading

• The consignee's name is as per L/C

• The B/L is manually signed

• The description of goods is consistent with L/C

• The ports of loading/destination are mentioned as per L/C

• Marks, numbers, quantity and weight agree with the invoice

• The carrying vessel belongs to any particular line as per L/C

• Adequately stamped

• Properly endorsed

• If AWB, whether flight number and date of departure mentioned

• If freight has been added separately in invoice and no separate freight certificate of shipping company is submitted. B/L shows freight amount.

Checklist for Document (Received under L/C) Scrutiny

• General-check whether all documents in full sets as per L/C terms have been received

• Documents had been presented before the expiry date

• All the documents are dated subsequent to the date of issue of the L/C

• Cancellation/overwriting in all documents are authenticated

• Bills of Exchange-check whether Drawn on the person indicated in the L/C and duly signed up by the beneficiary of the credit , Drawing is within L/C amount and in the same currency as per the L/C , The amounts in words and figures are the same and identical with the amount stated in the invoice Superscription, regarding drawing under L/C has been made and the Bill must have been issued stamped.

Document Check

This is a very important function and this should be done with great care. After receiving the document from the overseas supplier's bank the importer's bank will scrutinise them to verify the extent of correctness as per the terms of the L/C. For discrepancies in the documents following principles are adopted:

If discrepancies are such which violates any of exchange control or import control regulations, the documents should straightaway be rejected.

If the discrepancies are of trivial nature not affecting the character of the transactions the documents may be accepted on merits.

If the documents are rejected, immediate notice to that effect should be given to the bank to safeguard the importer's interests.The documents prescribed by the beneficiary are carefully scrutinised by the issuing banker.

The importer should also scrutinise the documents to ensure that:

• They were presented when the credit was in force and had not expired.

• The amendments and special instructions have been taken care of

• The amount of bill does not exceed the value of L/C

• All documents required in the L/C have been made available

• Documents carry required endorsements

• The documents do not contain discrepancies which violate any exchange control/import control regulations

• The invoice is duly signed, tallies with amount of draft, Exact quantities are shown and is drawn in appropriate currency of the origin of goods

Bill of lading is presented in full set of negotiable copies and is on board bill of lading and duly signed In case the goods are imported on cash against documents(CAD), documents against payment(D/P) or documents against acceptance(D/A) basis, the importer needs to take delivery of documents from the banker before completion of the customs formalities. This process, known as retirement of documents, needs the importer to apply to authorised dealer/banker who is in possession of documents. This can be done by tendering the funds equivalent to the value of documents and the bank charges exchange control copy of import license, where applicable, Form A-1 duly completed for remittance of foreign exchange.

The documents are released to the importers against payment in case of DP bills and against acceptance in case of DA bills. The payment in either case is accepted only from the bank account of importer. If the bank is out of funds the interest is charged to the importer's account. For any overdue period a penal interest will be charged.

Import Policy

For items not mentioned as Prohibited, Restricted or Canalised List for import in ITC(HS) Classification of Export and Import items; import of such items are freely permitted. There is no need to obtain any license or permission for importing such goods. The ITC(HS) Classification of Export and Import items contains 99 chapters and in each chapter there are column heading covering Exim Code, items description, policy and nature or restriction. The information related to import policy for any item can be obtained from our site under Customs Duty Calculator Schedule.

Procedure to be followed for grant of import license

An application for grant of an import licence or CCP for import of the items mentioned as restricted for import in ITC(HS) Classification of Export and Import items may be made to the regional licencing authority concerned.

Hedging Forex Risk

Exchange risk arising on account of adverse movement of the exchange rates, can be avoided by the following methods:

• By requesting the supplier to invoice the goods in Indian rupees (possible only when the seller agrees to it)

• By entering into a forward exchange contract.

This involves booking of forward exchange contract with the bank of the importer.

For booking forward contract the importer should approach his bank with which an L/C has been opened. The bank will book a forward contract only against genuine trade transaction. The bank will verify suitable documents to ensure the authenticity and the amount of permitted currency of the underlying transaction. The amount, date and number of the forward contract will be marked on such documents under the stamp and signature of the bank to ensure that more than one forward contract is not booked in respect of the same underlying transaction. A transaction may be covered either in parts or in whole. The period and extent to which an exposure is to be covered is left to the choice of the customer. Ordinarily, the maturity of the forward contract matches with that of the underlying transaction. If the documents of import are not received within the agreed period of the contract, the contract needs to be cancelled(an fresh contract booked if desired) for which the bank will levycancellation charges as per FEDAI rules. In case the documents are received before the stipulated date and the importer wants early delivery, the bank will again levy charges for early delivery, as per FEDAI rules.

The importers should be careful in chosing the period of forward contract. Otherwise early delivery or cancellation of forward contract would lead to unnecessary charges. The RBI allows substitution of an import order on specific request, provided the bank is satisfied with the circumstance leading to the non-performance of the contract.

Where the documents are under a contract(Non-L/C case), the seller will submit the complete set of documents to his bankers with the request to either purchase/discount the documents to his banker with the request to either purchase/discount the documents or same on collection basis to the importer. In the former case the seller's bank finances the sellers whereas in the latter case, no financial facility is extended to the overseas seller. The seller's banker may advance some money against documents sent on collection basis while, treating the documents as collateral security.

When the documents are under L/C, the documents are prepared strictly in conformity with the letter of credit.
After preparing the documents the overseas seller will tender the documents to his banker for negotiation. The bank, after receiving the documents, will examine them to ensure that they are strictly drawn as per the terms of the credit. Following this the overseas banker will send the documents to the importer's banker in India. The impoter's bank will advise the importer to collect the shipping documents either against payment or acceptance as per the terms of the contract.

In case the documents are drawn under L/C, the issuing banker(of the overseas supplier) will examine the documents and if found in order it will hand over the same to the importer after debiting his account with amount involved or against acceptance as per the terms of the credit.

If the documents are not in line with the terms of the credit, the overseas banker can either refuse to negotiate further and ask the seller to send them on collection basis only; or it can contact the importer's bank(in the buyer's country) for authorisation; or it can also make payment under the reserve against seller's indemnity.

TT Buying Rate

This rate is applied for purchase of foreign currency by banks when the banks in India have already obtained the cover in India. Thus all foreign inward remittances which are made payable in India are converted by applying this rate. A mail transfer issued by a bank in Dubai for US $ 10,000 drawn on any commercial bank having branch at the overseas destination will be converted into rupees at TT buying rate. Reading Rates-The rates announced by the banks every day morning are card rates.

Reputed importers can always bargain with the bank for improvement in the card rates for reducing their rupee liability on conversion of foreign currency into Indian rupees. Also a distinction is made between spot rates and forward rates. Spot rates are applicable on the day of transaction, whereas forward rates are fixed in advance for a transaction that will mature at a specified date or during a specified period in future imports.

TT Selling Rate

This rate is applied for all clean remittances outside India. For selling foreign currency to its customer by the bank such as for issuance of bank drafts, mail/telegraphic transfer etc

Precautions to be taken at the time of establishing Letter of Credit

Letter of credit offers almost complete protection to the seller but the buyer is put to many disadvantages and has to make payments against documents only. Before agreeing to open a letter of credit in favour of the seller, the opener must be satisfied with the creditworthiness and general reputation of the seller. Entire success of an L/C transaction depends on proper conduct of the seller.
Confidential report on the seller must be obtained at the time of first transaction with him.
Letter of credit also does not offer any protection for the quality/quantity of goods supplied under the L/C. It would, therefore be necessary to know the nature of goods and specify submission of quality reports/inspection reports from an independent agency to ensure receipt of goods of proper quality. This is particularly important in case of import of chemicals and such other goods. The opener has to submit an L/C application to the opening bank. The instructions contained in the L/C application is the mandate for the issuing bank and letter of credit will be issued in accordance with this application. It is, therefore, necessary that complete and precise information must be given in the L/C application form specifying therein the description, unit rate and quantity of the goods covered under L/C and details of documents required in absolute clear and unambiguous terms. The reference to underlying sale contract must be avoided as far as possible. The L/C application must nevertheless contain all the required/information based on which L/C could be opened by the bank. After the L/C has been issued by the bank, a copy thereof must be obtained immediately. The L/C must be scrutinized to ensure that it has been properly issued and is in conformity with L/C application. Discrepancy, if any, must be brought to the notice of opening bank immediately.
Import contact may be concluded either in terms of INR or in foreign currency. Where the contracts are in INR, the related documents are also prepared in INR and no conversion is involved. However, where the bill is drawn in foreign currency, the payment is made in Indian rupees equivalent to the foreign currency. The equivalent rupee value is arrived at by applying suitable exchange rate. These rates are applied by banks to standardise the foreign exchange-rupee conversion process.

When the price of foreign currency is quoted in terms of home or local currency it is called direct quotation basis. This has been in application since 02.08.1993. However, there is a difference between inter-bank exchange rates and merchant rates.
Merchant rates are the exchange rates applied by the bankers for transaction with their customers for various purposes, including imports and exports. These rates are calculated by the banks as per the guidelines issued by the Foreign Exchange Dealers Association of India (FEDAI). Inter-bank rates are the rate for transactions amongst the authorised dealers in foreign exchange and depend on the market conditions.
Since exchange rates are volatile, documents delivered by the bank at the time of a favourable exchange rate will enable the Indian purchaser to pay less of Indian rupees. Forex rates are always quoted as two way price i.e. at a rate at which the bank is willing to sell foreign currency(buying rate) and at a rate at which the bank is willing to buy foreign currency(selling rate). There is always some difference in buying and selling rates.
However, the maximum spread available to bank is restricted in terms of celling imposed by RBI. All exchange rates by authorised dealers are quoted in terms of their capacity as buyer or seller.

Types of Letter of Credit

• Revocable Letter of Credit or Irrevocable Letter of Credit

• Confirmed Credit

• Transferable Credit

• With or without Recourse Credit

• Revolving Letter of Credit

• Transit Credit

• Back to Back Credit

• Sight Credit

• Credit available against Time Draft (Usance Credit)

• Deferred payment Credit.

Parties to a Letter of Credit | Letter of Credit Parties

Following persons are generally parties, to a letter of Credit:

Benificiary

The exporter of goods in whose favour the L/C has been established.

Customer / importer

The person we intends to import the goods and instructs bank to established Letter of Credit.

Issuing Bank

The Banker in the importers Country who opened the L/C.

Correspondent Bank or Advising Bank

The banker in the exporters country, who is authorised by the issuing bank to advise the beneficiary of the Credit and to effect such payment or to accept and pay such bills of exchange or to negotiate against Stipulated documents and on Compliance of Stipulated terms and condition specified by the importer on the exporter.

Confirming Bank

The banker in the exporters(beneficiary) country, who at the desire of the beneficiary adds confirmation to the letter of Credit so that beneficiary can get payment without recourse from the Confirming bank. The Confirming bank may be correspondent bank itself or some other bank.

Uniform Customs and Practice for Documentary Credits

In the course of time, a number of practices, expressions and terms have evolved between banks dealing with documentary credits. To ensure uniformity of interpretation in international trade, the International Chambers of Commerce in Paris has worked out the "Uniform Customs and Practice for Documentary Credit". These have been revised and brought up to date several times in the past. The latest in the line of revisions is the UCP 500 (w.e.f. January 1, 1994) which updates and consolidates the previous UCP 400. They are now applied by the banks in nearly all countries including India.

What is Letter of Credit | Letter of Credit Definition

A Letter of Credit differs from a bank guarantee. An issuing or confirming bank's obligation is independent of, and unqualified by, the contract of sale under the transaction. A commercial credit is neither a performance bond, nor it is a guarantee of the quantity or quality of the goods shipped.
Letters of Credit and Bank Guarantee are Separate Transactions
A contract for sale of goods between the seller and the buyer incorporates mode of settlement. Letters of credit by their nature are separate from the sale contract, and banks are not concerned or bound by such sale contracts even if the credits bear reference to them. The credits stipulate documents which have to be tendered for payment and it, therefore, follows that in credits parties deal with documents and not with goods, services or performances to which the documents relate.

It is, therefore, in the interest of all the parties concerned that the conditions and terms of credit are complete and precise and barefit of excessive details.
Payment under a letter of credit does not depend on the performance obligation on the part of the exporter except those which the credit imposes. Banks accept documents under letters of credit for what those document purport to be on their face. Contract between the buyer and the seller is obligatory between themselves. The seller(beneficiary) cannot take advantage of any contractual terms in between the buyer and the opening bank and between the opening bank and the advising/confirming bank.

Payment Against Imports

Payment with Letter of Credit is a universally accepted mode of payment. A Letter of Credit is a Signed instrument and an undertaking by the banker of the buyer to pay the seller a certain sum of money on presentation of documents evidencing Shipment of Specified goods subject to Compliance with the stipulated terms and Conditions.

Finalising Import Contract

This is an important subject and should be handled with extreme care and caution. It is advisable that before finalising the terms of Import Order, you should call for the samples or catalogue and other relevant literatures and the specification of the items to be imported. Import of samples of goods is exempt from import duties under 'Geneva' Convention of 7th November, 1952. Samples are subject to re-export and other conditions as specified in the Geneva Convention. Besides, vide Customs Notification No. 154/94 dated 13.07.1994, commercial samples brought into India as personal baggage by bona fide commercial travellers and businessmen or imported into Into India by post or by air are exempt from the customs duty. Similarly, vide Notification No. 154/94 dated 13.07.1994, prototype of engineering goods when imported into India as samples for executing or for use in connection with-export orders are exempt from customs duty. Likewise, the Central Government has exempted bona fide commercial samples and prototype of engineering goods when imported into India by post or by air or by courier service by manufacturers of export goods.

Once you are satisfied with the samples and the creditworthiness of the overseas supplier, you can proceed to finalise the term of the contract to be entered into. For this purpose, the Import Contract should be carefully and comprehensively drafted incorporating therein precise terms, all relevant conditions of the trade deal. There should not be any ambiguity regarding the exact specifications of the goods and terms of the purchase including import price, mode of payment, type of packaging, port of shipment, delivery schedule, etc.

The different aspects of an import contract are enumerated as under some of which may be relevant and other may not be:

• Product, Standards and specifications.

• Import Quantity

• Import Inspection

• Total Contract Value

• Terms of Delivery

• Import Taxe, Import Duty and Charges payable at Exporting Country and payable in India on importation.

• Period of Delivery/Shipment.

• Import Packing, Import Labelling and Import Marking.

• Terms of Payment-Amount, Import Mode & Currency.

• Import Discount and Import Commission

• Import License and Import Permit

• Import Insurance.

• Documentary Requirements.

• Import Guarantee.

• Force Majeure or Excuse for Non-performance of Contract.

• Remedies

• Arbitration

Supplier Role

Some overseas suppliers have appointed their agents in India. These agents procure orders from the Indian parties and arrange for the supply of goods from their principal abroad. It is advisable to import through such agents as they can be readily contacted in case of any difficulty with regard to quality of goods, payment and documentation, etc.

Supplier Capability, Creditworthiness of Overseas Supplier

Successful completion of an import transaction will mainly depend upon the capability of the overseas supplier to fulfill his contract.The credit worthiness of the overseas supplier, his capacity to fulfill that contract, etc. should, therefore, be properly verified before entering into a contract with him. Confidential reports about the supplier may be obtained through the banks and Indian embassies abroad.

Reputed overseas suppliers normally have their Indenting Agents with offices in India and contract can also be finalised through them for smoother operations. The importer can also take the assistance of Credit Information Agencies for specific commercial information on overseas suppliers. They may also contact Trade Information Centres of the country concerned.

Correct address of these agencies can be obtained from the overseas countries trade representatives posted in India.

Selecting the Overseas Supplier

Imports can be made from any country of the world except Fiji and Iraq. The information regarding overseas supplier can generally be obtained from the following sources:

Trade Directories and Yellow Pages, like Singapore yellow pages, Japan yellow pages, USA yellow pages etc. available from leading booksellers in India including. Consulate Generals and Trade Representatives of various countries in India and abroad.

Friends and relatives in foreign countries. International Trade Fairs and Exhibitions for which you may contact:

International Trade Promotion Organisation(ITPO), Pragati Maidan, New Delhi. Chamber of Commerce.

Directorate of Industries, etc. Indenting Agents of Foreign Suppliers.

The advertisement in foreign papers may also be useful.

100% EOU Scheme | EPZ | FTZ Scheme

This means an industrial unit offering its entire production, excluding rejects and items otherwise specifically permitted to be supplied to the domestic tariff area(DTA), for exports. Such units may be set up under the EOU/EPZ scheme. While EOUs can be set up anywhere in India subject to certain locational conditions, units in EPZ/FTZ can be set up in specific areas separated from the DTA by physical barriers.

Diamond, Gem & Jewellery Export Promotion Scheme

Exporters of gem and jewellery are eligible to import their inputs by obtaining Rep. License and diamond imprest license from the licensing authority. Exporters of gold/silver/platinum jewellery and articles thereof may import their essential inputs e.g. precious metals and stones in accordance with the procedure specified in this regard.

Special Import License (SIL)

Issued to Export/Trading/Star Trading/Super Star Trading houses; Manufacturers/processors with the quality certification from ISO,HACCP,WHO-GMP or SSI CMM level 2 and above certification; EOUs/EPZs ; Deemed exporters; exporters of telecom and electronic equipments; small scale exporters(certified); service providers and other exporters. This provision has been withdrawn from 31.03.2000. No SIL licenses will be issued for exports made after 31.03.2000.

Duty Entitlement Pass Book scheme

It aims at neutralising the incidence of customs duty and surcharge thereon on the import content of the export product. This neutralisation is provided by way of grant of duty credit on the deemed import content in the export product as per Standard input output norms and considering the value addition achieved. This scheme is allowed to be operated on pre and post export basis by a manufacturer exporter and merchant exporter. The scheme allows exporter to claim credit of customs duty at a specified percentage of the f.o.b. value of the exports made in freely convertible currency. DGFT issues public notice featuring eligible products along with the credit rates under this scheme. Although items outside the restricted list can be exported without Customs duty, DEPB holder may pay additional customs duty in cash, if any. (vide MoF Customs Notification No. 34/97 - Cus. Dated 7.4.1997 and Circular No. 10/97-Cus. Dt.17.4.1997). Third party exports are also permissible for grant of credit under this scheme and DEPB is valid for 12 months from the date of issue

Back to back inland letter of credit

This is an alternative to ARO. For this the duty free license holder intending to avail such facility may approach a bank for opening an inland L/C in favour of an indigenous supplier. Before this the bank will ensure that necessary bank guarantee or Letter of Undertaking has been executed by the license holder and endorsement to this effect has been made on the License. The indigenous supplier may supply the goods on the strength of L.C. opened in his favour . For the purpose of claiming Deemed Export benefits, an indigenous supplier shall produce the copy of the L/C together with a photocopy of the Duty Free License, duly endorsed by the bank concerned and the said documents shall for all purposes be deemed to be an ARO

Advance Release Order

A duty free license holder except Advance Intermediate License Holder intending to source the inputs from indigenous sources/canalising agencies/EOUs/EPZ/EHTP/STP units in lieu of direct imports has the option to source them against Advance Release Order denominated in foreign exchange/Indian rupees. In such cases, the license is invalidated for direct import and permission in the form of ARO is issued which will entitle the supplier to the benefits of deemed exports.

Special Imprest License

This license is granted for the duty free import of inputs required in the manufacture of goods to be supplied to the ultimate exporter holding an Advance License/Special Imprest License. Such Special Imprest License is granted for the Duty Free import of inputs required in the manufacture of goods to be supplied to the EoUs/units in EPZs/STP/EHTP, holders of license under the EPCG scheme, projects financed by multilateral/bilateral agencies/funds as notified by the Dept. of Economic Affairs, MoF, Fertilizer Plants if the supply is made under the procedure of International Competitive Bidding, supply of goods to refineries and proejcts/purposes for which MpF permits import of such goods on zero customs duty.

Advance Intermediate License

This license is granted to a manufacturer exporter for the import of inputs required in the manufacture of goods to be supplied to the ultimate exporter holding an Advance License/Special Imprest License.

Annual Advance License

Manufacturer exporter with export performance of Rs. 1 crore in the preceding year and registered with excise authorities, except for products which are not excisable for which no such registration is required, shall be entitled for Annual Advance License.

Export House, Trading House, Star Trading Houses and Super Star Trading Houses Holding the certificate as merchant exporter where they agree to the endorsement of the name(s) of the supporting manufacturer on the relevant annual advance license shall also be entitled for the annual advance license.

This license and/or material imported thereunder shall not be transferable even after completion of export obligation. Such annual advance license shall be issued with positive value addition without stipulation of minimum value addition. The entitlement under this scheme shall be up to 125% of the average FOB value of export in the preceding licensing year. Imports against this is exempted from payment of Additional customs duty, Special Additional Duty, Anti Dumping Duty, Safeguard duty, if any, in addition to Basic customs duty and surcharge thereon.

Advance Export License

Granted to merchant exporter or manufacturer exporter for the import of inputs required for the manufacture of goods without payment of basic customs duty. However, such inputs shall be subject to the payment of additional customs duty equal to the excise duty at the time of import.

Export Promotion Capital Goods Scheme

Capital goods including jigs, fixtures, dies and moulds may be imported at a concessional rate of customs duty as per table given below. Subject to an export obligation to be fulfilled over a period of time. In addition spares up to 20 per cent of the cost insurance and freight (CIF) value of the capital goods may also be imported under the scheme.
Under this scheme Customs duty is 5% if the export obligation is 5 times the CIF value of the capital goods or 4 times the CIF value of capital goods on NEF basis. The period of fulfillment of the export obligation is 8 years reckoned from the date of issuance of licence.
Period from the date of issue of licence Proportion of total export obligation
Block of 1st and 2nd year nil
Block of 3rd and 4th year 15%
Block of 5th and 6th year 35%
Block of 7th and 8th year 50%

The licence holder under EPCG scheme shall fulfill the export obligation over the specified period in the following proportions:
An application for grant of license under this scheme should be made to the licensing authority .Before clearance of goods through customs, the importer has to execute a bond supported by a bank guarantee with the Customs Authority in the prescribed manner. The license holder will also have to submit progress report of the export/supplies made and services provided, duly certified by a Charted Accountant/Cost and Works Accountant to the Licensing Authority. For Customs duty exemption exemption in respect of imports under EPCG scheme, the Ministry of Finance has issued Notification No. 28/97-Cus. & 29/97-Cus., both dated 1st April, 1997.

Import License Requirements

Import Licensing Requirements: The License for Import is taken into Consideration Provided:

• The goods covered by the import license shall not be disposed of except in accordance with the provisions of the EXIM Policy, 1997-2002 or in the manner specified by the licensing authority in the license

• The applicant for a import license shall execute a bond for complying with the terms and conditions of the license.

It Shall be Deemed to be a Condition of every License for Import that -

• No person shall transfer or acquire by transfer any import license issued by the import licensing authority except in accordance with the provisions of the Policy.

• The goods for the import of which a license is granted shall be the property of the licensee at the time of import of which a license is granted shall be the property of the licensee at the time of import and up to the time of clearance through the Customs.

• The goods for the import of which a licensee is granted shall be new goods, unless otherwise stated in the import license; the goods covered by the license for import shall not be exported without the written permission of the DGFT

Disposal Period for Import Application:

Provided the application is complete in all respects along with prescribed documents, the applicant-importer can expect the disposal in:

• IEC No. - 3 working days

• Duty free import license where input-output norms are notified - 5 working days

• Duty free import license where input-output norms are notified but cases are to be placed before ALC -15 working days

• Duty free import license where input-output norms are not notified, EPCG licenses / export licenses / export

• licenses / specific import licenses - 15 working days

• Revalidation of license and extension of export obligation period by RLA - 5 working days

• Acceptance of Bank Guarantee / Legal undertaking - 3 working days

• Redemption of Bank Guarantee/Legal undertaking/Endorsement of Transferability - 10 working days

• Issuance/renewal of Export House/Trading House/Star Trading House/Super Star Trading House - 15 working days

• Amendment of any category of Import license - 5 working days

• SIL - 7 working days

• Fixation of Standard input-output norms - 45 working days

• DEPB - 5 working days

• Fixation of deemed exports drawback rate - 45 working days

A Counter Assistance service is provided in all the offices of the DGFT for speedy disposal of applications. A foreign trade development officer (FTDO), in charge of the counter in each office. On submission of the application at the counter the applicant will be handed over a token and advised to return the same day when he will be informed whether his application has been found complete and admitted for further processing by the office or if there are any deficiency or lacunae. If deficiency is noticed the same is sent back to the applicant.
Counter Assistance may also be availed of, for amendments of minor nature / enquiries. Applications in such cases will be received in the licensing offices at the counter.

Importers Own Identity Card:

An application for issuance of an Identity Card may be made in the prescribed form. In case of loss of an Identity Card, a duplicate card is issued.

Validity of Import License

Besides import licence for import of restricted items there are other variety of licences and such licences have different period of validity.
Export Promotion Capital Goods Licence validity 24 months
Customs Clearance Permit " 12 months
DEPB " 12 months
Advance License/Special Imprest Licence
For Project/Turnkey Project "18 months or co-terminus with the contracted duration of the Project

For the cases where the license expires before the last day of the month, the license shall be deemed to be valid until the last day of that month.

Revalidation of License

License revalidation can be done on merits but not beyond 12 months by the concerned licensing authority for a period of six months at a time reckoned from the date of expiry of the validity period.

Last Date for Filling Applications

The last date for receipt of applications for grant of licenses is 28th February of the licensing year unless otherwise specified.
 

How to Obtain an Import License

An application for grant of an import licence or CCP for import of the items mentioned as restricted for import in ITC(HS) Classification of Export and Import items may be made to the regional licensing authority concerned.

Application for Import License

Every application for import licence or CCP should be accompanied by 2 copies of a bank receipt from the Central Bank of India or a Bank Draft from any Bank indicating the deposit in accordance with the prescribed scale of fees.
Rs. 200 where the value of goods specified does not exceed Rs. 50,000.
Rs. 2 per thousand or part thereof subject to a minimum of Rs. 200 and a maximum of Rs.1 lakh 50 thousand, where the value of goods exceeds Rs. 50,000.
Rs. 200 where Application is filed be SSI units where the CIF value of goods specified in the application does exceed Rs. 2 lakh.
Rs. 200 where application is for grant of duplicate licence.

The Application Fee shall be Deposited Either:

By way of deposit in an authorized branch of Central Bank of India indicating the Head of Accounts 1453 Foreign Trade and Export Promotion - Minor Head 102, Import Licence Application Fee. The Bank receipt must show the name of the department viz. "Director General of Foreign Trade". The bank receipt should be drawn in favour of Pay & Accounts Officer concerned. Such fees can also be deposited with Indian Missions abroad.
Or
Crossed DD on a scheduled bank for the requisite amount should be made in favour of the concerned licensing authority.

Registration with Regional Import Licensing Authority and Obtaining IEC Code

Registration with Regional Licensing Authority

Registration with Regional Licensing Authority is a pre-requisite for import of goods. The Customs will not allow clearance of goods unless: The importer has obtained IE Code Number from Regional Licensing Authority. However, no such registration is necessary for persons importing goods from/ to Nepal provided Value of a single Consignment does not exceed Rs. 25000/=

IEC Code

An application for grant of IEC Code should be made in the prescribed proforma . The application duly signed by the applicant should be supported by the following documents:
Bank Receipt (in duplicate)/demand draft for payment of the fee of Rs.1000/- Certificate from the Banker of the applicant firm as per Annexure1 to the form. Two copies of passport size photographs of the applicant duly attested by the banker of the applicant.

A copy of Permanent Account Number issued by Income Tax Authorities, if PAN has not been allotted, a copy of the letter of legal authority may be furnished. If there is any non-resident interest in the firm and NRI investment is to be made with repatriable benefits, full particulars thereof along with a photocopy of RBI's approval. If there is NRI investment without repatriation benefit, a simple declaration indicating whether it is held with the general/specific permission of the RBI on the letter head of the firm should be furnished. In case of specific approval, a copy may also be furnished.
Declaration by the applicant that the proprietors/partners/directors of the applicant firm/company, as the case may be, are not associated as proprietor/partners/directors with any other firm/company the IEC No. is allotted with a condition that be can export only with the prior approval of the RBI.

Profile of the Exporter/Importer in a given Format

The Registered Office or HO or Branch Office (duly authorized by the HO in this behalf) should apply for allotment of IEC No. However, only one IEC no. is allotted to a company and the same is valid for all its branches/offices/units.
The applilcation for grant of IEC No. should be made to the Regional Licensing Authority concerned.
The application fee shall be deposited by way of deposit in an authorized branch of Central Bank of India indicating the head of Account 1453 Foreign Trade and Export Promotion Minor Head 102. Import Licence Application Fee.
The IEC No. is likely to be granted within 3 days of the receipt of the complete application and requisite documents.

Products to Import

Be aware of the import potential and the commercial viability of the commodity/product.
Check whether the items of your interest fall in the Restricted list of ITC(HS) Classifications of Exports & Imports items.
Prohibited items are not permitted to be imported at all. List of Prohibited items of import are detailed below:
Tallow, Fat or Oils rendered, unrendered or otherwise of any animal origin, animal rennet and wild animals including their parts and products and ivory any part and products, including ivory.

For import of items appearing in Restricted list you need secure import licence. Third category of items comes under the Canalised list of items. Import of items included in Canalised list are permitted to be imported through Canalising Agencies. Thus items not appearing in Prohibited list, Restricted list and or in Canalised list can be imported Freely without any import licence. A large number of Consumer goods are freely importable without licence.

Import Export Policy

The present import policy and procedures in respect of various commodities/category of importers, are, inter alia, contained in the following publications issued by the Ministry of Commerce and revised from time to time:
Import - Export Policy, 1997-2002 as modified upto 31.03.1999

Handbook of Import - Export Procedures(Volume 1), 1997-2002 as modified upto 31.03.2000.
Handbook of Import - Export Procedures: (Volume 2) Duty Exemption Scheme: Input - Output and Value Addition Norms, 1997-2002. ITC(HS) Classification of Import and Export Items.