About export of india

1. CHAPTER 1 - INTRODUCTION OF EXPORTS
Export in simple words means selling goods abroad. International market being a very wide market, huge
quantity of goods can be sold in the form of exports.
Export refers to outflow of goods and services and inflow of foreign exchange.
Export occupies a very prominent place in the list of priorities of the economic set up of developing
countries because they contribute largely to foreign exchange pool.
Exports play a crucial role in the economy of the country. In order to maintain healthy balance of trade and
foreign exchange reserve. It is necessary to have a sustained and high rate of growth of exports.
Exports are a vehicle of growth and development. They help not only in procuring the latest machinery,
equipment and technology but also the goods and services, which are not available indigenously. Exports
leads to national self-reliance and reduces dependence on external assistance which howsoever liberal,
may not be available without strings.
Though India’s export compared to other countries is very small, but one of the most important aspects of
our export is the strong linkages it is forging with the world economy which is a great boon for a
developing nation like India.
CHAPTER 2 - EXPORT FINANCE
2.1 - INTRODUCTION
Credit and finance is the life and blood of any business whether domestic or international. It is more
important in the case of export transactions due to the prevalence of novel non-price competitive
techniques encountered by exporters in various nations to enlarge their share of world markets.

2. The selling techniques are no longer confined to mere quality; price or delivery schedules of the products
but are extended to payment terms offered by exporters. Liberal payment terms usually score over the
competitors not only of capital equipment but also of consumer goods.
The payment terms however depend upon the availability of finance to exporters in relation to its quantum,
cost and the period at pre-shipment and post-shipment stage.
Production and manufacturing for substantial supplies for exports take time, in case finance is not
available to exporter for production. They will not be in a position to book large export order if they don’t
have sufficient financial funds. Even merchandise exporters require finance for obtaining products from
their suppliers.
This project is an attempt to throw light on the various sources of export finance available to exporters,
the schemes implemented by ECGC and EXIM for export promotion and the recent developments in the
form of tie-EXIM tie-ups, credit policy announced by RBI in Oct 2001 and TRIMS.
2.2 - CONCEPT OF EXPORT FINANCE:
The exporter may require short term, medium term or long term finance depending upon the types of goods to be
exported and the terms of statement offered to overseas buyer.
The short-term finance is required to meet “working capital” needs. The working capital is used to meet regular and
recurring needs of a business firm. The regular and recurring needs of a business firm refer to purchase of raw
material, payment of wages and salaries, expenses like payment of rent, advertising etc.
The exporter may also require “term finance”. The term finance or term loans, which is required for medium and
long term financial needs such as purchase of fixed assets and long term working capital.
E xport finance is short-term working capital finance allowed to an exporter. Finance and credit are available not only
to help export production but also to sell to overseas customers on credit.
2.3 -OB IE CTIVE S OF E XP OR T FINANCE
To cover commercial & Non-commercial or political risks attendant on granting credit to a foreign
buyer.
To cover natural risks like an earthquake, floods etc.

3. An exporter may avail financial assistance from any bank, which considers the ensuing factors:
a) Availability of the funds at the required time to the exporter.
b) Affordability of the cost of funds.
2.4 - APPRAISAL
Appraisal means an approval of an export credit proposal of an exporter. While appraising an export credit proposal
as a commercial banker, obligation to the following institutions or regulations needs to be adhered to.
Obligations to the RBI under the Exchange Control Regulations are:
Appraise to be the bank’s customer.
Appraise should have the E xim code number allotted by the Director General of Foreign Trade.
P arty’s name should not appear under the caution list of the RB I.
Obligations to the Trade Control Authority under the EXIM policy are:
Appraise should have IE C number allotted by the DGFT.
Goods must be freely exportable i.e. not falling under the negative list. If it falls under the negative list, then a
valid license should be there which allows the goods to be exported.
Country with whom the Appraise wants to trade should not be under trade barrier.
Obligations to ECGC are:
Verification that Appraise is not under the S pecific Approval list (S AL).
S anction of P acking Credit Advances.
GUIDELINES FOR BANKS DEALING IN EXPORT FINANCE:
When a commercial bank deals in export finance it is bound by the ensuing guidelines: -
a) Exchange control regulations.
b) Trade control regulations.
c) Reserve Bank’s directives issued through IECD.
d) E xport Credit Guarantee Corporation guidelines.
e) Guidelines of Foreign E xchange Dealers Association of India.

4. CHAP TE R 3 -TYP E S OF E XP OR T F INANCE
The export finance is being classified into two types viz.
P re-shipment finance.
P ost-shipment finance.
3.1 -P R E -S HIP ME NT FINANCE
ME ANING:
P re-shipment is also referred as “packing credit”. It is working capital finance provided by commercial banks to the
exporter prior to shipment of goods. The finance required to meet various expenses before shipment of goods is
called pre-shipment finance or packing credit.
DE FINITION:
Financial assistance extended to the exporter from the date of receipt of the export order till the date of shipment is
known as pre-shipment credit. S uch finance is extended to an exporter for the purpose of procuring raw materials,
processing, packing, transporting, warehousing of goods meant for exports.
IMP OR TANCE OF F INANCE AT P R E -S HIP ME NT S TAGE :
To purchase raw material, and other inputs to manufacture goods.
To assemble the goods in the case of merchant exporters.
To store the goods in suitable warehouses till the goods are shipped.
To pay for packing, marking and labelling of goods.
To pay for pre-shipment inspection charges.
To import or purchase from the domestic market heavy machinery and other capital goods to produce export
goods.
To pay for consultancy services.
To pay for export documentation expenses.

5. F OR MS OR ME THODS OF P R E -S HIP ME NT F INANCE :
1. Cash P acking Credit Loan:
In this type of credit, the bank normally grants packing credit advantage initially on unsecured basis.
Subsequently, the bank may ask for security.
2. Advance Against Hypothecation:
Packing credit is given to process the goods for export. The advance is given against security and the
security remains in the possession of the exporter. The exporter is required to execute the
hypothecation deed in favour of the bank.
3. Advance Against P ledge:
The bank provides packing credit against security. The security remains in the possession of the bank.
On collection of export proceeds, the bank makes necessary entries in the packing credit account of
the exporter.
4. Advance Against R ed L/C:
The Red L/C received from the importer authorizes the local bank to grant advances to exporter to
meet working capital requirements relating to processing of goods for exports. The issuing bank
stands as a guarantor for packing credit.
5. Advance Against B ack-To-B ack L/C:
The merchant exporter who is in possession of the original L/C may request his bankers to issue
Back-To-Back L/C against the security of original L/C in favour of the sub-supplier. The sub-supplier
thus gets the Back-To-Bank L/C on the basis of which he can obtain packing credit.
6. Advance Against E xports Through E xport Houses:
Manufacturer, who exports through export houses or other agencies can obtain packing credit,
provided such manufacturer submits an undertaking from the export houses that they have not or will
not avail of packing credit against the same transaction.
7. Advance Against Duty Draw B ack (DB K):
DBK means refund of customs duties paid on the import of raw materials, components, parts and
packing materials used in the export production. It also includes a refund of central excise duties paid
on indigenous materials. Banks offer pre-shipment as well as post-shipment advance against claims

6. for DBK.
8. S pecial P re-S hipment F inance S chemes:
E xim- ank’s scheme for grant for F oreign Currency P re-S hipment Credit (FCP C) to exporters.
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P acking credit for Deemed exports.
S OME S CHE ME S IN P R E -S HIP ME NT S TAGE OF F INANCE
1. P ACKING CR E DIT
SANCTION OF PACKING CREDIT ADVANCES:
There are certain factors, which should be considered while sanctioning the packing credit advances viz.
i. Banks may relax norms for debt-equity ratio, margins etc but no compromise in respect of viability of the
proposal and integrity of the borrower.
ii. S atisfaction about the capacity of the execution of the orders within the stipulated time and the management of
the export business.
iii. Quantum of finance.
iv. S tanding of credit opening bank if the exports are covered under letters of credit.

7. v. Regulations, political and financial conditions of the buyer’s country.
DISBURSEMENT OF PACKING CREDIT:
After proper sanctioning of credit limits, the disbursing branch should ensure:
To inform E CGC the details of limit sanctioned in the prescribed format within 30 days from the date of sanction.
a) To complete proper documentation and compliance of the terms of sanction i.e. creation of mortgage etc.
b) There should be an export order or a letter of credit produced by the exporter on the basis of which
disbursements are normally allowed.
In both the cases following particulars are to be verified:
i. Name of the B uyer.
ii. Commodity to be exported.
iii. Quantity.
iv. Value.
v. Date of S hipment /Negotiation.
vi. Any other terms to be complied with.
2. FOREIGN CURRENCY PRE-SHIPMENT CREDIT (FCPC)
The FCPC is available to exporting companies as well as commercial banks for lending to the former.
It is an additional window to rupee packing credit scheme & available to cover both the domestic i.e.
indigenous & imported inputs. The exporter has two options to avail him of export finance.
To avail him of pre-shipment credit in rupees & then the post shipment credit either in rupees or in
foreign currency denominated credit or discounting /rediscounting of export bills.
To avail of pre-shipment credit in foreign currency & discounting/rediscounting of the export bills in
foreign currency.
FCPC will also be available both to the supplier EOU/EPZ unit and the receiver EOU/EPZ unit.
Pre-shipment credit in foreign currency shall also be available on exports to ACU (Asian Clearing Union)
countries with effect from 1.1.1996.
Eligibility: PCFC is extended only on the basis of confirmed /firms export orders or confirmed L/C’s. The
“Running account facility will not be available under the scheme. However, the facility of the liquidation of
packing credit under the first in first out method will be allowed.
Order or L/C : Banks should not insist on submission of export order or L/C for every
disbursement of pre-shipment credit , from exporters with consistently good track record.

8. Instead, a system of periodical submission of a statement of L/C’s or export orders in hand, should be
introduced.
Sharing of FCPC: Banks may extend FCPC to the manufacturer also on the basis of the disclaimer from the
export order.
2.2 -P OS T-S HIP ME NT FINANCE
ME ANING:
P ost shipment finance is provided to meet working capital requirements after the actual shipment of goods. It bridges
the financial gap between the date of shipment and actual receipt of payment from overseas buyer thereof. Whereas
the finance provided after shipment of goods is called post-shipment finance.
DE F E NITION:
Credit facility extended to an exporter from the date of shipment of goods till the realization of the export proceeds is
called P ost-shipment Credit.
IMP OR TANCE OF F INANCE AT P OS T-S HIP ME NT S TAGE :
To pay to agents/distributors and others for their services.
To pay for publicity and advertising in the over seas markets.
To pay for port authorities, customs and shipping agents charges.
To pay towards export duty or tax, if any.
To pay towards E CGC premium.
To pay for freight and other shipping expenses.
To pay towards marine insurance premium, under CIF contracts.
To meet expenses in respect of after sale service.
To pay towards such expenses regarding participation in exhibitions and trade fairs in India and abroad.
To pay for representatives abroad in connection with their stay board.
F OR MS /ME THODS OF P OS T S HIP ME NT F INANCE

9. 1. E xport bills negotiated under L/C:
The exporter can claim post-shipment finance by drawing bills or drafts under L/C. The bank insists
on necessary documents as stated in the L/C. if all documents are in order, the bank negotiates the
bill and advance is granted to the exporter.
2. P urchase of export bills drawn under confirmed contracts: The banks may sanction advance against
purchase or discount of export bills drawn under confirmed contracts. If the L/ is not available as security, the
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bank is totally dependent upon the credit worthiness of the exporter.
3. Advance against bills under collection: In this case, the advance is granted against bills drawn under
confirmed export order L/ and which are sent for collection. They are not purchased or discounted by the bank.
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However, this form is not as popular as compared to advance purchase or discounting of bills.
4. Advance against claims of Duty Drawback (DB K): DBK means refund of customs duties paid on the import
of raw materials, components, parts and packing materials used in the export production. It also includes a
refund of central excise duties paid on indigenous materials. B anks offer pre-shipment as well as post-shipment
advance against claims for DBK.
5. Advance against goods sent on Consignment basis: The bank may grant post-shipment finance against
goods sent on consignment basis.
6. Advance against Undrawn B alance of B ills: There are cases where bills are not drawn to the full invoice
value of gods. Certain amount is undrawn balance which is due for payment after adjustments due to difference
in rates, weight, quality etc. banks offer advance against such undrawn balances subject to a maximum of 5% of
the value of export and an undertaking is obtained to surrender balance proceeds to the bank.
7. Advance against Deemed E xports: S pecified sales or supplies in India are considered as exports and termed
as “deemed exports”. It includes sales to foreign tourists during their stay in India and supplies made in India to
IBRD/IDA/ADB aided projects. Credit is offered for a maximum of 30 days.
8. Advance against R etention Money: In respect of certain export capital goods and project exports, the importer
retains a part of cost goods/services towards guarantee of performance or completion of project. B anks advance
against retention money, which is payable within one year from date of shipment.
9. Advance against Deferred payments: In case of capital goods exports, the exporter receives the amount from
the importer in installments spread over a period of time. The commercial bank together with E XIM bank do offer
advances at concessional rate of interest for 180 days.

10. S OME S CHE ME S UNDE R OP E R ATION IN P R E -S HIP ME NT FINANCE
1. DE F E R R E D CR E DIT
Meaning:
Consumer goods are normally sold on short term credit, normally for a period upto 180 days. However, there are
cases, especially, in the case of export of capital goods and technological services; the credit period may extend
beyond 180 days. S uch exports were longer credit terms (beyond 180 days) is allowed by the exporter is called as
“deferred credit” or “deferred payment terms”.
How the payment is received?
The payment of goods sold on “deferred payment terms” is received partly by way of advance or down payment,
and the balance being payable in installments spread over a period of time.
P eriod of financial credit support:
Financial institutions extend credit for goods sold on “deferred payment terms” (subject to approval from RBI, if
required). The credit extended for financing such deferred payment exports is known as Medium Term and Long
Term Credit. The medium credit facilities are provided by the commercial banks together with E XIM B ank for a period
upto 5 years. The long term credit is offered normally between 5 yrs to 12 yrs, and it is provided by E XIM B ank.
Amount of credit support:
Any loan upto R s.10crore for financing export of capital goods on deferred payment terms is sanctioned by the
commercial bank which can refinance itself from E xim bank. In case of contracts above R s.10 Lakhs but not more
than R s50crore, the E XIM B ank has the authority to decide whether export finance could be provided. Contracts
above R s.50crore need the clearance from the working group on E xport Finance.
2. REDISCOUNTING OF EXPORT BILLS ABROAD (EBRD) SCHEME:
The exporter has the option of availing of export credit at the post-shipment stage either in rupee or in
foreign currency under the rediscounting of export bills abroad (EBRD) scheme at LIBOR linked interest
rates.
This facility will be an additional window available to exporter along with the exiting rupee financing
schemes to an exporter at post shipment stage. This facility will be available in all convertible currencies.
This scheme will cover export bills upto 180 days from the date of shipment (inclusive of normal
transit period and grace period) .
The scheme envisages ADs rediscounting the export bills in overseas markets by making
arrangements with an overseas agency/ bank by way of a line of credit or banker’s acceptance

11. facility or any other similar facility at rates linked to London Inter Bank Offered Rate (LIBOR) for
six months.
Prior permission of RBI will not be required for arranging the rediscounting facility abroad so long
as the spread for rediscounting facility abroad does not exceed one percent over the six months
LIBOR in the case of rediscounting ‘with recourse’ basis & 1.5% in the case of ‘without recourse’
facility. Spread, should be exclusive of any withholding tax. In all other cases, the RBI’s permission
will be needed.
3. FINANCE FOR RUPEE EXPENDITURE FOR PROJECT EXPORT CONTRACTS (FREPEC)
1. What is FREPEC Program?
This program seeks to Finance Rupee Expenditure for Project Export Contracts, incurred by Indian
companies.
2. What is the purpose of this Credit?
To enable Indian project exporters to meet Rupee expenditure incurred/required to be incurred
for execution of overseas project export contracts such as for acquisition/purchase/acquisition of
materials and equipment, acquisition of personnel, payments to be made in India to staff,
sub-contractors, consultants and to meet project related overheads in Indian Rupees.
3. Who are eligible for Assistance under FREPEC Program?
Indian project exporters who are to execute project export contracts overseas secure on cash
payment terms or those funded by multilateral agencies will be eligible. The purpose of the new
lending program is to give boost to project export efforts of companies with good track record
and sound financials.
4. What is the quantum of credit extended under this program?
Up to 100% of the peak deficit as reflected in the Rupee cash flow statement prepared for the
project. Exim Bank will not normally take up cases involving credit requirement below Rs. 50 lakhs.
Although, no maximum amount of credit is being proposed, while approving overall credit limit,

12. credit-worthiness of the exporter-borrower would be taken into account. Where feasible, credit
may be extended in participation with sponsoring commercial banks.
5. How are Disbursements made under this Program?
Disbursements will made in Rupees through a bank account of the borrower-company against
documentary evidence of expenditure incurred accompanied by a certificate of Chartered
Accountants.
6. How is a FREPEC Loan to be extinguished?
Repayment of credit would normally be out of project receipts. Period of repayment would depend
upon the project cash flow statements, but will not exceed 4 (four) years from the effective date of
project export contract. The liability of the borrower to repay the credit and pay interest and other
monies will be absolute and will not be dependent upon actual realization of project bills.
7. What is the security stipulated for FREPEC loan?
Hypothecation of project receivables and project movables.
Optional: where available
P ersonal Guarantees of Directors of the Company.
Available collateral security.
CHAPTER - LETTER OF CREDIT
INTRODUCTION:
The cycle of a business transaction can be said to be complete prima facie when the buyer has received the product

13. 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/ opening bank and the reimbursement bank,
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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 UP C 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/ can be well complied with, and there are no clauses of ambiguity.
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This is one of the most popular and more secured of method of payment in recent times as compared to
other methods of payment. A L/C refers to the documents representing the goods and not the goods
themselves. Banks are not in the business of examining the goods on behalf of the customers. Typical
documents, which are required includes commercial invoice, transport document such as Bill of lading or
Airway bill, an insurance documents etc. L/C deals in documents and not goods.
DEFINITION:
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 validity of the L/C”.
PARTIES INVOLVED IN LETTER OF CREDIT:
Applicant: The buyer or importer of goods

14. Issuing bank: Importer’s bank, who issues the L/C
Beneficiary: The party to whom the L/C is addressed. The
Seller or supplier of goods.
Advising bank: Issuing bank’s branch or correspondent bank in
The exporter’s country to whom the L/C is send for
Onward transmission to the beneficiary.
Confirming bank: The bank in beneficiary’s country, which
Guarantees the credit on the request of the issuing
Bank.
Negotiating bank: The bank to whom the beneficiary presents his
Documents for payment under L/C
A Letter of Credit contains these elements:
A payment undertaking given by the bank (issuing bank) on behalf of the buyer (applicant)
To pay a seller (beneficiary) a given amount of money on presentation of specified documents representing
the supply of goods within specific time limits
These documents conforming to terms and conditions set out in the letter of credit
Documents to be presented at a specified place.
In simple words, the Issuing B ank's role is twofold:
To guarantee to the seller that if complete documents are presented, the bank will pay the seller the amount
due. This offers security to the seller – the bank says in effect "We will pay you if you present documents
(XYZ)"
To examine the documents and only pay if these comply with the terms and conditions set out in the letter of
credit. This protects the buyer's interests - the bank says "We will only pay your supplier on your behalf if
they present documents (XYZ) that you have asked for"
ADVANTAGES OF LETTER OF CREDIT
ADVANTAGES TO THE EXPORTER:
No blocking of funds.
Clearance of import regulations.

15. Free from liability.
Pre- shipment finance.
Non-refusal by importer.
Reduction in bad-debts.
ADVANTAGES TO THE IMPORTER:
Better terms of trade.
Assurance of shipment of goods.
Overdraft facility.
No blocking of funds.
Delivery on time.
Better relations.
DISADVANTAGES OF LETTER OF CREDIT:
Lacks flexibility.
Complex method
Expensive for importer
Problem of revocable L/C
What is a Documentary Credit?

16. To say in simple language, this is an Undertaking by a B ank 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 B ank. 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. S o, 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 E xporter. Let us see shat a letter of credit should contain in the interest of the exporter.
This is only an illustrative list.
name and address of the bank establishing the letter of credit
letter of credit number and date
The letter of credit is irrevocable
Date of expiry and place of expiry
Value of the credit
P roduct details to be shipped
P ort of loading and discharge
Mode of transport
Final date of shipment
Details of goods to be exported like description of the product, quantity, unit rate, terms of shipment like CIF,
FOB etc.
Type of packing
Documents to be submitted to the bank upon shipment
Tolerance level for both quantity and value
If L/ is restricted for negotiation
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Reimbursement clause
PROCEDURE INVOLVED IN THE LETTER OF CREDIT
The following are the step in the process of opening a letter of credit:
E xporter’s R equest: The exporter requests the importer to issue LC in his favor. LC is the most secured form
of payment in foreign trade.
Importer’s R equest to his B ank: The importer requests his bank to open a L/ He May either pay the
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amount of credit in his current account with the bank.
Issue of LC: The issuing bank issues the L/ and forwards it to its correspondent bank with also request to
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inform the beneficiary that the L/ has been opened. The issuing bank may also request the advising bank
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to add its confirmation to the L/ if so required by the beneficiary.
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Receipt of LC: the exporter takes in his possession the L/ He should see it that the L/ is confirmed.
C. C

17. S hipment of Goods: Then exporter supplies the goods and presents the full set of documents along with the
draft to the negotiating bank.
S crutiny of Documents: The negotiating bank then scrutinizes the documents and if they are in order makes
the payment to the exporter.
Negotiation: The exporter’s bank negotiates the document against the letter of credit and forwards the export
documents to the L/ opening bank or as per their instructions.
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Realization of payment: The issuing bank will reimburse the amount (which is paid to the exporter) to the
negotiating bank.
Document to Importer: the issuing in turn presents the documents to the importer and debits his account for
the corresponding amount.
In order to have uniformity and to avoid disputes, the ICC P aris has evolved uniform customs and practices of
documentary credit (UCP DC), in short known as UCP 500 effective from 1- 96. These are rules have been adopted
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by more than 150 countries. They provide the comprehensive and practical working aid to banker, lawyer, importers,
exporters, E xporters, transporters, executives involved in international trade.
Note: as soon as an L/ is received ensure that the same is authenticated. Meaning that the genuineness of the L/
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is certified by the Advising B ank by an endorsement with the marking ‘AUTHE NTICATE D’ OR E LS E THE L/ IS OF
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NO US E .
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.
Revocable /Irrevocable Documentary Credit :A R evocable 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/ may be cancelled even after the shipment is done and before the beneficiary present the
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documents to the bank for claiming the reimbursement. Hence, a revocable L/ is as goods as no L/
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obviously, no seller will entertain a revocable L/ Contrary to this, an Irrevocable Documentary Credit once
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established and advised to the beneficiary, cannot be revoked or cancelled unilaterally by the buyer without
the consent of the beneficiary (S eller).A S eller must always ask for an Irrevocable Letter of Credit.
Restricted/Unrestricted Documentary Credit: A Documentary Credit stipulates the name of the bank who is
authorized to negotiate the document for 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. S ince 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/ or L/ which may be restricted to the bank of the
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beneficiary’s choice.

18. Confirmed/Unconfirmed Documentary Credit: Confirmed Documentary Credit is one in which the beneficiary
has the option to have the L/ confirmed by a bank in the beneficiary country i.e. the bank who confirms the
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L/ takes the responsibility of making the final payment to the beneficiary upon negotiation of the document
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in strict compliance with the terms and conditions of the Letter of Credit. B y this process the final payment
will be made in the beneficiary’s country by the bank which confirms the L/ immediately upon negotiation of
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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/ before making the payment. Further, the
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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/ the negotiating bank only accepts the documents and pays for the same with recourse i.e.
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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.
With R esource and Without (S ans) R esource 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 (S ans) R esource 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 R esource letter of credit is more safe as compared to With R esource letter
of credit.
Transferable/Non-transferable Documentary Credit: In a transferable L/ the beneficiary can transfer the
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L/ opened in his name in favor of a third party who may effect the shipment and negotiate the documents
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and claim payment under the said L/C.
Revolving Documentary Credit: Where an exporter is having a regular shipment for a particular customer
and the value of each shipment may also be of more or less equal value, and then one can call for a
Revolving Documentary Credit. The salient feature of this L/ is that
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19. the buyer opens an L/ which can take care of shipments, say, may be for a period of one year on a
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monthly basis.
For e.g. an exporter enters into a contract for supply of 5000 pairs of Trousers valued approx.US .$.75,000/-
to be shipped every month. The buyer can open an L/ for a value of US .$.75000/ with validity for 12
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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/ stands replenished for the full value of the L/ after each shipment is made
C C
the documents are negotiated for which payment are also made immediately for the value of the shipment.
The main benefit in this L/ is that the buyer, the bank and the exporter are saved from the routine of
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opening one L/ every month, the anxiety of non-
C receipt of the L/ on time, the amendments that may be
C
warranted every time, the bank charges for opening number of L/ etc.,. A revolving Documentary Credit
Cs
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 R evolving 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 R evolving Letter of
Credit.
Assignable Documentary Credit: In this type of L/ the benefit is shared between the first beneficiary and
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the parties whose names are assigned on the L/ The assignee is not a party to the letter of credit but he
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only derives the benefit as per the L/ this is more beneficial to the assignee because he receives his part
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of the money once the documents are negotiated by the first beneficiary in whose name the L/ is opened.
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Calls for an L/ as necessary.
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S tand 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/ is used in case of non-
C performance while the other types of L/ are generally for
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some performance. S uch 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/ is mainly common
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in U.S .A.
A standby Documentary Credit is generally common on open account trading where the seller may expect
some security for getting his payment. This is not permitted in India.
Red Clause LC: The red clause LC is the usual irrevocable LC with further authorities the negotiating bank
to make advance to the beneficiary for the purpose of processing the export goods. Thus, the red LC
enables the exporter to obtain packing credit facility for the purpose of processing the goods. It is called a
red-cause LC because it is generally printed/typed in red ink.
Green Clause LC: The Green LC in addition to permitting packing credit advance also provides for the
storing facilities at the port of shipment. Green LCs is extensively used in Australian wool creditors.
Back- B ack LC: B ack- B ack LC is a domestic letter of credit. It is a ancillary credit created by a bank
to- to
based on a confirmed export LC received by the direct exporters. The direct exporter keep the original LC

20. (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- back LC.
to-
Documentary LC: Most of the L is documentary L P ayment is being made by the bank against delivery
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of the full set of documents as laid down by the terms of credit. The important documents required to be
submitted by the exporter under documentary LC includes the following:
o Bill of Lading /Airway Bill or any other transport document
o Commercial Invoice
o Insurance P olicy
o S hipping Bill
o Certificate of Origin
o Combined Invoice and Certificate of Value and Origin
o GS P /CWP certificate
o P acking List
o Certificate of Quality Inspection
o Bill of E xchange
o Any other document if required.
A letter of credit may call for some or most of the above documents and may also call for some other documents
specific to the shipment.
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 P ayments under a Documentary Credit.
P ayment under a documentary credit can be of the following types:
P ayment at S ight: In this mode, the payment is made by the L/ opening bank or its nominated bank or by a
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confirming bank on presentation of the documents in full conformity with the L/ The L/ may or may not
C. C
call for draft at sight for the full value of the documents.
Deferred P ayment S cheme: 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/ In case of a confirmed
C.
L/ the final payment is made by the confirmed bank on due date and by the issuing bank or its nominated
C,
bank if the L/ is not confirmed.
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21. 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/ the payment on due date is made by the negotiating bank
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(confirming bank).
Negotiation Credit: Here the payment is made by the negotiating bank upon negotiation of the documents if
it prepares to take the risk and will recourse to the beneficiary. If the credit is confirmed, then the negotiation
bank is obliged to make the payment upon submission of a clean document by the beneficiary.
E xpect in the case of confirmed L/ there is always a time lag between the date of negotiation of the document and
C
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 B uyer). Documentary
Credit must stipulate the Type of Credit as detailed above and inter alia will also stipulate the
Following details :
the name of the Bank issuing the Documentary Credit.(The L/ Opening Bank)
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the name and address of the buyer on whose behalf the credit is Issued.(The Applicant)
the name and address of a bank in the country of the seller the credit through Whom the L/ is to be
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advised to the seller.
The name and address of the S eller (Beneficiary)
The Maximum Value the opening bank undertakes to pay to the Beneficiary.
The date of issue of the credit.
The E xpiry Date of the L/C
The Validity Date for shipment.
The Details of the product to be shipped.(Description)
Details of document required for claiming the payment from the Opening bank.
The name and address of the bank authorized to negotiate the documents.
The Reimbursement Clause.
As soon as an L/ is received ensure that the L/ is authenticated. If the L/ received in mail the signatures are got
C C C
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/ is a valid document.
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22. 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
P ractice for Documentary Credit) published by the International Chamber of Commerce (ICC). The UP C 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 P ractice 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.
S crutiny of letter of credit
Mere receipt of letter of credit is no guarantee of payment. There are many ifs and buts before the documents are
submitted to the bank against the letter of credit for realization of proceeds from the opening bank. As soon as the
letter of credit is received a through scrutiny is to be undertaken to ensure that
First and foremost that the credit is properly authenticated by the advising bank.
The letter of credit has been opened in accordance with the terms of the contract.
The name and address of the beneficiary has been spelt properly.
The details of product description, quality, and value are in order.
The validity of shipment and expiry are correct.
The documents that are required can be submitted.
There is sufficient % of tolerance of quantity and value.
The unit price and the terms of contract are correct.
The terms and conditions stipulated can be complied with.
That the credit is available for negotiation without restriction.
In case of exports requires the credit to be confirmed by the local, then necessary clause is incorporated by
the opening bank on the credit.
Last but not the least; the credit has a reimbursing clause enabling the negotiation bank to get
reimbursement of the money paid to the exporter against the documents.
There are only few suggestions. The requirement may differ for different exporter and the scrutiny has be done

23. 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/ is established.
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It is suggested that the exporter gives the full details as to the various requirements to the buyer for incorporation in
the L/ this will avoid the necessary of asking for amendments and will save both time and money. Bear in mind
C.
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. E nsure 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/ specifies the tolerance for the quantity and value, the exporter should follow the quantity and value as
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stipulated in the L/ There is provision for a tolerance of the quantity up to 5 percent more or less than stipulated in
C.
the L/ even if the L/ does not specify tolerance exclusively and unless tolerance is prohibited 0 specifically.
C C
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 R eimbursement clause (Getting the funds for the shipment made). An L/ without this
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clause is no L/ if there is no provision as to from where the exporter is going to get paid for, the whole exercise of
C.
the L/ is futile. The opening bank may specify the reimbursement clauses as follows:
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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.

24. The negotiating bank can claim reimbursement directly from a nominated bank (say ABC B ank, 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.
These are some of the aspects one should take care to ensure that the L/ established in his favor is in order and
C
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/ for compliance at the right time.
C
Where an L/ stipulates that the Negotiation is restricted to a specific bank which is not the Advising B ank or Where
C
the L/ is not restricted, and the seller desires to negotiate the document which is not the advising bank, then we
C
have a separate Negotiating B ank.
Where the opening bank prefers to advise the L/ through its own branch in the beneficiary country or through
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another bank of its choice, then the L/ may be advised to the beneficiary directly by this bank or if it instructed to
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advise the L/ through the buyer’s nominated bank then it does so. Here, we have two advising bank.
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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/ in addition to multiplicity of bank charges.
C,
S P E CIAL 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/ since several documents are
C.
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/ the Negotiating bank soft pedal some of the discrepancies
C.
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
UP C 500. Also there is certain flexibility provisions in the UP C 500 which one might like to exploit to his favour.
S o, in spite of the L/ being the safest method to ensure the payment, unless both the buyer and the seller follow the
C
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/ as
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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. S ometimes

25. 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. B ut, the brain is always working in multi
directions. It will be no surprise if one comes across newer and newer dubious methods being adopted by the
contracting parties.
TOTAL OPERATION UNDER THE LETTER OF CREDIT.
The Unconfirmed L/C.
The Buyer makes an application to his bank to open an L/C.
Opening bank establishes the L/C.
Opening bank advises the L/ through his associate or through the bank. Nominated by the beneficiary.
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The B ank in the beneficiary country which receives the L/ sends the Original L/ to the customer either
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directly or through the bank S pecified in the L/C.
The buyer complies with the L/ requirements and submits the relevant documents. To the bank for claiming
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reimbursement.
The negotiating bank negotiates and sends the documents to the opening bank or as Directed. Meantime
pays the beneficiary.
Advises the opening bank or the reimbursement bank the details of his Accounts and the nominated bank
where the proceeds are to be credited.
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/ documents.
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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.
S ample Document: Letter of Credit (Documentary Credit)

26. THE MOON B ANK
INTE R NATIONAL OP E R ATIONS
5 MOONLIGHT B LVD.,
E XP OR T-CITY AND P OS TAL CODE
E XP OR T-COUNTR Y
OUR ADVICE NO. IS S UING B ANK R E F . NO. & DATE
MB-5432 S BRE -777 J anuary 26, 2005
To,
UVW E xports
88 P rosperity S treet E ast, S uite 707
E xport-City and P ostal Code
Dear S irs:
We have been requested by The S un B ank, S unlight City, Import-Country to advise that they have opened with
us their irrevocable documentary credit number S B -87654
For account of DE F Imports, 7 S unshine S treet, S unlight City, Import-Country in your favor for the amount of not
exceeding Twenty Five Thousand U.S . Dollars (US $25,000.00) available by your draft(s) drawn on us at sight
for full invoice value
Accompanied by the following documents:
1. Signed commercial invoice in five (5) copies indicating the buyer's
Purchase Order No. DEF-101 dated January 10, 2005
2. Packing list in five (5) copies.
3. . Full set 3/3 clean on board ocean bill of lading, plus two (2) non-negotiable copies, issued to
order of The Sun Bank, Sunlight City, Import-Country, notify the above accountee, marked
"freight Prepaid", dated latest March 19, 2005, and showing documentary credit number.
4. Insurance policy in duplicate for 110% CIF value covering Institute Cargo Clauses (A), Institute
War and Strike Clauses, evidencing that claims are payable in Import-Country.
Covering: 100 Sets 'ABC' Brand Pneumatic Tools, 1/2" drive,
complete with hose and quick couplings, CIF Sunny Port
S hipment from: Moonbeam P ort, E xport-Country to S unny P ort, Import-Country
P artial shipment P rohibited

27. Tran-shipment P ermitted
S pecial conditions:
1. All documents indicating the Import License No. IP /123456 dated J anuary 18, 2005.
2. All charges outside the Import-Country are on beneficiary's account
Documents must be presented for payment within 15 days after the date of shipment.
Draft(s) drawn under this credit must be marked
Drawn under documentary credit No. S B-87654 of The S un B ank,
S unlight City, Import-Country, dated J anuary 26, 2005
CHAP TE R 5 -S OME IMP OR TANT CONCE P TS IN E XP OR T FINANCE
5.3 -S upplier's Credit for deferred payment exports
Definition of Deferred Payment Exports:
In terms of R egulation 9 of the Foreign E xchange Management Act 1999, the amount representing the full export
value of goods exported must be realized and repadriated to India within 6 months of date of export.
E xports where more than 10% of the value is realized beyond the prescribed period, i.e. 6 months from date of
shipment, are treated as Deferred P ayment E xports
1. What is an offer?
Exim Bank offers Supplier's Credit in Rupees or in Foreign Currency at post-shipment stage to
finance export of eligible goods and services on deferred payment terms.

28. Supplier's Credit is available both for supply contracts as well as project exports; the latter
includes construction, turnkey or consultancy contracts undertaken overseas.
2. Who can seek finance?
Exporters can seek Supplier's Credit in Rupees/ Foreign Currency from Exim Bank in respect of
export contracts on deferred payment terms irrespective of value of export contracts.
3. What are the general terms of Supplier's Credit?
E xtent of S upplier's Credit:
100% of post-shipment credit extended by exporter to overseas buyer.
Currency of Credit:
S upplier's Credit from E xim B ank is available in Indian R upees or in Foreign Currency.
R ate of Interest:
The rate of interest for S upplier's Credit in R upees is a fixed rate and is available on request. S upplier's
Credit in Foreign Currency is offered by E xim B ank on a floating rate basis at a margin over LIB OR
dependent upon cost of funds.
S ecurity: Adequate security by way of acceptable letter of credit and/ guarantee from a bank in the
or
country of import or any third country is necessary, as per RBI guidelines.
Period of Credit and Repayment: Period of credit is determined for each proposal having regard
to the value of contract, nature of goods covered, security, competition. Repayment period for
Supplier's Credit facility is fixed coinciding with the repayment of post-shipment credit extended
by Indian exporter to overseas buyer. However, the Indian exporter will repay the credit to Exim
Bank as per agreed repayment schedule, irrespective of whether or not the overseas buyer has
paid the Indian exporter.
Overseas Buyer's Credit: Credit is offered directly to overseas buyer for a specific project/
contract.

29. Import Trade Procedures & Documentation
Liberalisation of Imports.
Categories of Importers.
Special Schemes for Importers.
Import Procedure :­
1. Pre-import Procedure.
2. Legal Dimensions of Import Procedure.
3. Retirement of Import Documents.
4. Customs Clearance.
Classification of Goods for Import Policy & Assessment of Duty.
Bill of Entry.
A Note on Forward Contract.
Liberalisation of Imports
Consequent upon a comfortable balance of payments position of the country,
increasing nec~ssity of imports for export production and globalisation of Indian economy, the
Government of India has liberali~ed the import regime from time to time. At present, practically, all
controls on imports have been lifted. Under the new EXIM Policy 2002-07 announced on March 31 , 2002,
the Government has initiated a comprehensive' package intended to make international trade a vital .part
of development strategy. It has substantially eliminated licensing, quantitative restrictions and. -other
regulatory and discretionary controls both on exports and imports.
All goods may be imported freely in India without any restriction except to the extent such imports are
regulated by the provisions of.the EXIM Policy 2002-07 or any other law for the time being in force.
Moreover, the customs duties on imports
have been considerably reduced and rationalised during the last few years. The
procedure for imports has been considerably simplified and the bureaucratic controls have been reduced
to the bare minimum. Besides, availability of foreign exchange for imports has also been eased.
Regulations regarding personal imports such as consumer goods, baggage etc., have been substantially
liberalised.
Categories of Importers

30. Importer means a, person who imports or intends to import and holds an Importer-Exporter.Code (lEC)
Number. They can be divided into two categories :­
Actual User
(a) Actual user (Industrial) :- Actual users (industrial) means person who utilises the imported
goods for manufacturing in his own industrial unit or manufacturing, for his own use in
another unit including, a jobbing unit .
(b) Actual user (Non-industrlal) :- Actual user (non industrial) means a person who utilises the
imported goods for his own use in
any commercial establishment carrying on business, trade or profession or
any. laboratory, scientific research and development institution university or
other educational institution OF hospital; or .
any service industry.
Non-actual user
Non-actual users include:
• Importers for Stock and Sale.
• Personal Impqrts.
• Imports' of Gifts~ etc.
Special Schemes for Importers
As per the latest EXIM Policy 2002-07, import of goods is permissible under the ¬following special
schemes, designed for encouraging exports :¬
(a) Export Promotion Capital Goods Scheme (EPCG) :- EPCG scheme was
introduced by the EXIM policy of 1992-97 in order to enable manufacturer exporter to import
machinery and other capital goods for export production at concessional or no customs duties
at all. This facility is subject to export obligation i.e, the exporter is required to guarantee

31. exports certain minimum value, which is in multiple of the value of capital goods imported.
(b) Duty Free Replenishment Certificate (DFRC}:- DFRC is issued to a
merchant exporter or manufacturer exporter for the duty free import of inputs such as raw materials components,
intermediates, consumables, spare parts ,
including packing materials to be used for export: production. Such certificate
is subject to the fulfilment. of time bound export obligation and is issued in ¬
respect of products covered. under the standard Input,Output Norms (Sions)
(C) Duty Eritltleme.t Passbook Scheme (DEPB}:- under the DEPB scheme ¬an
. exporter may apply for credit as a specified percentage of FOB value of exports ,
made in freely convertible currency: The credit shall be available Against such
export products and at such rates as may be specified by the Director General
of foreign Trade (DGF) by way of public notice issued in this behalf, for import
of raw materials, intermediates, components, parts, packaging materials, etc.
(D) Advance Licence :- An advance licence is issued for duty free import of
components which are physically incorporated in the products
manufactured for export. In addition, fuel, oil, energy, catalysts, etc.which are consumed in the
course of production process may also be allowed.
Duty free import of mandatory spares up to 10% of the C.I.F. value of the licence which are required to be
exported or supplied with the resultant product may also be allowed. Advance Licence can be issued for :
¬
• Physical Exports.
• Intermediate Supplies
• Deemed exports.
Pre-Import Procedure
(a) Selecting the Commodity :- An importer should select the commodity for import after considering
various commercial factors as well as legal considerations including the regulations contained in the EXIM
Policy. Imports may be made freely except to the extent they are regulated by the provisions of the EXIM
Policy. Prohibited goods cannot be imported at all. Import of restricted items is permitted through
licensing only while canalised items can be canalised through specified State Trading Enterprises (STEs).

32. (b) Selecting the Overseas Supplier :- Imports can be made from any country of the world except Iraq.
However, there shall be no ban on the import of items form Iraq in case where the prior approval of the
concerned sanction committee of the UN Security Council has been obtained. The information regarding
overseas suppliers can be obtained from various trade directories,
consulate generals, international trade fairs and exhibitions and chamber of commerce.
(c) Capability and Creditworthiness of Overseas Supplier :- Successful completion of an import
transaction mainly depends upon the capability of the overseas supplier to fulfil his contract. Therefore, it
is advisable to verify the creditworthiness of the overseas supplier and his capacity to fulfil the contract
through confidential reports about him.from the banks and Indian embassies abroad. It is. advisable to
finalise contract through fndenting agents of overseas suppliers situated in India.
(d) Role of Overseas Suppliers' Agents in India :- Some reputed overseas suppliers have their indenting
agents stationed 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 there is any dispute regarding quality or quantity of goods imported, receipt of
payment, documentation formalities, etc.
e) Inquiry, Offer and Counter-offer :- It is advisable that before finalising the terms of import order, one
should call for the samples or catalogue and
other relevant literature and the specifications of t,he items to be imported. Import of samples of goods is
exempted from import duties under 'Geneva' Convention of 7th November 1952. After satisfying himself
with the samples and the creditworthiness of the overseas supplier, the iinporter should proceed to
finalise the terms, of the contract to be entered into.
Legal Dimensions of Import Procedure
(a) Finalisation of the Terms of Contract :- The. import contract should be carefully and comprehensively
drafted incorporating therein precise terms as well as 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, licence
and permits, discount commission, insurance, arbitration, etc.
(b) Mode of Pricing and INCO TERMS :- While finalising terms cof import contract, the importer should,
inter-alia, be fully conversant with the mode of pricing and the manner of payment for the imports. As
regards mode of pricing, the overseas supplier should quote the terms prevailing in international trade.
International Chamber of Commerce (ICC) , paris given detailed definition of a few standard terms

33. popularly known as “ INCOTERMS'. These terms have almost universal acceptance.
(c) Mode of Settlement of Payment :- There are mainly three modes settling international transactions
depending upon the creditworthiness of the importer or exporter, demand for the commodity in the
international market, exchange control regulations prevailing in the importer or countries and other
relevant factors
Advance Payment.
Payment or Acceptance against Document Collections.
Payment under Letter of Credit.
(d) Obtaining IEC Number :- In India, it is obligatory for every importer and exporter to register themselves
with the Director General of Foreign trade (DGFT) and obtain Import-Export Code (IEC) Number. The
application form
for obtaining IEC number should be accompanied by a fee of Rs.1000 and
two copies of passport size photographs of the applicant duly attested by the banker of the applicant and
other, relevant documents.
(e) Obtaining Import Licence :- If the item to be imported falls in the prohibited list, then such item cannot
be imported at all. How, if it falls in restricted list then the necessary clearance must be obtained from
appropriate licensing authority. Similarly, if it is subject to the canalisation through State Trading
Enterprises (STEs), then the necessary formalities are to be completed pertaining to the same.
(f) Obtaining Foreign EXchange :- In India, all foreign exchange transactions are regulated by the
Exchange Control Department of the Reserve bank of India (RBI). Therefore, every importer is required to
make to the Reserve Bank of India (RBI) for getting. sanction for making overseas.
Payments. The Exchange Control Department scrutinises the application and if satisfied, sanctions
necessary foreign exchange for the import transaction.
(g) Arranging Finance for Import :- It is advisable that the financial planning for imports should be done in
advance in order to avoid huge demurrages on the imported goods lying uncleared for want of payment.
Banks normally do not extend any fund based assistance to importers. However, they enable industrial
units and others to have access to imported inputs and machinery by establishing letters of credit in
favour of the overseas suppliers.

34. (h) Obtaining Import L/C Umit:- Import L/C limits are sanctioned by the banks on submission of complete
loan proposal as in the case of other types of credit facilities. This requires advance financial planning so
as to retire import bills under L/C on time. Any delay in retirement of bills not only strains the relations of
the importer with his bank but also results in additional costs by by of extra commission, penal interest,
demurrage charges, etc.
(i) Despatching Letter of Credit :- If the term of payment agreed between the importer and the overseas
supplier is a letter of credit then the importer
should obtain the letter of credit from his bank and forward it to the overseas supplier well within the time
agreed for the same. The importer must see to it that the letter of credit has been prepared in the strict
conformity of the import contract entered between them.
Retirement of Import Documents
(a) Loading of Goods and Receipt of Shipment Advice :- On loading of goods the oyerseas supplier
despatches the shipment advice to the importer
informing him about the shipment of goods. The shipment advice contains" invoice number, bill of lading,
airways bill number and date, name of the vessel with date, the port of export, description of goods and
quantity and the date of sailing of the vessel.
(b) Retirement of Import Documents :- After shipping the goods, the overseas
supplier prepares the necessary documents as per the terms of contract
and letter of credit and hands them over to his bank for their onward negotiation" to importer in the
manner as specified in the L/C.The set normally contains bill of exchange," commercial invoice, bill of
lading, packing list, certificate of origin, marine insurance policy, etc.
For the retirement of documents, the importer is require~ to submit the following documents to his bank :
¬
(a) A letter authorising his bank to debit the equivalent Indian rupees to the
value of documents including bank charges. .
(b) Exchange control copy of the Import Licence, if applicable. .
(c) FormAl duly completed for the remittance in foreign exc
(c) Acceptance of the Bill of Exchange :- Bill of Exchange accompanied by the above documents is known
as the Documentary Bill of Exchange.IT is of

35. two types :¬
Documents against Payment (Sight Drafts) :- In case of sigh draft,
the drawer instructs the bank to hand over the relevant documents the importer only against payment.
Documents against Acceptance (Usance Draft) :- In case of usance
draft, the drawer instructs the bank to hand over the relevant documents to the importer against his
'acceptance' of the bill of exchange.
(d) Scrutiny of Documents Received under L/c :- After receipt of import
documents from the exporter's bank, the importer's bank will scrutinise the documents as to their
correctness as per the terms and conditions of L/C and hands over them to the importer after payment.
The importer should also scrutinise the documents and ensure that there are no discrepancies.
(e) Appointment of C & F Agent :- In India, the procedure for clearance imported goods is very lengthy,
time consuming and involves lots of legal formalities. Therefore, it is advisable to hire the services of C&F
agents who are well versed with such formalities. The C&F Agent prepares bill of entry containing details
of goods to be cleared from the customs ,in case the C&F agent does not have relevant information about
the goodsto be cleared, he prepares a bill of sight in order to enable himself to physically check the
goods imported and prepare bill of entry on that basis.
Customs Clearance Procedure for Imported Goods
Under the Ministry of Finance (Department of Revenue), there are two
independent Boards of Revenue :- . '
(a) Central Board of Direct Taxes (for Income Tax, Wealth Tax etc.)
(b) Central Board of Excise and Customs.
The Customs administration vests with the Central Board for excise and Customs, which shapes the policy
and decides the functions of the formalities in the country, in terms of the provisions of the Customs act
1962
All goods imported in India have to pass through the customs clearanceafter they cross the Indian border.
The goods so imported are examined appraised assessed, evaluated and then allowed to be taken out of
customs charge for use by the importer.

36. The procedure for customs clearance in general for goods imported as follows :¬
(a) Import Manifest :- As per the section 30 of the Customs Act 1962,the
persons in charge of a conveyance carrying imported goods should hand
over, within 24 hours of the arrivafof the conveyance, an import manifest to the customs. The, import
manifest is a complete, list of all items the conveyance carries on board, including those to be transhipped
and those to be carried to the subsequent ports of call. '
(b) Entry in the Import Department of Customs House :- On receipt of information regarding the arrival of
the goods, the importers or their 'agents have to make an entry by filing a Bill of Entry, in a prescribed
form in the Import Department of Customs House. The. date of presentation of Bill of Entry is an
important date as the rate of duty applicable to the imported goods will be the rate, which is in force on
tl1e date of apresentation.
(c) Presentation of Bill of Entry for Appraisal :- After the Bill of Entry is noted in the import department, the
same should be presented to the Appraising Counters along with the following necessary documents :¬
Import licence, if necessary.
Exporter's Invoice.
A copy of Letter of Credit.
Original Bill of Lading and its non-negotiable copy.
Two copies of Packing List.
Weight specifications.
Manufacturer's test certificate.
Certificate of Origin.
Delivery order issued by Shipping company or its agent.
Freight and insurance amount certificate if the import is on FOB terms
A declaration from importer that he has not paid any commission to
agents in India.:
CUstoms declaration
Catalogue/drawing, etc for machinery imported.
In addition to the above, the following documents are also required to be submitted wherever necessary :-
If the spare parts are imported - exporters invoice showing unit price
and extended tptal of each item;
If the, secondhand machinery is imported - Chartered Engineer's Certificate;

37. If the steel is imported - Manufacturer's Analysis Certificate;
If Chemicals' and alIled products are imported - Literature showing chemical consumption
If the textiles items are imported - Textile Commissioners endorsement or certificate.
If the above documents furnished by the importer are found to be adequate for acceptance of the declared
value and determination of classification and acceptance of ITC Licence, the bill of Entry is completed by
the Appraiser. It
is then countersigned by the, Assistant Collector and sent to the Licence
Section with an order to the Dock Staff for examination of good clearance.
(d) Clearance of Goods :- After payment of duty (the original copy of bill of
Entry is retained in the Customs House) the importer should obtain the
duplicate copy of Bill of Entry on which order for examination of the goods
is given by Customs and get the goods examined. If the description of goods
is found to be correct, on the basis of declared and accepted paarticulars ,
clearance of goods is allowed by the appraiser.
(e) Warehousing the Goods :- The imported goods can be warehoused at the port of shipment without the
payment of duty by presenting a "Bill of entry for Warehousing" to the Bonds Department along with a
bond for twice the
amount of duty payable. Initially the facility is granted for 3 months, which
may be extended upto a period one year. The warehoused goods cleared in one or more installments. For
clearance of goods from the warehouse the importer is required to present what is known as 'Ex-bond Bill
of entry.
(f) Import Follow-up :- Once an importer is allowed to remit foreign exchange out of the country he has an
obligation to import the permitted goods of equivalent value in the country. If no goods or goods for
lesser values are imported, it would lead to leakage of foreign exchange.
Bill of Entry

38. The bill of entry is a document, prepared by the importer or his clearing agent in the prescribed form
under Bill of Entry Regulations, 1971, on the strength of which clearance of imported goods can be made.
When goods are imported in a particular country, the importer has to pay necessary import duty. For this
purpose, necessary information about the goods imported must be given to the customs authorities in a
prescribed form called bill of entry form. Bill of entry is a document, which states that the goods of the
stated values and description in the specified quantity have entered into the country from abroad. The bill
of entry is drawn in triplicate. The customs authorities may ask the importer to supply other documents
invoice broker's note and insurance policy, etc., in order to verify the correctness of the information
supplied in the bill of entry form.
Types of Bill of Entry
For the purpose of giving information in the bill of entry form,goods are classified into three categories
namely :­
(a) Bill of Entry for Goods Imported for Home Consumption {white coloured} :- This kind of bill of entry is
used for clearing imported goods paying customs duty at the port.
(b) Bill of Entry for Bonded Goods (Yellow coloured) :- This kind bill of entry is used when no duty is paid
on imported goods and therefore are transferred to customs recognised bonded warehouses.
(c) Bill of Entry for Ex-bond Clearance for Home Consumption {green coloured} :- This kind of bill of entry
is used where the importer intends to clear the dutiable goods, either in part or full, from a bonded
warehouse by paying necessary duty.
Contents of Bill. of Entry
The main contents of the Bill of Entry are :­
(a) Name and address of the importer.
(b) Name and address of the exporter.

39. (c) Import licence number of the importer.
(d) Name of the port/dock where goods are to be cleared.'
(e) Description of goods.
(f) Value of goods.
(g) Rate and amount of import duty payable.
(h) Other relevant documents.
However, no bill of entry is required in the following cases :­
(a) Passengers' baggage;
(b) Favour parcels;
(c) Mail bags and Post parcels; .
(d) Boxes, kennels of cages containing live animals or birds;
(e) Post parcels, ship stores in small quantities for personal use.
(f)Un-serviceable stores, such as, dunnage wood, empty bottles, drums, etc.,of reasonable value (below
Rs. 50);
(g) Cargo by sailing vessels from Customs Ports when landed at open bunders only.
FORWARD CONTRACT
International contracts are either concluded in Indian rupees or in foreign currency. If the contract is
concluded in terms of Indian rupees, all relevant documents are prepared in Indian rupees and hence no
conversion is involved. However, if the contract is concluded in some internationally accepted currency
then the importers have to pay Indian rupees equivalent to the amount of foreign currency.
Where the international contract has been concluded in foreign currency, an importer is always at risk due
to adverse fluctuations in the exchange rates in the international market. Such risks can be avoided by the
following methods :¬
(a) Invoicing the Goods in Indian Rupees :- The first remedy to adverse
movements in exchange rates is invoicing goods in Indian rupees. However, foreign seller may not agree
to invoicing goods in Indian rupees.
(b) Entering into a Forward Exchange Contract :- This i~ the most commonly practised alternative for
insuring the risks arising out of adverse movements in exchange rates. Under this adjustment, the
importer enters into contract with its bank to purchase from the bank, foreign exchange at a future date
or period and- the bank agrees to sell the firm the foreign exchange on that date or during the agreed
period at certain predetermined rate agreed upon at the time of entering into contract. Thus,. the importer

40. knows in advance the exchange rate that he is going to pay on delivery of import documents.
TERMS OF SHIPMENTS – INCOTERMS
The INCOTE R MS (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 P aris, 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 INCOTE R MS was first published in 1936 - - INCOTE R MS 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 - -INCOTE R MS 2000. Under INCOTE R MS 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. E XW—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.

41. 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/ payment of import customs duties and
or
taxes and/ other costs and risks at the buyer’s end, for example the trade terms DE O (Delivery E x Quay) and DDP
or
(Delivered Duty P aid)
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.
S imilarly, it would be best for importers not to deal in E XW (E x 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
E XW {+the named place}
E x W orks: E x means from. Works means factory, mill or warehouse, which are the seller’s premises. E XW 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 E XW for example E XW Kobe and E XW S an Antonio.
The term E XW is commonly used between the manufacturer (seller) and export-trader(buyer), and the export-trader
resells on other trade terms to the foreign buyers. S ome manufacturers may use the term E x Factory, which means
the same as E x Works.
F CA {+the named point of departure}
F ree 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. B uyer 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/ off) services
roll
In the export quotation, indicate the point of departure (loading) after the acronym FCA, for example FCA Hong Kong
and FCA S eattle. S ome manufacturers may use the former terms FOT (Free on Trucks) and FOR (Free on R ail) in
selling to export-traders.
F AS {+the named port of origin}

42. F ree Alongside S hip: 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 B remen. The FAS term is
popular in the break-bulk shipments and with the importing countries using their own vessels.
F OB {+the named port of origin)
F ree on B oard: The delivery of goods on the board the vessel at the named port of origin (Loading) at seller’s
expense. B uyer 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
S hanghai.
Under the rules of the INCOTE RMS 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 US A 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 INCOTE RMS (International Commercial Terms).
CF R {+the named port of destination}
Cost and F reight: 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 INCOTE RMS 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. B uyer 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 P usan and
CIF S ingapore. Under the rules of the INCOTE RMS 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.

43. CP T {+the named place of destination}
Carriage P aid 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 CP T, for example CP T
Los Angeles and CP T Osaka.
CIP {+ the named place of destination)
Carriage and Insurance P aid To: The delivery of goods and the cargo insurance to the named place of destination
(discharge) at seller’s expense. B uyer 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 P aris
and CIP Athens.
DAF {+ the names point at frontier}
Delivered At F rontier: 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 B uffalo and
DAF Welland.
DE S {+named port of destination}
Delivered E x S hip: The delivery of goods on board the vessel at the named port of destination (discharge) at sellers
expense. B uyer 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 P ort of destination (discharge) after the acronym DE S , for example DE S Helsinki
and DE S S tockholm.
DE Q {+the named port of destination
Delivered E x Quay: The delivery of goods to the Quay (the port) at the destination at buyers expense. S eller is
responsible for the importer customs clearance, payment of customs duties and taxes, at the buyers end. Buyer