Friends Export payments in India is generally governed by RBI and FEMA (Foreign Exchange Management Act) .
Here we present consolidate guidelines from RBI updated till July 01, 2014 , which will help you to get answer to most common questions faced by you while dealing in foreign currency in Export transaction.
Table of Content
- Refund of Export Proceeds?
- Realisation and Repatriation of proceeds of export of goods / software / services?
- Advance Payments against Exports?
- Part Drawings /Undrawn Balances?
- SDF (Statutory Declaration Form)?
- Return of Documents to Exporters?
- Follow-up of Overdue Bills?
- Reduction in Invoice Value on Account of Prepayment of Usance Bills?
- Reduction in Invoice Value in other cases?
- Change of buyer/consignee?
- Write off of export bills?
A.P. (DIR Series) Circular No.03 July 22, 2010
- Set-off of export receivables against import payables: (effective from November 17, 2011)?
- Exporters’ Caution List?
- Refund of Export Proceeds
AD Category – I banks, through whom the export proceeds were originally realised may consider requests for refund of export proceeds of goods exported from India and being re-imported into India on account of poor quality. While permitting such transactions, AD Category – I banks are required to :
(i) Exercise due diligence regarding the track record of the exporter
(ii) Verify the bona-fides of the transactions
(iii) Obtain from the exporter a certificate issued by DGFT / Custom authorities that no incentives have been availed by the exporter against the relevant export or the proportionate incentives availed, if any, for the relevant export have been surrendered
(iv) Obtain an undertaking from the exporter that the goods will be re-imported within three months from the date of remittance and
(v) Ensure that all procedures as applicable to normal imports are adhered to.
- B.3 Realisation and Repatriation of proceeds of export of goods / software / services
It is obligatory on the part of the exporter to realise and repatriate the full value of goods / software / services to India within a stipulated period from the date of export, as under:
(i) It has been decided in consultation with the Government of India that the period of realization and repatriation of export proceeds shall be nine months from the date of export for all exporters including Units in SEZs, Status Holder Exporters, EOUs, Units in EHTPs, STPs & BTPs until further notice.
(ii) Goods exported to a warehouse established outside India: As soon as it is realised and in any case within fifteen months from the date of shipment of goods
- B.8 Advance Payments against ExportsAdvance Payments against Exports
(1) In terms of Regulation 16 of Notification No. FEMA 23/2000-RB dated May 3, 2000, where an exporter receives advance payment (with or without interest), from a buyer outside India, the exporter shall be under an obligation to ensure that the shipment of goods is made within one year from the date of receipt of advance payment; the rate of interest, if any, payable on the advance payment does not exceed London Inter-Bank Offered Rate (LIBOR) + 100 basis points; and the documents covering the shipment are routed through the AD Category – I bank through whom the advance payment is received.
Provided that in the event of the exporter’s inability to make the shipment, partly or fully, within one year from the date of receipt of advance payment, no remittance towards refund of unutilized portion of advance payment or towards payment of interest, shall be made after the expiry of the said period of one year, without the prior approval of the Reserve Bank.
(2) AD Category- I banks can also allow exporters having a minimum of three years’ satisfactory track record to receive long term export advance up to a maximum tenor of 10 years to be utilized for execution of long term supply contracts for export of goods subject to the conditions as under:
(i) Firm irrevocable supply orders and contracts should be in place. Product pricing should be in consonance with prevailing international prices.
(ii) Company should have capacity, systems and processes in place to ensure that the orders over the duration of the said tenure can actually be executed.
(iii) The facility is to be provided only to those entities, who have not come under the adverse notice of Enforcement Directorate or any such regulatory agency or have not been caution listed.
(iv) Such advances should be adjusted through future exports.
(v) The rate of interest payable, if any, should not exceed LlBOR plus 200 basis points.
(vi) The documents should be routed through one Authorized Dealer bank only.
(vii) Authorised Dealer bank should ensure compliance with AML / KYC guidelines
(viii) Such export advances shall not be permitted to be used to liquidate Rupee loans classified as NPA.
(ix) Double financing for working capital for execution of export orders should be avoided.
(x) Receipt of such advance of USD 100 million or more should be immediately reported to the Trade Division, Foreign Exchange Department, Reserve Bank of India, Central Office, Mumbai.
(xi) a. In case Authorized Dealer banks are required to issue bank guarantee (BG) / Stand by Letter of Credit (SBLC) for export performance, then the issuance should be rigorously evaluated as any other credit proposal keeping in view, among others, prudential requirements based on board approved policy.
- BG / SBLC may be issued for a term not exceeding two years at a time and further rollover of not more than two years at a time may be allowed subject to satisfaction with relative export performance as per the contract.
- BG / SBLC should cover only the advance on reducing balance basis.
- BG / SBLC issued from India in favour of overseas buyer should not be discounted by the overseas branch / subsidiary of bank in India.
(xii) AD Category – I banks may allow the purchase of foreign exchange from the market for refunding advance payment credited to EEFC account only after utilizing the entire balances held in the exporter’s EEFC accounts maintained at different branches/banks.
Note: AD Category – I banks may also be guided by the Master Circular on Guarantees and Co-acceptances issued by DBOD.
(3) ‘AD Category- I banks may allow exporters to receive advance payment for export of goods which would take more than one year to manufacture and ship and where the ‘export agreement’ provides for shipment of goods extending beyond the period of one year from the date of receipt of advance payment subject to the following conditions:-
(i) The KYC and due diligence exercise has been done by the AD Category – I bank for the overseas buyer;
(ii) Compliance with the Anti-Money Laundering standards has been ensured;
(iii) The AD Category-I bank should ensure that export advance received by the exporter should be utilized to execute export and not for any other purpose i.e., the transaction is a bona-fide transaction;
(iv) Progress payment, if any, should be received directly from the overseas buyer strictly in terms of the contract;
(v) The rate of interest, if any, payable on the advance payment shall not exceed London Inter-Bank Offered Rate (LIBOR) + 100 basis points;
(vi) There should be no instance of refund exceeding 10% of the advance payment received in the last three years;
(vii) The documents covering the shipment should be routed through the same authorised dealer bank; and
(viii) In the event of the exporter’s inability to make the shipment, partly or fully, no remittance towards refund of unutilized portion of advance payment or towards payment of interest should be made without the prior approval of the Reserve Bank.’
(4) (i) As it has been observed that there is substantial increase in the number and amount of advances received for exports remaining outstanding beyond the stipulated period on account of non-performance of such exports (shipments in case of export of goods), AD Category –I banks are advised to efficiently follow up with the concerned exporters in order to ensure that export performance (shipments in case of export of goods) are completed within the stipulated time period.
(ii) It is further reiterated that AD category –I banks should exercise proper due diligence and ensure compliance with KYC and AML guidelines so that only bonafide export advances flow into India. Doubtful cases as also instances of chronic defaulters may be referred to Directorate of Enforcement (DoE) for further investigation. A quarterly statement indicating details of such cases (as per Annex -5) may be forwarded to the concerned Regional Offices of RBI within 21 days from the end of each quarter.
- B.11 Part Drawings /Undrawn Balances
(i) In certain lines of export trade, it is the practice to leave a small part of the invoice value undrawn for payment after adjustment due to differences in weight, quality, etc., to be ascertained after arrival and inspection, weighment or analysis of the goods. In such cases, AD Category – I banks may negotiate the bills, provided:
- The amount of undrawn balance is considered normal in the particular line of export trade, subject to a maximum of 10 per cent of the full export value.
- An undertaking is obtained from the exporter on the duplicate of EDF/SDF forms that he will surrender/account for the balance proceeds of the shipment within the period prescribed for realization.
(ii) In cases where the exporter has not been able to arrange for repatriation of the undrawn balance in spite of best efforts, AD Category – I banks, on being satisfied with the bona fides of the case, should ensure that the exporter has realised at least the value for which the bill was initially drawn (excluding undrawn balances) or 90 per cent of the value declared on EDF/SDF form, whichever is more and a period of one year has elapsed from the date of shipment
- C.4 SDF(Statutory Declaration Form)
The following system may be followed in case of SDF:
(i) The SDF should be submitted in duplicate (to be annexed to the relative shipping bill) to the Commissioner of Customs concerned.
(ii) After verifying and authenticating the declaration in SDF, the Commissioner of Customs will hand over to the exporter, one copy of the shipping bill marked ‘Exchange Control Copy’ to which form SDF has been appended for being submitted to the AD Category – I banks within 21 days from the date of export.
(iii) The AD Category – I banks should accept the Exchange Control (EC) copy of the shipping bill and SDF appended thereto, submitted by the exporter for collection/negotiation of shipping documents.
(iv) The manner of disposal of EC copy of Shipping Bill (and form SDF appended thereto) is the same as that for EDF/SDF forms. The duplicate copy of the form together with a copy of invoice etc. shall be retained by the AD Category – I banks and may not be submitted to the Reserve Bank.
(v) In cases where ECGC and private insurance companies regulated by Insurance Regulatory and Development Authority (IRDA) initially settles the claims of exporters in respect of exports insured with them and subsequently receives the export proceeds from the buyer/buyer’s country through the efforts made by them, the share of exporters in the amount so received is disbursed through the bank which had handled the shipping documents. In such cases, ECGC and private insurance companies regulated by IRDA will issue a certificate to the bank, which had handled the relevant shipping documents after full proceeds have been received. The certificate will indicate the number of declaration form, name of the exporter, name of the AD Category – I banks, date of negotiation, bill number, invoice value and the amount actually received by ECGC and private insurance companies regulated by IRDA.
- C.11 Return of Documents to Exporters
The duplicate copies of EDF/SDF forms and shipping documents, once submitted to the AD Category – I banks for negotiation, collection, etc., should not ordinarily be returned to exporters, except for rectification of errors and resubmission.
- C.14 Follow-up of Overdue Bills
(i) AD Category – I banks should closely watch realization of bills and in cases where bills remain outstanding, beyond the due date for payment from the date of export, the matter should be promptly taken up with the concerned exporter. If the exporter fails to arrange for delivery of the proceeds within the stipulated period or seek extension of time beyond the stipulated period, the matter should be reported to the Regional Office concerned of the Reserve Bank stating, where possible, the reason for the delay in realizing the proceeds.
(ii) The duplicate copies of EDF / SDF / SOFTEX Forms should, continue to be held by AD Category – I banks until the full proceeds are realised, except in case of undrawn balances.
(iii) AD Category – I banks should follow up export outstanding with exporters systematically and vigorously so that action against defaulting exporters does not get delayed. Any laxity in the follow up of realization of export proceeds by AD Category – I banks will be viewed seriously by the Reserve Bank, leading to the invocation of the penal provision under FEMA, 1999.
(iv) With effect from the half year ending December 2013, half yearly XOS submission should be made online and Bank-wide instead of the present system of branch-wise submission through the respective Regional Offices of Reserve Bank of India
- C.15 Reduction in Invoice Value on Account of Prepayment of Usance Bills
Occasionally, exporters may approach AD Category – I banks for reduction in invoice value on account of cash discount to overseas buyers for prepayment of the usance bills. AD Category – I banks may allow cash discount to the extent of amount of proportionate interest on the unexpired period of usance, calculated at the rate of interest stipulated in the export contract or at the prime rate/LIBOR of the currency of invoice where rate of interest is not stipulated in the contract.
- C.16 Reduction in Invoice Value in other cases
(i) If, after a bill has been negotiated or sent for collection, its amount is to be reduced for any reason, AD Category – I banks may approve such reduction, if satisfied about genuineness of the request, provided:
(a) The reduction does not exceed 25 per cent of invoice value:
(b) It does not relate to export of commodities subject to floor price stipulations
The exporter is not on the exporters’ caution list of the Reserve Bank, and
(c) The exporter is advised to surrender proportionate export incentives availed of, if any.
(ii) In the case of exporters who have been in the export business for more than three years, reduction in invoice value may be allowed, without any percentage ceiling, subject to the above conditions as also subject to their track record being satisfactory, i.e., the export outstanding do not exceed 5 per cent of the average annual export realization during the preceding three financial years.
(iii) For the purpose of reckoning the percentage of export bills outstanding to the average export realizations during the preceding three financial years, outstanding of exports made to countries facing externalization problems may be ignored provided the payments have been made by the buyers in the local currency.
- C.18 Change of buyer/consignee
Prior approval of the Reserve Bank is not required if, after goods have been shipped, they are to be transferred to a buyer other than the original buyer in the event of default by the latter, provided the reduction in value, if any, involved does not exceed 25 per cent of the invoice value and the realization of export proceeds is not delayed beyond the period of 12 months from the date of export.
- C.20 Write off of export bills
(i) An exporter who has not been able to realise the outstanding export dues despite best efforts, may either self-write off or approach the AD Category – I banks, who had handled the relevant shipping documents, with appropriate supporting documentary evidence with a request for write off of the unrealised portion subject to the fulfilment of stipulations regarding surrender of incentives prior to ”write-off” adduced in the A.P. (DIR Series) Circular No. 03 dated 22 July 2010. After liberalizing and simplifying the procedure, the limits prescribed for “write-offs” of unrealized export bills are as under:
Self “write-off” by an exporter
(Other than Status Holder Exporter) 5%*
Self “write-off” by Status Holder Exporters 10%*
‘Write-off” by Authorized Dealer Bank- 10%*
*of the total export proceeds realized during the previous calendar year.
(ii) The above limits will be related to total export proceeds realized during the previous calendar year and will be cumulatively available in a year.
(iii) The above “write-off” will be subject to conditions that the relevant amount has remained outstanding for more than one year, satisfactory documentary evidence is furnished in support of the exporter having made all efforts to realize the dues, and the case falls under any of the undernoted categories:
(a) The overseas buyer has been declared insolvent and a certificate from the official liquidator indicating that there is no possibility of recovery of export proceeds has been produced.
(b) The overseas buyer is not traceable over a reasonably long period of time.
(c) The goods exported have been auctioned or destroyed by the Port / Customs / Health authorities in the importing country.
(d) The unrealized amount represents the balance due in a case settled through the intervention of the Indian Embassy, Foreign Chamber of Commerce or similar Organization;
(e) The unrealized amount represents the undrawn balance of an export bill (not exceeding 10% of the invoice value) remaining outstanding and turned out to be unrealizable despite all efforts made by the exporter;
(f) The cost of resorting to legal action would be disproportionate to the unrealized amount of the export bill or where the exporter even after winning the Court case against the overseas buyer could not execute the Court decree due to reasons beyond his control;
(g) Bills were drawn for the difference between the letter of credit value and actual export value or between the provisional and the actual freight charges but the amounts have remained unrealized consequent on dishonour of the bills by the overseas buyer and there are no prospects of realization.
(iv) The exporter has surrendered proportionate export incentives (for the cases not covered under A. P. (DIR. Series) Circular No.03 dated July 22, 2010), if any, availed of in respect of the relative shipments. The AD Category – I banks should obtain documents evidencing surrender of export incentives availed of before permitting the relevant bills to be written off.
(v) In case of self-write-off, the exporter should submit to the concerned AD bank, a Chartered Accountant’s certificate, indicating the export realization in the preceding calendar year and also the amount of write-off already availed of during the year, if any, the relevant EDF/SDF Nos. to be written off, Bill No., invoice value, commodity exported, country of export. The CA certificate may also indicate that the export benefits, if any, availed of by the exporter have been surrendered.
(vi) However, the following would not qualify for the “write off” facility :
(a) Exports made to countries with externalization problem i.e. where the overseas buyer has deposited the value of export in local currency but the amount has not been allowed to be repatriated by the central banking authorities of the country.
(b) EDF/SDF forms which are under investigation by agencies like, Enforcement Directorate, Directorate of Revenue Intelligence, Central Bureau of Investigation, etc. as also the outstanding bills which are subject matter of civil / criminal suit.
vii) The respective AD banks may forward a statement in form EBW, in the enclosed format, to the Regional Office of Reserve Bank under whose jurisdiction they are functioning, indicating details of write-offs allowed under this circular.
viii) AD banks are advised to put in place a system under which their internal inspectors or auditors (including external auditors appointed by authorised dealers) should carry out random sample check / percentage check of “write-off” outstanding export bills.
- ix) Cases not covered by the above instructions / beyond the above limits, may be referred to the concerned Regional Office of Reserve Bank of India.
(Relevant notification refer below)
A.P. (DIR Series) Circular No.03 July 22, 2010
All Category – I Authorised Dealer Banks
Madam / Sir,
Export of Goods and Services – Unrealised export bills –
Write-off – Surrender of export incentives
Attention of Authorised Dealer Category – I (AD Category –I) banks is invited to A.P. (DIR Series) Circular No. 12 dated September 09, 2000, A.P. (DIR Series) Circular No. 30 dated April 04, 2001, A.P. (DIR Series) Circular No. 61 dated December 14, 2002, A.P. (DIR Series) Circular No. 40 dated December 05, 2003 and A.P. (DIR Series) Circular No. 33 dated February 28, 2007, in terms of which the AD Category –I banks have been permitted to accede to the requests for “write-off” made by the exporters, subject to the conditions, inter alia, that the exporter had to surrender proportionate export incentives, if availed of, in respect of the relative shipments.
- 2. It has since been announced in the Foreign Trade Policy (FTP) 2009-14 and specified in Para. 2.25.4 of Handbook of Procedures – Vol. I (2009-2014) (extracts annexed), issued by the Department of Commerce, Ministry of Commerce and Industry that realisation of export proceeds shall not be insisted upon, under any of the Export Promotion Schemes under the Foreign Trade Policy (FTP), subject to the following conditions:-
- the write-off on the basis of merits is allowed by the Reserve Bank or by the AD Category – I banks on behalf of the Reserve Bank, as per the extant guidelines;
- the exporter produces a certificate from the Foreign Mission of India concerned, about the fact of non-recovery of export proceeds from the buyer; and
- this would not be applicable in self-write-off cases.
The above relaxation is applicable for the exports made with effect from August 27, 2009.
- It is clarified that since the Drawback scheme is governed by the provisions of the Customs Act, 1962 and the Rules made there under, the provisions contained in para. 2.25.4 of the Handbook of Procedure – Vol. I. of the Foreign Trade Policy (FTP) (2009-2014) would not be applicable to the Duty Drawback scheme. Therefore, the drawback amount has to be recovered even if the claim is settled by the Export Credit Guarantee Corporation of India Limited (ECGC) or the write –off is allowed by the Reserve Bank.
- Accordingly, the AD Category –I banks are advised not to insist on the surrender of the proportionate export incentives, other than under the Duty Drawback scheme, if availed of, by the exporter under any of the Export Promotion Schemes under the FTP 2009-14, subject to the fulfilment of conditions as stated in Para 2 above.
- AD – Category I banks may bring the contents of this circular to the notice of their constituents and customers concerned.
- The directions contained in this Circular have been issued under sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and is without prejudice to permissions / approvals, if any, required under any other law.
- C.25 – Set-off of export receivables against import payables: (effective from November 17, 2011).
AD category –I banks may deal with the cases of set-off of export receivables against import payables, subject to following terms and conditions:
(i) The import is as per the Foreign Trade Policy in force.
(ii) Invoices/Bills of Lading/Airway Bills and Exchange Control copies of Bills of Entry for home consumption have been submitted by the importer to the Authorized Dealer bank.
(iii) Payment for the import is still outstanding in the books of the importer.
(iv) Both the transactions of sale and purchase may be reported separately in ‘R’ Returns.
(v) The relative EDF/SDF forms will be released by the AD bank only after the entire export proceeds are adjusted / received.
(vi) The ” set-off” of export receivables against import payments should be in respect of the same overseas buyer and supplier and that consent for ”set-off” has been obtained from him.
(vii) The export / import transactions with ACU countries should be kept outside the arrangement.
(viii) All the relevant documents are submitted to the concerned AD bank who should comply with all the regulatory requirements relating to the transactions
- C.28 Exporters’ Caution List
(i) AD Category – I banks will also be advised whenever exporters are cautioned in terms of provisions contained in Regulation 17 of “Export Regulations” (Annex 2). They may approve EDF/SDF forms of exporters who have been placed on caution list if the exporters concerned produce evidence of having received an advance payment or an irrevocable letter of credit in their favour covering the full value of the proposed exports.
(ii) Such approval may be given even in cases where usance bills are to be drawn for the shipment provided the relative letter of credit covers the full export value and also permits such drawings and the usance bill mature within twelve months from the date of shipment.
(iii) AD Category – I banks should obtain prior approval of the Reserve Bank for issuing guarantees for caution-listed exporters.
Master Circular No.14/2014-15
July 01, 2014
(Updated upto February 9, 2015)
(Views expressed here are of the Authors Personal views)