EXPORT DOCUMENTATION Unit 5 - Customs Procedures, Duties, and Documentation in International Trade

This final part describes customs procedures for imports, duties under Indian tariffs, and digital platforms like ICEGATE and eSanchit for online processing. It also explains the step-by-step process of export and import documentation, licensing, customs valuation, tariff classification, and recent updates to customs duty rates and GST integration.

1. Topic 1. CUSTOMS PROCEDURES FOR IMPORTS
https://santandertrade.com/en/portal/international-shipments/india/customs-procedures
Import Procedures
 Traders intending to import goods must submit an application to the Directorate General
of Foreign Trade and obtain an Importer and Exporter Code (IEC) number.
 If the trading firm is considered an EOU/EPZ (Export Oriented Units - Export Processing
Zone) (100% of the production is exported), the IEC is issued by the Development
Commissioner of the Export Processing Zone.
 This number has to be indicated on all documents filed with the Indian Customs for
customs clearance procedure.
 This number is not required for the import of gifts and suitcases.
 To determine whether a license is needed to import a particular commercial product or
service, an importer must first classify the item by identifying its Indian Trading Clarification
based on a Harmonized System of Coding or ITC (HS) classification.
 After obtaining import licenses, importers are required to furnish import declaration in the
prescribed Bill of Entry along with permanent account number (PAN) based Business
Identification Number, as per Section 46 of the Customs Act (1962).
 All imported goods must meet the terms of the Article 11 of the 1962 Customs Act, the
Foreign Trade (Development and Regulation) Act and the EXIM policy in force.
 Goods that do not fall under the purview of the EXIM policy are generally confiscated or
may be reimbursed in exchange for the payment of a fine.
Specific Import Procedures
Schemes and procedures that facilitate customs clearance include: Electronic Data
Interface (EDI), enabling e-payment of duties, implementation of customs Risk Management
System (RMS), and automation of customs formalities to Special Economic Zones (SEZ).
Certain goods are prohibited under the Foreign Trade (Development and Regulation) Act,
1992.
Importing Samples
Samples for non-commercial use are allowed in case the goods are supplied free of
charge. India is a member of the ATA Convention. Samples are accepted for exhibitions and
fairs, whether governmental or private. Goods imported into India under ATA carnets must
be re-exported within six months of importation.

2. To stay in India longer than the six month period, obtain approval
(1) From the importing customs office;
(2) Before the six month period expires. In the absence of such approval within the six month
period and before the expiry of the six month period, duties, taxes and interest will become
payable.

Customs Duties and Taxes on Imports
Customs threshold (from which tariffs are required)
No customs threshold.
Average Customs Duty (Excluding Agricultural Products)
The average customs duty is around 13.6%. For more information, visit World Tariff
Profiles 2019 by WTO.
The Central Board of Indirect Taxes and Customs (CBIC) is the apex body for customs matters.
Products Having a Higher Customs Tariff
Alcohol, wines, pet foods, some processed food products, and some manufactured
goods are attracting higher customs tariff.
Preferential Rates
Some customs preferences are granted to certain goods imported, subject to
conditions. Can consult a list on the website of the Ministry of Finance of India.
Preferential rates also apply to imports from those countries with which India has
signed special Trade Agreements.
Customs Classification
India uses the harmonised system.
Method of Calculation of Duties
Customs duties are levied either as a Specific Rate (prescribed per unit of item) or Ad-
valorem (a percentage on CIF value of item), or, sometimes, as a combination of both.
Method of Payment of Customs Duties
Consignment Purchase, cash-in-advance (pre-payment), down Payment, open
account, documentary collections, letters of credit.
Import Taxes (Excluding Consumer Taxes)
In July 2017, India implemented the Good and Services Tax (GST) system to unify
Indian states into a single market and improve the ease of doing business. Before the GST
implementation, imports could be subject to an “additional duty,” a “special additional duty,”

3. an education cess (tax), state level value added or sales taxes. Under the new system, goods
and services are taxed under four basic rates – five percent, 12 percent, 18 percent and 28
percent.
Topic 2. CUSTOMS DUTY AND INDIAN CUSTOM TARIFFS
https://www.bankbazaar.com/tax/custom-duty.html
Customs duty is a variant of Indirect Tax and is applicable on all goods imported and a
few goods exported out of the country. Duties levied on import of goods are termed as import
duty while duties levied on exported goods are termed as an export duty. Countries around
the world levy customs duties on the import/export of goods as a means to raise revenue
and/or shield domestic institutions from predatory or efficient competitors from other
countries.
Customs duty is levied as per the value of goods or dimensions, weight, and other such criteria
according to the goods in question. If duties are based on the value of goods, then they are
called ad valorem duties, while quantity/weight-based duties are called specific duties.
Compound duties on goods are a combination of value as well as various other factors.
Customs Duty in India
Customs duty in India is defined under the Customs Act, 1962 and enables the
government to levy duty on exports and imports, prohibit export and import of goods,
procedures for importing/exporting and offenses, penalties, etc. All matters related to
customs duty fall under the Central Board of Excise & Customs (CBEC). The CBEC, in turn, is a
division of the Department of Revenue of the Ministry of Finance. CBEC formulates policies
that concern the collection or levying of customs duties, customs duty evasion, smuggling
prevention, and administrative decisions related to customs formations.
CBEC has various divisions that take care of the fieldwork including Commissionerate
of Customs, Customs, Customs (preventive and Central Excise Zones, Central Revenues
Control Laboratory and Directorates, etc. CBEC also oversees proper tax administration for
foreign and inland travel.
Customs Duty Update in Union Budget 2021
Finance Minister Nirmala Sitharaman has recently announced the Union Budget on 1
February 2021. In the latest budget speech, the Finance Minister has announced a few
changes concerning customs duty.

4. The following proposals have been made:
The elimination of outdated exemptions through the rationalisation of the structure
of customs duty.
Decrease in the customs duty charged on precious metals like gold and silver. The rate has
been cut down to 7.5% from the current rate of 12.5% for both metals.
Types of Customs Duty
Customs duties are levied almost universally on all goods imported into the country.
Export duties are levied on a few goods as specified under the Second Schedule. Import duties
are not levied on a few items including lifesaving drugs/equipment, fertilizers, food grains etc.
Import duties are further divided into basic duty, additional customs duty, true countervailing
duty, protective duty, education cess and anti-dumping duty or safeguard duty.
Basic Customs Duty:
Basic customs duty is applicable on imported items that fall under the ambit of Section
12 of the Customs Act, 1962. These duties are levied at the rates prescribed in First Schedule
to Customs Tariff Act, 1975, under the terms specified in Section 2 of the act. The levied rates
may be standard or preferential as per the country of import.
Additional Customs Duty (Countervailing Duty (CVD)):
This duty is levied on imported items under Section 3 of Customs Tariff Act, 1975. It is
equal to the Central Excise Duty that is levied on similar goods produced within India. This
duty is calculated on the aggregate value of goods including BDC and landing charges.
Protective Duty:
Protective duty may be imposed to shield the domestic industry against imports at a
rate recommended by the Tariff Commissioner.
Education Cess:
This duty is levied at 2% and higher education cess at another 1% of aggregate of
customs duties.
Anti-dumping Duty:
Anti-dumping duty may be imposed if the good being imported is at below fair market
price, and is limited to the difference between export and normal price (dumping margin).
Safeguard Duty:
Safeguard duty is levied if the government feels that a sudden increase in exports can
potentially damage the domestic industry.

5. Customs Duty Calculations
Customs duties are calculated on a specific or ad valorem basis, i.e. on the value of
goods. The value of goods is determined by Rule 3 (i) of Customs Valuation (Determination of
Value of Imported Goods) Rules, 2007. This rule pegs the value of imported goods at the
transaction value that has been adjusted according to the provisions under Rule 10.
In case there are no quantifiable or objective data regarding the valuation factors,
valuation conditions aren't satisfied, or there are doubts regarding the accuracy or truth of
declared value as per Rule 12 of Valuation Rules 2007, valuation of items has to be done
through other means as per the following hierarchy,
 Comparative Value Method which compares the transaction value of similar items
(Rule 4)
 Comparative Value Method which compares the transaction value of similar items
(Rule 5)
 Deductive Value Method which uses the sale price of item in importing country (Rule
7)
 Computed Value Method which uses the costs related to fabrication, materials and
profit in production country (Rule 8)
 Fallback Method which is based on the earlier methods with higher flexibility (Rule 9)
Online Custom Duty
Online custom duty is available from ICEGATE or Indian Customs Electronic
Commerce/Electronic Data Interchange (EC/EDI) Gateway. This portal allows E-Filing services
to clients of the Customs Department including trade and cargo carriers, collectively known
as Trading Partner. ICEGATE offers services such as electronic filing of Bill of Entry, Shipping
Bills, and other related messages between customs and the trading partner through e-mail,
FTP and web-upload.
Shipping and airline agents can file manifests through this portal, while cargo logistics
and custodians can interact with customs EDI for logistics and cargo-related information.
Apart from e-filing, this portal allows e-payment, document tracking, online registration for
IPR, IE code status, verification of DEPB/EPCG/DES licenses, PAN-based CHA data etc. There
is a 24x7 helpdesk for all the trading partners to solve issues and collect information.

6. Custom Duty Payment Online
 Custom duty can be paid online by following the steps given below:
 Access the ICEGATE e-payment portal
 Enter Import/Export code or login credential supplied by ICEGATE
 Click on e-payment
 Can now see all the unpaid challans in your name
 Select the challan you want to pay and select a bank or payment method
 Will be redirected to the particular bank's payment gateway
 Make the payment
 Will be redirected to ICEGATE portal, click print to save payment copy
eSanchit
eSanchit is stood for e-storage and Computerised Handling of Indirect Tax Documents.
It was launched by the Central Board of Indirect Taxes and Customs (CBIC) in a bid to digitize
the taxation system in India.
It streamlines trading across borders by facilitating customs-related documentation
online. It allows for the uploading of supporting documents and paperless processing of
customs documents. Importers and exporters in India who are registered users of ICEGATE
can use the eSanchit facility.
They can do this by visiting the eSanchit portal on the ICEGATE website
(https://www.icegate.gov.in/eSANCHIT.html). ICEGATE is the Indian Customs and Central
Excise Electronic Commerce /Electronic Data Interchange (EC/EDI) Gateway. This offers e-
filing services to the Customs and Central Excise Department's clients.
The CBIC has extended the eSanchit facility to Participating Government Agencies too
(PGA) so that they can provide the necessary clearances to importers and exporters in the
certificate format through the facility of uploading documents online.
eSanchit eliminates the need for submitting hard copies of documents to assessing
officers. Not only is the speed with which clearances are given optimized, but the physical
interface between traders and customs agencies is minimized as well.

7. These are the Latest Rates for Basic Customs Duty (BCD) tariffs:
Pr i vacy P ol i cy
Item
Tariff
Code
(HSN)
Basic
Customs
Duty
From To
Air conditioners 8415 10 20
Aviation turbine fuel 2710 19 20 0 5
Bath, sink, shower bath, wash basin, etc., made of plastic 3922 10 15
Colored gemstones that are cut and polished 71 5 7.5
Compressors for refrigerators and air conditioners
8414 30
00/
8414 80 11
7.5 10
Diamonds which are broken, half-cut, or semi-processed 71 5 7.5
Diamonds that are lab grown 71 5 7.5
Footwears
6401 to
6405
20 25
Household refrigerators 8418 10 20
Jewlery articles and their parts, either of metal clad with
precious metal or of precious metal
7113 15 20
Miscellaneous plastic articles such as furniture fittings, office
stationary, statuettes, decorative sheets, bangles, beads, etc.
3926 10 15
Plastic articles for packing and conveyance such as bottles,
containers, cases, insulated wares, etc.
3923 10 15
Radial car tyres 4011 10 10 10 15
Silversmith/goldsmith wares/articles and their parts made of
metal clad with precious metal or of precious metal
7114 15 20
Tableware, household plastic items, kitchenware 3924 10 15
Trunks, executive cases, suitcases, briefcases, travel bags,
other bags, etc.
4202 10 15
Speakers
8518 29
100
10 15
Washing machines that are less than 10kg 8450 10 20

8. Topic 3. EXPORT AND IMPORT DOCUMENTATION
https://www.vedantu.com/commerce/export-procedures-and-documentations
Export Documentation Procedure
In general, an export procedure initiates with the willingness to send the goods and services
to other foreign nations at some price, these procedures of export are stated below:
 Step 1: Receipt Order
The Indian exporter will receive the order either directly from the importer or through
the indent houses.
 Step 2: Obtaining License and Quota
After receiving the order from the importer, the Indian exporter is required to obtain
an export license from the Government of India, for this the exporter needs to apply
to the Export Trade Control Authority and get a valid license for this.
 Step 3: Letter of Credit
The exporter then asks the importer for the letter of credit, if the importer does not
send the letter of credit along with the order.
 Step 4: Fixing the Exchange Rate
The rate at which the home currency can be exchanged with the foreign currency is
then fixed. The foreign exchange rate fluctuates from time to time so they need to fix
the rate of exchange.
 Step 5: Foreign Exchange Formalities
As per the Foreign Exchange Regulation Act of India (FERA), every exporter of the
goods is required to furnish a declaration in the form prescribed in a manner in the
Act.
 Step 6: Preparation for Executing the Order
The exporter should make the required arrangements to execute the order:
 Step 7: Formalities by a Forwarding Agent
Then the formalities are to be performed by the agent which includes obtaining a
permit from the customs department, preparing the shipping bill, paying the dues
after disclosing the required details of the product being exported.
 Step 8: Bill of Lading
The Indian exporter of the goods presents the receipt copy to the shipping company
and issues the Bill of Lading.

9.  Step 9: Shipment Advice to the Importer
The Indian exporter sends shipment advice to the importer of the goods to inform him
about the shipment of the goods.
 Step 10: Presentation of Documents to the Bank
The Indian exporter needs to confirm that he possesses all the necessary shipping
documents.
 Step 11: The Realization of Export Proceeds
The exporter of the goods needs to comply with banking formalities after submission
of the bill of exchange.
Export Procedure and Documentation
In the previous section, we have learned about the export procedure formalities here we will
know about the documentation necessary -
 Step 1: Receive an Inquiry
The first step in the shipping documentation process is when someone urges them to
buy products.
 Step 2: Screen the Potential Buyer and Country
After you receive the inquiry from the buyer, the process is to check their business
potentiality to do business with them.
 Step 3: Provide a Proforma Invoice
After screening the buyer, we need to provide the proforma invoice for the
transaction.
 Step 4: Finalize the Sale
The buyer will either reject or accept your proposal thus finalizing the sale.
 Step 5: Prepare the Goods and the Shipping Documents
Commercial Invoice, Packing List, Certificate of Origin, Shipper's Letter of Instruction,
Bills of Lading all need to be prepared
 Step 6: Run a Restricted Party Screening
Again, the process needs to be run, before the goods ship for export.
 Step 7: Miscellaneous Forms and Ship Your Goods
There may be other documents that need to be prepared before exporting the goods.

10. Documents Required for Exporting
When deciding which documents are necessary for an export procedure, the best
place to start is with your overseas customer/importer or a freight forwarder. You may help
your customer in clearing items with customs in the target market by gathering precise
information. Commonly used expert documents are:
Pro Forma Invoice- The document provides a description of the products, such as Price,
quantity, weight, kind, and so on, and is a statement by the seller to provide the customer
with the products and services at the given date and price. 
Commercial Invoice- The commercial invoice is a legal document that is exchanged between
the seller and the buyer that clearly outlines the items being sold as well as the price the
customer is to pay.
Packing List- This list includes the invoice number, seller, buyer, shipper, carrier, date of
shipping, mode of transport, itemized quantity, description, package type, package quantity,
total net, and gross weight (in kilograms), packaging markings, and measurements.
Air Waybill- An air waybill is a document that accompanies goods carried by an international
air carrier. The paperwork contains complete information about the package and enables
tracking.
Export Licenses- A government document that allows the transfer of specified commodities
in precise quantities to a specific destination for a defined end-use is known as an export
license.
Formalities of Registration and Export Documentation
Export is a very wide concept with a lot of preparations which is required by an exporter
before starting the export business.
1. Establishing an Organization
2. Opening a Bank Account
3. Obtaining Permanent Account Number (PAN)
4. Obtaining Importer-Exporter Code (IEC) Number
5. Registration cum membership certificate (RCMC)
6. Selection of product
7. Selection of Markets

11. 8. Finding Buyers
9. Sampling
10. Pricing/Costing
11. Negotiation with Buyers
12. Covering Risks through ECGC
Preparation for Executing an Order
The exporter must make the following arrangements in order to carry out the order:
 Marking and packaging of products to be exported in accordance with the importer's
standards.
 Obtaining an inspection certificate from the Export Inspection Agency after scheduling
a pre-shipment inspection.
 Getting an insurance policy from the Export Credit Guarantee Corporation (ECGC) to
safeguard against credit risks.
 Obtaining the necessary marine insurance coverage.
 Appoint a forwarding agent, often known as a custom house agent, to handle customs
and other related issues.
Formalities by a Forwarding Agent
The agent must complete the following formalities:
 The forwarding agency must first get permission from the customs authority before
exporting the items.
 To the shipping business, agents must provide all needed data about the products to
be shipped, such as kind, amount, and weight.
 A shipment bill/order must be prepared by the forwarding agent.
 The forwarding agency is responsible for duplicating the port challans and paying the
fees.
 The loading of the products on the ship is the responsibility of the ship's captain. The
loading must be done in the presence of customs authorities and on the basis of the
shipping order.
 When the cargo is loaded into the ship, the ship’s master provides a receipt for them.
Foreign Exchange Formalities
Under exchange control laws, an Indian exporter must comply with specific foreign exchange
procedures. Every exporter of products is obliged under the Foreign Exchange Regulation Act

12. of India (FERA) to provide a declaration in the form provided in a way. According to the
declaration:
 The foreign exchange gained by the exporter on exports must be disposed of in the
manner and within the timeframe stipulated by the RBI.
 Authorized foreign exchange dealers are needed to handle shipping documentation
and discussions.
 Only permitted methods will be used to collect payment for the products shipped.
 Surrender the foreign exchange to approved dealers through the exchange control
authority.
Import Documentation
https://www.vedantu.com/commerce/import-procedures-and-documentations
A very important role is played by the Import and Customs authorities in all countries
of the world when it comes to the entry of goods into the country. The era of globalization
ushered in more and more interactions between different countries of the world, leading to
an increase in the masses of imports and exports. In order to effectively manage all this,
having a trained body of officials and rules is very important.
Import procedures and documentation are required for any good that crosses the
international borders and enters the country. This can range from mere gifts to big
shipments.
Steps for the Process of Import Procedure
The following steps can adequately explain the process of import procedure and
documentation:
1. First and foremost, before anything can enter the country, a comprehensive list of
what item is being imported and for what purpose needs to be updated and
registered. Data like this can be obtained from trade associations and trade
organisations.
2. The EXIM Policy is then consulted by the Importer to make sure that all rules and
regulations are followed and standards are met.
3. Then the request of the instalment of foreign cash takes place which includes the
trading of Indian Currency into foreign notes. In this matter, The Exchange Control

13. Department of the Reserve Bank of India (RBI) manages foreign trade exchange in
India.
4. The importer then puts in an import request with the exporter for the supply of
merchandise.
5. Once the payments are settled between the importer and the seller, a letter of credit
is issued to the importer.
6. The importer arranges for the payment of the advance money on arrival of the goods
at the port. This saves the importer from the high penalties.
7. The overseas supplier after in-loading the merchandise on the ship dispatches the
“Shipment Advice” to the importer to give information with respect to the shipment
of goods.
8. Dock charges are also paid out by the importer once the goods are received and all
inspections are completed.
In India, the procedure of imports usually follows this outline, unless the goods are otherwise
specified as hazardous or are specially requested by the government of the country. A number
of documents are required to make sure that this process takes place seamlessly, which is
important for the importer to have quick access to.
These Documentations Include
 All invoices, packing lists, certificates specifying the origins of the product and its
description, GATT declaration, IET documents and any other document that the
government specifies.
 Catalogue, Technical Write ups – required for import of machinery and equipment.
 Chemical Composition, Test bond required by the respective customs – all are needed
in case of Chemical Import.
 Phytosanitary Certificate with Fumigation, Certificate of Origin – required for un-
processed food, plant products, wood imprints, fruits and seeds import.
 Test Report and Composition – for processed food product import.

14.  Azo Dye Inspection Certificate – in Import of Fabric.
 PLAT T essential for valuation – In case of import of Plastic Granules.
 Registered EPCG License, Panelised Undertaking by Importer, Bond com BG Bank
Covering Letter, Signature Attestation from Bank, Copy of Board of Regulation,
Particles of Memorandum, and Detail of Previous License – Import under EPCG license.
 Form necessary from Supplier for customs duty advantage – Import of Ceramic Tiles.
 Test Certificate – Import of Wine and Whiskey.
Explain Import Procedure
Import procedure means all the steps involved in purchase of goods from any foreign
country. The procedural steps involved in import trade differ from country to country in
respect of their import policy, statutory requirements. In majority of the countries import
trade is being controlled by the government. The objective of empowering the government
in the import trade is to keep a strict restriction policy in regards of foreign exchange,
protection of Indigenous industries etc. For importing goods, a specified and regulated
procedure is to be followed. The procedure is summed into quick steps as below:
1. Trade Enquiry
2. Procurement of Import License and Quota
3. Obtaining Foreign Exchange
4. Placing the Order
5. Dispatching a letter of Credit
6. Obtaining Necessary Documents
7. Customs Formalities and Clearing of Goods
8. Making the Payment
9. Closing the transactions

15. Topic 4. ACCEPTANCE OF DOCUMENTS OF L/C, D/A & D/P
ACCEPTANCE OF DOCUMENTS OF L/C
https://thebusinessprofessor.com/en_US/122296-law-transactions-amp-risk-management-
commercial-law-contract-payments-security-interests-amp-bankruptcy/acceptance-letter-
of-credit-definition
A letter of credit is issued by a bank as a promise to pay a specific amount when the
terms of the letter or met.
An Acceptance Letter of Credit, also known as Documents against Acceptance, stipulates a
specific time for payment, as well as the terms that must be complied with before payment
is authorized.
There are two types of acceptance credit, the confirmed acceptance credit and the
unconfirmed one.
When a letter of credit is confirmed, it guarantees a bank payment (regardless of
whether the Applicant or Buyer has the money in its account) and serves as a proof that all
the terms for payment of the letter have been met.
Unconfirmed acceptance letter on the other hand means that the bank is not guaranteeing
payment. Payment will only be rendered if assets are available in the payer’s account.
A letter of credit, which requires, amongst the documents stipulated, provision of a
term bill of exchange. The bill is then generally accepted by the bank on which it is drawn
or discount. The practical result is that the beneficiary is paid promptly at a discount.
A letter of credit is identified by certain principles. These principles remain the same for all
kinds of letters of credit.
The main characteristics of letters of credit are as follows:
Negotiability
A letter of credit is a transactional deal, under which the terms can be modified/changed at
the parties assent. In order to be negotiable, a letter of credit should include an unconditional
promise of payment upon demand or at a particular point in time.
Revocability
A letter of credit can be revocable or irrevocable. Since a revocable letter of credit cannot be
confirmed, the duty to pay can be revoked at any point of time. In an irrevocable letter of

16. credit, all the parties hold power, it cannot be changed/modified without the agreed consent
of all the people.
Transfer and Assignment
A letter of credit can be transferred, also the beneficiary has the right to transfer/assign the
LC. The LC will remain effective no matter how many times the beneficiary assigns/transfers
the LC.
Sight & Time Drafts
The beneficiary will only receive the payment upon maturity of letter of credit from the issuing
bank when he presents all the drafts & the necessary documents.
Documents required for a Letter of Credit
 Shipping Bill of Lading
 Airway Bill
 Commercial Invoice
 Insurance Certificate
 Certificate of Origin
 Packing List
 Certificate of Inspection
ACCEPTANCE OF DOCUMENTS OF D/A
http://www.eximguru.com/exim/guides/export-
finance/ch_2_payment_collection_against_bills.aspx#documents_against_payments
Under Documents Against Acceptance, the Exporter allows credit to Importer, the
period of credit is referred to as Usance, The importer/ drawee is required to accept the bill
to make a signed promise to pay the bill at a set date in the future. When he has signed the
bill in acceptance, he can take the documents and clear his goods.
The payment date is calculated from the term of the bill, which is usually a multiple of
30 days and start either from sight or form the date of shipment, whichever is stated on the
bill of exchange. The attached instruction would show "Release Documents Against
Acceptance".
Risk
Under D/A terms the importer can inspect the documents and, if he is satisfied, accept
the bill for payment o the due date, take the documents and clear the goods; the exporter
loses control of them.

17. The exporter runs various risk. The importer might refuse to pay on the due date because:
 Finds that the goods are not what he ordered.
 Has not been able to sell the goods.
 Prepared to cheat the exporter (In cases the exporter can protest the bill and take the
importer to court but this can be expensive).
 The importer might have gone bankrupt, in which case the exporter will probably
never get his money.
Usance D/P Bills
A Usance D/P Bill is an agreement where the buyer accepts the bill payable at a
specified date in future but does not receive the documents until he has actually paid for
them. The reason is that airmailed documents may arrive much earlier than the goods shipped
by sea.
The buyer is not responsible to pay the bill before its due date, but he may want to do
so, if the ship arrives before that date. This mode of payments is less usual, but offers more
settlement possibility.
These are still D/P terms so there is no extra risk to the exporter or his bank. As an
alternative the covering scheduled may simply allow acceptance or payments to be deferred
awaiting arrival of carrying vessel.
There are different types of usance D/P bills, some of which do not require acceptance
specially those drawn payable at a fix period after date or drawn payable at a fixed date.
Bills requiring acceptance are those drawn at a fix period after sight, which is necessary to
establish the maturity date. If there are problems regarding storage of goods under a usance
D/P bill, the collecting bank should notify the remitting bank without delay for instructions.
ACCEPTANCE OF DOCUMENTS OF D/P
This is sometimes also referred as Cash against Documents/Cash on Delivery. In effect
D/P means payable at sight (on demand). The collecting bank hands over the shipping
documents including the document of title (bill of lading) only when the importer has paid
the bill. The drawee is usually expected to pay within 3 working days of presentation. The
attached instructions to the shipping documents would show "Release Documents Against
Payment"

18. Risks:
Under D/P terms the exporter keeps control of the goods (through the banks) until the
importer pays. If the importer refuses to pay, the exporter can:
 Protest the bill and take him to court (may be expensive and difficult to control from
another country).
 Find another buyer or arrange a sale by an auction.
With the last two choices, the price obtained may be lower but probably still better than
shipping the goods back, sometimes, the exporter will have a contact or agent in the
importer's country that can help with any arrangements. In such a situation, an agent is often
referred to as a Case of Need, means someone who can be contacted in case of need by the
collecting bank.
If the importers refuses to pay, the collecting bank can act on the exporter's instructions
shown in the Remitting Bank schedule. These instructions may include:
 Removal of the goods from the port to a warehouse and insure them.
 Contact the case of need who may negotiate with the importer.
 Protesting the bill through the bank's lawyer.
Topic 6. SUPPLIERS CREDIT
https://buyerscredit.in/2011/07/17/suppliers-meaning-definition-mechanism/
Supplier’s Credit is a structure of financing import into India. In this structure, overseas
suppliers or financial institutions outside India provide financing to importer on Libor linked
rates against usance letter of credit (LC).
Requirement
 Suppliers would ask for sight payment whereas importer want credit on the transaction.
 Now with buyer’s credit structure not available, suppliers credit is one of option for raising
Libor linked finance for importer.
Benefits of Suppliers Credit
For Importer
 Availability of cheaper funds for import of raw materials and capital goods
 Ease short-term fund pressure as able to get credit
 Ability to negotiate better price with suppliers
 Able to meet the Suppliers requirement of payment at sight

19. For Supplier
 Realize at-sight payment
 Avoid the risk of importer’s credit by making settlement with LC
Suppliers Credit Process Flow

1. Importer enter into contract with supplier for import.
2. With transaction details importer approaches arranger to get suppliers credit for the
transaction
3. Arranger get an indicative pricing from overseas bank, which importer confirms.
4. Importer approach his bank and get LC issued, restricted to overseas bank counters with
other required clauses
5. Overseas Bank confirms the LC and advice LC to Supplier’s Bank. Suppliers Bank provides
the copy of the LC to Supplier.
6. Supplier ships the goods and submits documents at his bank counter.
7. Supplier’s Bank sends the documents to Overseas Bank.

20. 8. Overseas Bank post checking documents for discrepancies (As per UCP 600) sends the
document to importer’s bank for acceptance:
 If documents are as per order, the same is discounted and transferred to supplier’s
bank.
 Incase of discrepant documents, documents are sent on acceptance basis. On receipt
of Importer bank acceptance, the same is discounted and transferred to supplier’s
bank.
9. Supplier receives the payment for the LC. Depending on who is bearing the interest cost:
 If importer is bearing interest cost, supplier receives full payment.
 If Suppliers is bearing interest cost, supplier will receive LC amount – Interest.
10. Importer’s Bank receives the documents. Importer’s bank and Importer accept
documents. Importer’s Bank provides acceptance to O verseas Bank,
guaranteeing payment on due date.
11. On maturity, Importer makes the payment to his bank and Importer’s bank makes
payment to Supplier’s Credit Bank
Cost Involved
 Foreign bank interest cost
 Foreign Bank LC Confirmation Cost (Case to Case basis)
 LC advising and or Amendment cost
 Negotiation cost (normally in range of 0.10%)
 Postage and Swift Charges
 Reimbursement Charges
 Cost for the usance (credit) tenure. (Indian Bank Cost)
Requirement
 Import transaction under LC
 Incoterms : FOB/CIF/C&F
 Arrangement has to be done before LC gets opened. Incase of LC already opened, relevant
amendment has to done.
 LC to be restricted to suppliers credit providing bank under 41D clause of LC
 Under Payment Term: 90 days Usance payable at Sight (mention tenure according to
tenure and offer received)

21. Prepayment of Suppliers Credit
Technically yes, prepayment can be made to Usance LC subject to below condition is satisfied.
But as there will be loss of interest for overseas banks it will not accept reduced payment.
Even if they accept it will be with penal charges. Thus practically prepayment will not be
possible.
Extract from RBI Master Directions on Import of Goods and Services
(ii) In case of pre-payment of usance import bills, remittances may be made only after
reducing the proportionate interest for the unexpired portion of usance at the rate at which
interest has been claimed or LIBOR of the currency in which the goods have been invoiced,
whichever is applicable. Where interest is not separately claimed or expressly indicated,
remittances may be allowed after deducting the proportionate interest for the unexpired
portion of usance at the prevailing LIBOR of the currency of invoice.
RBI Regulations
Over the years there has been many changes in norms. Summary of current rules are given
below and for further details please refer article “RBI Trade Credit (Buyers Credit / Suppliers
Credit) Circular Extract“
 Maximum Amount Per transaction : $20 Million
 Above $20 Million, RBI Approval required.
 Maximum Maturity in case of import of non capital goods (Raw Material, Consumables,
Accessories, Spares, Components, and Parts etc.): up to 1 year from the date of shipment
or operating Cycle whichever is less.
 Maximum Maturity in case of import of capital goods : up to 5 years from the date of
shipment (Beyond 3 years banks are not allowed to provide Letter of Undertaking /
comfort)
 No Rollover / Extension will be permitted beyond permissible limits
 All-in-cost Ceilings: 6 Month Libor + 350 bps