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General Provisions Regarding Exports

Frequently Asked Question (FAQ)
General Provisions Regarding Exports

Question: What is the value addition requirement for re-exports to Iran of an imported goods in the same form from another country?

Re–exports of goods to Iran which have been imported against payment in freely convertible currency is permitted against payment in Indian Rupees, subject to at least 15% value addition. However, re-export of food, medicine and medical equipments is not subject to minimum value addition requirement. The ITC (HS) codes for these goods will cover Chapters 2, 3, 4, 7-11 and Chapters 15-21, 23, 30 and only Headings 9018, 9019, 9020, 9021 & 9022 of Chapter-90 of ITC (HS) subject to all conditions of FTP 2009-14 and ITC(HS) 2012 as applicable.



Question: We have been earnestly trying to develop third country export relations with some potential clients in Iran, please clarify whether (a)We shall be importing in hard currencies and exporting in Indian Rupees with a value addition of 15%& but want to kno

The point wise reply is as follows: (a) Government of India is concerned with 15% value addition which means that the net inflow out of the transaction should be 15% of different between FOB value of exports and CIF value of imports. This also means that you can provide higher value addition and can retain more than 15%. However, if you have other cost added to the above formula (FOB of exports –CIF of imports/CIF of imports x 100%), you may have lesser profit for you.

Question: Since these are Imports for the purpose of re-exports to Iran with value prescribed addition, would we be entitled for duty free imports? And Will there be a need of Advance license or the duty drawback shall be available?

Since the provision is for imports on re-export basis in the same or substantially the same form, Advance License or other duty free instrument which is given for import of inputs against exports of finished products would not be available. However, you can import under a Customs Bond and re-export from the same without paying any duty. As stated above, Advance authorization would not be available but you can get a certain percentage of duty drawback of the duty paid by you depending upon the time taken in its re-exports. However, I would suggest toconsider imports under a Customs Bonded Warehouse duty free from where you can re-export.

Question: What are the changes made in Merchanting Trade guidelines recently?

The following are the important changes made by RBI on 28th March,2014:

  • In case advance against the export leg is received by the merchanting trader, bank should ensure that the same is earmarked for making payment for the respective import leg. However,  bank may allow short-term deployment of such funds for the intervening period in an interest bearing account ;
  • Merchanting traders may be allowed to make advance payment for the import leg on demand made by the overseas seller. In case where inward remittance from the overseas buyer is not received before the outward remittance to the overseas supplier,  bank may handle such transactions by providing facility based on commercial judgement. It may, however, be ensured that any such advance payment for the import leg beyond USD 200,000/- per transaction, the same should be paid against bank guarantee / LC from an international bank of repute except in cases and to the extent where payment for export leg has been received in advance ;
  • Letter of credit to the supplier is permitted against confirmed export order keeping in view the outlay and completion of the transaction within nine months ;
  • Payment for import leg may also be allowed to be made out of the balances in Exchange Earners Foreign Currency Account (EEFC) of the merchant trader.
  • The names of defaulting merchanting traders, where outstandings reach 5% of their annual export earnings, would be caution-listed.
Question: Can an Indian company invoice in Indian Rupee? Will such company be eligible for exports benefits?

As per para 2.52 FTP 2015-20, all export contracts and invoices shall be denominated either in freely convertible currency or Indian rupees but export proceeds shall be realized in freely convertible currency. However, export proceeds against specific exports may also be realized in rupees, provided it is through a freely convertible Vostro account of a non resident bank situated in any country other than a member country of Asian Clearing Union (ACU) or Nepal or Bhutan. Additionally, rupee payment through Vostro account must be against payment in free foreign currency by buyer in his non-resident bank account. Free foreign exchange remitted by buyer to his non-resident bank (after deducting bank service charges) on account of this transaction would be taken as export realization under export promotion schemes of FTP.

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