OFFSETTING OF EXPORT PROCEEDS

[Mr. M. GOVINDARAJAN]

Circular No. 47, dated 17.11.2011

Reserve Bank of India, vide No. RBI/2011-12/264 - AP (Dir Series) Circular No. 47, dated 17.11.2011, liberalized the procedure of ‘set off’ of export receivables against import payable.  The Reserve Bank of India considered the requests from the exporters through their AD branches for set off of export receivables against import payables.  The Reserve Bank of India, as a measure of liberalization, decided to delegate the power to AD - Category - I banks to deal with the cases of set off export receivables against import payables subject to the fulfillment of the following conditions-

• The import is as per the Foreign Trade Policy in force.
• 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.
• Payment for the import is still outstanding in the books of the importer.
• Both the transactions of sale and purchase may be reported separately in ‘R’ Returns.
• The relative GR forms will be released by the AD bank only after the entire export proceeds are adjusted / received.
• 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.
• The export / import transactions with ACU countries should be kept outside the arrangement.
• All the relevant documents are submitted to the concerned AD bank who should comply with all the regulatory requirements relating to the transactions.

Circular No. 8, dated 04.12.2020

After this the Reserve Bank of India received requests from AD Banks on behalf of their Importer/Exporter constituents, for allowing such set-off with their overseas group/associate companies either on net basis or gross basis, through an in-house or outsourced centralized settlement arrangement.  The Reserve Bank of India considered the requests of AD Banks and delegated powers to AD Banks to consider such requests of set-off, and the revised guidelines, in supersession of the instructions contained in circular A.P. (DIR Series) Circular No 47 dated November 17, 2011 vide Para No. 3 of A.P. (DIR Series) Circular No. 8 dated 04.12.2020.

According to the above said circular, The AD bank may allow set-off of outstanding export receivables against outstanding import payables, subject to the following conditions:

• The arrangement shall be operationalized/supervised through/by one AD bank only;
• AD bank is satisfied with the bona fides of the transactions and ensures that there are no KYC/AML/CFT concerns;
• The invoices under the transaction are not under investigation by Directorate of Enforcement/Central Bureau of Investigation or any other investigative agency;
• Import/export of goods/services has been undertaken as per the extant Foreign Trade policy
• The export / import transactions with ACU countries are kept outside the arrangement;
• Set-off of export receivables against goods shall not be allowed against import payables for services and vice versa.
• AD bank shall ensure that import payables/export receivables are outstanding at the time of allowing set-off. Further, set-off shall be allowed between the export and import legs taking place during the same calendar year.
• In case of bilateral settlement, the set-off shall be in respect of same overseas buyer/supplier subject to it being supported by verifiable agreement/mutual consent.
• In case of settlement within the group/associates companies, the arrangement shall be backed by a written, legally enforceable agreement/contract. AD bank shall ensure that the terms of agreement are strictly adhered to;
• Set-off shall not result in tax evasion/avoidance by any of the entities involved in such arrangement.
• Third party guidelines shall be adhered to by the concerned entities, wherever applicable;
• AD bank shall ensure compliance with all the regulatory requirement relating to the transactions;
• AD bank may seek Auditors/CA certificate wherever felt necessary.
• Each of the export and import transaction shall be reported separately (gross basis) in FETERS/EDPMS/IDPMS, as applicable
• AD bank to settle the transaction in E/IDPMS by utilizing the ‘set-off indicator’ and mentioning the details of shipping bills/bill of entry/invoice details being settled in the remark column (including details of entities involved).

New Foreign Trade Policy

The Central Government issued revised Foreign Trade Policy, 2023 and Foreign Trade Policy Procedure, 2023 with effect from 01.04.2023. 

Para 2.74 of Foreign Trade Policy, Procedure, 2023, dealing with offsetting of export proceeds, provides that subject to specific approval of RBI, any payables, or equity investment made by an Authorization holder under any export promotion scheme, can be used to offset receipts of his export proceeds. In such cases, offsetting would be equal to realization of export proceeds and exporter would have to submit following additional documents:

• Appendix-2L in lieu of Bank Realization Certificate.
• Specific permission of RBI.

Now the Reserve bank of India requires its own specific permission for offsetting of export proceeds. 

Appendix - 2L

This form has been introduced in Foreign Trade Policy Procedure, 2023, in lieu of Bank Realization Report.  The Certificate contains four parts.  In first part the details of exporter are to be given as detailed below-

• Name of the exporter;
• Address of the exporter;
• Import Export Code Number;
• E-mail of the applicant.

The second part contains requires the applicant to specify the specific mode of offsetting from the following-

• Import Payables;
• Equity Investment;
• Loan Repayment;
• Dividend Repayment;
• Others (Provide details).

In the third part the applicant is to furnish the following export details-

• Invoice Number and date;
• Shipping bill Number and date against which offset has been done;
• Description of goods;
• Scheme under which off-setting undertaken;
• Amount off setted (in free foreign exchange);
• Date of offsetting.

In the fourth part the applicant is to give the following declarations/undertakings-

• to declare that the particulars and the statements made in the application are true and correct to the best of his/her knowledge and belief and nothing has been concealed or held there from;
• he/she fully understand that any information furnished in the application if proved incorrect or false will render him/her liable for any penal action or other consequences as may be prescribed in law or otherwise warranted;
• to abide by the provisions of the Foreign Trade (Development and Regulation) Act, 1992, the Rules and Orders framed there under, the Export and Import Policy, Handbook of Procedures and any other documents issued under the Policy;
• to certify that he/she is authorized to verify and sign this declaration as per Paragraph 9.6 of the Policy;
• to certify that none of the Proprietor/ Partner(s)/ Director(s)/Karta of the firm or company is a Proprietor/ Partner(s)/ Director(s)/Karta of the firm/Company, which has come to the adverse notice of DGFT.
• to certify that the RBI permission vide letter no.________ dated _______ has been obtained for the said offsetting of export proceeds realized under ________ scheme.

Certificate of professional

Along with the above said application, a certificate of Chartered Accountant/Cost Accountant shall be submitted in lieu of the Bank Certificate of Exports and Realization.  The following documents are to be submitted by the applicant to Chartered Accountant/Cost Accountant and the Chartered Accountant/Cost Accountant is to examine and verify the said documents-

• Export order/ Contract, shipping bills, Bill of Lading (and/ or Airways Bills/ Receipts). Customs/Bank attested Invoices,

The professional is to verify that the offsetting has been carried out with the specific consent of the Reserve Bank of India as contained in letter no.________ dated ______ and is in accordance with the rules/regulations in force.  The professional shall ensure that the information furnished is true and correct in all respect; no part of it is false or misleading and no relevant information has been concealed or withheld.

The concerned professional or any of his/her partners/director is a partner, director, or an employee of the above-named entity or its associated concerns.  Any statement made in this certificate, if proved incorrect or false, will render the professional liable for any penal or other consequences as may be prescribed in law or otherwise warranted.

The following documents are to be attached with the  above said certificate-

• Specific permission of the Reserve Bank of India
• Letter from the parent company/buyer etc. indicating the proposal for offsetting of export proceeds.