TMI Blogdocuments Pre shipment and post ShipmentX X X X Extracts X X X X X X X X Extracts X X X X ..... Dear Sir, Have a nice day, Please specify Documents List of Pre-shipment and post-shipment for Expot - Import, What is the meaning of Pre Export and Post Export? Best Regards, Kalsariya Nilesh - Reply By KASTURI SETHI - The Reply = Sh.Nilesh Kalsariya Ji, Keeping in view of your higher qualification and designation in the company, these are very basic and simple terms for you. However, answer to all your queries are easily available on various websites. - Reply By Ganeshan Kalyani - The Reply = Yes there are Handbook on Import Export book is available in the bookstall which can be bought for preliminary understanding of what is export and import. I think in TMI you can raise you query I.e. if you have doubts in application of provision to carry out your work. Thank. - Reply By KASTURI SETHI - The Reply = Sh.Ganeshan Kalyani Ji, Yes Sir. I agree with you. You have echoed my views in refined way i.e. without the element of harshness in the expression/language. - Reply By CS SANJAY MALHOTRA - The Reply = Respected Sh. Kasturi ji, Well presented. You have placed the facts similar to what I have planned to share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . This is the platform for enriching / enhancing knowledge level to the core issues. Kind of participation which prevails at this platform and the legal opinion, I have seen the law makers to re-think what they meant while writing law and what actually the same is????? and above all at ZERO Cost. We should make use of core areas rather than Basics which one should be well enough to deal with.... - Reply By KASTURI SETHI - The Reply = SH.CS SANJAY MALHOTRA Ji, Sir, I was somewhat hesitant whether to express in such a way or not. I pondered over this too much. Thereafter, I listened to my inner voice thinking that I am going on right path.I mustered courage and expressed what was brewing in my mind. Now both you and Sh.Ganeshan Kalyani ji have expressed in a polished as well as neutral manner. These expressions have emboldened me.Thus, in other words my stand stands ratified. - Reply By Nilesh Kalsariya - The Reply = SH.KASTURI SETHI JI, Thanks for your Valuable reply, I know that we will get information from various website, but I don't get proper specification about Pre Export and Post Export, if possible then please solve my query about ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pre export and Post Export, Thanks Kalsariya Nilesh - Reply By YAGAY AND SUN - The Reply = Dear Nilesh, Pre Shipment Finance is issued by a financial institution when the seller want the payment of the goods before shipment. The main objectives behind preshipment finance or pre export finance is to enable exporter to: Procure raw materials. Carry out manufacturing process. Provide a secure warehouse for goods and raw materials. Process and pack the goods. Ship the goods to the buyers. Meet other financial cost of the business. Types of Pre Shipment Finance Packing Credit Advance against Cheques/Draft etc. representing Advance Payments. Preshipment finance is extended in the following forms : Packing Credit in Indian Rupee Packing Credit in Foreign Currency (PCFC) Requirment for Getting Packing Credit This facility is provided to an exporter who satisfies the following criteria A ten digit importerexporter code number allotted by DGFT. Exporter should not be in the caution list of RBI. If the goods to be exported are not under OGL (Open General Licence), the exporter should have the required license /quota permit to export the goods. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Packing credit facility can be provided to an exporter on production of the following evidences to the bank: Formal application for release the packing credit with undertaking to the effect that the exporter would be ship the goods within stipulated due date and submit the relevant shipping documents to the banks within prescribed time limit. Firm order or irrevocable L/C or original cable / fax / telex message exchange between the exporter and the buyer. Licence issued by DGFT if the goods to be exported fall under the restricted or canalized category. If the item falls under quota system, proper quota allotment proof needs to be submitted. The confirmed order received from the overseas buyer should reveal the information about the full name and address of the overseas buyer, description quantity and value of goods (FOB or CIF), destination port and the last date of payment. Eligibility Pre shipment credit is only issued to that exporter who has the export order in his own name. However, as an exception, financial institution can also grant credit to a third party manufacturer or supplier of goods who does not have export orders in their own name. In this case so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of the responsibilities of meeting the export requirements have been out sourced to them by the main exporter. In other cases where the export order is divided between two more than two exporters, pre shipment credit can be shared between them Quantum of Finance The Quantum of Finance is granted to an exporter against the LC or an expected order. The only guideline principle is the concept of NeedBased Finance. Banks determine the percentage of margin, depending on factors such as: The nature of Order. The nature of the commodity. The capability of exporter to bring in the requisite contribution. Different Stages of Pre Shipment Finance Appraisal and Sanction of Limits 1. Before making any an allowance for Credit facilities banks need to check the different aspects like product profile, political and economic details about country. Apart from these things, the bank also looks in to the status report of the prospective buyer, with whom the exporter proposes to do the business. To check all these information, banks can seek the help of institution like ECGC or International consulting agencies like Dun and Brad street etc. The Bank extended the packing credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t facilities after ensuring the following The exporter is a regular customer, a bona fide exporter and has a goods standing in the market. Whether the exporter has the necessary license and quota permit (as mentioned earlier) or not. Whether the country with which the exporter wants to deal is under the list of Restricted Cover Countries(RCC) or not. Disbursement of Packing Credit Advance 2. Once the proper sanctioning of the documents is done, bank ensures whether exporter has executed the list of documents mentioned earlier or not. Disbursement is normally allowed when all the documents are properly executed. Sometimes an exporter is not able to produce the export order at time of availing packing credit. So, in these cases, the bank provide a special packing credit facility and is known as Running Account Packing. Before disbursing the bank specifically check for the following particulars in the submitted documents Name of buyer Commodity to be exported Quantity Value (either CIF or FOB) Last date of shipment / negotiation. Any other terms to be complied with The quantum of finance is fixed depending on the FOB value of contract /LC or the domest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ic values of goods, whichever is found to be lower. Normally insurance and freight charged are considered at a later stage, when the goods are ready to be shipped. In this case disbursals are made only in stages and if possible not in cash. The payments are made directly to the supplier by drafts/bankers/cheques. The bank decides the duration of packing credit depending upon the time required by the exporter for processing of goods. The maximum duration of packing credit period is 180 days, however bank may provide a further 90 days extension on its own discretion, without referring to RBI. Follow up of Packing Credit Advance 3. Exporter needs to submit stock statement giving all the necessary information about the stocks. It is then used by the banks as a guarantee for securing the packing credit in advance. Bank also decides the rate of submission of this stocks. Apart from this, authorized dealers (banks) also physically inspect the stock at regular intervals. Liquidation of Packing Credit Advance 4. Packing Credit Advance needs be liquidated out of as the export proceeds of the relevant shipment, the reby converting preshipment credit into postshipment credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . This liquidation can also be done by the payment receivable from the Government of India and includes the duty drawback, payment from the Market Development Fund (MDF) of the Central Government or from any other relevant source. In case if the export does not take place then the entire advance can also be recovered at a certain interest rate. RBI has allowed some flexibility in to this regulation under which substitution of commodity or buyer can be allowed by a bank without any reference to RBI. Hence in effect the packing credit advance may be repaid by proceeds from export of the same or another commodity to the same or another buyer.However, bank need to ensure that the substitution is commercially necessary and unavoidable. Overdue Packing 5. Bank considers a packing credit as an overdue, if the borrower fails to liquidate the packing credit on the due date. And, if the condition persists then the bank takes the necessary step to recover its dues as per normal recovery procedure. Special Cases Packing Credit to Sub Supplier 1. Packing Credit can only be shared on the basis of disclaimer between the Export Order Holder (EOH) and the manufacturer of the goods. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This disclaimer is normally issued by the EOH in order to indicate that he is not availing any credit facility against the portion of the order transferred in the name of the manufacturer. This disclaimer is also signed by the bankers of EOH after which they have an option to open an inland L/C specifying the goods to be supplied to the EOH as a part of the export transaction. On basis of such an L/C, the subsupplier bank may grant a packing credit to the subsupplier to manufacture the components required for exports. On supply of goods, the L/C opening bank will pay to the sub supplier's bank against the inland documents received on the basis of the inland L/C opened by them. The final responsibility of EOH is to export the goods as per guidelines. Any delay in export order can bring EOH to penal provisions that can be issued anytime. The main objective of this method is to cover only the first stage of production cycles, and is not to be extended to cover supplies of raw material etc. Running account facility is not granted to subsuppliers. In case the EOH is a trading house, the facility is available commencing from the manufacturer to whom the order has been passed by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he trading house. Banks however, ensure that there is no double financing and the total period of packing credit does not exceed the actual cycle of production of the commodity. Running Account facility 2. It is a special facility under which a bank has right to grant preshipment advance for export to the exporter of any origin. Sometimes banks also extent these facilities depending upon the good track record of the exporter. In return the exporter needs to produce the letter of credit / firms export order within a given period of time. Preshipment Credit in Foreign Currency (PCFC) 3. Authorised dealers are permitted to extend Preshipment Credit in Foreign Currency (PCFC) with an objective of making the credit available to the exporters at internationally competitive price.This is considered as an added advantage under which credit is provided in foreign currency in order to facilitate the purchase of raw material after fulfilling the basic export orders. The rate of interest on PCFC is linked to London Interbank Offered Rate (LIBOR). According to guidelines, the final cost of exporter must not exceed 0.75% over 6 month LIBOR, excluding the tax. The exporter has freed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om to avail PCFC in convertible currencies like USD, Pound, Sterling, Euro, Yen etc. However, the risk associated with the cross currency truncation is that of the exporter. The sources of funds for the banks for extending PCFC facility include the Foreign Currency balances available with the Bank in Exchange, Earner Foreign Currency Account (EEFC), Resident Foreign Currency Accounts RFC(D) and Foreign Currency(NonResident) Accounts. Banks are also permitted to utilize the foreign currency balances available under Escrow account and Exporters Foreign Currency accounts. It ensures that the requirement of funds by the account holders for permissible transactions is met. But the limit prescribed for maintaining maximum balance in the account is not exceeded. In addition, Banks may arrange for borrowings from abroad. Banks may negotiate terms of credit with overseas bank for the purpose of grant of PCFC to exporters, without the prior approval of RBI, provided the rate of interest on borrowing does not exceed 0.75% over 6 month LIBOR. Packing Credit Facilities to Deemed Exports 4. Deemed exports made to multilateral funds aided projects and programmes, under orders secured throug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h global tenders for which payments will be made in free foreign exchange, are eligible for concessional rate of interest facility both at pre and post supply stages. Packing Credit facilities for Consulting Services 5. In case of consultancy services, exports do not involve physical movement of goods out of Indian Customs Territory. In such cases, Preshipment finance can be provided by the bank to allow the exporter to mobilize resources like technical personnel and training them. Advance against Cheque/Drafts received as advance payment 6. Where exporters receive direct payments from abroad by means of cheques/drafts etc. the bank may grant export credit at concessional rate to the exporters of goods track record, till the time of realization of the proceeds of the cheques or draft etc. The Banks however, must satisfy themselves that the proceeds are against an export order. Introduction Post Shipment Finance is a kind of loan provided by a financial institution to an exporter or seller against a shipment that has already been made. This type of export finance is granted from the date of extending the credit after shipment of the goods to the realization date of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e exporter proceeds. Exporters don t wait for the importer to deposit the funds. Basic Features The features of postshipment finance are: Purpose of Finance Postshipment finance is meant to finance export sales receivable after the date of shipment of goods to the date of realization of exports proceeds. In cases of deemed exports, it is extended to finance receivable against supplies made to designated agencies. Basis of Finance Postshipment finances is provided against evidence of shipment of goods or supplies made to the importer or seller or any other designated agency. Types of Finance Postshipment finance can be secured or unsecured. Since the finance is extended against evidence of export shipment and bank obtains the documents of title of goods, the finance is normally self liquidating. In that case it involves advance against undrawn balance, and is usually unsecured in nature. Further, the finance is mostly a funded advance. In few cases, such as financing of project exports, the issue of guarantee (retention money guarantees) is involved and the financing is not funded in nature. Quantum of Finance As a quantum of finance, postshipment finance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can be extended up to 100% of the invoice value of goods. In special cases, where the domestic value of the goods increases the value of the exporter order, finance for a price difference can also be extended and the price difference is covered by the government. This type of finance is not extended in case of preshipment stage. Banks can also finance undrawn balance. In such cases banks are free to stipulate margin requirements as per their usual lending norm. Period of Finance Postshipment finance can be off short terms or long term, depending on the payment terms offered by the exporter to the overseas importer. In case of cash exports, the maximum period allowed for realization of exports proceeds is six months from the date of shipment. Concessive rate of interest is available for a highest period of 180 days, opening from the date of surrender of documents. Usually, the documents need to be submitted within 21days from the date of shipment. Financing For Various Types of Export Buyer's Credit Postshipment finance can be provided for three types of export : Physical exports: Finance is provided to the actual exporter or to the exporter in whose name the tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade documents are transferred. Deemed export: Finance is provided to the supplier of the goods which are supplied to the designated agencies. Capital goods and project exports: Finance is sometimes extended in the name of overseas buyer. The disbursal of money is directly made to the domestic exporter. Supplier's Credit Buyer's Credit is a special type of loan that a bank offers to the buyers for large scale purchasing under a contract. Once the bank approved loans to the buyer, the seller shoulders all or part of the interests incurred. Types of Post Shipment Finance The post shipment finance can be classified as : Export Bills purchased/discounted. Export Bills negotiated Advance against export bills sent on collection basis. Advance against export on consignment basis Advance against undrawn balance on exports Advance against claims of Duty Drawback. 1. Export Bills Purchased/ Discounted.(DP DA Bills) Export bills (Non L/C Bills) is used in terms of sale contract/ order may be discounted or purchased by the banks. It is used in indisputable international trade transactions and the proper limit has to be sanctioned to the exporter for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchase of export bill facility. 2. Export Bills Negotiated (Bill under L/C) The risk of payment is less under the LC, as the issuing bank makes sure the payment. The risk is further reduced, if a bank guarantees the payments by confirming the LC. Because of the inborn security available in this method, banks often become ready to extend the finance against bills under LC. However, this arises two major risk factors for the banks: The risk of nonperformance by the exporter, when he is unable to meet his terms and conditions. In this case, the issuing banks do not honor the letter of credit. The bank also faces the documentary risk where the issuing bank refuses to honour its commitment. So, it is important for the for the negotiating bank, and the lending bank to properly check all the necessary documents before submission. 3. Advance Against Export Bills Sent on Collection Basis Bills can only be sent on collection basis, if the bills drawn under LC have some discrepancies. Sometimes exporter requests the bill to be sent on the collection basis, anticipating the strengthening of foreign currency. Banks may allow advance against these collection bills to an exporter w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith a concessional rates of interest depending upon the transit period in case of DP Bills and transit period plus usance period in case of usance bill. The transit period is from the date of acceptance of the export documents at the banks branch for collection and not from the date of advance. 4. Advance Against Export on Consignments Basis Bank may choose to finance when the goods are exported on consignment basis at the risk of the exporter for sale and eventual payment of sale proceeds to him by the consignee. However, in this case bank instructs the overseas bank to deliver the document only against trust receipt /undertaking to deliver the sale proceeds by specified date, which should be within the prescribed date even if according to the practice in certain trades a bill for part of the estimated value is drawn in advance against the exports. In case of export through approved Indian owned warehouses abroad the times limit for realization is 15 months. 5. Advance against Undrawn Balance It is a very common practice in export to leave small part undrawn for payment after adjustment due to difference in rates, weight, quality etc. Banks do finance against the undrawn bal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance, if undrawn balance is in conformity with the normal level of balance left undrawn in the particular line of export, subject to a maximum of 10 percent of the export value. An undertaking is also obtained from the exporter that he will, within 6 months from due date of payment or the date of shipment of the goods, whichever is earlier surrender balance proceeds of the shipment. 6. Advance Against Claims of Duty Drawback Duty Drawback is a type of discount given to the exporter in his own country. This discount is given only, if the inhouse cost of production is higher in relation to international price. This type of financial support helps the exporter to fight successfully in the international markets. In such a situation, banks grants advances to exporters at lower rate of interest for a maximum period of 90 days. These are granted only if other types of export finance are also extended to the exporter by the same bank. After the shipment, the exporters lodge their claims, supported by the relevant documents to the relevant government authorities. These claims are processed and eligible amount is disbursed after making sure that the bank is authorized to receive the cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im amount directly from the concerned government authorities. Crystallization of Overdue Export Bills Exporter foreign exchange is converted into Rupee liability, if the export bill purchase / negotiated /discounted is not realize on due date. This conversion occurs on the 30th day after expiry of the NTP in case of unpaid DP bills and on 30th day after national due date in case of DA bills, at prevailing TT selling rate ruling on the day of crystallization, or the original bill buying rate, whichever is higher. Regards, YAGAY and SUN (Managemet, Business and Indirect Tax Consultants) - Reply By Mahir S - The Reply = Nileshji, Rule 18 of Central Excise Rules 2002 explains export as under :- 1 [Explanation. - For the purposes of this rule, export , with its grammatical variations and cognate expressions, means taking goods out of India to a place outside India and includes shipment of goods as provision or stores for use on board a ship proceeding to a foreign port or supplied to a foreign going aircraft.] Hence, export means when goods leave India territory i.e. when goods leaves the Indian territorial water. Therefore, pre-export refers to all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activities such as procuring export order, manufacturing/ purchase of goods, packing, transportation, shipping bills preparation, loading of goods on ship etc. and sailing of ship outside Indian territorial water. Post export refers to all activities after goods are exported out of India i.e. after the goods leaves Indian territorial water such as Insurance, Bill of Lading, unloading at place of export, transportation , receipt of export payments etc. and all such activities till goods are received by the importer. - Reply By Nilesh Kalsariya - The Reply = How can Preparing CT1 after confirmation of PO and PI My client do not have Excise Registration. Client purchase materials, apply for CT1 and provide it to the Vendor. Thanks Kalsariya Nilesh - Reply By Nilesh Kalsariya - The Reply = How can Preparing CT1 after confirmation of PO and PI My client do not have Excise Registration. Client purchase materials, apply for CT1 and provide it to the Vendor. Thanks Kalsariya Nilesh - Reply By KASTURI SETHI - The Reply = Pl. go through Annexure-17 and Annexure 28 A available in Central Excise manual. The exporter has to get himself registered with Central Exci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se Department. - documents Pre shipment and post Shipment - Query Started By: - Nilesh Kalsariya Dated:- 15-2-2016 Customs - Import - Export - Customs - SEZ - Got 11 Replies - Customs - Discussion Forum - Knowledge Sharing, reply post by an expert, personal opinion Tax Management India - taxmanagementindia - taxmanagement - taxmanagementindia.com - TMI - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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