Introduction to Export Process
- Definition: Exports involve transactions of goods and services from residents to non-residents, including sales, barter, gifts, or grants. This excludes non-trade-related transactions such as internal transfers or certain informal trades.
- Exports: The transfer of goods and services from one country to another. This includes sales, barter, gifts, or grants from residents (sellers) to non-residents (buyers). Non-trade-related transactions like internal transfers or informal trades are excluded.
Basic Understanding of Exporting
- Concept: Exporting refers to sending goods and services internationally. The exporter is based in India, while the importer is abroad. The process requires adherence to customs regulations and trade laws.
- Exporting: The process of selling goods and services from one country (India) to another (abroad). The exporter is the seller based in India, while the importer is the buyer based internationally. Compliance with international trade regulations and customs laws is essential.
Sale Terms:
- Description: A sales arrangement where goods are sent to the buyer, but payment is made after the goods are sold. The seller retains ownership until the goods are sold.
- Risk: High for the seller as there is a risk of non-payment or delayed payment.
- Description: The buyer pays for the goods before they are shipped. This arrangement reduces the seller's risk as payment is secured before shipment.
- Advantage: Minimizes financial risk for the seller.
Down Payment Export Sale:
- Description: A sales arrangement where the buyer makes a partial payment at the time of contract signing, with the remaining amount due later.
- Advantage: Shares financial risk between the buyer and seller, providing partial security to the seller.
- Description: The buyer pays for the goods at a later date without any negotiable instrument. The seller ships the goods and expects payment at a future date.
- Risk: Higher for the seller, as it relies on the buyer’s commitment and trust.
- Description: A payment method where the payment is handled through banks via document exchange: CAD (Cash Against Documents): Documents are released to the buyer only upon payment. CAA (Cash Against Acceptance): Documents are released upon acceptance of a draft or promise of payment.
- Advantage: Provides moderate security compared to open accounts.
- Description: A financial instrument issued by a bank guaranteeing payment to the seller upon meeting the terms specified in the LC. It offers payment assurance to the seller.
- Advantage: Provides strong security for both buyer and seller, minimizing risk.
Export Sale Documents
- Definition: A detailed statement of the sale that includes descriptions, quantities, prices, and terms of the sale. It is used for customs clearance and payment.
- Definition: A detailed list that describes the contents, packaging, and handling instructions of the shipment. It is used to verify the goods being shipped.
- Definition: A transport document issued by the carrier to acknowledge receipt of goods for shipment. It serves as proof of shipment and a contract for transportation.
- Definition: A document required for export clearance that provides details about the goods being shipped and their destination.
- Definition: A transport document used for air freight, similar to a bill of lading but specifically for air transport. It acts as a receipt and contract of carriage.
- Definition: A document certifying the country where the goods were produced. It is required by customs authorities in the importing country.
- Definition: An application form used for the removal of excisable goods for export. It is required for exports involving excisable goods.
- Definition: A document that provides a report on the quality, composition, or specifications of the goods. It is used to verify the product’s compliance with standards.
- Definition: Permits required for exporting controlled or restricted goods. They ensure compliance with national and international regulations.
Steps / Process Flow Chart
- Sales Contract: A formal agreement outlining the terms of the sale between the exporter and importer.
- LC Receiving Entry: Recording the Letter of Credit received from the buyer’s bank.
- Delivery Order: Instructions for dispatching the goods from the exporter to the importer.
- Other Expenses Details: Document any additional costs incurred during the export process.
- Sales Invoice / Despatch Challan: An invoice detailing the goods sold, or a despatch challan indicating the dispatch of goods.
- Invoice Approval & Account Posting: Confirming and recording the sales invoice in the exporter’s accounts.
- ARE-I: Applying for removal of GST goods for export.
- Commercial Invoice / Provisional Commercial Invoice: Issuing a detailed invoice or a preliminary invoice for customs and payment.
- Performa Invoice / Final Commercial Invoice: Issuing either a preliminary or final invoice for the sale.
- LC Bill Discounting / Bill of Exchange: Financial transactions under the Letter of Credit, including bill discounting.
- LC Bill Discounting Confirmation by Bank: Confirmation from the bank regarding the bill discounting.
- LC Clearing: The process of settling the Letter of Credit with the bank.
- Extra Expenses Linking with Commercial Invoice: Adding and recording any extra expenses associated with the export.
- Sales Contract: Formal agreement on sale terms.
- Delivery Order: Instructions for dispatching the goods.
- Other Expenses Details: Documentation of additional costs.
- Sales Invoice / Despatch Challan: Invoice or despatch challan detailing the goods sold.
- Invoice Approval & Account Posting: Confirming and recording the invoice.
- ARE-I: Applying for removal of GST goods for export.
- Commercial Invoice: Detailed invoice for the goods.
- Extra Expenses Linking with Commercial Invoice: Recording additional expenses associated with the export.
- Record Sales Contract: Documentation of the sales agreement or order.
- Under Bond Export: Exporting goods with them stored in bonded warehouses, where duties are deferred.
- Deemed Export Sale: Goods sold through third parties or in duty-free zones.
- Dispatch Instructions: Provides instructions for the dispatch of goods, including quality control parameters if applicable.
Sales Invoice or Despatch Challan
- Document Sales: Records sales transactions and ARE-I entries. For SEZ sales, link with CT and issue CT forms.
ARE (Application for Removal of Excisable Goods for Export)
- ARE-I: For direct exports and goods stored in bonded warehouses.
- ARE-II: For duty-paid sales where refunds or rebates are applicable.
- ARE-III: For deemed exports or third-party exports.
- Invoice for Exports: Used to document the sale of goods for export and may include quality control deductions.
Custom Department Involvement
- Compliance and Verification: Ensures all export regulations are met, verifies documentation, and facilitates the movement of goods.
- Documentation Verification: Customs reviews and verifies documents such as shipping bills and invoices.
- Clearance: Goods must be cleared by customs, ensuring all duties and taxes are settled.
- Duty Payment: Duties and taxes are paid based on the value of the exported goods and applicable rates.
- Duty Payment: Payment of export duties at the time of export.
- Documentation: Includes proof of duty payment like ARE-II forms for claiming refunds.
- Refunds: Exporters may claim refunds of duties paid through schemes like Duty Drawback.
- Duty Exemption: Exports where no duties are paid, or duties are exempted.
- Duty Exemption: Goods exported under schemes like SEZ or under bond may be exempt from duties.
- Documentation: Specific forms such as ARE-I or ARE-III must be filed.
- Compliance: Exporters must follow regulations to ensure compliance with duty-free status.
- Refunds on Inputs: Provides refunds for duties and taxes on inputs used to produce exported goods.
- For Duties Paid: Available for exporters who have paid duties on inputs used in the production of export items.
- Application: Submit an application with supporting documents to customs authorities.
- Assessment: Customs assesses the claim and processes the refund based on eligibility criteria.
Other Export Schemes by Indian Government
Merchandise Exports from India Scheme (MEIS):
- Purpose: Offers duty scrips to exporters of specified goods and services, which can be used to offset duties on imports.
- Eligibility: Available to all sectors except those excluded by the scheme’s guidelines.
Remission of Duties or Taxes on Export Products (RoDTEP):
- Purpose: Refund duties and taxes on exported products, replacing the MEIS scheme.
- Eligibility: Applies to a broad range of products, with specific conditions for refunds.
Export Promotion Capital Goods Scheme (EPCG):
- Purpose: Allows import of capital goods at reduced duties to facilitate production for export.
- Eligibility: Available to exporters who meet specific criteria and commit to a minimum percentage of their production for export.
FPS (Focus Product Scheme) License
- Duty Scrips: Promotes exports of specific products by providing duty scrips.
- For Specified Products: Available for exporters of products specified under the FPS guidelines.
- Application: Apply for the FPS license through the Directorate General of Foreign Trade (DGFT).
- Issuance: DGFT issues the license based on the exporter’s compliance with the eligibility criteria and export performance.
Global Jargon and Export-Related Freight Terms
- Definition: The seller delivers goods to a port and is responsible for costs and risks until the goods are on board the vessel. After that, the buyer assumes responsibility.
CIF (Cost, Insurance, and Freight):
- Definition: The seller covers costs, insurance, and freight to the destination port. Risk transfers to the buyer once goods are onboarding the vessel.
- Definition: The seller pays for transportation to the destination port. Risk transfers once the goods are on board.
- Definition: The seller makes goods available at their premises. The buyer bears all costs and risks from the seller’s premises.
DDP (Delivered Duty Paid):
- Definition: The seller assumes all costs and risks, including duties, until the goods are delivered to the buyer’s premises.
DAP (Delivered at Place):
- Definition: The seller delivers goods to a specified destination. The buyer assumes costs and risks from that point onward.
DAF (Delivered at Frontier):
- Definition: The seller delivers goods to a border or frontier, with costs and risks transferring to the buyer from the frontier.
- Definition: The seller delivers goods to a carrier specified by the buyer. Costs and risks transfer once the goods are handed over to the carrier.
FAS (Free Alongside Ship):
- Definition: The seller delivers goods alongside the ship at the port of shipment. Costs and risks transfer once the goods are alongside the ship.
- Definition: A transport document that acknowledges receipt of goods for shipment and acts as a contract for carriage.
- Definition: A document used for air cargo that serves as a receipt and contract of carriage.
- Definition: A document required for clearing goods through customs, detailing the type, value, and origin of the goods.
Harmonized System (HS) Code:
- Definition: An international standard for classifying traded products, facilitating customs procedures and trade statistics.
Incoterms (International Commercial Terms):
- Definition: Standardized trade terms defining the responsibilities of buyers and sellers in international transactions.
Export Process with Duty Payment and Refund Schemes
- Duty Payment: Duties are paid based on the value of the exported goods and applicable rates.
- Documentation: Proof of payment, such as ARE-II forms.
- Refund Process: Apply for refunds under schemes like Duty Drawback if applicable.
- Duty Exemption: Exports under schemes like SEZ or bond are exempt from duties.
- Documentation: Specific forms like ARE-I or ARE-III are required.
- Compliance: Adhere to regulations to maintain duty-free status and ensure proper documentation.
GST (Goods and Services Tax) regarding export, along with e-way bill and e-invoice requirements for export sales:
- Export of Goods: Exempt from GST. Exports are considered "zero-rated," meaning no GST is charged, but exporters can claim a refund on input tax credit (ITC) on inputs used in the production of exported goods.
- Procedure: Exporters can claim a refund of GST paid on inputs and input services under the zero-rated supply provisions. Refunds are processed through the GST portal.
- Documents Required: GST refund claim must be supported by relevant documents like shipping bills, export invoices, and proof of foreign exchange remittance.
- Filing: Exporters need to file GST returns, including GSTR-1 (outward supply details) and GSTR-3B (summary of outward and inward supplies). Export sales should be reported with a zero-rated supply status in these returns.
E-Way Bill for Export Sales
- E-Way Bill: Not required for export transactions as goods are being transported out of India. However, if the exporter is moving goods within India before export, an e-way bill may be required for internal transport.
- Generation: The e-way bill is generated through the GST portal if required. The exporter must provide details of the consignment, including transport information and invoice details.
- Documentation: Keep a copy of the e-way bill along with other export documents in case of any inspection or audit.
E-Invoice for Export Sales
- E-Invoice: Not mandatory for all exporters, but those whose turnover exceeds the prescribed limit must comply with the e-invoicing system. The e-invoice system facilitates the electronic generation of invoices.
- Generation: E-invoices are generated and validated through the GST portal or the GST Network (GSTN) and must be registered with IRP (Invoice Registration Portal).
- Documentation: After successful registration, the e-invoice will be assigned a unique Invoice Reference Number (IRN) and a QR code. The exporter must issue e-invoices for their export transactions as per the applicable GST rules.
- Exempt from GST but eligible for ITC refund.
- Must file GST returns with zero-rated export sales.
- Not required for exports but needed for internal movement within India before export if applicable.
- Mandatory for larger exporters.
- Requires electronic generation and validation through the GST system.
Ensure compliance with all documentation and procedural requirements to facilitate smooth export operations and avoid issues with tax authorities.
