External Trade: Procedure for Export Trade, Credit Enquiry, Excise Clearance and Formalities to be Completed by Forwarding Agent (For CBSE, ICSE, IAS, NET, NRA 2022)

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Procedure for Export Trade

The procedure generally adopted for exporting goods to a foreign country is as follows:

Procedure for Export Trade

Receipt of Enquiry and Sending Quotations

The importer of goods first sends an enquiry to different exporters requesting them to send information about price, quality, terms of payment etc. In reply to the enquiry, the exporters then send the quotation mentioning details about the products, price, quality, mode of delivery.

Receipt of an Indent or Export Order

If the prospective importer finds the terms and conditions acceptable, then he places an order for export of goods which is known as indent. An indent contains a description of the goods ordered, price to be paid, terms and conditions of delivery, packing of goods.

Credit Enquiry

The exporter must ensure that there is no risk of default in payment. He should verify the credit worthiness of the importer. For this purpose, he may ask the importer to send a letter of credit, bank guarantee or any other guarantee.

Obtaining Export Licence

Each and every country has its own import and export policy for free goods and restricted goods. An exporter in India has to complete various formalities and apply for export license to the appropriate authority. If the authority is satisfied it will issue the export license. To get an export license, the exporter must have

  • An IEC numbers
  • RCMC from appropriate export promotion council.
  • Registration with Export Credit and Guarantee Corporation (ECGC) . The registration with ECGC safeguards against risk of non-payments.

Production or Procurement of Goods

The exporter has to produce the goods or buy them from the market. The goods must be in accordance with the instructions given in the indent regarding the quality, quantity, price, etc.

Pre-Shipment Inspection

To ensure that only good quality products are exported from our country, the Government of India has made compulsory pre-shipment inspection of goods by certain authorised agencies.

Excise Clearance

In India, manufactured products are subject to excise duty under the Central Excise Act. Therefore, excise clearance certificate is a must for the goods to be exported. It may be noted here that the Government of India has exempted excise duty in many cases if the goods are manufactured exclusively for the purpose of export.

Packing and Marking of the Goods

Packing should be done strictly according to the instructions given in the indent. If loss arises due to defective packing, the exporter may have to bear it.

Appointment of Forwarding Agent

Packed goods may be despatched to the port directly by the exporter or through a forwarding agent. If the goods are stored in any location, the exporter may appoint a forwarding agent who will perform all the formalities on behalf of the exporter before shipping the goods.

Despatch of Goods by Rail/Road

The exporter has to despatch the goods by rail/road to the port town. He will send the R/R (railway receipt) to the forwarding agent along with other instructions. The agent will take delivery of the goods and complete other formalities before shipping them to the importer.

Formalities to be Completed by Forwarding Agent

Obtaining the Custom Permit

The agent has to apply to the custom office giving full details of the goods and also their destination in order to receive the custom permit. If goods are duty free then custom permit is given immediately, otherwise it will be necessary to complete other formalities.

Obtaining Shipping Order

The agent has to secure adequate space in the ship for loading of goods. For this purpose, he has to sign an agreement with the shipping company for issue of the shipping order which will enable him to put the goods in the ship.

Completion of Shipping Bill and Payment of Export Duty

The Agent has to fill in three copies of shipping bill and submit them to the customhouse. On the basis of the bill, duty is calculated by the custom authority. The agent has to make payment of the duty and get the original and third copy of the Shipping Bill from the custom authority.

Payment of Dock Dues

The agent has to make arrangement for carrying the goods to the dock. For this purpose, two copies of properly completed ‘Dock Challan’ are submitted to the dock authorities along with one copy each of shipping bill and shipping order. After dock charges are received, the dock authorities retain one copy of dock challan and return the duly signed second copy to the agent.

Custom՚s Verification Before Loading of Goods

As soon as the ship touches the port, the dock authorities start loading the goods on it. Before the goods are actually loaded, custom officials verify them to know if there is anything on which duty remains to be paid or which is not mentioned in the shipping bill. The captain or his assistant (mate) will receive goods only when shipping order has been produced before him.

Mate՚s Receipt

The captain or mate will issue a receipt known as “mates՚ receipt” after the goods have been loaded. This receipt contains particulars like quantity of goods, number of packets, condition of packing, etc.

Bill of Lading

The forwarding agent has to present the mate՚s receipt at the office of the shipping company and in exchange will get a document known as Bill of Lading. He has to fill in three blank forms of bills of lading giving details regarding the goods, destination, name of the ship, date and place of loading and name and address of the person to whom delivery is to be made. If the freight is paid in advance the bill of lading is marked ‘freight paid’ . Otherwise it is marked ‘freight forward’

Insurance of Cargo

As a safeguard against marine risks, it is necessary to insure the goods. Insurance must be done strictly according to the instructions, if any, of the importer as given in the indent. If there is no instruction, the exporter himself should insure the goods. The insurance policy is sent to the importer along with the bill of lading and other documents.

Advice to the Exporter

The agent then informs the exporter about the shipment of goods and other related matters. He will send the bill of lading, insurance policy, shipping bill etc. to the exporter along with a statement showing his expenses and remuneration.

Preparation of Export Invoice and Consular Invoice

Having received the advice from the forwarding agent, the exporter prepares an export invoice known as foreign invoice. This invoice states the quantity of goods sent and amount due from the importer. Custom regulations of many countries require consular invoice for the purpose of easy clearance of goods at the port of destination in the importing country.

Securing Payment

There are two alternative methods by which payment can be received by the exporter.

Letter of Credit

The exporter can get immediate payment on the strength of the letter of credit which is issued by the importer՚s bank in favour of the exporter. The exporter has to draw the bill in order to get the payment from the local branch of the bank, which has issued the letter of credit on behalf of the importer.

Letter of Hypothecation

If the exporter wants to receive payment immediately, he can get the bill (accepted by the importer) discounted with his bank. But for this purpose, he has to give a letter of hypothecation to his bank. Letter of hypothecation is a letter addressed to a bank attached with the bill of exchange which is accepted by the importer.

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