Monday Export Class - Aligned Documentation System (ADS) 2

MONDAY EXPORT CLASS

With

GODWIN OYEFESO (SUCCESSEDGE EXPORTERS NETWORK)

Topic: ALIGNED DOCUMENTATION SYSTEM (ADS) (Part 2)

DOCUMENTS RELATED TO PAYMENT

(i ) Letter of Credit

A letter of credit is a document-containing guarantee of a bank to make payment to the exporter, under certain conditions and up to a certain amount, provided the conditions contained in the letter of credit are complied with. For a detailed presentation, reader may refer to the chapter on Export Financing.

(ii ) Bill of Exchange

The Negotiable Instruments Act, 1881 defines a Bill of Exchange as “ an instrument in writing containing an unconditional undertaking, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument”.

There are five important parties to a Bill of Exchange:

The Drawer: The drawer is the person who has issued the bill. In an export transaction, exporter draws the bill as money is owed to him.

The Drawee: The drawee is the person on whom the bill is drawn. Exporter draws the bill on the importer who is the drawee. Drawee is the debtor who owes money to the exporter (creditor).

The Payee: The payee is the person to whom the money is payable. The bill can be drawn by the exporter payable to the drawer (himself) or his banker.

The Endorser: The endorser is the person who has placed his signature on the back of the bill signifying that he has obtained the title for the bill on his own account or on account of the original payee.

The Endorsee: The endorsee is the person to whom the bill is endorsed. The endorsee can obtain the payment from the drawer.

Types of Bills of Exchange

Sight Bill of Exchange: In this Bill of Exchange, also known as demand Bill of Exchange, the drawee has to make the payment, on
Usance Bill of Exchange: In case of Usance or Time Bill of Exchange, payment is to be made on the maturity date, after a certain period, known as When the calculation of period is made with reference to the sight of bill, the bill is known as ‘after sight usance bill’. Sometimes, the maturity date is calculated with reference to the date of bill of exchange, it is known as ‘after date usance bill’.
Clean Bill of Exchange: A clean Bill of Exchange is one when the relative shipping documents do not accompany with In this case, the relative shipping documents i.e. Bill of Lading is sent directly to the importer to enable him to take delivery of the cargo.

Documentary Bill of Exchange: A documentary Bill of Exchange is one where the relative shipping documents such as Bill of Lading, marine insurance policy, invoice and other documents are sent along with the Bill of Exchange. This is the common form in export. The documents are given to the bank either for collection or negotiation. In case the importer gets the documents on acceptance, it is called Documents against Acceptance. If the importer gets the documents only on payment, it is called Documents against Payment. After shipment of goods, the exporter draws the bill on the importer or, more frequently, on bank acting for the importer, as agreed between the exporter and importer. The exporter usually draws the bill to his own order or that of his bank. Later, he endorses the bill in favour of his bank. Exporter may request his bank to collect or purchase the bill. In case of purchase of bill, exporter receives the export proceeds immediately. In any case, the exporter’s bank sends the documents to its branch or correspondent’s bank in importer’s place. The bank at that end sends the intimation of receipt of documents to the importer either for acceptance or payment, dependant on the nature of bill drawn. In case of Documents against acceptance, importer accepts the bill and then only gets title to goods. In case of Documents against payment, importer has to make the payment for securing delivery of documents.

Trust Receipt: In case of D/P bill, the importer has to make the payment to take delivery of goods. If the importer is unable to make the payment, on arrival of the shipment, and take possession of goods, he executes a Trust Receipt to take delivery of Importer will have the right to sell the goods and would be acting as agent of the bank. Importer will be depositing the sale proceeds with the bank, as and when sales are made. Till the importer makes the final settlement, bank retains ownership for the merchandise and the role of the importer is not that of owner but that of agent to the bank. This arrangement facilitates the importer to take delivery of goods when sufficient funds are not available with him. This facility provides the flexibility to the importer while the interests of bank are protected, at all times.
Bank Certificate of Payment: It is a certificate issued by the negotiating bank to the exporter that the bill covering the shipment has been negotiated through it and export proceeds have been received from the importer. The certificate indicates the details of the merchandise exported. Exporter submits this certificate of payment for establishing that the export transaction has been completed totally by him. This certificate is required to comply with the requirements for the discharge of export

DOCUMENTS RELATING TO INSPECTION

Certificate of Inspection

It is a certificate issued by the Export Inspection Agency certifying that the consignment has been inspected under the Export (Quality Control and Inspection) Act, 1963 and found that the requirements relating to quality control and inspection have been complied with, as applicable, and the goods are export worthy.

DOCUMENTS RELATED TO EXCUSABLE GOODS

(1) GP Forms

GP stands for Gate Pass. A GP form, gate pass, is issued for the removal of excisable goods from the factory or warehouse. Form GP1 is issued for the removal of excisable goods on payment of duty. GP2 is issued for the removal of excisable goods without payment of duty.

(2) Form C

It is not to be confused with C form. Form C is used for applying for rebate of duty on excisable goods (other than vegetable, non-essential oils and tea) exported by sea. It is to be submitted, in triplicate, to the Collector of Central Excise.

(3) Forms AR4/AR4A

These forms are meant for removal of excisable goods for export by sea/post. Now, in their place, ARE-1 form is used.

Foreign Exchange Regulations require that all exports other than exports to Nepal and Bhutan shall be declared on the following forms:

1. GR Form

GR is an exchange control document required by Reserve Bank of India. It is required to be filled, in duplicate, for all exports in physical form other than by post. An exporter has to realize the export proceeds within a period of 180 days from the date of shipment, in India. To ensure control on realization, RBI has introduced this procedure.

GR form, in duplicate, is to be submitted by the exporter to the customs along with the Shipping Bill. Customs will give their running serial number on both the copies. After admitting the customs shipping bill, customs will certify the value of goods declared by the exporter in the space earmarked and also record their assessment of value. Customs retains the original copy and return the duplicate to the exporter. Customs sends the original GR form to RBI, which will be an indication of the goods, which are to be exported. Exporter has to submit the duplicate of GR form to the authorized dealer, named in GR form, along with other shipping documents within a period of 21 days of shipment for the purpose of negotiation. After the negotiation of bill, the authorized dealer will report the transaction of negotiation to RBI. On receipt of the original, RBI is apprised of the developments in respect of the export transaction.

Once the export proceeds are received from the importer, the authorized dealer has to forward the duplicate copy of GR form together with the copy of invoice to RBI. RBI recognizes that the export transaction has been concluded and export proceeds have been fully realized. At certain customs offices, shipping bills are processed electronically. So, at those offices,

GR form has been replaced by SDF (Statutory Declaration Form).

2. PP Form

It is required to be filled in for all export transactions, in duplicate, for all countries to be made by post parcel, except when made on “value payable” or “cash on delivery basis”.

3. VP/COD Form

It is required to be filled for all export transactions to all countries by post where the export proceeds are realized on “value payable” or “cash on delivery basis”.