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UNIT 7 Imports / Exports Procedure 205

Unit 7 Notes
__________________
__________________
Imports / Exports Procedure __________________
__________________
__________________
Objectives __________________
After reading this unit you will be able to understand: __________________
O Various steps of Import/Export procedures for air and sea __________________
O Intricacies of customs procedures and inspection, documentation __________________
needed for import and export procedures
__________________
O Gain thorough knowledge of the aspects of clearance of cargo
from PSA and airport.

It is of utmost importance for an international trader to

understand the proper export procedure and documentation
since he or she is selling his / her goods or services to a buyer
beyond his/her home borders and both the seller and buyer
are governed by different legislative frameworks and
jurisdiction. While the set of documents and procedure
followed for a hassle-free export transaction does not vary
much from country to country, the present text has been
designed with an assumption that the export transaction
takes place with the seller being an international trader or
an exporter from India.
A variety of government/private/service agencies, such as
Inspection/Insurance agencies, Customs and Excise
authorities, Directorate General of Foreign Trade (DGFT)
in India, banking institutions, clearing and forwarding agents
(CFAs), Reserve Bank of India (RBI), Shipping companies,
Trucking companies, Airlines, Railways etc. regulates or
facilitate the trade transaction between the seller from India
and the buyer overseas. The seller has to comply with the
rules, regulations, and trade practices of all or some of these
applicable entities. Similarly for receiving the payments or
for transportation risk management, an exporter/trader from
India has to follow a well-practiced well- defined
 206 Trade Procedure and Documentation

Notes international customary and regulatory framework of rules,

__________________ regulations and procedures. In this context he/she has to be
__________________ fully aware of the various legislations/rules governing the
__________________ home as well as host country. In case of India, the relevant
__________________ laws/acts include the current Export – Import (EXIM) policy,
Handbook of Procedures, Customs Act 1962, Foreign
__________________
Exchange Management Act, 1999, Foreign trade
__________________
(Development and Regulation) Act, 1992, Export (Quality
__________________
Control and Inspection) Act 1963, Marine Insurance Act 1963,
__________________ Central Excise Act 1944, Insurance Act 1938 etc. In addition,
__________________ International Commercial Practices and Laws, such as The
__________________ Carriage of Goods by Sea 1924, Uniform Customs and
Practices for Documentary Credit (UCPDC) 1993, the
International Commercial Terms 2000 etc. also have to
understood and complied with.

Understanding Export Procedure

In order to understand a simple case involving the proper
export procedure we have to understand the process of a
typical export transaction where the documents have to be
typically routed through banks in the seller’s and the buyer’s
country. As an international trader will know, an export
transaction entails identification of an importer/buyer in the
international market and getting an order first. The initial
order can be in the form of a fax message or a formal purchase
order form duly signed by the buyer. Based on such an order,
an export contract has to be formulated and signed in order
to ensure proper execution of the order and for avoiding any
dispute.
The export contract has all the usual terms and conditions
with regard to description of good, Price, Mode of Payment,
delivery terms, payment terms, details of the origin and
destination of goods, dimensions and weights of the cargo if
already available, currency of the contract, validity of the
contract, transportation costs, insurance costs, L/C terms if
payment is through L/C etc. Based on the contract the seller
supplies the goods, after receipt of the L/C. The C&F agent
is appointed by the seller to carry out shipping services and
customs formalities apart from other services as negotiated
with him. Depending upon the terms of the contract the,
 UNIT 7 Imports / Exports Procedure 207
cargo is handed over to the shipping agency against the Notes
receipt of the “Bill of Lading”. The goods can be claimed at __________________
the destination by the lawful holder of the “Bill of Lading”. __________________
Adhering to the international commercial practices the “Bill __________________
of Lading” is handed over to the buyer by the buyer’s bank __________________
only after the payment has been made or otherwise as stated
__________________
in the contract. This process ensures the proper delivery of
__________________
the goods to the right person and timely payment to the seller/
__________________
exporter. Since this process of order execution is not as
simple as it looks in the above description, it is of utmost __________________

importance for an international trader to learn about the __________________

exact procedure and documentation involved in this kind of __________________
export/import transaction.
Without proper attention to well defined and well practiced
rules and regulations concerning import and export
procedures, an international trader can land up in great
difficulties causing a large amount of mental and financial
hardship. In order to avoid problems related to smooth flow
of goods, getting timely proceeds for the goods supplied and
to maintain a good relationship with the buyers, an
International Trader must follow these tips:

1. The time frame for filing the documents with

intermediaries and govt. authorities must be adhered
to.

2. The documents must be meticulously prepared.

3. L/C terms must be carefully drafted (first in the contract,

to be replicated into the actual L/C) and understood.
The person, chosen for carrying out the above documentation
and procedure must be thorough with the export
documentation and must possess the desired skills in this
regard.
The execution of the export shipment and receiving the
payment involves a complex set of procedures. Hereby an
exporter needs to come across a variety of regulatory
authorities and trade agencies. The very first step in export
procedure involves compliance with the home country’s legal
framework, arranging the export finance after the receipt of
the order, readying the goods for export, appointing a C&F
 208 Trade Procedure and Documentation

Notes agent, arranging the cargo insurance & shipping space (by
__________________ sea or by air), delivering the goods and documents to the
__________________ C&F agent, customs and port procedures, preparing post
__________________ shipment documents for submission to the bank, receiving
__________________ the payment and export incentives, refunds etc where
applicable. For the benefit of the readers, export procedure
__________________
for a simple export transaction has been depicted in exhibit-
__________________
7.1 below. (a simplifies flow chart for a typical export
__________________
transaction is also given in annexure 7.1)
__________________
__________________
__________________

In the following paragraphs we discuss the above steps in

detail to understand more about the intricacies involved in
a typical import or export transaction.
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UNIT 7 Imports / Exports Procedure 209
Legal Compliance Notes
__________________
Before carrying out any international transaction an
__________________
international trader has to necessarily comply with certain
legal framework of the home country. The most important of __________________

these legal formalities are: __________________

__________________
Obtaining the IEC Code No. __________________
Before entering into any international trading contract __________________
whether for exports or for imports, an international trader __________________
need to obtain the Importer-Exporter Code Number (IEC)
__________________
from the Regional Licensing Authority (RLA) of Directorate
__________________
General of Foreign Trade (DGFT). This license is valid for
twelve months from the date of issue and is valid for eighteen
months for negotiation of the documents. In case of non-
performance of export/import in a year, the license lapses
automatically.
Registration with a well selected Export Promotion Council
(EPC) dealing with the items of focus of international trading.
EPC issues a Registration Cum Membership Certificate
(RCMC), which is a very useful document for the exporter
trader in the subsequent steps of trade procedures and
documentation both in the home country as well as host
country. Apart from the benefit to the exporter trader as
member of EPC, the purpose of this legal formality is also to
monitor the activities of the trader by the respective EPC in
order to establish the bonafide and credibility of the trader
while playing in the international markets. In addition, EPCs
also help the trader in their international marketing
activities. EPC registration is not mandatory for an importer,
however for trade intelligence purposes; it is recommended
that he/she should also become member of respective EPCs

Registration with Sales Tax Department

One of the most important reasons for this registration is to
avail the benefit of sales tax waiver on the goods to be
exported and also the sales tax waiver on the input material
for the production of the goods to be exported. The exact
procedure of subsequently dealing with the sales tax
departments to avail these benefits is discussed elsewhere
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Notes in these notes. This compliance applies for both exporter and
__________________ importer as per the guidelines of the sales tax department.
__________________
Registration with Central Excise Department
__________________
__________________ Again one of the most important reasons for this registration
is to avail the benefit of central excise waiver on the goods
__________________
to be exported and also on the input material for the
__________________
production of the goods to be exported. Again, the exact
__________________ procedure of subsequently dealing with the central excise
__________________ departments to avail these benefits is discussed elsewhere
__________________ in these notes. This compliance applies for both exporter and
importer as per the guidelines of the central excise
__________________
department.

After Receipt of the Order

Arranging Finance
Once a trader who is an exporter receives an order for the
export of a particular commodity and enters into a trade
contract, mutually negotiated between the exporter and the
importer, he/she needs to arrange for the export finance for
executing the order. In case of an importer, he may have to
arrange for the finance for the purpose of the purchase of
the material.
For an exporter this finance requirement may be at the stage
of pre-shipment (for preparing the goods to be exported) or
at the post shipment stage (for discounting the “Usance L/C”
in case the payments are on deferred terms or for
discounting the “sight L/C” till the payment is realized from
the importer’s banker), within the legal framework of the
regulatory body (RBI in the case of an Indian exporter)
For an importer, the finance may be required for opening
the L/C till the goods are received and resold within the legal
framework of the regulatory body (RBI in the case of an
Indian importer)
Banks are the main sources of such finance requirement of
Indian exporters or importers. These banks provide pre-
shipment and post-shipment credit on concessional interest
rates to the Indian exporters. There is no concessional credit
available for the importers who can get the finance from the
commercial banks on the commercially negotiated terms.
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UNIT 7 Imports / Exports Procedure 211
Readying the Goods Notes
__________________
Readying of the goods should be in strict conformity with
__________________
the L/C / confirmed order terms. Description of the
merchandise is in accordance with the L/C. In case any __________________

advance incentives are to be claimed, the appropriate __________________

authority must be informed in advance before readying the __________________

goods. Certain prescribed formalities are to be adhered to __________________

while readying the goods. Also in factory inspection/ stock __________________
verification may be required for certain goods and clearance __________________
from the excise department may be required in the factory __________________
premises. These formalities are required in case of an export __________________
transaction.

Appointing the C&F Agent

It is one of the most important stages of export/import
procedure. A well-experienced, well-networked Clearing &
Forwarding agent can make the life of an international trader
most easy at a fraction of the C&F costs. Preferably a C&F
agent should be a Custom House Agent (CHA). A CHA is an
authorized person who is allowed to deal directly with the
customs and port authorities and who is well versed with
the functioning of the Indian Customs for both export and
import transactions. A CHA is like an advocate who is
authorized to represent his client in a legal case.
Once goods are ready for exports, the same is handed over
to the C&F agent who in turn makes sure the smooth
departure of the goods by sea or by air. In some cases,
depending upon the terms of the contract, C&F agent may
also be responsible for the smooth transportation of the goods
to the buyer’s warehouse or till the port of destination. In
case of an import transaction, the C&F agent is normally
responsible for the smooth and safe transportation of the
goods till the warehouse of the importer after due clearance
from the Indian customs. What exactly are the port and
customs procedure have been discussed in following
paragraphs.
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Notes Shipping formalities

__________________
__________________ Arranging Insurance
__________________ After the goods are prepared the same are to be moved from
__________________ the factory/warehouse of the exporter to that of the importer.
__________________ This movement mostly involves a multimodal transportation
__________________
between nations. In order to avoid shipping risks, cargo
insurance is must which is to be arranged by the exporter or
__________________
the importer depending upon the terms of the contract (in
__________________
case of FOB contracts the insurance from the port of origin
__________________ to the buyer’s warehouse need to be arranged by the buyer
__________________ himself. However in case of CIF contract, it is the duty of
the exporter to arrange for insurance till the port of
destination). The C&F agent at the cost of the exporter can
also carry out insurance formalities.
In certain cases other kinds of insurance may also be
required. This insurance may be for the protection of the
exporter or the importer for the commercial and political
risks. Normally these other types of insurance are suitable
for large contracts or where the delivery schedule is over a
longer time. Some of the commercial risks are foreign
exchange fluctuations risks, payment default risks, inputs
prices fluctuation risks etc. A more detailed review of marine
insurance is given in part 5 of these notes.

Booking Shipping Space

While the goods are being readied, the shipping space may
be required to be booked in advance with the shipping line
in case of main transportation by sea or with the airlines in
case of main transportation by air. Since the L/C orders are
time bound and are linked to adhering to the delivery dates
an exporter cannot take any chances in these matters.
Therefore advance reservation of the shipping space acquires
great importance. In case of import transaction also where
the contract terms require an importer to arrange for
transportation the same holds true. Sometimes advance
booking of shipping space can also mean great savings on
shipping costs, specially in the case of less than contain load
(LCL) cargos where consolidation may be required by the
shipping agencies for the goods to be shipped. Consolidation
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UNIT 7 Imports / Exports Procedure 213
of the cargo refers to clubbing of the shipments of more than Notes
one exporter in the same container to utilize the maximum __________________
space availed in a container. In cases of bulk cargo __________________
transported on big ships, this consolidation may involve __________________
maximization of ship loads, for example in the case of __________________
shipment of animal feed which are shipped by tons on very
__________________
large ships by more than one exporters on the same ship
__________________
depending upon case to case.
__________________

Customs and Port formalities __________________

__________________
Customs Clearance __________________
Customs clearance is normally done at the port of origin (for
export transactions) and at the port of destination (for import
transactions). In certain cases, the same can be done at the
premises of the importer or the exporter, upon requests. In
case of special free trade zones these formalities are normally
carried out at the entry point of such zones.
These customs formalities are mostly facilitated by the C&F
agent who charges very nominal fees for their services;
however it is allowed to carry out self-clearances by the
representatives of the exporter or the importer as the case
may be. However in both the cases, CHA’s role cannot be
compromised.
The main objective of customs formalities is to ensure safe
and timely execution of the export or import transaction and
avoiding of any mis-declaration, malaise transaction and to
ensure payment of all taxes and tariffs in accordance with
the tariff schedule of the Indian government. In case of export
transaction customs formalities also aim at issues concerning
guarantee by the exporter to the realization of the proceeds
of the goods exported, adhering to the minimum quality
control guidelines issued for the exporters from India and
also to ensure that no mis-declaration are done by the
exporter with the intention of claiming unscrupulous/non
deserving export incentives. Overall customs formalities
aims to monitor the movement of the goods both ways across
the Indian border to ensure no illegal activities are being
carried out. In a nutshell, the main objectives of the customs
control are:
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Notes 1. Ensuring authentic value of the export or import cargo.

__________________
2. Accurate assessment of the cargo and justified levy of
__________________
the customs and other duties.
__________________
__________________ 3. Ensuring the exporter and importer comply with law of
__________________ the land concerning exports and imports.
__________________ 4. Compilation of export – import data.
__________________
A detailed discussion on the customs formalities has been
__________________ done elsewhere in these notes.
__________________
__________________ Port Formalities
Again port formalities is a part of the clearing and forwarding
functions and hence is normally done by the C&F agent
however in certain cases an exporter or and importer may
choose to do self-clearance. Port formalities normally involve
formalities to be done with the shipping agencies, port/
airport authorities and the crew of the ship (in case of sea
transportation). Certain guidelines are to be adhered to
ensure safe and timely transportation of the goods. At the
same time it is necessary to ensure payment of the port dues
and goods handling charges. Further shipping companies
have to ensure that the goods have been received by them in
good order and condition to protect the interest of the buyer
as well as to avoid any disputes. Port authorities have to
also ensure that the goods are cleared in a manner, which is
prescribed by the law, and have also to ensure the
safekeeping of the same. In a nutshell the main objectives of
the formalities at the port are:

1. Clearance of the goods as per the prescribed procedure.

2. Safety of the goods in transit or in warehouse.

3. Speedy implementation of port procedures.

4. Ensuring minimum hassles for the trader and the vessel

crew as well as shipping companies.

5. Ensuring the collection of all port charges and dues for

the due maintenance of the port facilities.
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UNIT 7 Imports / Exports Procedure 215
A detailed pictorial depiction of the customs and port Notes
procedure for a typical export transaction is given in the __________________
Annexure 7.2. __________________
__________________
Shipping Advice to the Buyer (In Case of an Exporter)
__________________
As the goods are shipped by air or by sea, and documents __________________
received from the C&F agent, an exporter need to send a
__________________
shipment advice to the buyer by courier, intimating to the
__________________
buyer
__________________
n Date of actual shipment __________________

n Name of the vessel __________________

n ETA of the vessel at the port of destination.

The shipment advice must accompany with it certain non-
negotiable documents for the information purpose only. These
documents include commercial invoice, packing list and a
copy of B/L (non negotiable).
Presentation of the Documents to the Bank for Securing
the Payment (In Case of an Exporter)
Following documents are to presented to the negotiating bank
for the realization of the export proceeds, based on the L/C

1. Bill of exchange (first two original copies)

2. Commercial Invoice (as many required according to the

L/C)

3. Packing list

4. Complete negotiable set of “Clean Bill of Lading”(as

received from the C&F agent)

5. GR form (duplicate copy)

6. Export contract paper or export order as available.

7. Cargo Insurance in duplicate

8. Consular and customs invoice if applicable

9. Bank Certificate

10. Original copy of the L/C

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Notes 11. Inspection quality control certificate.

__________________
12. Certificate of origin
__________________
__________________
After scrutiny, negotiating bank forward these documents
to the issuing bank for negotiation
__________________
__________________ Once payment is realized after negotiation of the bank the
same is given to the exporter and the duplicate copy of the
__________________
GR form is sent to the exchange control department of RBI.
__________________
__________________ Claiming of the Exports Incentives
__________________
Excise rebate and duty drawback are the main export
__________________
incentives, which can be claimed post shipment. For claiming
these exports incentives, an exporter need to approach the
maritime commissioner of the central excise authority or the
jurisdictional central excise authority depending upon the
location of the exporter. The documents required for claiming
the central excise rebate are:

n ARE-1/ARE-2 (duly certified by customs authority

during the factory or the port loading inspection)

n Non – negotiable copy of the B/L or shipping bill

For claiming the Duty Drawback, an exporter needs to
approach the duty drawback department of the customs with
following documents

n Drawback claim Performa

n Bank or custom-certified copy of commercial invoice

n Non- negotiable copy of the B/L

Understanding documents needed for export transaction.
There are primarily two set of documents required for a
typical export transaction –

1. Pre-shipment document.

2. Post shipment documents.

Pre-shipment document deals mainly with arranging the pre-
shipment credit, pre-shipment inspection, physical transfer
of goods, customs/port formalities and compliance with rules
and regulations of the home and host countries. The post
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UNIT 7 Imports / Exports Procedure 217
shipment documents are required primarily for receiving the Notes
payment, arranging post shipment credit (if applicable), __________________
claiming the incentives, refunds, informing the RBI about __________________
the receipt of the payment etc. Many of the pre-shipment __________________
documents are also required for post shipment procedures. __________________
A list of pre-shipment documents is presented in exhibit 7.2
__________________
(Source: Adopted from “Standardized Pre-Shipment Export
__________________
Documentation”, Export Facilitation Committee of India,
__________________
Ministry of Commerce, Govt. of India, 1990). A list of post
shipment documents is presented in exhibit 7.3. __________________
__________________
__________________

Pre-shipment export documents are of two types –

Commercial Documents (which are used by the “Customs of
Trade” in international commerce by exporters and importers
in discharge of their respective legal and other incidental
responsibilities under sales contracts) and Regulatory
documents (which are prescribed by different Govt.
Departments/Bodies for compliance of formalities under
relevant laws.
Commercial documents are further of two types – Principal
and Auxiliary. The principal documents are required for
physical transfer of goods and their title from exporter to
importer. And for realization of export sale proceeds. The
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Notes auxiliary documents are required for preparation /

__________________ procurement of ‘Principal’ exports documents. The detailed
__________________ functions of many of these documents are discussed
__________________ elsewhere in these notes.
__________________
__________________
__________________
__________________
__________________
__________________
__________________

Electronic Clearance of Exports Documents:

With the advances in information technology, the complex
processing of export documents has been chiefly facilitated
by the computerized generation and processing of export
documents. A variety for software packages is available for
Indian exporters for preparation of pre-shipment and post-
shipment documents. With the help of EC/EDI
implementation of exports documents processing in various
department under ministry of commerce as well as
coordinated with agencies like Airport Authority of India,
Export promotion Councils, RBI, Commercial Banks,
Airlines, Railways and custom houses, it was never so easier
before for an Indian exporter to carry out export
documentation and procedures. What is required is a
thorough understanding of the concept and contents of
procedures and documents required for smooth export
transaction. Further individual websites of different
agencies also offers a smooth interface with the system for
better integration.
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UNIT 7 Imports / Exports Procedure 219
The need for introduction of EC/EDI is recognized as the Notes
most cost-and-technology-appropriate solution to many of the __________________
problems faced by trade so as to make regulators act as __________________
facilitators. The outcome of liberal policies adopted by __________________
governments in India in recent decades is the tremendous __________________
growth in domestic as well as foreign trade and foreign direct
__________________
investment. Improving efficiency, focusing on quality, the
__________________
simplification and streamlining of the procedures, and
__________________
technological up gradation has become integral part of the
new strategy of liberalization regime. __________________
__________________
The objective is to provide a system wherein trade documents
especially those related to import/export require single __________________

submission to any of regulating / facilitating agencies under

the umbrella of the single system to reduce hassles of filing
the documents to each agency separately. The key is to
network all community partners for electronic document
exchange. And to provide electronic document filing/
exchange facility by every regulating / facilitating agency to
importers / exporters / agents / shipping lines etc.
Department of Commerce has gone a long way to promote
and implement EC/EDI in India. It was decided that for
promoting the use of EC/EDI in the area of international
trading from India, all the regulating and facilitating
departments and organizations like Airports Authority of
India, Scheduled Banks, Customs, DGFT, Port Trusts, RBI,
CONCOR etc.., involved in the various aspects of
international trade in India need to offer their services via
the route of EC/EDI. The objective being to bring the overall
transaction time to what it takes to carry out such activities
in the best of the developed countries.
List of organizations selected for EC/EDI implementation

n Customs

n DGFT

n Port Trusts

n RBI

n Airlines
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Notes n Apparel / Textile Export Promotion Councils

__________________
n Airports
__________________
__________________ n Container Corporation
__________________
n Banks
__________________
__________________ n Indian Railways
__________________ n Export Promotion Organizations
__________________
n DG Commercial Intelligence / Statistics
__________________
__________________ n Inland Container Depots / Container Freight Stations

Summary:
The export procedures and documentation is an integral
activity of international marketing process and is of great
importance for an international trader.

In an export transaction, the seller and the buyer is governed

by a complex set of regulatory framework of their home
country as well as the host country.

A thorough understanding of the trade procedure of not only

of the home country but also the destination country is of
utmost importance for an international trader.

Information technology has helped speed up the

documentation process and makes it easier for an exporter
to carry out all formalities in his/her own country as well as
if required in the host country.

Review Questions:
1. Discuss and explain the various steps involved in customs and port
procedure. Draw out a flow chart of various steps.

2. Make a flow chart of broad procedure of exports covering steps starting

with procurement of order going until the incentives and refunds are
claimed.

3. Discuss and debate the importance of electronic clearance of the export

documents. List the name of organization in India which are covered
under the EDI system.
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UNIT 7 Imports / Exports Procedure 221

Annexure 7.1 Notes

__________________

Simplified export transaction framework __________________

__________________
Obtaining IEC no. from DGFT
__________________

Registration with EPC Reg with jurisdictional central __________________

Reg with sales tax authorities excise authorities
__________________

Identify and negotiate with importer __________________

__________________
Confirm the export deal __________________
__________________
Receive an export order/contract

Examine thoroughly and ask for amendment, if any

Receive letter of credit

Scrutinize thoroughly, compare with terms of

contract
Ask for amendment if needed

Receive amended letter of credit

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Annexure 7.2
__________________ Customs and Port Procedure (pictorial)
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UNIT 7 Imports / Exports Procedure 229
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Reading and reference material Notes

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1. India's Foreign Trade statistics, DGCI&S
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2. India Brand Equity Foundation Research, Wall Street Journal __________________
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3. The awakening Ray, Vol 4, Report of the Committee on India Vision
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2020, Planning Commission, GOI, New Delhi.
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4. Far Eastern Economic Review __________________

5. Phillip Kotler, Marketing Management. __________________

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6. AC Nielson Survey of the Retail Industry, World Wide Web.
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7. Daez Raul, Export Promotion as a key of Development strategy,
International Trade Centre.

8. Statistics By Department of Customs, Ministry of Finance, GOI

9. Standardized Pre-Shipment Documentation, Export Facilitation

Committee of India, Ministry of Commerce, GOI

10. Annual Reports, ECGC, Mumbai

11. Annual Reports, Ministry of Commerce and Industry

12. Annual Reports, Ministry of Finance

13. Annual Reports, Ministry of Agriculture

14. Annual Reports, Ministry of Textiles

15. Export Import Policies, Ministry of Commerce Web Site (Also Trade
Policy Reviews by WTO)

16. WTO website.

17. EXIM policy at DGFT website.

18. DGFT policy Circulars

19. Vinod Mehta and Arun Goyal, EXIM Policy and Procedures 2002-2007,
Commentary and Cases 2003, Academy of Business Studies, New Delhi

20. Economic Surveys, DOC, Ministry of Commerce