Guidelines for Merchanting Trade Transactions for Importers and Exporters


Merchanting Trade Transactions - Revised guidelines

Guidelines for Merchanting Trade Transactions for Importers and ExportersThe guidelines mainly explains 

For a trade to be classified as merchanting trade following conditions should be satisfied ;
Goods acquired should not enter the Domestic Tariff Area and
The state of the goods should not undergo any transformation ;

Goods involved in the merchanting trade transactions would be the ones that are permitted for exports / imports under the prevailing Foreign Trade Policy (FTP) of India, as on the date of shipment and all the rules, regulations and directions applicable to exports (except Export Declaration Form) and imports (except Bill of Entry), are complied with for the export leg and import leg respectively ;

AD bank should be satisfied with the bonafides of the transactions. Further, KYC and AML guidelines should be observed by the AD bank while handling such transactions ;

Both the legs of a merchanting trade transaction are routed through the same AD bank. The bank should verify the documents like invoice, packing list, transport documents and insurance documents (if originals are not available, Non-negotiable copies duly authenticated by the bank handling documents may be taken) and satisfy itself about the genuineness of the trade ;


The entire merchanting trade transactions should be completed within an overall period of nine months and there should not be any outlay of foreign exchange beyond four months ;

The commencement of merchanting trade would be the date of shipment / export leg receipt or import leg payment, whichever is first. The completion date would be the date of shipment / export leg receipt or import leg payment, whichever is the last ;

Short-term credit either by way of suppliers' credit or buyers' credit will be available for merchanting trade transactions, to the extent not backed by advance remittance for the export lag, including the discounting of export leg LC by an AD bank, as in the case of import transactions ;

In case advance against the export leg is received by the merchanting trader, AD bank should ensure that the same is earmarked for making payment for the respective import leg. However, AD bank may allow short-term deployment of such funds for the intervening period in an interest bearing account ;
 
Merchanting traders may be allowed to make advance payment for the import leg on demand made by the overseas seller. In case where inward remittance from the overseas buyer is not received before the outward remittance to the overseas supplier, AD bank may handle such transactions by providing facility based on commercial judgement. It may, however, be ensured that any such advance payment for the import leg beyond USD 200,000/- per transaction, the same should be paid against bank guarantee / LC from an international bank of repute except in cases and to the extent where payment for export leg has been received in advance ;

Letter of credit to the supplier is permitted against confirmed export order keeping in view the outlay and completion of the transaction within nine months ;

Payment for import leg may also be allowed to be made out of the balances in Exchange Earners Foreign Currency Account (EEFC) of the merchant trader ;

AD bank should ensure one-to-one matching in case of each merchanting trade transaction and report defaults in any leg by the traders to the concerned Regional Office of RBI, on half yearly basis in the format as annexed, within 15  days from the close of each half year, i.e. June and December ;

The names of defaulting merchanting traders, where outstanding reach 5% of their annual export earnings, would be caution-listed.

The merchanting traders have to be genuine traders of goods and not mere financial intermediaries. Confirmed orders have to be received by them from the overseas buyers. AD banks should satisfy themselves about the capabilities of the merchanting trader to perform the obligations under the order. The overall merchanting trade should result in reasonable profits to the merchanting trader.

It is clarified that the contents of this circular would come into effect in respect of merchanting trade transactions initiated after January 17, 2014.

 


 
Reporting for merchanting trade transactions for compilation of R-return should be done on gross basis, against the undernoted codes:

Trade         Purpose Code                                    Description
                     under FETERS    

Export         P0108                        Goods sold under merchanting /receipt
                                                           against export leg of  
                                                           merchanting trade

Import        S0108                         Goods acquired under merchanting /payment
                                                           against   import leg of merchanting trade


AD Category-I banks may bring the contents of this circular to the notice of their constituents concerned and note the guidelines for strict compliance.


Full details of RBI notification No:  RBI/2013-14/545 dated March 28, 2014,  A.P. (DIR Series) Circular No.115  is given under in pdf format

          4 Conditions when applying for refund of Input Tax Credit (ITC) under GST

          Difference between types of goods and services and types of GST
         4 types of Goods and Services in India for GST rate
         Difference between IGST on International goods and IGST on domestic goods.

         How is IGST calculated under Imports?

         How is IGST rate on imports treated?

          GST and e-Commerce Business, FAQ

          Factory stuffing procedures after GST implementation

        Import of goods attracts IGST but not CVD under GST regime

       Import goods attracts IGST and CVD under GST regime

        Import Goods attract IGST, CVD and Compensation Cess under GST regime

      Safeguard duty and Anti-dumping duty after GST implementation

      Revised GST rate on Fly ash

      Revised GST rate on Avgas

       Revised GST rate on Medicinal grade oxygen

     How does CFR term of delivery work in Export Import business
 
How does comprehensive policy of ECGC work for exporters?
The role of CBEC - Central Board of Excise and Customs in India.
 The role of Export Inspection Agency in Pre-shipment Inspection & Quality Control
The role of Reserve Bank of India
The Role of the International Chamber of Commerce (ICC)
Negotiation procedures and formalities of export bills
Non receipt of Cargo Arrival Notice, Can importer sue against shipping company
OBJECTIVES OF CUSTOMS CONTROL for EXPORT GOODS

OBL not released OBL not surrendered no telex release

Payment procedures in Triangular exports
Who is Stevedores

.


Comments


:

sham lal sharma: sir, I wish to learn documentation on export. kindly help

Kamal: Hi...Merchanting Trade involves two legs-Imports and Exports. Presently such imports and exports are out of the preview of any taxes. However, with GST coming in, Imports and Exports have been treated as being in the course of inter state trade or commerce and thus attracts IGST. However, IGST on imports may not be payable as it is payable at the point when custom duty is levied. But the export leg may attract IGST as Exports have been defined to mean that where goods are taken out from India to a place outside India and thus the Export leg under Merchanting Trade does not fall within the definition for exports under IGST and thus may not be exempted. Others views are solicited. Thanks..Kamal

KESI: Whether IGST will be charged on export leg of merchant trade??? If not, what to write in export invoice?

Ravi Trivedi: Dear Sir / Madam, This mail is regarding applicability of GST on Merchant Trade Transaction. We request you to please advise on GST applicability on Merchant Trade Transaction. We are operating our business under Merchant Trade Transaction. We do not import or export any goods in India. It means the goods do not touch Indian territory but directly dispatched to third country. For better understanding we can say, if our supplier is based at UK and buyer is based at USA, than supplier will directly ship goods to USA. Means shipping directly from UK to USA. Please advise how do we account our Purchase and Sales Invoice in our book under GST as there won't be any GST as goods are not entering or leaving Indian territory. Do they come under Exempt or NIL rated ? We have tried to communicate on lot of customer care number but neither number is reachable nor anyone is able to answer on this. We request you to kindly advise whether in this case, GST is applicable or NOT so that we can run our business smoothly. Your advise in the matter will be highly appreciated. Awaiting your earliest reply. Regards, Ravi Trivedi

venkat rao biradar: Ravi Trivedi Says : Friday, August 25, 2017 Dear Sir / Madam, This mail is regarding applicability of GST on Merchant Trade Transaction. We request you to please advise on GST applicability on Merchant Trade Transaction. We are operating our business under Merchant Trade Transaction. We do not import or export any goods in India. It means the goods do not touch Indian territory but directly dispatched to third country. For better understanding we can say, if our supplier is based at UK and buyer is based at USA, than supplier will directly ship goods to USA. Means shipping directly from UK to USA. Please advise how do we account our Purchase and Sales Invoice in our book under GST as there won't be any GST as goods are not entering or leaving Indian territory. Do they come under Exempt or NIL rated ? We have tried to communicate on lot of customer care number but neither number is reachable nor anyone is able to answer on this. We request you to kindly advise whether in this case, GST is applicable or NOT so that we can run our business smoothly. Your advise in the matter will be highly appreciated. Awaiting your earliest reply. Regards, Ravi Trivedi pls. update on this , need help as per above , same question and problem facing to us, how to do this transaction

venkat rao biradar: Ravi Trivedi Says : Friday, August 25, 2017 Dear Sir / Madam, This mail is regarding applicability of GST on Merchant Trade Transaction. We request you to please advise on GST applicability on Merchant Trade Transaction. We are operating our business under Merchant Trade Transaction. We do not import or export any goods in India. It means the goods do not touch Indian territory but directly dispatched to third country. For better understanding we can say, if our supplier is based at UK and buyer is based at USA, than supplier will directly ship goods to USA. Means shipping directly from UK to USA. Please advise how do we account our Purchase and Sales Invoice in our book under GST as there won't be any GST as goods are not entering or leaving Indian territory. Do they come under Exempt or NIL rated ? We have tried to communicate on lot of customer care number but neither number is reachable nor anyone is able to answer on this. We request you to kindly advise whether in this case, GST is applicable or NOT so that we can run our business smoothly. Your advise in the matter will be highly appreciated. Awaiting your earliest reply. Regards, Ravi Trivedi pls. update on this , need help as per above , same question and problem facing to us, how to do this transaction

Pauly: Mr. Ravi your doubts are cleared? if yes kindly share with us as we too had such transactions?

Discussion Forum

You can also share your thoughts about this article.
Any one can answer on question posted by Readers