Guidelines for Merchanting Trade Transactions for Importers and Exporters Posted on 10 April 2023 Category : Notifications Merchanting Trade Transactions - Revised guidelines The 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 Click here to know GST rate on Goods and Services GST Exemption list of goods and services Find HSN number or Service tariff code for GST GST registration guidelines Indian GST Laws How to export your goods? Learn exports imports free of cost GST rate changes 06th October, 2017 Reduced GST rates as per GST council meet 09th September 2017 Revised GST rates on 11th June, 2017 GST exemptions for SME GST, Composition scheme changes GST council meet decision as on 06th October, 2017 Merchanting Trade Transactions .pdf 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 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 : On 18 December 2015 sham lal sharma: On 24 December 2015 sir, I wish to learn documentation on export. kindly help Kamal: On 04 July 2017 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: On 16 August 2017 Whether IGST will be charged on export leg of merchant trade??? If not, what to write in export invoice? Ravi Trivedi: On 25 August 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 venkat rao biradar: On 23 October 2017 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: On 23 October 2017 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: On 20 December 2017 Mr. Ravi your doubts are cleared? if yes kindly share with us as we too had such transactions? Manjusha Dhananjay Muley: On 04 July 2019 Can we do merchant trading in two differnt currencies like sales in Euro & purchase in USD Mr. V Krishnan: On 14 July 2019 Delay in completing the export import legs condonation available shaival pandya: On 03 October 2019 is 15CA/CB required for completin the MTT payment Vipulkumar Barot: On 01 May 2020 Dear Sir, Please Guide me as I have slightly different issue, as MTT the Goods shouldn't enter into indian terrotory, but I have buyer based in Muscat, buying from my company based in India. But we buy it from Denmark selling it to Oman based company who wish us to deliver in Nhava Sheva Mumbai, India so how can I expedite the deal & how the GSt or any other compliances I need to follow. Boor Singh: On 06 July 2020 In case import leg payment is made in advance what will be the time period to complete the entire MTT Boor Singh: On 06 July 2020 In case import leg payment is made in advance what will be the time period to complete the entire MTT Rakesh Siingh: On 08 June 2021 What are the guidelines for post sale transactions specifically warranty support under Merchant transaction in terms Warranty replacement, Repair & Return under Warranty, short supply of material etc. Rakesh Siingh: On 08 June 2021 What are the guidelines for post sale transactions specifically warranty support under Merchant transaction in terms Warranty replacement, Repair & Return under Warranty, short supply of material etc. Rakesh Siingh: On 08 June 2021 What are the guidelines for post sale transactions specifically warranty support under Merchant transaction in terms Warranty replacement, Repair & Return under Warranty, short supply of material etc. Rakesh Siingh: On 08 June 2021 What are the guidelines for post sale transactions specifically warranty support under Merchant transaction in terms Warranty replacement, Repair & Return under Warranty, short supply of material etc. Nancy: On 29 June 2021 Dear Sir, This is regarding a merchant trade transaction. We are sending goods from China to Dubai. How and Who will give the country of origin certificate. Usually COO states manufacturer and consignee's details so in MTT how can we keep these information discrete from both parties? Suman Das: On 25 February 2023 An exporter requested to adjust export proceeds received under Merchant leg to two different overseas counter party, one was supplier of goods and second was value adder in the goods, after retaining profit in the India. Should AD bank oblige if otherwise transaction is in compliance with requirements of MTT guidelines?