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Bank Guarantee to customs and licensing authorities
What is Bank Guarantee executing procedures with customs and import incensing authorities? When to cancel bank guarantee with customs? Does bank reserve fund against bank guarantee?
In certain cases of imports, you need to execute a bank guarantee along with the bond for the purpose of availing exemption of import duty amount. Later stage, if customs (government) finds default on fulfilling your obligation as per the details of executed bond, customs collects the duties or taxes under the said import shipment by forfeiting such bank guarantee. Many cases, the bank guarantee with bond are executed with customs department assuring obligation on different duty exemptions by importers.
For example, you (importer) want to import machinery from a foreign country and required to avail import duty exemption. You intend to import under EPCGC scheme (Export Promotion Capital Goods) where in you can avail import duty exemption on capital goods subjected to terms and conditions under the scheme.
Under EPCG scheme, importer has to fulfill certain norms and required to complete export obligation on quantity, value or both as per the instruction of Licensing authority. Normally, EPCG (export promotion capital goods) scheme is allotted for 5 years duration period. Within the said period of 5 years, the export obligation has to be fulfilled. If bond with bank guarantee is insisted by the licensing authority of EPCGC (Export Promotion Capital Goods), bond and bank guarantee is executed by importer while importing goods under EPCGC scheme. Bank guarantee is the guarantee by bank assuring to pay the amount mentioned in the document, if any default by his (Bank’s) customer (you-importer).
Normally bank reserves a bank guarantee margin amount from your account while issuing bank guarantee. The reserve margin amount can be 100% of amount mentioned on Bank guarantee or 5% or nil depends up on your relationship with bank on your credit worthiness.
Once after completion of export obligation as per the scheme and bond executed, the importer files the necessary proof on fulfilling export obligation. Normally, Export promotion copy of shipping bill, payment realization certificate from Bank, FIRC (Foreign Inward remittance certificate), Bill of Lading or Airway bill etc. are taken as a proof of exports. The authorities may demand part or full of said documents or any other documents specified by the licensing authorities and customs authorities. Also read How and when to cancel Bank guarantee and bond. Difference between Letter of credit and Bank Guarantee
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