RBI/2013-14/545
A.P. (DIR Series) Circular No.115
March 28, 2014
To
All Category – I Authorised Dealer Banks
Madam / Sir,
Merchanting Trade Transactions - Revised guidelines
Attention of Authorised Dealer Category-I (AD Category-I) banks is
invited to
A.P. (DIR Series) Circular Nos.106 &
4 dated June 19, 2003 and July
19, 2003 respectively, containing directions relating to merchanting trade
transactions. Further, in terms of
A.P. (DIR Series) Circular No. 95 dated
January 17, 2014 the existing guidelines were reviewed in the light of the
recommendations of the Technical Committee on Services / Facilities to Exporters
(Chairman: Shri G. Padmanabhan) to further liberalise and simplify the
procedure.
2. In view of suggestions received from merchanting traders and trade bodies,
the guidelines on merchanting trade transactions have been further reviewed.
Accordingly, it has been decided to issue revised guidelines as under:
- 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 outstandings reach 5% of
their annual export earnings, would be caution-listed.
3. 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.
4. It is clarified that the contents of this circular would come into effect in
respect of merchanting trade transactions initiated after January 17, 2014.
5. Reporting for merchanting trade transactions for compilation of R-return
should be done on gross basis, against the undernoted codes:
Trade |
Purpose Code under FETERS |
Description |
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 |
6. 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.
7. The directions contained in this circular have been issued under sections
10(4) and 11(1) of the Foreign Exchange Management Act (FEMA), 1999 (42 of 1999)
and are without prejudice to permissions / approvals, if any, required under any
other law.
Yours faithfully,
(C. D. Srinivasan)
Chief General Manager