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The exchange control regulations relating to imports into India

The exchange control regulations relating to imports mainly cover (a) payment against import, (b) opening of letters of credit, and (c) booking of forward  contracts for importers.

Opening of letters of credit is discussed in the next article . Forward contracts were discussed in an earlier article .

Other exchange control regulations are briefly discussed below.

(1) Importer-Exporter Code Number. Every importer/exporter is required to obtain Importer-Exporter Code Number (IEC) by applying to the regional import trade control licensing authority concerned. The importer should quote his code number on the relevant bill of entry. The customs authorities will not allow import unless the above condition is fulfilled. In the case of a company/firm having branches, code number obtained for the Head Office should be used by all its branches also.

(2) Advance Remittance. Normally no advance payment against imports is allowed. However, as the practice of opening letters of credit for small value import  is not cost effective, advance remittance covering full value of commercial imports of goods into India is now allowed subject to compliance with the following  conditions:

(i) For import of capital goods, advance remittance does not exceed 15% of the value. For other goods advance remittance can be made up to US $ 5,000. Remittance in excess of US $ 5,000 may be allowed provided a guarantee from an international bank of repute situated outside India has been provided in favor of the importer.

(ii) Documentary evidence should be produced to show the cost of the goods to be imported and that the supplier is insisting on payment of advance or a letter of credit for full value of goods.

(iii) The remittance is made directly to the supplier.

(iv) The importer should give an undertaking to import within a period of three months (twelve months for capital goods) from the date of remittance and to furnish documentary evidence within 15 days from’ thereon. For import of books a list of books to be imported should be obtained and attached to form A 1.

3. Application for Remittance. For making payment against imports, the importer has to apply to the bank in form A 1. If the payment does not fall within the discretionary powers of the bank, Form A 1 should be submitted through the bank in duplicate to Reserve Bank of India. Foreign exchange obtained should be utilized only for the purpose declared by the importer. Under utilized exchange should be surrendered to the bank.

It should be noted that Form A 1 should be obtained only for the bill amount. For other payments like collecting bank’s charges abroad, application in Form A 2 should be obtained.

(4) Payment by Importer. For payment of import bills, the bank should collect  rupees from the importer by debit to the importer’s account or by a crossed cheque drawn by the importer on bankers. Cash payment should not be accepted.

(5) Time Limit for Payment. Normally payment against imports should be made within six months from the date of shipment. Normal usance interest or overdue interest is allowed to be payable against import bills for a period of six months. If there is delay beyond six months, banks may allow the payment, provided the reasons for delay are satisfactory to the bank. No interest should be paid for the additional period, i.e., beyond six months.

(6) Payment of certain items in India. Payment for imports is made to the exporter abroad and, therefore, there should not normally be any request for payment in India against imports. However, such payments may be necessitated in the following cases:

(a) For goods imported on FOB basis, freight and insurance are payable in India.

(b) Payment to an agent of the seller in India, provided the rate of commission does not exceed 2.5% of FOB value of imports. Both the above payments are taken as payment against imports and entitlement under the import licence is reduced to this extent

(7 ) Dealing with Import Licence. When letters of credit are opened or remittances are made against imports, endorsements should be made by the bank in appropriate column at the back of the import licence. The exchange control copy of the licence should be retained by the bank opening the letter of credit. After the licence has been fully utilized, it should be forwarded by the bank to Reserve Bank.

(8) Ensuring Import of Goods. Provisions have been made to ensure that imports against which payment in foreign exchange is made do take place. The importer is required to submit to the authorized dealer through whom the relative remittance was made, the exchange control copy of the relative bill of entry or postal/courier wrapper as evidence to show that the goods have actually been imported into India.

The authorized dealer should scrutinize the customs bill of entry received with reference to the corresponding remittance effected. It should be ensured that the description, quantity and value of goods, number and date of import licence etc., agree in each case with the details furnished by the importer at the time of effecting remittance. Similar verification should be made for postal wrapper also. If there are any major material discrepancies, full details of the transaction should be reported to the Reserve Bank together with the entire set of documents.

After verification of the documentary evidence, a suitable note of receipt thereof should be made in the Imports Bills Register and also on the relative bill of entry postal wrapper. The bank should preserve documentary evidence in the order of entries in the bills register for inspection by their internal auditors/inspectors or by inspecting officials of Reserve Bank. It can be destroyed by the Bank after an inspection by either of the officials provided one year has elapsed since the date of its receipt by the bank.

In case an importer does not furnish the exchange control copy of the customs bill of entry or the postal wrapper, as the case may be, within 3 months from the date of remittance, they should issue a reminder to the importer advising him to produce it forthwith. If there is no response from the importer, a Registered Acknowledgement Due notice should be sent to him not later than one month from the date of first reminder.

The branch should forward to the Reserve Bank within 15 days from end of every quarter, a statement in Form ‘BEF’ furnishing the details of transactions in respect of which the importers have not submitted the documentary evidence within 21 days from the second reminder. Such case should be followed up vigorously till the documentary evidence is furnished by the importer.

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