Question No. 5 - IBO - 04 - Export Import Procedure and Documentation - Master of Commerce (M.Com)

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IBO - 04 - Export Import Procedure and Documentation

Master of Commerce (M.Com) - 1st Year

Question No. 5 Write notes on the following: 
(a) General Provisions for imports.

The Ministry of Commerce and Industry and Directorate General of Foreign Trade and Investment (DGFT) implemented the foreign trade policy of the year 2015-2020, which contains the general provisions for import and export in Chapter 2. They are as follows:

1. Exports and imports are free unless regulated– Exports and Imports shall be free, except in cases where they are regulated by the provisions of this Policy or any other law for the time being in force. The item-wise export and import policy shall be, as specified in ITC(HS) published and notified by the Director-General of Foreign Trade, as amended from time to time.
2. Laws are to be complied– Every exporter or importer shall comply with the provisions of the Foreign Trade (Development and Regulation) Act, 1992, the Rules and Orders made thereunder, the provisions of this Policy, and the terms and conditions of any license/certificate/permission granted to him, as well as provisions of any other law for the time being in force. All imported goods shall also be subject to domestic Laws, Rules, Orders, Regulations, technical specifications, environmental and safety norms as applicable to domestically produced goods. No import or export of rough diamonds shall be permitted unless the shipment parcel is accompanied by Kimberley Process (KP) Certificate required under the procedure specified by the Gem & Jewellery Export Promotion Council (GJEPC).
3. Procedure– The DGFT specifies the procedure that has to be followed by the exporter and importer or by any other authority to follow any of the procedures which are laid down in any Acts, handbooks, etc. Once the procedure is being established it has to be published on public notice, and these procedures can be subjected to change as well.
4. Exemption- If due to any genuine reason, relaxation is needed in any procedure, the request can be made to the DGFT, who can pass orders on the same. The DGFT can relax certain procedures for public interest as well, such request may be considered only after consulting Advance Licensing Committee (ALC) if the request is in respect of a provision of Chapter-4 (excluding any provision relating to Gem & Jewellery sector) of the Policy/ Procedure. 
5. Restriction principles- The DGFT on notification can enforce any decision that is necessary for (a) protection of public morals (b) Protection of human, animal, or plant life or health (c)Protection of patents, trademarks, and copyrights and the prevention of deceptive practices (d) Prevention of use of prison labour (e) Protection of national treasures of artistic, historic or archaeological value (f) Conservation of exhaustible natural resources (g) Protection of trade of fissionable material or material from which they are derived (h) Prevention of traffic in arms, ammunition, and implements of war.
6. Goods which are restricted- Any goods which are restricted can only be imported and exported if there is a license for the same and a public notice has to be issued as well on this behalf.
7. Terms and conditions- There are certain terms and conditions which have to present while obtaining a license or a certificate, they include:(a) The quantity, description, and value of goods (b) Actual user condition (c) Export obligation (d) The value addition to be achieved (e) The minimum export price.
8. Penalty- If a license/certificate/permission holder violates any condition of the license/certificate/ permission or fails to fulfill the export obligation, he shall be liable for action in accordance with the Act, the Rules and Orders made thereunder, the Policy and any other law for the time being in force.
9. Permission to get license etc.- No person may claim a license/certificate/ permission as a right and the Director-General of Foreign Trade or the licensing authority shall have the power to refuse to grant or renew a license/certificate/permission in accordance with the provisions of the Act and the Rules made thereunder.
10. Import on export basis- New or second-hand capital goods, equipments, components, parts and accessories, containers meant for packing of goods for exports, jigs, fixtures, dies and mould, may be imported for export without a licence/certificate/permission on the execution of Legal Undertaking/Bank Guarantee with the Customs Authorities provided that the item is freely exportable without any conditionality/requirement of license/ permission as may be required under ITC (HS) Schedule II.

(b) Foreign Currency Account. 

A ‘Foreign Currency Account’ means an account held or maintained in a currency that is not the currency of India or Bhutan, or Nepal. Any person who is residing in India can open, hold and maintain a foreign account. ‘Person Resident in India’ is defined under Section 2(v) of the Foreign Exchange Management Act, 1999 (FEMA). 

‘Person resident in India’ means—

1. Every person residing in India for more than one hundred and eighty-two days during the preceding financial year but does not include –

• a person who has gone or stays outside India for taking up employment or carrying a business or vocation outside India or any other purpose where he/she indicates their intention to stay outside India for an uncertain period,
• a person who has come to or stays in India, otherwise than for taking up employment or carrying on business or vocation in India or any other purpose where he/she indicates their intention to stay for an uncertain period in India.

• Every person or body corporate incorporated or registered in India,
• An office, agency or branch in India that is owned or controlled by a person resident outside India, 

• An office, agency or branch outside India that is owned or controlled by a person resident in India.

(c) Financing under Deferred Payment Arrangement. 

Under Section 34 of the Care Act a universal Deferred Payment scheme has been established. A deferred payment scheme allows the person entering into it to delay making some or all of their payments to the Local Authority for the Care and Support services they receive. It allows them time to come to terms with their situation and consider their options without having to rush into selling their home. Some people enter into a deferred payment agreement until they die but others use it as a 'bridging loan' while they decide what best to do and explore options available for meeting the cost of care (for example, they may be able to arrange the release of another asset to meet the cost). How long a person has a deferred payment agreement for is entirely up to them.

When a Deferred Payment agreement is entered into the Local Authority usually secures its interests by arranging for a land registry charge to be placed upon the person's property for an amount known as the Equity Limit. They then defer all payments until this amount is reached or the agreement is terminated, whichever comes first. At this point the person's home is sold and the Local Authority receives payment for the care costs it has deferred under the agreement.

Payments that can be deferred

The person can defer the full amount of their care costs or an element of their care costs (if they choose to make a contribution from another source).

Payments must be deferred up to the personal budget amount (or what that amount would be likely to be where people have not been assessed by the Local Authority). If the person wishes to defer less than the personal budget amount this can be agreed but they need to be able to pay the difference between what is being deferred and the personal budget amount.

If a person has chosen to live in a care home that costs more than the personal budget amount the Local Authority does not have to defer the 'top-up' amount payable, although it has the power to do so if it wishes to. If the Local Authority does not decide to defer the top-up amount then top-up remains payable.

Payments relating to interest and charges made by the Local Authority can also be deferred if the person requests it and the Local Authority is in agreement.

Payments can only be deferred for costs charged by the Care and Support provider for services provided. Where the person lives in a care home provision this is likely to include associated accommodation costs but where the person lives in supported living and pays rent to a landlord (who may or may not be the care provider) these rental payments cannot be deferred.

(d) ISO 9000. 

ISO 9000 is a set of standards for quality management, developed as an internationally-acceptable baseline for performance by businesses and other organizations. It was created by the International Organization for Standardization (ISO) with input from standards professionals from many nations.

Quality management is the act of overseeing all of the processes that go into achieving and maintaining the desired level of excellence in the creation and delivery of a product or service. This includes the determination of a quality policy, creating and implementing quality planning and assurance, and quality control and improvement. It is also referred to as total quality management (TQM).

ISO 9000 standards were developed to help manufacturers effectively document the quality system elements that need to be implemented to maintain an efficient quality system. They are increasingly being applied to any organization or industry.

ISO 9001 is now being used as a basis for quality management—in the service sector, education, and government—to help organizations satisfy their customers, meet regulatory requirements, and achieve continual improvement.

The ISO 9000 series, or family of standards, was originally published in 1987 by the International Organization for Standardization (ISO). They first gained popularity in Europe, and then spread to the U.S. in the 1990s. As the world’s view of quality assurance has evolved, the standards have been revised.

Current versions of ISO 9000 and ISO 9001 were published in September 2015.

Question No. 4 - IBO - 04 - Export Import Procedure and Documentation - Master of Commerce (M.Com)

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IBO - 04 - Export Import Procedure and Documentation

Master of Commerce (M.Com) - 1st Year

Question No. 4 Comment on the following statements: 
(a) Export houses do not get any strategic advantages through EDI. 

While Electronic Data Interchange (EDI) has been in use since the late 1960s, there are still many organizations that use their existing legacy systems for processing B2B transactions. Traditional B2B transactions like Purchase Order, Sales Order, Invoice, Advance Ship Notice, and Functional Acknowledgement often involve a series of steps to process. And processing these transactions involves many paper documents and a great deal of human intervention, which makes them prone to mistakes and human errors. But with the use of EDI, paper documents are eliminated and human intervention is minimized.

EDI enables organizations to automate the exchange of data between applications across a supply chain. This process ensures that business-critical data is sent on time. According to a market report by Dart Consulting, the estimated market size of EDI is expected to reach $1.68 billion by 2018, with projections reaching as high as $2.1 billion by 2020. But what are the advantages of EDI over traditional forms of business communication and information exchange?

To better understand these benefits, let’s take a look at some of them:

Benefits of EDI

Lower operating costs

EDI lowers your operating expenditure by at least 35% by eliminating the costs of paper, printing, reproduction, storage, filing, postage, and document retrieval. It drastically reduces administrative, resource and maintenance costs. EDI support can lower other costs as well, such as Matson Logistics who reduced their ASN fines 12% by switching to a more efficient EDI solution.

Improve business cycle speeds

Time is of the essence when it comes to order processing. EDI speeds up business cycles by 61% because it allows for process automation that significantly reduce, if not eliminate, time delays associated with manual processing that requires you to enter, file, and compare data. Inventories management is streamlined and made more efficient with real-time data updates.

Reduce human error and improve record accuracy

Aside from their inefficiency, manual processes are also highly prone to error, often resulting from illegible handwriting, keying and re-keying errors, and incorrect document handling. EDI drastically improves an organization’s data quality and eliminates the need to re-work orders by delivering at least a 30% to 40% reduction in transactions with errors.

Increase business efficiency

Because human error is minimized, organizations can benefit from increased levels of efficiency. Rather than focusing on menial and tedious activities, employees can devote their attention to more important value-adding tasks. EDI can also improve an organization’s customer and trading partner relationship management because of faster delivery of goods and services, as well as

Enhance transaction security

EDI enhances the security of transactions by securely sharing data across a wide variety of communications protocols and security standards.

Paperless and environmentally friendly

The migration from paper-based to electronic transactions reduces CO2 emissions, promoting corporate social responsibility.

(b) Documents against acceptance do not have a usage period. 

Under Documents Against Acceptance, the Exporter allows credit to Importer, the period of credit is referred to as Usance, The importer/ drawee is required to accept the bill to make a signed promise to pay the bill at a set date in the future. When he has signed the bill in acceptance, he can take the documents and clear his goods.

The payment date is calculated from the term of the bill, which is usually a multiple of 30 days and start either from sight or form the date of shipment, whichever is stated on the bill of exchange. The attached instruction would show "Release Documents Against Acceptance".

Risk

Under D/A terms the importer can inspect the documents and, if he is satisfied, accept the bill for payment on the due date, take the documents and clear the goods; the exporter loses control of them.

The exporter runs various risk. The importer might refuse to pay on the due date because :

- He finds that the goods are not what he ordered.

- He has not been able to sell the goods.

- He is prepared to cheat the exporter (In cases the exporter can protest the bill and take the importer to court but this can be expensive).

- The importer might have gone bankrupt, in which case the exporter will probably never get his money.

Documents against Acceptance Collection

With a documents against acceptance collection, the exporter extends credit to the importer by using a time draft. The documents are released to the importer to claim the goods upon his signed acceptance of the time draft. By accepting the draft, the importer becomes legally obligated to pay at a specific date.

At maturity, the collecting bank contacts the importer for payment. Upon receipt of payment, the collecting bank transmits the funds to the remitting bank for payment to the exporter. Table 2 shows an overview of this type of collection:

(c) Credit is a major weapon of international competition but it involves risk. 

Competition in foreign markets is more keen than in the domestic market. Overseas customers are sought after by exporters from many countries. Competition is getting keener still due to an all round effort on the part of all countries to increase their exports', Indian exporters have to compete with exporters from other countries not only in respect of quality, price, delivery schedules, etc., but also in respect of payment terms. Their success would depend upon the ability to offer competitive terms of credit to the foreign buyer's terms of credit on par with Export Credit on par with those offered by exporters from competing countries. Risks are inherent in all credit transactions but more in export transactions. The fact that the buyer may not pay either due to insolvency or for any other reason exposes the exporter to the credit risk. Credit risk may arise even in cases where the buyer's credit standing has been thoroughly investigated. Too cautious an attitude in evaluating buyers may result in loss of hand to get business opportunities. Hence, credit risk is unavoidable specially in export business.

Credit risk is greater in export transactions because reliable information about foreign buyers is difficult to obtain and hence, it is difficult to evaluate their credit worthiness. Credit risk has assumed large proportions today not only because the volume of export transactions has become larger but also because far-reaching political and economic changes that are sweeping the world. An outbreak of war, civil war, coup or an insurrection may block or delay the payment for goods exported. Balance of payment difficulties may lead to transfer delays. And all this is possible even when the buyer is fully in a position to pay. In addition, one has to contend will1 the possibilities of the insolvency or protected default of the buyers. In recent years there has been a significant increase in insolvencies and business failures even in many developed countries. In such a high risk situation export credit insurance can be of immense help to (i) exporters and (ii) the banks who provide finance for the export transactions.

(d) Export incentives do not promote export.

Export incentives are certain benefits exporters receive from the government as acknowledgement for bringing in foreign exchange and as compensation for the costs they incur on sending goods and services out of the country. Export incentives can take the form of:      

• Subsidies that lower export prices
• Tax concessions such as duty exemptions (which enable duty-free import of inputs for export production) and duty remissions (which enable post-export replenishment of duty on inputs used in export product)
• Credit facilities such as low-cost loans
• Financial guarantees such as provisions covering bad loans

In India, export incentives are in line with the government’s flagship “Make in India” and “Atmanirbhar Bharat” (Self-sufficient India) programmes. The former aims to transform India into a manufacturing major while the latter advocates self-sufficiency. These incentives are highlighted in a document called the foreign trade policy, which is a set of guidelines and strategies for the import and export of goods and services. The policy is formulated for a period of five years. The current one is valid till March 31. A new one will come into effect from April 1.

In India, the foreign trade policy and many of the export incentives it highlights are formulated and implemented by the Directorate General of Foreign Trade (DGFT) under the Ministry of Commerce and Industry. Then there is the Central Board of Indirect Taxes and Customs (CBIC), which devises policy regarding the levy and collection of customs duty, central excise duties and Goods and Services Tax (GST). One of its arms, the Directorate General of Export Promotion (DGEP), deals with “refund issues arising out of export”, “looks into policy issues relating to export promotion schemes”, and recommends changes/improvements in customs-related procedures and policies. Furthermore, some financial incentives are implemented by the Reserve Bank of India, the country’s central bank.   

A country’s export incentives might be considered as unfair trade practice by another country. When disputes arise between countries over the level of government involvement in foreign trade, these are settled by the World Trade Organisation (WTO). As a rule, the WTO discourages (even prohibits) government incentives barring those implemented by least-developed countries.

Why are export incentives important?

‍

China’s success as an exporting nation lies in its manufacturers receiving a wide range of government incentives (including hefty tax rebates) to produce almost exclusively for foreign markets. Here’s how export incentives benefit countries and exporters:

• They bring in foreign exchange. Countries need foreign exchange reserves to make international trade transactions easier, pay for imports, pay back foreign loans, use as a cushion against economic collapse, currency devaluation and other such events, etc 
• They create jobs by helping businesses grow and expand their workforce
• They create higher wages (especially for skilled, experienced and urban workers in India, as per this World Bank report)    
• They lower the current account deficit, which is the deficit caused when a country imports more than it exports. India’s current account deficit has averaged 2.2% of GDP in the past decade (worth around $15 billion in July-September 2020)
• They encourage self-reliance by reducing dependence on foreign goods
• All of this means export incentives contribute to overall economic growth

Question No. 3 - IBO - 04 - Export Import Procedure and Documentation - Master of Commerce (M.Com)

Solutions to Assignments 

IBO - 04 - Export Import Procedure and Documentation

Master of Commerce (M.Com) - 1st Year

Question No. 3
(a) Describe the process of preparing goods for exports and their transit to the port of shipment along with documentation formalities. 

Exports, like the import system, are held to be one of the major components of international trade. Moreover, after the LPG initiative, exporting and importing have heightened its pace of development. Exporting done by the country is bound to many formalities both legal and compulsory made by the exported nation.

In this section, we will know about these formalities that stimulate domestic economic activity.  The business exports its goods and services to other nations by adhering to basic principles and law and thus this is very important in the study of export and import fields.

Export Procedure

In general, an export procedure initiates with the willingness to send the goods and services to other foreign nations at some price, these procedures of export are stated below:

Step 1: Receipt Order

The Indian exporter will receive the order either directly from the importer or through the indent houses.

Step 2: Obtaining License and Quota

After receiving the order from the importer, the Indian exporter is required to obtain an export license from the Government of India, for this the exporter needs to apply to the Export Trade Control Authority and get a valid license for this.

Step 3: Letter of Credit

The exporter then asks the importer for the letter of credit, if the importer does not send the letter of credit along with the order.

Step 4: Fixing the Exchange Rate

The rate at which the home currency can be exchanged with the foreign currency is then fixed. The foreign exchange rate fluctuates from time to time so they need to fix the rate of exchange.

Step 5: Foreign Exchange Formalities

As per the Foreign Exchange Regulation Act of India (FERA), every exporter of the goods is required to furnish a declaration in the form prescribed in a manner in the Act.

Step 6: Preparation for Executing the Order

The exporter should make the required arrangements to execute the order:

Step 7: Formalities by a Forwarding Agent

Then the formalities are to be performed by the agent which includes obtaining a permit from the customs department, preparing the shipping bill, paying the dues after disclosing the required details of the product being exported. 

Step 8: Bill of Lading

The Indian exporter of the goods presents the receipt copy to the shipping company and issues the Bill of Lading. 

Step 9: Shipment Advice to the Importer

The Indian exporter sends shipment advice to the importer of the goods to inform him about the shipment of the goods. 

Step 10: Presentation of Documents to the Bank

The Indian exporter needs to confirm that he possesses all the necessary shipping documents.

Step 11: The Realization of Export Proceeds

The exporter of the goods needs to comply with banking formalities after submission of the bill of exchange.

Export Procedure and Documentation

In the previous section, we have learned about the export procedure formalities here we will know about the documentation necessary - 

Step 1: Receive an Inquiry

The first step in the shipping documentation process is when someone urges them to buy products. 

Step 2: Screen the Potential Buyer and Country

After you receive the inquiry from the buyer, the process is to check their business potentiality to do business with them. 

Step 3: Provide a Proforma Invoice

After screening the buyer, we need to provide the proforma invoice for the transaction. 

Step 4: Finalize the Sale

The buyer will either reject or accept your proposal thus finalizing the sale. 

Step 5: Prepare the Goods and the Shipping Documents

Commercial Invoice, Packing List, Certificate of Origin, Shipper's Letter of Instruction, Bills of Lading all need to be prepared 

Step 6: Run a Restricted Party Screening 

Again, the process needs to be run, before the goods ship for export. 

Step 7: Miscellaneous Forms and Ship Your Goods

There may be other documents that need to be prepared before exporting the goods.

Documents Required for Exporting

When deciding which documents are necessary for an export procedure, the best place to start is with your overseas customer/importer or a freight forwarder. You may help your customer in clearing items with customs in the target market by gathering precise information. Commonly used expert documents are:

Pro Forma Invoice- The document provides a description of the products, such as Price, quantity, weight, kind, and so on, and is a statement by the seller to provide the customer with the products and services at the given date and price.  

Commercial Invoice- The commercial invoice is a legal document that is exchanged between the seller and the buyer that clearly outlines the items being sold as well as the price the customer is to pay. 

Packing List- This list includes the invoice number, seller, buyer, shipper, carrier, date of shipping, mode of transport, itemized quantity, description, package type, package quantity, total net, and gross weight (in kilograms), packaging markings, and measurements.

Air Waybill- An air waybill is a document that accompanies goods carried by an international air carrier. The paperwork contains complete information about the package and enables tracking.

Export Licenses- A government document that allows the transfer of specified commodities in precise quantities to a specific destination for a defined end-use is known as an export license.

(b) Explain the customs clearance via sea along with documentation formalities.

Shipment of cargo is the culmination of the efforts of exporters which he undertook to process, the manufacturer got the pre-shipment quality certification done and pack and mark the consignment transport it to the port or deliver to the clearing and forwarding agent.

The procedure of customs clearance of export cargo are:

> The Shipping Bill and the other documents are submitted to the custom-house as soon as the Rotation Number has been given to the carrier.

> As soon as the documents are filed in the Customs House the receiving clerk will stamp the shipping bills with the date and time and number them according to their category.

> The Shipping Bill involving Foreign Exchange will be sent to the Apptaisment section where they are allotted to appraisers and examiners for scrutiny and giving examination order.

> While the Appraiser will examine the Dutiable and Drawback Shipping Bills.

> Free Shipping Bill will be examined by the Examiners.

> The verification of the Shipping Bill will be carried out with reference to the value and quantity of goods export license/quota/permit compliance with statutory requirements, rate and amount of export duty, etc.

> After verification of Shipping bill the customs Appraiser/Examiner will give an "examination order" on the Duplicate Shipping Bill. This order will enable the customs officer to carry out a physical examination of goods in the docks. The "examination order" will also be counter-endorsed by the principal Appraiser.

> After completion of formalities at the Appraisement Section, the documents are given to the GR form clerk who puts the Shipping Bill Number on the GR form and detaches the original to be sent to RBI.

> Further where export duty is to be paid, the documents are given to the exporter/CFA to pay it at the cash and accounts department. After payment of duty, Shipping Bill is detached and the other documents are given to the exporter/CFA. In other cases, Shipping Bill is retained at Customs House, and other documents are given to the exporter/Agent for bringing the goods to the shipment shed and make Shipment arrangement.

The second stage of Customs formalities is to carry-out the physical examination of goods in the shed. The goods can be brought into the shed only after completing port formalities once the goods have been brought in the exporter CFA will present the Shipping Bill to the custom shed Appraiser/Examiner along with the following documents:

(a.) Invoice

(b.) Packing List

(c.) AR4/AR5 Forms

(d.) Agmark Certificate, if applicable

After the physical examination report, the customs prevention officer at the docks gives permission for Shipment on the Shipping Bill(Duplicate) in the form of "Let Ship" order.

The master of the carrier, after receiving consignments on board issues "Mate's Receipt" which is obtained by the exporter or his CFA through shed Superintendent after paying port dues.

Documents Required :

Export is possible only with the help of documents for movement of goods by air or seat he customs permission for Shipment is given on a prescribed document known as Shipping Bill. There are four Shipping Bill as under:

1.) Dutiable Shipping Bill/Bill of Export: This is for those goods which attract the payment of duty/cess for exports.

2.) Drawback Shipping Bill/Bill of Export: This applies to those goods which are entitled to the Duty Drawback scheme.

3.) Free Shipping Bill/Bill of Export: These are those goods which do not attract Export Duty and are not eligible for Duty Drawback.

4.) Ex-Bond Shipping Bill/Bill of Export: This applies to these goods which are shipped from the customs bonded warehouse.

The exporter or his CFA has to submit the following documents to the Customs Department for Custom Clearance:

>Shipping Bill in duplicate, triplicate, quadruplicate duly filled, in signed and stamped.

> Declaration regarding the truth of the statement made in the Shipping Bill.

> Invoice Copy.

> GR Form.

> Export Licence, if required.

> Quality Control Inspection Certificate.

> Original contract of exports on correspondence leading to the contract.

> Contract registration certificate.

> Letter of Credit if applicable.

> Packing List.

> AR4/AR5 forms original and duplicate.

> Any other relevant documents.

Question No. 2 - IBO - 04 - Export Import Procedure and Documentation - Master of Commerce (M.Com)

Solutions to Assignments 

IBO - 04 - Export Import Procedure and Documentation

Master of Commerce (M.Com) - 1st Year

Question No. 2  Distinguish between: 

(a) Insurance policy and Insurance Certificate. 

Insurance Certificate 

A certificate of insurance (COI) is issued by an insurance company or broker. The COI verifies the existence of an insurance policy and summarizes the key aspects and conditions of the policy. For example, a standard COI lists the policyholder's name, policy effective date, the type of coverage, policy limits, and other important details of the policy.

Without a COI, a company or contractor will have difficulty securing clients; most hirers will not want to assume the risk of any costs that might be caused by the contractor or provider.

Certificates of Insurance is used in situations where liability and significant losses are of concern and require one, which is most business contexts. What is a certificate of insurance used for? Small-business owners and contractors often have a COI granting protection against liability for workplace accidents or injuries. The purchase of liability insurance will usually trigger the issuance of an insurance certificate.

Without a COI, a business owner or contractor may have difficulty winning contracts. Because many companies and individuals hire contractors, the client needs to know that a business owner or contractor has liability insurance so that they will not assume any risk if the contractor is responsible for damage, injury, or substandard work.

Typically, a client will request a certificate directly from the insurance company rather than the business owner or contractor. The client should confirm that the name of the insured on the certificate is an exact match of the company or contractor they are considering.

Also, the client should check the policy coverage dates to ensure that the effective date of the policy is current. The client should secure a new certificate if the policy is set to expire before the contracted work is complete.

Certificates of insurance contain separate sections for different types of liability coverage listed as general, auto, umbrella, and workers' compensation. “Insured” refers to the policyholder, the person, or company who appears on the certificate as being covered by the insurance.

In addition to coverage levels, the certificate includes the policyholder's name, mailing address, and describes the operations the insured performs. The address of the issuing insurance company is listed, along with contact information for the insurance agent or the insurance agency’s contact person. If several insurance companies are involved, all names and contact information are listed.

When a client requests a COI, they become a certificate holder. The client's name and contact information appear in the bottom left-hand corner along with statements showing the insurer's obligation to notify the client of policy cancellations.

The certificate briefly describes the insured’s policies and limits provided for each type of coverage. For example, the general liability section summarizes the six limits the policy offers by category and indicates whether coverage applies on a per claim or per occurrence basis. Because state laws determine the benefits provided to injured workers, the worker’s compensation coverage will show no limit. However, an employer’s liability coverage limits should be listed.

Insurance policy

Import Export Insurance is a type of insurance cover that relates to goods that are transported to and from countries. If your company is an exporter or importer – or both – then having the relevant insurance cover in place is essential to ensure the continuing success of your company in the future.

The coverage is generally defined by reference to clauses known as Institute Cargo  Clauses. The ICC (C), ICC (B) and ICC (A) Clauses define different levels of coverage against marine risks and the cargo may be covered subject to any one of these clauses.

It is a primary obligation under every international sale of goods contracts that either the seller or the buyer will have to arrange adequate insurance for the goods in accordance with the agreed shipment terms (INCOTERMS).

Cargo may be exposed to risks specific to the mode of transport and the route taken, as well as perils beyond the reasonable control of all parties to the contract, for instance:

Fire

Explosion

Armed Robbery

Storm, flood and other weather hazards

Washing overboard in the heavy sea

Leakage

General Average Claims

(b) Liner and Tramp Shipping Services. 

How can you ship goods from one international destination to another? Yes, it’s via air or ocean transport through which freight forwarders or shippers transport the consignment to the final delivery point.  Unlike air freight, sea freight has some options, a shipper can choose between Liner and Tramp Services. In this article let’s understand both these terms and their differences.

The Liners

The name liners have been derived from the word ‘Line Voyages’ that means a voyage or trip that follows a set schedule and route.  The ships that move shipments across the routes are called liners, following strict routes, schedules and delivering on time under all circumstances unless there is a delay caused by natural events.

These liner ships not only carry shipment through containers, but provide other services also from RORO services, bulk cargo service to break bulk service.

Do you how many types of liner service are available:

Independent service

Conference service

Consortia service

Alliance service 

Tramp Service

A tramp service, also called a tramper is a service that is even available at a short notice, so it does not follow any strict schedule or routes. With tramp service, goods can be on and off loaded at any port. Trampers are also used to carry bulk cargo, apart from usual cargoes.

1. Liner service follows a fixed route and schedule as well as the destination. Tramp service does not have a fixed schedule or route, and is even available at a short notice. It is less expensive and even has the capability to fit in ships with lesser speed.
2. The liner owners follow pre-defined rules, terms and conditions related to the carriage and delivery of the cargo. There are no such conditions for tramp services.
3. The liners have modern equipment through which loading and unloading can be faster. Trampers generally do not take a huge load, they prefer to transport one or two shippers consignment and limit their loading and loading to a lesser number of ports.
4. The liner ship is huge enough with many facilities to carry even refrigerated items. They can carry a variety of goods. As the liner has many cabins and compartments, it has the capability to contain consignment from multiple shippers and can place them accordingly. Tramps are a little smaller and can carry only simple and uniform cargo in larger quantities. It can carry only one kind of specific goods at a time.

Question No. 1 - IBO - 04 - Export Import Procedure and Documentation - Master of Commerce (M.Com)

Solutions to Assignments 

IBO - 04 - Export Import Procedure and Documentation

Master of Commerce (M.Com) - 1st Year

Question No. 1 What are the steps involved in the processing of an Export order? Explain them briefly.

An export exercise is concluded successfully only after the exporter has been able to deliver the consignment in accordance with the export contract and receive payment for the goods.

This involves practice of prescribed procedure to be performed (Branch 2000). The fact is that one does not need only to be very well informed about his/her export company, his/her products, his/her suppliers, his/her export chain, his/her market, the world market, but one also needs to know the export rules and terms, the different cultures that one targets and the final customers’ needs.

Then comes fulfilling these needs by the most competitive way and by adding value to one’s services. This is so because all sell the same products with minor changes , but what makes the difference is the method and the value added services one provides to the ultimate consumers. Simply speaking, that making an export company is an easy process, but making d successful and long lasting export company is a very difficult task. 

Therefore, it seems pertinent now to make you learn the various steps’ involved in the processing of an export order.

These are listed as follows:

1. Having an Export Order:

Processing of an export order starts with the receipt of an export order. An export order, simply stated, means that there should be an agreement in the form of a document, between the exporter and importer before the exporter actually starts producing or procuring goods for shipment. Generally an export order may take the form of proforma invoice or purchase order or letter of credit. You have already learnt these just in the preceding section.

2. Examination and Confirmation of Order:

Having received an export order, the exporter should examine it with reference to the terms and conditions of the contract. In fact, this is the most crucial stage as all subsequent actions and reactions depend on the terms and conditions of the export order.

The examination of an export order, therefore, includes items like product description, terms of payment, terms of shipment, inspection and insurance requirement, documents realising payment and the last date of negotiation of documents with the bank. Having being satisfied with these, the export order is confirmed by the exporter.

3. Manufacturing or Procuring Goods:

The Reserve Bank of India (RBI), under the export credit (interest subsidy) scheme, extends pre-shipment credit to exporter to finance working capital needs for purchase of raw materials, processing them and converting them into finished goods for the purpose of exports. The exporter approaches the bank on the basis of laid down procedures for the pre-shipment credit. Having received credit, the exporter starts to manufacture / procure and pack the goods for shipment overseas.

4. Clearance from Central Excise:

As soon as goods have been manufactured/ procured, the process for obtaining clearance from central excise duty starts. The Central Excise and Sale Act of India and the related rules provide the refund of excise duty paid. There are two alternative schemes whereby 100 per cent rebate on duty is given to export products on the submission of the proof of shipment.

The first scheme is to make payment of the excise duty at the time of removing the export consignment from the factory and file a claim for rebate of duty after exportation of goods. The second scheme is to remove goods from factory/warehouse without payment but under an appropriate bond with the excise authorities. The exporter needs to apply on a form known as AR4 or AR4A to the Central Excise Range Superintendent for obtaining excise clearance.

Form A is filed when goods are to be cleared after examination by the excise inspector. In all other cases, form AR4A is filed.

5. Pre-Shipment Inspection:

There are number of-goods whose export requires quality certification as per the Government of India’s notification. Consequently, the Indian custom authorities will require the submission of an inspection certificate issued by the competent and designated authority before permitting the shipment of goods takes place.

Inspection of export goods may be conducted under:

(i) Consignment-wise Inspection

(ii) In-process Quality Control, and

(iii) Self-Certification.

The Inspection Certificate is issued in triplicate. The original copy is for the customs verification. The second copy of the certificate is sent to the importer and the third copy remains with the exporter for his reference purpose.

6. Appointment of Clearing and Forwarding Agents:

On completion of the process of obtaining the Inspection Certificate from the custom agencies, the exporter appoints clearing and forwarding agents who perform a number of functions on behalf of the exporter.

The main functions performed by these agents include packing, marking and labeling of consignment, arrangement for transport to the port arrangement for shipment overseas, customs clearance of cargo, procurement of transport and other documents.

In order to facilitate the exporter in discharging his duties, the following documents are submitted to the agent:

(i) Commercial invoice in 8-10 copies

(ii) Customs Declaration Form in triplicate

(iii) Packing list

(iv) Letter of Credit (original)

(v) Inspection Certificate (original)

(vi) G.R. Form (in original and duplicate)

(vii) AR4/ AR4A (in original and duplicate)

(viii) GP-l/GP-2 (original)

(ix) Railway Receipt/Lorry Way Bill, as the case may be

7. Goods to Port of Shipment:

After the excise clearance and pre-shipment inspection formalities are completed, the goods to be exported are packed, marked and labeled. Proper marking, labeling and packing help quick and safe transportation of goods. The export department takes steps to reserve space on the ship through which goods are to be sent to the importer.

The shipping space can be reserved either through the clearing and forwarding agent or freight broker who works on behalf of the shipping company or directly from the shipping company. Once the space is reserved, the shipping company issues a document known as Shipping Order. This order serves as a proof of space reservation.

If goods are sent through a road carrier to the port, no specific formality is involved. In case, the goods are sent by rail to the port of shipment, allotment of wagon needs to be obtained from the Railway Board.

The following documents are submitted to the booking railway yard/station:

(i) Forwarding Note (A Railway Document)

(ii) Shipping Order

(iii) Wagon Registration Fee Receipt

Once wagons have been allotted, goods are loaded, for which railways will issue Railway Receipt (RR). Then, this receipt and other documents are sent to the clearing and forwarding agent at the port town. At the same time, the production/export department takes insurance policy in duplicate for risk coverage (internal as well as overseas) for the goods to be exported.

8. Port Formalities and Customs Clearance:

Having received the documents from the export department, the clearing and forwarding agent takes delivery of the cargo from the railway station or the road transport company and stores it in the warehouse. He also obtains customs clearance and permission from the port authorities to bring the cargo into the shipment shed.

The custom department grants permission for export at the office of the customs and physical verification of goods in the shipment shed. The clearance for export is given on the Shipping Bill.

The clearing and forwarding agent is required to submit the following documents with the Customs House for obtaining customs clearance and permission:

(i) Shipping Bill

(ii) Contract Form

(iii) Letter of Credit, if applicable

(iv) Commercial Invoice

(v) GR Form

(vi) Inspection Certificate

(vii) AR4/AR4A Form

(viii) Packing List, if needed

After receiving documents from the export department, the clearing and forwarding agent presents the Port Trust Document to the Shed Superintendent of the port. He obtains carting order bringing the cargo to the transit shed for physical examination by the Dock Appraiser.

The Dock Appraiser is presented the following documents to facilitate him in physical examination of export goods:

(i) Shipping Bill

(ii) Commercial Invoice

(iii) Packing List

(iv) AR4/ AR4A Form and Gate Pass

(v) GR Form (duplicate)

(vi) Inspection Certificate (original)

The Dock Appraiser, after making examination, makes ‘Let Export’ endorsement on the duplicate copy of the Shipping Bill and hands over it to the Forwarding Agent. All these documents are presented to the Preventive Officer who puts an endorsement ‘Let Ship’ on the duplicate copy of the Shipping Bill. The preventive officer supervises the loading of cargo on board the vessel.

After the goods are loaded on board the vessel, the captain of the ship issues a receipt known as ‘Mate’s Receipt’ to the Shed Superintendent of the port concern. The forwarding, agent after paying port charges, takes the delivery of the ‘Mate Receipt’. He submits to Shipping Company and requests it to issue the Bill of Lading.

9. Dispatch of Documents by Forwarding Agent to the Exporter:

After obtaining the Bill of Lading from the Shipping Company, the clearing and forwarding agent dispatches all the documents to his / her exporter.

These documents include:

(i) Commercial Invoice (attested by the customs)

(ii) Export Promotion Copy

(iii) Drawback Copy

(iv) Clean on Board Bill of Lading

(v) Letter of Credit

(vi) AR4/ AR4A and Gate Pass

(vii) GR Form (in duplicate)

10. Certificate of Origin:

On receipt of above documents from the forwarding agent, the exporter now applies to the Chamber of Commerce for a Certificate of Origin and obtains it. If the goods are exported to countries offering GSP concessions, the exporter needs to procure the GSP Certificate of Origin from the concerned authority like Export Inspection Agency.

11. Dispatch of Shipment Advice to the Importer:

At last, the exporter sends ‘Shipment Advice’ to the importer intimating the date of shipment of the consignment by a named vessel and its expected time of arrival at the destination port of the importer.

The following documents are also sent to the importer to facilitate him for taking delivery of the’ consignment:

(i) Bill of Lading (non-negotiable copy)

(ii) Commercial Invoice

(iii) Packing List

(iv) Customs Invoice

12. Submission of Documents to Bank:

At the end of the process, the exporter presents the following documents to his bank for realisation of his amount due to the importer:

(i) Commercial Invoice’

(ii) Certificate of Origin

(iii) Packing List

(iv) Letter of Credit

(v) Marine Insurance Policy

(vi) GR Form

(vii) Bill of Lading

(viii) Bill of Exchange

(ix) Bank Certification

(x) Commercial Invoice

13. Claiming Export Incentives:

On completion of the processing of an export order at the three levels of shipment i.e., pre-shipment, shipment and post-shipment, the exporter claims for export incentives admissible to him / her.

IBO - 04 - Export Import Procedure and Documentation - Master of Commerce (M.Com)

Solutions to Assignments 

IBO - 04 - Export Import Procedure and Documentation

Master of Commerce (M.Com) - 1st Year

Question No. 1 What are the steps involved in the processing of an Export order? Explain them briefly.

                                                                                        CLICK HERE

Question No. 2  Distinguish between: 

(a) Insurance policy and Insurance Certificate. 

(b) Liner and Tramp Shipping Services.                         CLICK HERE

Question No. 3

(a) Describe the process of preparing goods for exports and their transit to the port of shipment along with documentation formalities. 

(b) Explain the customs clearance via sea along with documentation formalities.    

                                                                                        CLICK HERE

Question No. 4 Comment on the following statements: 

(a) Export houses do not get any strategic advantages through EDI. 

(b) Documents against acceptance do not have a usage period. 

(c) Credit is a major weapon of international competition but it involves risk. 

(d) Export incentives do not promote export.                 CLICK HERE

Question No. 5 Write notes on the following: 

(a) General Provisions for imports. 

(b) Foreign Currency Account. 

(c) Financing under Deferred Payment Arrangement. 

(d) ISO 9000.                                                                    CLICK HERE