Sanjay Dwivedi, Advocate

Export without payment of duty by a Merchant Exporter

1. The following note explains the procedure of export under bond to be adopted by a merchant exporter. This procedure applies when: A foreign customer has placed order on the merchant for supply of goods. The merchant want to procure goods without payment of duty, from some manufacturer in India and export. The said manufacturer is registered under C. Excise law.

2.

Authority: The legal provisions and instructions for removal of goods without payment of duty for export are covered by: Rule 19 of C. Excise Rules, 2002; Notification (NT); Chapter 7 read with Chapter 14 of the CBEC 42/2001-CE

Summary of the Steps Involved

a. Execution of B-1 Bond b. Obtaining CT-1 Certificate c. Preparation of Export Documents d. Intimation to Excise office before removal e. Sealing of the goods f. Sending the goods to Customs Area g. Submission of documents to

Supplementary Instructions. Customs valuation

(Determination of Value of Export Goods) Rules, 2007 CBEC Circular No. 37/2007Customs, dated 9th October, 2007 CBEC Circular No.

Excise office immediately after removal h. Submission of Proof of Export

860/18/2007-CX, dated 22nd November, 2007

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3.

Execution of B-1 Bond (i) Format of the bond is attached. Please fill up the blanks and take a print out on a 100/- rupee stamp paper. (ii) Amount of Bond: The bond has to be for the amount of C. Excise Duty involved in the export item. It can be for a specific consignment (covering duty amount only of this consignment) OR it can be a general bond for higher amount and could be used repeatedly. Choice is ours. [Example: Suppose our present consignment involves a duty of Rs. 10,000/-, then our bond has to be at least of Rs. 10,000/-. If we know that we will need the bond for many more consignments, then we may execute a bond for higher amount say Rs. 10,00,000/-. Then we will not have to execute fresh bond for exporting the new consignment.] (iii) Get the bond notarized. [Our signature on the bond is to be verified. It can be done either by the Superintendent of C. Excise or a notary. They would endorse on the bond as Before me and put their signature.] (iv) Duly notarized bond be submitted to the department. A draft covering letter is attached. (v) We are required to file a surety/ security along with the bond. Security has to be of 25% of the bond amount and can be given by way of bank guarantee. However, if we are registered with the Export Promotion Council for the concerned product, we would be exempted from furnishing any security/ surety against the bond. This is as per paragraph 5.1 of the CBECs Excise Manual of Supplementary Instructions.

4.

Issuance of CT-1 Certificate: This certificate is issued by the Superintendent in the office of the bond accepting authority. Make an application using the attached draft. Also prepare and submit the CT-1 certificate for being issued by the department. Goods are removed without payment of duty, from the factory of the manufacturer against this certificate.

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5.

Factory Stuffing Permission: If we want that a container should be taken to the manufacturers factory and the same should be stuffed with the goods and sealed under C. Excise supervision, we first need to obtain permission from the Customs department. A separate note on the issue is attached.

6.

Preparation of Documents: Following documents (except commercial invoice) have to be prepared at the manufacturers end. The commercial invoice will be prepared by the merchant exporter. ARE-1: Signed by merchant, and countersigned by the manufacturer C. Excise Invoice: Issued & signed by the manufacturer Packing List: Signed by the manufacturer

These documents should accompany the goods from manufacturers premises to the port

Commercial/ Custom Invoice: These documents are given to CHA separately. Issued by the merchant exporter Declaration under export valuation rules: Signed by the merchant exporter (i) ARE-1 has to be signed by the merchant as well as by the manufacturer. It shall mention us as the exporter. There is no need to give name or address of the foreign customer. We may merely mention name of the country to which the goods are to be exported. Following things have to be incorporated in the ARE1: a. Classification & Tariff Description of the goods: There is a column in the ARE-1 for description of the goods. Describe the goods as you normally do for your other clearances. Below that mention:

C. Excise Tariff Item No.: xxxx xx xx (mention 8 digit classification)

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Description as per C. Ex. Tariff: ________________ (give full description as per the tariff)

b. There is a column for mentioning invoice number. Please mention the Excise invoice no. and date. c. In remarks column mention: Removal without payment of duty for export under CT-1 no. ________ dated _______ issued by ______ against the Bond no. ______ valid upto _____ executed by the exporter.

(ii) Packing List Signed by the manufacturer. (iii) Excise invoice: It will be issued by the manufacturer. He would use separate series of invoice for export (say E-1, E-2, E-3 etc.). The manufacturer would ensure that serial number of the invoices of export series is also intimated to the department online. The description of the goods mentioned in invoice should be the exactly same as that in the ARE-1.Value declared in the invoice (and the ARE-1) would be the price charged by the manufacturer to us (and not the F.O.B.). Please include the following in the invoice: i. The invoice will mention us (the merchant exporter) as buyer j. Mention the following words on the top of the invoice:

FOR EXPORT WITHOUT PAYMENT OF DUTY

k. The invoice will also contain the following declaration in its body: Removal without payment of duty for export under CT-1 no. ________ dated _______ issued by ______ against the Bond no. ______ valid upto _____ executed by the exporter.

Corresponding ARE-1 no. ______, dated _____

(iv) Date & Time of Removal of goods: The date & time of removal has to be mentioned on excise invoice as well as on the ARE-1. This has to be the actual date and time when the goods are removed from the factory. Obviously the same date and time of removal would appear on both the documents.

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7.

Other Documents: a. Customs invoice will not be required at the manufacturers end. It is to be issued by us to our customer. Value in the customs invoice will be as per the purchase order of our foreign buyer.

b. The exporter needs to give a declaration under Export Valuation Rules.

8.

STEPS TO BE TAKEN AT THE MANUFACTURERS END:

8.1. Choice of sealing the packages: The packages (or container) have to be sealed before they are removed from the factory. The sealing can be done either by the manufacturer himself or by the Excise department. Choice is ours. However, if the export is under free shipping bill then self-sealing is compulsory. (Free Shipping Bill means where benefits under export schemes are not availed. Such benefits are Advance Licence, DEPB, Drawback etc.)

8.2. Intimation to Range office of the manufacturer: Before the packages are sealed, the manufacturer should inform his Range Office. Two Draft letters for submission to range are attached. (Select it based on whether there would be self sealing, or sealing by department

8.3. Examination and Sealing of the packages: a. Self-Sealing: The manufacturer should seal the packages using his own seal and give the following certificate on the ARE-1: Certified that the description and value of the goods covered by this ARE-1 have been checked by me and that the goods have been packed and sealed under my supervision.

He should sign below the above certificate.

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b. Sealing under C. Excise supervision: In this case the Superintendent & Inspector sign on reverse of the ARE-1 certifying that the goods have been sealed in their supervision. If it is a container stuffing, they would also issue a detailed examination report on reverse of the Customs/ Commercial Invoice and the packing list. The merchant will have to send the invoices at the manufacturers end. They would also sign a separate examination report in the format attached.

8.4. Post-Removal Intimation to Range office of the manufacturer: After removal of the goods, the manufacturer should submit the Triplicate and the Quadruplicate copies of ARE-1 to his Range Superintendent. The Superintendent will sign the Triplicate Copy and return it in a sealed envelope. Please obtain this sealed envelope from the manufacturer and preserve. This will be needed at the time of filing proof of export. Draft letters are attached.

9.

Sending the Goods to Customs Area: Following documents should be sent alongwith the goods: a. Original and Duplicate copy of ARE-1 b. Packing List c. Duplicate copy of Excise Invoice. Excise invoice gets returned back from the customs area. All other documents, including customs invoice, and declaration under Export Valuation Rules should be given directly to the CHA.

10.

After shipment has taken place our CHA will send us the following documents: 1. Original & Duplicate and Quintuplicate copy of the ARE-1 bearing shipping bill number, name of the vessel, date of export. It would be duly signed by the Customs Officer. [The duplicate copy is handed over by the Customs in a sealed envelope. Original copy is received open.] 2. 3. Shipping Bill Bill of Ladding.

SRD LEGAL, Advocates & Consultants 11. Submitting Proof of Export:

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The proof of export will be submitted by the merchant exporter to the bond accepting authority (i.e. the office where B-1 bond was accepted). Following documents will be submitted alongwith a statement in the prescribed form Annexure 19: i. ii. The original copy of A.R.E. 1 The duplicate copy of A.R.E. 1 [Note: Both the copies bear signature of Customs Officer; shipping bill no., vessel/ flight no, date on which it left the country. These details should match with other documents. For example, the shipping bill no. should match with the number mentioned on the shipping bill]

iii.

The triplicate copy of ARE-1 [Please recall that this copy is submitted to the range immediately after the goods were removed for export we filed the Triplicate Copy of ARE-1 with the range office. The range Superintendent is required to sign on the reverse and return to us in a sealed cover. Alternatively, he may directly forward it to the AC/ DC with whom the bond was executed. In case the range office did not give us the triplicate copy back, we should attach the acknowledgement received from the range as a proof that the document has been submitted to him].

iv.

Self-attested photocopy of Shipping Bill (Export Promotion Copy).

v.

Self-attested photocopy of Bill of Lading or Air way Bill

NOTE: 1. Value in ARE-1/ Excise invoice may be different than F.O.B. In fact in our case it will be different. The value in ARE-1/Excise invoice will correspond to value under Section 4 of C. Excise Act, 1944 (the Transaction Value i.e. the price at

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which the manufacturer is selling the goods to us). On the other hand the value in shipping bill and the Customs invoice (F.O.B.) will correspond to Section 14 of Customs Act, 1962 (i.e. our sale price). This has been clarified by CBEC vide circular no. 203/37/96-CX dt. 26.06.1996.

2. The excise authorities may some times ask for the following documents also a. Mate Receipt b. Bank Realisation Certificate/ FIRC evidencing receipt of payment against the export. c. C. Excise Invoice (This comes back to us if it is a direct export)

3. When we file the Annexure-19, we should ensure that we receive an akcnowledgement to the effect that these documents have been submitted. Therefore, please include the list of documents at the bottom of the Annexure 19 (just above the place where department is required to give acknowledgement). If you are attaching covering letter, mention the document list in covering letter as well as at the bottom of the Annexure-19.

4. The proofs are to be examined by AC/ DC and he is supposed to accept it (or raise a dispute). Some offices send us letter informing that the proof has been accepted. Most, however, dont.

Attachments: 1. Bond B-1 2. Covering Letter for submitting B-1 bond to excise. 3. Application requesting for issuance of CT-1 certificate 4. Format of CT-1 certificate 5. Declaration under Export Valuation Rules 6. Advance Intimation to C. Excise: Self sealing Sealing under C. Excise supervision

SRD LEGAL, Advocates & Consultants 7. Note on obtaining factory stuffing permission.

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8. Format of examination report to be issued by the C. Excise officers (required only when the goods or the container is sealed under their supervision). 9. Intimation to C. Excise after removal Self sealing Sealing under C. Excise supervision

10. Form Annexure 19 for filing proof of export

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