Processing of an Export Order

5.0 Objectives

After studying this unit, you should be able to:

• Describe different stages, preparation, and processing of documents for pre-shipment and post-shipment formalities.
• Explain specific points to be examined while confirming the receipt of the export order.
• Explain documentary requirements for obtaining excise and customs clearance of export cargo.
• Describe formalities for claiming major export incentives.
• Enumerate documents to be submitted to the Bank.

5.1 Introduction

• Importance and range of documentation formalities in export-import trade are crucial.
• An export exercise is concluded successfully after the exporter delivers the consignment per the contract and receives payment.
• This unit covers various steps involved in processing an export order at pre-shipment, shipment, and post-shipment stages, including claiming export incentives.

5.2 Nature and Format of Export Order

• Processing begins with the receipt of an export order, which can be:
  • An export sales contract.
  • An instrument evidencing the conclusion of a contract.
• There should be a documented agreement between the exporter and importer before arrangements for production/procurement and shipment.
• Forms of an export order:
  • Proforma Invoice accepted and signed by the importer.
  • Purchase Order accepted and signed by the exporter.
  • Letter of Credit opened by the importer in favor of the exporter.
• A Proforma Invoice is prepared by the exporter and sent to the importer; its acceptance signifies contract conclusion.
• In long-term contracts, proforma invoices may be required for intended shipments.
• Alternatively, the export contract may require a purchase order from the importer, accepted by the exporter if aligned with the contract terms.
• A letter of credit, while a payment instrument, also outlines major shipment terms, enabling the exporter to start processing the order.

5.3 Examination and Confirmation of Export Order

• Upon receiving an export order, the exporter must acknowledge it to the importer via telephone, telex, fax, etc., to establish goodwill.
• The exporter must carefully examine the order to ensure no discrepancy between the export order and export contract (verbal or written).
• Items to be examined:
  • Product description, including specifications, style, color, packing conditions, etc.
  • Marking and labeling requirements.
  • Terms of payment, including currency, nature of the letter of credit (revocable, irrevocable, confirmed, unconfirmed, restricted, unrestricted, etc.), and credit period.
  • Terms of shipment, including choice of carrier, mode of carriage, place of delivery, date of shipment/delivery, port of shipment, trans-shipment, etc.
  • Inspection requirement, including the type of inspection and inspecting agency.
  • Insurance requirements, including risk to be covered and insurable value.
  • Documents for realizing payment, including the nature and number of invoices, certificate of origin, certificate of inspection, certificate of value, bill of exchange, insurance policy, transport document, and document of title.
  • Last date of negotiation of document with the bank.
• A new exporter may ignore certain aspects of the export order, leading to difficulties and losses.
  • For example, if the importer specifies an inspection agency that doesn't operate in India, it may be too late to change after manufacturing.
• Any discrepancies must be immediately communicated to the importer for amendment.
• The exporter becomes liable to fulfill contractual obligations only after the amended order is received and confirmed.
• It is commercially prudent to confirm the order by sending a documentary confirmation; in certain contracts, it may be a legal requirement.
• There is no specific format for the confirmatory letter.

5.4 Manufacturing or Procuring Goods

• Each export firm has internal procedures for production/procurement, packing, marking, labeling, and dispatching goods to the port.
• A systematic approach involves sending a delivery note (in duplicate) to the production department, or a purchase order for merchant-exporters.
• Specific instructions are given on the document regarding production and transport activities, including:
  • Time period for completion.
  • Product specification.
  • Quantity required.
  • Packing, marking, and labeling requirements.
  • Inspection requirements.
  • Excise clearance requirements.
  • Intimation to the transport department.
• The production/procurement department retains one copy and confirms delivery on the duplicate copy.
• The purchasing, processing, manufacturing, and packing of goods for exports are facilitated by the packing credit facility given by the commercial banks in India.
• Under the export credit scheme of the Reserve Bank of India, banks extend pre-shipment and post-shipment credit to exporters, manufacturers, and merchant exporters.
• Pre-shipment credit finances working capital needs for raw materials, processing, and converting them into finished goods for export, based on the letter of credit, confirmed export order, or other evidence of the order.
• The rate of interest charged is concessional.
• Banks also grant post-shipment credit to bridge the time-gap between shipment and realization of sale proceeds.
• Packing credit advances are normally granted on a secured basis with collateral security, third-party guarantee, or mortgage.
• Once the goods are acquired, they are to be hypothecated.
• Banks have evolved documentation and procedural systems for granting the credit. The following disbursement procedure is generally followed:
  • The exporter hands over the export order/letter of credit to the bank, which accepts it and affixes a rubber stamp reading 'export finance granted'.
  • The bank calculates the drawing power of the exporter based on factors including the value of export order/letter of credit.
  • Funds are released by debiting the packing credit account and crediting the exporter's account.
  • Goods are generally required to be sent through approved transport agencies and forwarding agents.
  • Goods are suitably insured while in the warehouse and in transit.
• The exporter approaches the bank for pre-shipment credit to manufacture/procure and pack the goods for shipment overseas.

5.5 Central Excise Clearance

• The Central Excise and Sale Act of India and related rules provide for the refund of excise duty paid or exemption from payment, both on final export production and inputs (rebate in excise duty).
• Documents used are Invoice and AR4/AR5 forms.
• When goods are ready for dispatch, the production department applies to the central excise authority for excise clearance.
• Exporters prepare six copies of AR4/ARS forms and are allowed to remove the goods for export without examination or after examination by Central Excise Officers.
• Without examination, the exporter submits 4 copies of AR4/ARS form to the superintendent of Central Excise within twenty-four hours of removal.
• The Superintendent examines and signs the form if satisfied and returns it to the concerned persons.
• If the exporter desires sealing of the goods by the Central Excise Officers, they submit AR4/AR5 forms in sixtuplicate.
• The superintendent may depute an inspector or may himself examine and seal the cargo.

5.6 Pre-Shipment Inspection

• The Government of India notifies goods requiring compulsory quality control or pre-shipment inspection.
• Indian customs authorities require an inspection certificate issued by the designated agency before permitting shipment.
• The basis of inspection is usually the importer's specification, except for goods involving safety or health hazards, where notified minimum standards are enforced.
• Inspection of export goods may be conducted under:
  • Consignment-wise Inspection
  • In-process Quality Control
  • Self-Certification
• Before export packs are sealed by excise authorities, pre-shipment inspection must be completed.
• The production department applies to the Export Inspection Agency (EIA) by submitting a Notice of Inspection with the following documents:
  • A copy of the commercial invoice
  • Crossed cheque of demand draft for inspection fee
  • A copy of export contract
  • Importer's technical specifications and/or approved sample.
• After inspection, the EIA issues the Inspection Certificate in triplicate.
• The original certificate is for customs verification and is submitted to customs authorities.
• The second copy may be sent to the buyer, if needed.
• The third copy is for the exporter's record.

5.7 Appointment of Clearing and Forwarding Agents

• Clearing and forwarding agents (freight forwarders) provide specialized help from the exporter's warehouse to the importer's warehouse by undertaking procedural and documentary formalities.
• They assist in packing, marking, labeling, arranging transport to the port and overseas shipment, customs clearance, and procuring transport documents.
• The main function is to obtain customs clearance and procure the Bill of Lading or Airway Bill.
• The exporter provides detailed instructions to the agent, who charges a fee for these activities.
• After excise clearance and obtaining the Inspection Certificate, the production department dispatches the consignment to the port by road or rail, informing the export department by signing the Delivery Note or Despatch Advice, along with:
  • Railway Receipt or Lorry Way Bill
  • Invoice
  • AR4/AR5 Form (Original and Duplicate)
  • Inspection Certificate (Original)
• The export department appoints a clearing and forwarding agent using a Shipping Instruction Sheet, which contains:
  • Full instructions and consignment details.
  • Commercial Invoice (8-10 copies).
  • Customs Declaration Form in Triplicate.
  • Packing list.
  • Original Letter of Credit/Contract.
  • Inspection Certificate (Original).
  • GR Form - Original and Duplicate (foreign exchange declaration).
  • AR4/AR5 form (Original and Duplicate).
  • Invoice.
  • Railway Receipt/lorry Way Bill.

5.8 Transportation of Goods to Port of Shipment

• Transportation involves:
  • Packing, marking, and labeling.
  • Arrangement for movement by road or rail.
• Export-worthy packing minimizes freight and delivery costs and avoids insurance claim refusals.
• Specific packing instructions in the export contract must be followed.
• Packages are properly marked and labeled for identification, handling, shipping, and delivery.
• Labels contain handling instructions.
• After excise clearance and inspection, goods are packed, marked, and labeled.
• The export department reserves space on the ship through the clearing and forwarding agent, freight broker, or directly with the shipping company.
• The shipping company issues a Shipping Order as proof of space reservation.
• Information on space reservation is given to the production department for making transport arrangements to the port.
• For road transport, the production department engages a carrier to book the consignment to the port with a Lorry/Truck Receipt.
• For rail transport, documents are submitted to the booking railway yard/station:
  • Forwarding Note (A railway document).
  • Shipping Order (proof of reservation).
  • Wagon Registration Fee Receipt.
• After allotment, goods are loaded, and the railways issue a Railway Receipt (RR).
• The production/export department applies to the insurance company for insurance cover and obtains an insurance policy/certificate.

5.9 Port Formalities and Customs Clearance

• Upon receiving documents, the clearing and forwarding agent takes delivery of the cargo and arranges storage in the warehouse.
• They initiate customs clearance and obtain permission from port authorities to bring cargo into the shipment shed.
• Objectives of customs control:
  • Ensure goods exit the country compliantly.
  • Ensure authenticity of export goods' value.
  • Assess and collect export duty, if applicable.
  • Compile data on cargo movements.
• Customs grant permission for export at two stages:
  • Documentary checks at the Customs House.
  • Physical examination of goods in the shipment shed.
• The Shipping Bill is the customs clearance document.
• The clearing and forwarding agent files the following documents with the Customs House:
  • Shipping Bill (4-5 copies).
  • Contract/correspondence (Original).
  • Letter of Credit (Original).
  • Commercial Invoice .
  • GR Form (Original and Duplicate).
  • Inspection Certificate (Original).
  • AR 4/AR5 Form (Original and Duplicate).
  • Packing list.
  • Any other document.
• The Customs Appraiser/Examiner examines these documents and appraises the value, ensuring:
  • The value and quantity declared match the export order or letter of credit.
  • Exchange control and pre-shipment quality control formalities are completed.
• The Customs Examiner/Appraiser endorses the duplicate copy of the Shipping Bill, directing the Dock Appraiser about the extent of physical examination to be conducted at the Docks.
• All documents, except GR(original) Form, the original Shipping Bill, and a copy of the Commercial Invoice, are returned to the Forwarding Agent to be presented to the Dock Appraiser.
• The Forwarding Agent presents the Port Trust Document to the Shed Superintendent of the Port and obtains a carting order.
• After bringing the cargo into the shed, the following documents are presented to the Dock Appraiser:
  • Duplicate, triplicate and export promotion copies of the Shipping Bill-
  • Commercial Invoice
  • Packing List
  • AR4/ARS Form (Original and duplicate) and Invoice
  • Inspection Certificate (Original)
  • GR Form (Duplicate)
• The Dock Appraiser records the examination report and makes a "Let Export” endorsement on the duplicate copy of the Shipping Bill, handing it over to the Forwarding Agent, along with all other documents, to be presented to the Preventive Officer of the Customs Department.
• The preventive officer makes an endorsement “Let Ship" on the duplicate copy of the Shipping Bill.
• The duplicate copy of the Shipping Bill is then handed over to the agent of the shipping company as authorization to accept the cargo on the vessel.
• After loading, the Captain of the ship issues a 'Mate's Receipt' to the Shed Superintendent of the Port.
• The forwarding agent pays the port charges and takes delivery of the Mate's Receipt, presents it to the Preventive Officer, and requests the Shipping Company to issue the Bill of Lading.

5.10 Despatch of Documents by Forwarding Agent to the Exporter

• After obtaining the Bill of Lading, the agent sends the exporter the following documents:
  • One copy of the Commercial Invoice duly attested by the Customs
  • Export Promotion Copy of Shipping Bill
  • Drawback Copy of Shipping Bill
  • Full set of 'Clean On Board Bill of Lading' together with non-negotiable copies
  • Original letter of credit/contract order
  • Copies of Customs Invoice, if any
  • AR 4/AR5 (Duplicate) and Invoice
  • GR Form (Duplicate).

5.11 Certificate of Origin and Shipment Advice

• On receipt of the above documents, the exporter obtains a 'Certificate of Origin' from the Chamber of Commerce.
• In case of export shipment to countries offering GSP concession, the GSP Certificate of Origin will have to be procured by the exporter from the Export Inspection Agency.
• The exporter sends 'Shipment Advice' to the importer, intimating the date of shipment and its expected time of arrival (ETA).
• The following documents are also sent along with the shipping advice:
  • A non-negotiable copy of the Bill of Lading
  • Commercial Invoice
  • Packing List
  • Customs Invoice

5.12 Presentation of Documents to Bank

• The exporter presents the following documents to the bank for negotiation/collection:
  • Commercial Invoice (Requisite number of copies)
  • Certificate of Origin (two copies)
  • Customs Invoice (Requisite number of copies)
  • GR Form (Duplicate)
  • Packing List (requisite number of copies)
  • Full set of Clean-on-Board Bill of Lading.
  • Bank Certificate in the prescribed form in duplicate
  • Additional copies of the Commercial Invoice for Certification by the Bank
  • Original Letter of Credit/Export Contract
  • Marine Insurance Policy/Certificate
  • Bill of Exchange

5.13 Claiming Export Incentives

5.13.1 Excise Rebate

• After completing the post-shipment formalities, the clearing and forwarding agent will file the following documents with the Maritime Central Excise Collector or Jurisdictional Assistant Collector of Central Excise for claiming the refund of excise duty or for obtaining release from bond:
  • AR4/AR5 Form (Duplicate copy), which has been certified by the Customs Preventive Officer
  • Non-negotiable copy of the Bill of Lading and/or Shipping Bill certified by the Customs Preventive Officer.
• Additional documents to be submitted for claiming refund of excise duty are:
  • Application for Refund in Form C and (B) Pre-receipt.

5.13.2 Duty Drawback

• For claiming Duty Drawback, the exporter's agent will file the customs attested copy of the Drawback Shipping Bill, along with the following documents, with the Drawback Department of the Customs House.
  • Drawback Claim Proforma (Prescribed application form in five copies)
  • Bank or Customs Certified copy of Commercial Invoice
  • Non-negotiable copy of Bill of Lading
  • Any other specifically prescribed document.
• After finding the claim to be correct, the Drawback Department will despatch the cheque of the claim amount to the exporter or to the exporter's bank.