This article has been written by Rashmi Chandrashekhar, pursuing a Certificate Course in Advanced Civil Litigation: Practice, Procedure and Drafting from LawSikho.
Export means sending goods from one place to another. Export may be either of goods or services. The import and export in India are regulated by the Foreign Trade (Development and Regulation) Act, 1992, which empowers the center to make provisions for the regulation of trade in the country. Currently, Foreign Trade Policy of 2021-26 is followed in India, which gives a special emphasis to the export of research and development services (R&D). The taxes on goods and services are imposed as per the Integrated Goods and Services Tax (IGST).
According to Section 2(5) of IGST, export of goods means taking goods outside India.
According to Section 2(6) of IGST, export of services means, the supply of any service when:
- Supplier of service is located in India,
- Recipient of service is located outside India,
- Place of supply of service is outside India,
- Payment for service has been received by the supplier of service in convertible foreign exchange, and
- Supplier of service and the recipient of service are not merely establishments of a distinct person.
Basically, the import and export procedures involve the activities which ensure the licenses and compliance which shall be made before the shipment, arranging for the transportation and warehouse after the shipment, custom clearances as well as for the payment of taxes before the release of goods.
In this article, we shall discuss in detail about the export procedures, export agreement and important clauses for the export agreement.
The export contracts are used when there is any international sale of certain goods and services. Export contracts will be entered between the exporter and importer. Exporter is the one who is selling the goods and the importer is the one who is purchasing the goods.
The export contracts can be either formal or informal, but it is always preferred to have a formal export contract, where the terms and conditions shall be reduced into writing and signed by the parties.
The export contracts mainly concentrate on the provisions such as price, offer, acceptance, delivery of goods or services, shipping, acceptance of goods or services, complaints and returns:
- International Sale Contract: The international sale contract is an agreement that has entered into between the buyer and seller for the sale of goods or services and it contains the terms and conditions of the sale. This contract is used for the contracts that occurs only once.
- International Supply Contract: The international supply contract is used for the long-term agreements between the manufacturer and supplier, which are used for the supply of the products for the regular orders.
Laws which regulate the trade in India
Some of the laws which regulates the exports and imports in India are the Customs Act, 1962, Customs Tariff Act, 1975, Foreign Exchange Management Act, 1999, Foreign Trade Development and Regulation Amendment Act, 2010, Foreign Trade Development and Regulation Act, 1992, Special Economic Zones Act, 2005, CGST Act, IGST Act and UTGST Act.
Export documents and its types
What is an export document?
When the trade is between the parties from different countries (international trade), there is a need to obtain certain documents from different authorities or the institutions for the fulfilment of the terms and conditions and to obtain the license and permits. Depending upon the type of the product being exported and the place of export, there is a need for an export document in India. Export document is nothing but the document which gives the complete details about the product being exported and the place of export.
These export documents are very much necessary for the movement of goods from one country to another without any hurdles. It is important for every exporting agencies to get these exporting documents from the authorities mentioned below:
- Income Tax, Customs and Exchange authorities of both the countries
- Authorities responsible for the loading and unloading of goods
- Warehouse and Shipping authorities
- Inspection agencies
- Bank Agencies of both the countries
Types of Export Documentations
There are four types of Export Documentations:
- Regulatory Documentations: The regulatory documentations include the pre-shipment documents which are issued by the exporting country and which has to be mandatorily complied with by the exporter or the exporting agency. The regulatory documentations include the documents such as shipping bill, insurance payment certificate, excise gate pass after the clearance of the goods and the application for export that has been prescribed by the port authorities.
- Export Assistance Documents: The export assistance documents are necessary to obtain the government assistance such as government subsidies. It includes documents such as quality control certificates and export-import contracts.
- Documents Prescribed to the Importer’s Country: It is important for the exporter to follow the norms of the importer’s country as well in order to maintain the free flow of trade between both the countries. The exporter has to submit a certain set of documents to the importer in order to show that the exporter has acted as per the terms of the contract and has abided by all the rules and regulations imposed on by the importing country. Certain documents that shall be submitted by the exporter are, documents relating to quality check, pre-inspection, etc.
- Commercial Documents: These documents disclose the absolute transfer of ownership from the exporter to the importer. These documents include the bills of exchange, bills of lading, letters of credit, certificates which show the origin of goods, marine insurance policy etc.
Export procedure in India:
The company which is engaging in the export shall obtain the IEC Number (Import Export Code) from the regional joint DGFT (Directorate General of Foreign Trade). The IEC code number is a unique 10 digits code issued by the DGFT, Ministry of Commerce, Government of India to the Indian Companies involved in export or import business, without which no import or export shall be carried out.
The procedures that are generally carried out in India for the exports are as follows:
- Quotation and Indent: The exporter gives the quotation of the sale to the importer, which includes all the terms and conditions on which the sale is being made such as, the quality of the product, quantity, price, delivery terms, payments and discounts if any. The most common types of quotation and indent used by the exporters are:
- Free on-board quotation
- Cost, Insurance and Freight quotation
The exporter receives the indent from the importer, which contains the particulars of the export and how the export has to be made, how the packaging and mode of delivery, etc., shall be made by the exporter.
- Shipping Credit Enquiry: Once the importer and exporter agree to enter into the contract, the exporter must arrange for the shipping of the goods to the importer. Once the shipping company agrees to export the goods, it provides the order. The exporter has to open an account in the form of a letter of credit in the bank which operates in the importing company as well for the purpose of granting the credit.
- Preparation of Export: Upon the manufacturing of the product, the export commission housing, who is acting as an agent of the importer shall be liable to collect the goods as per the indent made by the exporters. The export commission house will take up the responsibility of packaging of goods as specified by the importer and prepare the same for the shipment after the inspection of the goods and issuance of the certificate by the Export Inspection Council (EIC).
- Customs and Exchange Formalities: At this stage, the exporter will complete the formalities of filling the shipping bills and issuing the same to the required authorities. The exporter is liable to get the export license from the controller of exports, which will be valid for the period of 3 months and the extension of the license can be made by the licensing authority.
- Placing the Goods-board the ship: After completing the above-mentioned formalities, the exporter will place the goods on the ship for the delivery of the same. After placing the goods, the exporter shall receive the bill of lading from the steamship company.
Essential clauses of the Export Agreement
These are some of the essential clauses of the contract agreements:
- Parties: This clause of the contract shall contain the details of the parties such as, name of the parties entering into the contract along with their detailed address, nationality, company details along with the tax details of the parties.
- Product: This clause deals with the details of the product, standards (applicable national or international standards) and specifications of the products.
- Quantity: This clause specifies the quantity of the product which shall be measured in terms of unit both in words and numerals.
- Price: This clause specifies about the price or the total value payable for the goods or services along with the currency in which it is payable, whether it is payable at once or in the instalments and the mode of payment.
- Delivery Terms: The terms in which the delivery has to be made shall be mentioned under this clause.
- Taxes, Duties and Charges: This clause specifies about the tax that the parties are responsible to pay and whether the price quoted by the exporter is inclusive of tax or excluded shall be clearly mentioned in this clause.
- Shipment Clause: This clause includes the details about the shipment specifications along with the mode of shipment.
- Packaging, labelling and marking: The packaging, labelling marking shall be made as per the terms of the contract i.e., as agreed by the parties under this contract.
- Insurance: The contract shall specify about the insurance that shall be made for the goods against the loss or damages caused during the transportation and this clause shall also include the type of risk that is involved during the transportation and to what extent the insurance is covered.
- License and Permits: This clause shall specify whether there is any need for license and permits, if there is a need to obtain the same, who shall obtain such license and who shall bear the expenses shall be specified.
- Documents required: This clause shall specify as to what documents are required for the transactions such as invoice, bill of exchange, insurance policy and such other trade documents.
- Delay in Delivery: This clause shall specify about the delay in delivery of goods, remedies available to the importer for suffering damages or losses due to the delay in delivery and exceptions and under what circumstances such delay shall be condoned shall be mentioned in detail.
- Product Guarantee: This clause specifies in detail as to what guarantee shall be available to the importer and the period till which such guarantee shall be available.
- Warranties Clause: This clause shall specify whether the importer can get the warranty for the goods which have been damaged and what kind of damages can be covered under warranties and till what period the guarantee can be covered.
- Remedial Actions: In the event if, there exists any default in the obligations of the parties, what remedies are available under the law shall be specified in this clause.
- Force Majeure Clause: This clause shall specify the circumstances under which a parties can be relieved from the mutual obligations for the non-performance of the contracts on occurrence of such circumstances and the relief available to such parties.
- Applicable Laws: This clause shall specify as to which country’s law shall govern the contract.
- Dispute Resolution/ Arbitration Clause: This clause shall define as to how the parties shall amicably settle the dispute in case if any dispute arises between the parties to the agreement.The Ministry of Commerce, Government of India, has set up a model contract which shall benefit the exporters to have suitable contracts, which shall help the small and medium exporters to have a standard contract.
- Signature of the Parties: Both the parties to the contract shall sign the agreement or the contract in order to prove that there is a consent of both the parties to enter into the contract without any force, coercion or fraud and both the parties agree for all the terms and conditions of the contract.
In a nutshell, international trade is one of the important means which promotes the welfare of the country. It not only extends the country’s market beyond the national frontiers but helps to make the domestic business of the country efficient by helping it to compete at the international level. It is essential for both the parties (i.e., exporter and importer) to understand the complete details and information of the products or services that are imported or exported. Both the parties have to abide by the laws, rules, regulations, norms fixed by the other country for the purpose of trade or any other business. One of the most important advantages of the trade agreements or the contracts are, it lowers the trade barriers on the goods that have to be imported from the other country. It is important for the exporter to develop a standard general agreement, wherein he fulfils all the terms and conditions of such agreements and the complexities.
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