FTP treats merchant exporter with order as third party, says expert

Q. We have to pay fees for use of a foreign party’s trade name. What requirements need to be fulfilled for remittance of such fees, as per FEMA Rules?

Para 4.10 of RBI FED Master Direction no. 8/2015-16 dated January 1, 2016, says that AD Category-I banks may permit drawal of foreign exchange by persons for purchase of trademark or franchise in India without approval of the Reserve Bank of India. Para 6.2 of the same Direction 8/2015-16 says that before undertaking any transaction in foreign exchange on behalf of any person, an Authorised Dealer (AD) is required to obtain a declaration and such other information from the person (applicant) on whose behalf the transaction is being undertaken that will reasonably satisfy him that the transaction is not designed to contravene or evade the provisions of the Act, or any of the Rules or Regulations made, or Notifications or directions or orders issued under the Act. ADs should preserve the information/documents obtained by them from the applicant before undertaking the transactions for verification by the RBI. The onus of furnishing the correct details in the application will remain with the applicant who has certified the details relating to the purpose of such remittance. Para 6.4 of the same Direction says that the applicant must fill Form A2.

Q. Column no. 3 of the shipping bill specifies the third party’s name and address. In which situations is the said column to be filled, and who is the third party?

Normally, “third party” means any party who is not the buyer or the seller, but whose name is required to be mentioned in the shipping bill. For example, a merchant exporter may have an order from a foreign party and may file the shipping bill as a seller, but the name of the manufacturer may have to be mentioned for the purpose of claim of incentives by the manufacturer. However, much depends on the context. Sometimes, the shipper may be different from the seller. Para 9.60 of the FTP says that “third party exports” means exports made by an exporter or manufacturer on behalf of another exporter(s). In such cases, export documents such as shipping bills must indicate names of both manufacturer exporter/manufacturer and third party exporter(s). The Bank Realisation Certificate (BRC), Self Declaration Form (SDF), export order and invoice should be in the name of the third party exporter. In this context, the merchant exporter who holds the export order is treated as the third party.

Q. Due to disruption of courier services during Covid-19, many shippers ask shipping lines to issue delivery orders electronically. Does it result in transfer of ownership?

Usually, shipping lines will issue delivery orders in the name of the consignee only, against surrender of all original negotiable bills of lading. Since the delivery order makes the goods consigned in his name, the consignee becomes the lawful owner of the goods. The consignee will get delivery without producing the original bill of lading.

Business Standard invites readers’ SME queries related to excise, VAT and exim policy. You can write to us at smechat@bsmail.in