Indian entities can give guarantees on behalf of WOS abroad: Expert

Provided that the terms and conditions stipulated in Foreign Exchange Management Regulations, 2000, for promoting or setting up such company or subsidiary are continued to be complied with

Q. We are a SEZ unit. We refer to Rule 22(1)(v) of SEZ Rules, 2006 which says that “the Unit or the developer including co-developer shall obtain a Registration-cum-Membership Certificate for availing exemptions, drawbacks and concessions”. Does it mean that we may register with the export promotion council relevant to our product?

You have to read that provision with Rule 2(1)(zg) of the SEZ Rules 2006, which says that “Registration-cum-Membership Certificate” means the membership certificate issued by export promotion council (EPC) for export oriented units and SEZs. So, it is mandatory to register with the specified EPC. In addition, you may be registered with the EPC relevant to your product.

Q. We are setting up a wholly-owned subsidiary (WOS) abroad. Can we give a guarantee in connection with its business? Do we need any approvals?

Yes. As per Regulation 5(b) of the Foreign Exchange Management (Guarantees) Regulations, 2000, “a company in India promoting or setting up outside India, a joint venture company or a wholly owned subsidiary, may give a guarantee to or on behalf of the latter in connection with its business: Provided that the terms and conditions stipulated in Foreign Exchange Management (Transfer and Issue of Foreign Security) Regulations, 2000, for promoting or setting up such company or subsidiary are continued to be complied with; Provided further that the guarantee under this clause may also be given by an authorised dealer in India”.

Also, as per Para B.1.2(a) of RBI Master Direction on Direct Investment by Residents in Joint Venture (JV)/Wholly Owned Subsidiary (WOS) Abroad, “Indian Parties are permitted to issue corporate guarantees on behalf of their first level step down operating JV/WOS set up by their JV/WOS operating as either an operating unit or as a Special Purpose Vehicle (SPV) under the Automatic Route, subject to the condition that the financial commitment of the Indian Party is within the extant limit. Such guarantees will have to be reported to the Reserve Bank in Form ODI, as hitherto, through the designated AD Category-I bank concerned”. So, you may approach your bank for approval under the automatic route.

Q. The goods we imported on duty payment were found defective. Our supplier has asked us to destroy the goods and agreed to give replacements. However, that means we have to pay duty again on the fresh imports. Is there any way to avoid this burden of duty payment twice?

Section 26A of the Customs Act, 1962 allows refund of import duty if the imported goods are found defective. The goods should not have been worked, repaired or used after importation, except where such use was indispensable to discover the defects or non-conformity with specifications. The goods must be exported without claiming Drawback, or abandoned to Customs, or destroyed or rendered commercially valueless in the presence of the Proper Officer within 30 days (that can be extended by further three months by the Commissioner of Customs) from the date of import.

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