Showing declared value on 'Bill of Lading' not mandatory, says expert

Q. We want to import Iran-origin material through a third-country seller, either in US dollars or in another currency, such as AED or Hong Kong dollars. When they want to send payment in advance to the seller, their bank did not accept payment either in USD or any other currency. The bank says they are regularly dealing in USD through their correspondent bank in the USA, and so, they want to avoid banking transactions related to Iran-origin goods. What are the RBI guidelines in this regard?

As per Regulation 5 (2) (b) of the Foreign Exchange Management (Manner of Receipt and Payment) Regulations, 2016, payment should be made in a currency appropriate to the country of shipment of goods. In your case, it appears the bank has taken a decision not to fall foul of the US sanctions against Iran. It is a matter of the individual bank’s policy and not a restriction placed by RBI.

Q. Is the shipping line under mandatory obligation to mention the value declared by the shipper on the bill of lading?

Rule 3 of the Rules Relating to the Bill of Lading (BL) set out in the Schedule to the Carriage of Goods by Sea Act, 1925, does not mandate that the value of the goods should be mentioned in the bill of lading. However, where it is stated as declared by the shipper, the liability of the carrier will be limited to the value so stated, in the event of loss of cargo.  

Q. Under a merchanting trade transaction, can an Indian merchant make payment to a Russian supplier in USD for shipment to a buyer in Iran and receive payment in non-convertible Indian rupees from an Iranian buyer?

Para C.14 of RBI FED Master Direction (relating to import of goods and services) No. 17/2016-17 dated January 1, 2016 (as amended), deals with the merchanting trade. It does not deal specifically with the issue you have raised. In my opinion, what you propose does not quite reconcile, because the mechanism for receipt in rupees is for exports to Iran from India (Para 2.46 II (b) of FTP). Anyway, you may approach the RBI for further clarity.

Q. If export proceeds are received short due to a contractual penalty imposed by the buyer, will the proportionate drawback have to be surrendered in this case, too?

For the shortfall in realisation of export proceeds, you have to approach your bank, seeking a write-off. In that case, the provisions of sub-para (iv) of Para C.23 of RBI FED Master Direction no. 16/2015-16 dated January 1, 2016 (as amended), dealing with export of goods and services will come into play. It permits banks to allow a write-off provided the exporter has surrendered proportionate export incentives, if any, availed of in respect of the relative shipments. The AD Category-I bank should obtain documents evidencing surrender of export incentives availed of before permitting the relevant bills to be written off.

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