'Merchanting trade' includes supply of goods within same foreign country

We have obtained an authorisation under the EPCG scheme for our new manufacturing project. Before importing the capital goods, we have to furnish to the Customs a bond backed by bank guarantee, in accordance with CBEC Circular 58/2004-Cus dated 21st October 2004 (as amended). This circular says that we can furnish a corporate guarantee. Can you please give us the details on who can furnish a corporate guarantee on our behalf and what document we should submit to the Customs? 

The CBEC Circular no.38/97-Customs dated 19th September 1997 says that any group company having status recognition as ‘export house’ under the FTP can give the corporate guarantee. It clarifies that both the companies must have the same person as managing director or manager; a majority of the directors of one company also must form, at any time in the  preceding the six months, the majority in the other; not less than one-third of the voting power on any matter in the two companies must be controlled by the same individual or body corporate; one or more directors of one company with or without their relatives must hold the majority of the shares in both the companies; and the company must maintain a register as required under the Company Law which indicates the names of both. The company executing the corporate guarantee must give to the Customs a certified copy of the said register signed by an authorised company secretary or a chartered accountant and that the company in whose favour the corporate guarantee is given is a group company. The certificate should also indicate the relevant criterion by which they come under the same management/group. A copy of the resolution of the Board authorizing execution of the guarantee and ‘no objection certificate’ from their term lending financial institution or their bankers for giving the corporate guarantee must be furnished to the Customs.

 

Para 2.39 of the FTP deals with merchanting trade involving shipment of goods from one foreign country to another foreign country. We have a business opportunity where the buyer and seller are both located within the United States. How can we take up this opportunity? 

Para 2.39 of the FTP was amended through notification no.62/2023 dated 29th February 2024 covering ‘shipment of goods within one specific foreign country’ also within the ambit of merchanting trade. Para 14(1)(i) of the RBI Master Direction no.17/2016-17 dated 1st January 2016 (as amended) says that for a trade to be classified as merchanting trade, goods acquired shall not enter the domestic tariff area. So, you can very well grab the opportunity that has come your way. 

Can the Customs reject our claim of drawback through special brand rate if we have availed of the All Industry Rate of drawback? 

Yes. Rule 7(1) of the Customs and Central Excise Duties Drawback Rules, 2017 clearly says that drawback can be claimed under that Rule, ‘except where a claim for drawback under rule 3 or rule 4 has been made’.