CHATROOM: 'DGFT should resolve contrary provisions in FTP, HBP quickly'

Para 5.04(c) of the FTP says that the Average Export Obligation (AEO) shall be fulfilled every financial year till export obligation is completed, whereas Para 5.18 of HBP says the excess exports done towards the average export obligation fulfillment of an EPCG authorisation during a year can be used to offset any shortfall in the average EO done in other year(s) of the EO period or the block period as the case may be provided average EO imposed is maintained on an overall basis, within the block period or the EO period as applicable. How to reconcile these apparently contradictory provisions?
 

The DGFT Policy Circular no. 11(RE-01)/2001-02 dated 1.10.2001 had clarified that the annual average exports should be maintained till the export obligation is completed. This year this clarification was brought into the FTP and I think, while doing so, the words ‘fulfilled every year’ were put in place of ‘maintained’. I think it is a mistake on the part of  DGFT that must be corrected quickly. Meanwhile, you may proceed on the basis of Para 5.18 of HBP.

We are a SEZ unit. We supply goods to other SEZ entities within the same SEZ or in any other SEZ. Such supplies are zero rated. For such supplies, which are zero rated, are we required to execute LUT with GST Authorities and mention details of LUT, etc. in our invoice?
 

Yes. Rule 96A(1) says any registered person availing the option to supply goods or services for export without payment of integrated tax shall furnish, prior to export, a bond or a Letter of Undertaking in FORM GST RFD-11 to the jurisdictional Commissioner. Rule 96A(6) says that the provisions of sub rule (1) shall apply, mutatis mutandis , in respect of zero-rated supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit without payment of 

integrated tax. Therefore, you have to furnish Letter of Undertaking (LUT).

Our foreign buyer wants certain goods on a long term basis. For making that product, we need to make certain investments in more machinery. We do not want to commit the investment only on the basis of his order. So, we asked for substantial advances that can be adjusted over 3 years against our exports that will commence after say 9 months. We need that time to raise resources, buy additional machinery and install them. The buyer is willing to give the advance but wants interest and a BG. Can we agree to his demands and take the advance?
 

Para C.2(2) of Part C of the RBI Master Direction no.16/2015-16 dated 1st January 2016 (as amended) deals with long term export advances up to 10 years. Your bank can let you take the advance but the rate of interest payable should not exceed LlBOR/any other widely accepted/alternative reference rate plus 200 basis points.  The bank can give BG subject to the conditions mentioned in the said Para C.2(2).