Chatroom: Clarifications on MTT, Incoterm, self-sealing, authorisations

Experts clarify RBI norms on merchanting trade, DPU vs DAP usage, self-sealing permissions and EPCG authorisation rules for exporters

We are finalising a merchanting trade transaction (MTT) where the buyer is asking for credit, and if we agree, we may be out of funds for more than six months, i.e., receipt of payment from the buyer, may be after more than six months from the date of payment to the suppliers. Can we go through this transaction and later ask for extension in the period for realisation of export proceeds? 

According to Para C.14.6 of the Master Direction no. 17/2016-17 dated January 1, 2016 (as amended) on Import of Goods and Services, “AD bank may approach Regional Office (RO) concerned of the Reserve Bank for regularisation of the MTT for deviation, if any, from the prescribed guidelines and the MTT shall be closed only after receiving approval from the RO concerned of the Reserve Bank”. This provision is for regularisation of deviations. In your case, deviation is envisaged upfront. So, I suggest that you take the RBI approval upfront before committing to the MTT transaction. 

For our export transaction, when should we use Incoterms DPU instead of DAP? 

Use DPU only where the seller is willing and able to unload the goods at the named destination. International Chamber of Commerce explains that DPU replaced DAT to show that the destination need not be only a terminal, and that the essential difference is that under DAP the seller does not unload, while under DPU the seller unloads. This is important for heavy machinery, project cargo and factory-delivery contracts. If the seller cannot control unloading equipment, safety permissions, labour availability or site access, DPU is risky. DAP may be safer, with unloading expressly made the buyer’s responsibility. So, make sure to discuss with your multi-modal transport operator and then decide what Incoterm to use in your contract.

 

We have self-sealing/factory stuffing permission that mentions the address of our one factory. Is it valid for stuffing export cargo from another plant premises also? 

No. The CBIC Circular No. 26/2017-Customs requires the exporter to inform the jurisdictional Customs officer of the premises, factory, warehouse or any other place, where stuffing will be carried out. It also requires inspection of premises, and permission for self-sealing at the approved premises. The permission will be valid across Customs stations, but for any new stuffing location, you must obtain fresh permission or get the premises included in your existing permission.    We have our registered office and head office at Mumbai. Can we let our three manufacturing plants in Maharashtra, Gujarat and Rajasthan deal with their jurisdictional authorities for all their advance/EPCG authorisation matters? 

Yes. Para 4.02 and Para 5.02 of HBP allow a registered office or head office or a branch office or a manufacturing unit of the IEC holder to apply for advance/EPCG authorisations. Their addresses must appear in your IEC and RCMC. Please note that the authorisations are issued to the IEC holder and not to any branches or plants. The IEC holder will be responsible for export and other obligations.   

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