12 January 2022
we had recived an advance against export order but after the readiness of material buyer didnt pick up the material so the order was cancelled, now the bank is asking for the dollar recieved the export proof, how to treat this problem in terms of banking and Rbi and fema
06 July 2024
When dealing with advance payments received against export orders that are subsequently cancelled or not fulfilled, and the bank is requesting proof of export for the funds received, here’s how you can address this from the perspective of banking regulations (including RBI and FEMA guidelines):
### Steps to Address the Issue:
1. **Documentation of Advance Payment:** - Ensure you have proper documentation of the advance payment received against the export order. This includes the export order contract, invoice for the advance payment, and any correspondence related to the cancellation of the order.
2. **Bank Communication:** - Provide the bank with all relevant documents showing the receipt of the advance payment against the export order. - Explain the situation clearly, detailing that the export order was cancelled, and the material was ready but not picked up by the buyer.
3. **Proof of Export Requirement:** - Typically, banks may require proof of export to comply with Foreign Exchange Management Act (FEMA) regulations. This proof may include: - Shipping documents such as Bill of Lading (for sea shipments) or Airway Bill (for air shipments). - Customs clearance documents. - Export invoices. - Foreign exchange control forms (e.g., GR forms in India).
4. **Bank’s Role:** - The bank may need to verify that the foreign exchange received against the export order was used appropriately, which usually means actual export of goods or services. This verification is necessary under RBI guidelines to ensure compliance with FEMA regulations.
5. **Reporting and Compliance:** - Ensure compliance with all reporting requirements to the bank and regulatory authorities (such as the RBI). This may involve providing a declaration or undertaking regarding the cancellation of the export order and the return or adjustment of the advance payment.
6. **Accounting Treatment:** - In your books of accounts, reflect the cancellation of the export order and the return of the advance payment as appropriate. This should be done in accordance with accounting standards and practices followed in your jurisdiction.
### Additional Considerations:
- **Legal Advice:** If the issue involves significant amounts or legal complexities, consider seeking advice from a legal expert familiar with international trade and banking regulations.
- **Future Measures:** To avoid similar issues in the future, review and update your export contract terms and conditions regarding advance payments, cancellation policies, and related documentation requirements.
By following these steps and providing the necessary documentation to the bank, you can address their request for proof of export against the advance payment received for the cancelled export order. This approach ensures compliance with banking regulations and facilitates the resolution of the issue effectively.
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