15 May 2024
Reference: Master Direction – Export of Goods and Services (Updated as on November 22, 2022) RBI/FED/2015-16/11 FED Master Direction No. 16/2015-16 C12> (iv) In case the goods are exported on consignment basis, freight and marine insurance must be arranged in India.
I have a case where an overseas buyer is paying for the freight and insurance in case of consignment exports and also for the re-import of goods of the same consignment exports so we export on the basis of FOB. Our bank says that as per RBI Master Circular it cannot be FOB as freight and insurance has to be paid in India. I would like to understand the interpretation of this guideline. Does it mean that: 1) Freight and Insurance has to be paid by the exporter 2) Freight and Insurance has to be paid in India by anyone of the exporter/overseas party/third party 3) Freight and Insurance has to be "arranged" in india at the time of exporting but can be paid by anyone anywhere 4) Freight and Insurance has to be paid/arranged in India only so as to safeguard the FOREX involved in the transaction in case of any loss/damage of the product (since in case of consignment the ownership has not yet passed to the overseas buyer)
09 July 2024
The RBI Master Direction on Export of Goods and Services provides guidelines that govern various aspects of exports, including the requirement for freight and marine insurance when goods are exported on consignment basis. Let's clarify the interpretation based on the guideline you've referenced:
### Interpretation of the RBI Master Direction:
The specific guideline states:
"In case the goods are exported on consignment basis, freight and marine insurance must be arranged in India."
To interpret this correctly:
1. **Arrangement of Freight and Insurance:** - The guideline emphasizes that the arrangement (i.e., organizing or setting up) of freight and marine insurance must occur in India. This means that the exporter (or someone on their behalf) should initiate the process of arranging these services within India.
2. **Payment of Freight and Insurance:** - The guideline does not explicitly state that the payment must be made by the exporter or that it has to be made in India. Instead, it emphasizes the place where these services are arranged. - Therefore, while the arrangement (booking or contracting) of freight and marine insurance must be done in India, the actual payment can be made by the exporter, the overseas buyer, or a third party involved in the transaction.
3. **Ownership and Risk Considerations:** - In consignment exports, ownership of the goods has not yet transferred to the overseas buyer until they are sold. Despite this, the RBI guideline focuses on ensuring that these logistical aspects (freight and insurance) are managed from India's perspective. - This requirement helps safeguard foreign exchange transactions and ensures that necessary controls are in place, especially in cases where the goods may be re-imported or face risks during transportation.
### Practical Implications:
- **Arrangement in India:** The exporter must initiate the arrangement of freight and marine insurance within India. This typically involves contacting Indian shipping agents or insurers to handle these aspects.
- **Flexibility in Payment:** While the arrangement is mandated in India, the payment for freight and insurance can be handled by any party involved, including the exporter, overseas buyer, or a third party.
- **Compliance and Documentation:** Ensure that all documentation reflects the arrangement of freight and insurance in India, as this is a key compliance requirement under RBI guidelines.
### Conclusion:
The RBI guideline regarding consignment exports specifies that the arrangement of freight and marine insurance must be initiated in India. This ensures regulatory oversight and control over the export transaction. While the guideline does not restrict where the payment can originate, it focuses on where the logistical arrangements are managed. Therefore, you should ensure that your export operations comply with this requirement by initiating the arrangement of freight and marine insurance within India, while allowing flexibility in payment methods as per the commercial terms agreed upon with your overseas buyer.
09 July 2024
thank you for that detailed explanation and interpretation.
I do not wish to name, but the Private sector bank that I am working with asks me this: "For export bill lodgment Please confirm freight is paid by which party." As per the interpretation of Mr Sharma, the concern should only be about whether the Frieght and insurance have been arranged in India or not and not worry about who pays for the same.
What do you suggest would be the best way to reason with the bank?
CAclubindia
