IBO – 04

Export Import Procedures and Documentation

1. a) Do you think that from a practical point of view it is easier for an exporter to implement an
FOB contract? Discuss with example and explain the legal implications of FOB and CIF contracts.

The  FOB  (Free  On  Board)  and  CIF  (Cost,  Insurance  and Freight) contracts are involved with international 
export  sale  contracts  also  called  ‘export  transactions’,  although  the  FOB contract is loosely used in local 
commercial  transactions .  These  terms have been put in place so as to maintain uniformity, certainty and 
predictability in international trade agreements. 

These  terms  are  not  strictly  binding  as  a  standard  on  the  parties  to  the  export  contract  as  they  can  be 
modified by  agreement  or  necessity  as  the  parties  have  the  freedom  to  contract.  These  contracts  are 
part  of  the  standard  trade  terms  developed  by  the  International  Chamber  of  Commerce  (ICC)  called 
Incoterms  2010 and  have  been  constantly  modified  to  fit  in  with  commercial  practice  of  the  time  since 
they  were  first established in 1936. These trade terms are important to international export sale contracts 
as  they  set  out  the  duties  and  obligations  of  the  contracting  parties  including  price,  method  of  delivery 
and any other incidental charges relating to the transaction.  

FOB Contract
The case of Pyrene established that there are three types of FOB Contracts, indicating the flexible nature 
of such contracts. 

Strict or Classic FOB Contract 

FOB “ with additional services" 

“Simple" FOB 

In the classic FOB contract, the seller is free of any obligation to pay insurance and freight but undertakes 
to place the export goods board a nominated vessel and port of shipment. The buyer nominates the 
carrier , obtains insurance and bears the costs of ocean freight to port of destination including all other 
costs incidental to shipping and unloading. However, the seller has to obtain a clean bill of lading and 
tender it together with other documents to the buyer once the goods have crossed the rail and been 
safely placed on board ship. 

The Seller has the following obligations: 

Supply conforming goods in accordance with the contract. 

Deliver the goods by placing them on board nominated ship and port of shipping. 

Pay any costs up to delivery, i.e. when goods have safely crossed the ship’s rail. 

Obtain export licence and bill of lading 

Produce a commercial invoice 

Tender documents to the buyer. 

This means that the total price quoted by the seller will be lower as it only includes the price of the 
goods, in-land transportation, export documentation and other charges incidental to the export up to the 
placing of the goods on board ship. 

The seller is absolved from all liability once the goods have passed the ship’s rail and been placed on 
board ship which is an advantage as he does not need to worry about freight, insurance and destination 
costs as long as he tenders the necessary documents to the, hence the main difference with a CIF 
Contract. 

Buyer’s Obligations 

Notify the seller of nominated vessel and port of shipment. 

Receive the goods. 

Pay for the goods and incidental charges. 

The FOB Contract is advantageous to the buyer in that he controls the movement of the goods from the 
seller in as far as controlling the time of shipment and would negotiate reduced insurance and freight 
charges when they contract with companies that they frequently do business with. 

CIF Contract
This type of contract resembles the FOB “with additional services" and is the most comprehensive and 
widely used international export trade contracts and embodies three different contracts. 

Contract of sale between seller and buyer. 

Contract of carriage (seller/carrier and buyer/carrier).  

Contract of marine insurance. 

The seller’s obligations include the following : 

Ship the goods as described in the contract and within agreed shipping period . 

Arrange for marine insurance. 

Obtain a bill of lading evidencing the contract of carriage by sea. 

Procure a contract of carriage. 

Produce a commercial invoice. 

Tender the documents to the buyer to effect payment.  

In a CIF contract, the price paid by the buyer would normally be inclusive of all costs up to the agreed 
port of destination at which point the buyer has a duty to receive the goods. This type of contract as can 
be seen from above frees the buyer form the seller’s local export customs. Also, this eases the work 
burden on the buyer of arranging for insurance and freight as he might find it difficult in a foreign country. 
This type of contract is advantageous to the seller as he is more conversant with the local export 
customs and would negotiate reduced rates on insurance and freight as a regular exporter and hence 
reducing the costs for the importing party. 

Buyer’s duties 

To accept the documents. 

Receive the goods at agreed port of destination. 

Bear all costs incidental to the export. 

The buyer has to accept the documents even though the goods have not arrived at the port of 
destination and without knowing as to the condition of the goods at sea as the buyer is protected against 
damage or loss whilst in transit. 

The CIF is advantageous to the buyer as the documents could be used as security to obtain bank credit 
or could sell the goods whilst on high seas if they are for trade purposes. 

2. ABC / XYZ CIF Contract

Passing of risk and title

It should be noted that the passing of risk from the seller to the buyer is when the goods have been 
safely placed beyond the ship’s rail and this point also indicates the passing of property in the 
goods. However, it has been held in some instances that whilst risk passes when the goods cross the 
ship’s rail, the title to property only passes when the buyer receives the documents and makes payment. 

The contract between ABC and XYZ was CIF, which would be termed as CIF-Hamburg indicating the 
port of destination. 

According to a CIF contract, the goods should conform to the contract terms as to their description and 
the seller has a duty to deliver such goods as described. 

The scenario where the seller has delivered goods not as described in the contract would render the 
contract invalid ‘ab initio’. However, the parties could reach an agreement so as to remedy the breach as 
commercial trading partners as they have the freedom to contract. 

Bill of lading (500 damaged boxes) 

The bill of lading noted some containers as being ‘slightly damaged’ and such qualification as to the state 
of the goods is not clean and converts it to a ‘received for shipment bill of lading’ although it has been 
held to be clean in some instances . 

The indication of ‘slight damage’ means that the damage occurred before the goods crossed the ship’s 
rails, so termed the legal frontier between the seller and buyer and hence the seller should be held 
liable . 

Advice: 

XYZ would be advised that they could recover for the damaged items from the seller by way of either 
replacement of damaged items or recovery of price and damages. 
Insurance policy (500 undelivered boxes)
Marine insurance covers the buyer from any loss or damage to goods during shipment and hence XYZ 
should be able to off-set the loss against the marine insurance cover as the consignment was insured 
against loss. 

Advice: 

XYZ will be able to recover the loss as the goods were covered by marine insurance for any loss or 
damage whilst in transit. 

Seller to deliver conforming goods

According to the CIF Contract terms, the seller is under obligation to deliver conforming goods as per 
contract. The 1000 boxes of ‘red memory sticks’ are incorrect items and hence not conforming goods as 
per CIF Contract terms. This is in breach of contract and XYZ would be held liable for supplying goods 
not conforming to the CIF contract. 

Advice: 

XYZ would be able to recover for the 1000 boxes of incorrect items supplied by either the buyer 
replacing the items with memory sticks of the correct colour refund of cost price and damages. 

2. a) What do you mean by letter of credit? Describe the details included in letter of credit.

A letter of credit is a letter from a bank guaranteeing that a buyer's payment to a seller will
be received on time and for the correct amount. In the event that the buyer is unable to
make payment on the purchase, the bank will be required to cover the full or remaining
amount of the purchase. Due to the nature of international dealings, including factors such
as distance, differing laws in each country, and difficulty in knowing each party personally,
the use of letters of credit has become a very important aspect of international trade.

Because a letter of credit is typically a ​negotiable instrument​, the issuing bank pays the
beneficiary or any bank nominated by the beneficiary. If a letter of credit is transferable, the
beneficiary may assign another entity, such as a corporate parent or a third party, the right
to draw.
Funding a Letter of Credit

Banks typically require a pledge of ​securities​ or cash as collateral for issuing a letter of
credit. Banks also collect a fee for service, typically a percentage of the size of the letter of
credit. The International Chamber of Commerce Uniform Customs and Practice for
Documentary Credits oversees letters of credit used in international transactions.

Example of a Letter of Credit

Citibank offers letters of credit for buyers in Latin America, Africa, Eastern Europe, Asia and
the Middle East who may have difficulty obtaining international credit on their own.
Citibank’s letters of credit help exporters minimize the importer’s country risk and the
issuing bank’s commercial credit risk. Letters of credit are typically provided within two
business days, guaranteeing payment by the confirming Citibank branch. This benefit is
especially valuable when a client is located in a potentially unstable economic environment.

Types of Letters of Credit

A commercial letter of credit is a direct payment method in which the issuing bank makes
the payments to the beneficiary. In contrast, a ​standby letter of credit​ is a secondary
payment method in which the bank pays the beneficiary only when the holder cannot.

A revolving letter of credit lets the customer make any number of draws within a certain
limit during a specific time period. A traveler’s letter of credit guarantees the issuing banks
will honor drafts made at certain foreign banks.

A confirmed letter of credit involves a bank other than the issuing bank guaranteeing the
letter of credit. The second bank is the confirming bank, typically the seller’s bank. The
confirming bank ensures payment under the letter of credit if the holder and the issuing
bank default. The issuing bank in international transactions typically requests this
arrangement.

b) Explain different kinds of letter of credit. (10+10)

There are various types of ​letter of credit​ (LC) used in the trade transactions. Some of them
may be defined by their purpose. They are Commercial, Export / Import, Transferable and
Non-Transferable, Revocable and Irrevocable, Stand-by, Confirmed and Unconfirmed,
Revolving, Back to Back, Red Clause, Green Clause, Sight, Deferred Payment, and Direct Pay
LC.

There are various types of ​letter of credit​ (LC) used in the trade transactions. Some of them
may be defined by their purpose. They are Commercial, Export / Import, Transferable and
Non-Transferable, Revocable and Irrevocable, Stand-by, Confirmed and Unconfirmed,
Revolving, Back to Back, Red Clause, Green Clause, Sight, Deferred Payment, and Direct Pay
LC.

third party (with no direct interest in the transaction), mostly a bank or a financial
institution, that guarantees the payment of funds for goods and services to the seller once
the seller has submitted the required documents. Other financial institutions to issue these
letters of credit in addition to a bank are mutual funds or insurance companies but in very
few cases. A letter of credit has three important elements – the beneficiary/ seller who is
paid the credit, the buyer/ applicant who buys the goods or services and the issuing bank
that issues the letter of credit on the buyer’s request. There might be another bank involved
as an advising bank that advises the beneficiary.
TYPES OF LETTER OF CREDIT
There are various types of letters of credit used in the trade transactions. Some of the
letters of credit may be defined by their purpose. The following are the different types of
letters of credit:

COMMERCIAL LC
A standard LC, also called as documentary credit.

EXPORT/IMPORT LC
The same letter of credit can be called export or import depending on who uses it. The
exporter will term it as an exporter letter of credit whereas an importer will term it as an
importer letter of credit.

TRANSFERABLE LC
A letter of credit that allows a beneficiary to further transfer all or a part of the payment to
another supplier in the chain. This generally happens when the beneficiary is just an
intermediary for the actual supplier. Such letter of credit allows the beneficiary to provide
its own documents but transfer the money further.

UN-TRANSFERABLE LC
A letter of credit that doesn’t allow transfer of money to any third parties. The beneficiary is
the only recipient of the money and cannot further use the letter of credit to pay anyone.

REVOCABLE LC
A letter of credit that can be altered any time by the issuing bank or the buyer without any
notification to the seller/ beneficiary. Such types of letters are not used frequently as the
beneficiary is not provided any protection.

IRREVOCABLE LC
A letter of credit that does not allow the issuing bank to make any changes without the
approval of the beneficiary.

STANDBY LC
A letter of credit that is designed to assure the payment if something wrong happens. If the
beneficiary proves that the promised payment was not made, a standby LC becomes
payable. It does not facilitate a transaction but ensures the payment.

CONFIRMED LC
A letter of credit where an advising bank also guarantees the payment to the beneficiary.
Only the irrevocable letters of credit are confirmed by the advising bank. The beneficiary has
two promises to pay – one from the issuing bank and the other from the advising bank.

UNCONFIRMED LC
A letter of credit that is assured only by the issuing bank and does not need a guarantee by
the second bank. Mostly the letters of credit are an unconfirmed letter of credit.
REVOLVING LC
A letter of credit used for several payments instead of issuing letters for each leg of the
transaction.

BACK TO BACK LC
A letter of credit which is commonly used in a transaction including an intermediary. There
are two letters of credit, the first issued by the bank of the buyer to the intermediary and
the second issued by the bank of an intermediary to the seller.

RED CLAUSE LC
A letter of credit that partially pays the beneficiary before the goods are shipped or the
services are performed. The advance is paid against the written confirmation from the seller
and the receipt.

GREEN CLAUSE LC
A letter of credit that pays advance to the seller just not against the written undertaking and
a receipt, but also a proof of warehousing the goods.

3. Why should the export goods be insured? Describe various types of losses under cargo
insurance with examples. (5+15)

Exporter may suffer financial loss if goods are damaged during transportation from the port
of dispatch to the point of destination. To protect from loss, exporter may have to take
insurance policy to protect him from physical damage to the goods. Here is the importance
of ‘cargo Insurance’. In case, goods are shipped by sea, the insurance is known as Marine
Insurance’. The term cargo insurance is used in case of air shipment. However, in practice,
both the terms are interchangeably used and their regulations are common.
The need for insurance is mainly for two reasons, Legal and Commercial. Legal liability of
the intermediaries is Limited. Intermediaries include clearing and forwarding agents, carriers
port and customs authorities etc. that handle the goods at various stages. They do not incur
any liability, if the damage is due to circumstances beyond their control or if the loss caused
despite their reasonable care taken by them. In case of sea shipment, their legal liability is
limited to 100 pounds per package at present and in case of air shipment, the liability of
airlines is limited to $16 per kg at present which is amended time to time. It is quite normal
such amount of compensation does cover the loss totally sustained by the exporter.
As and when post-shipment finance is made, banks also insist for insurance coverage to
protect their financial interests.Insurance is required even on commercial considerations.
Once goods are damaged, importer may not accept the bill of exchange, in case of D/A bill.
He may not make payment in case of D/P bill. When loss occurs, such loss may not be just
shipment of goods, but also loss of profits too.
​losses can be broadly classified into two
TOTAL LOSS and AVERAGE LOSS
1. TOTAL LOSS ​ : Total loss can be further classified into Actual Loss and Constructive Loss
A. ​ACTUAL LOSS​ : Actual Total Loss in Marine Insurance may occur when;
(i) The insured cargo is physically destroyed such that there is no possibility of salvage or
recovery of the goods.
(ii) The insured cargo is damaged that it ceases to be a thing or description insured. E.g.
cement bag turns into concrete due to sea-water contact.
(iii) The cargo is irretrievably lost. For example, when the ship sinks, the cargo can be
retrieved only after a long time and the salvaged goods cannot be of any value to the
insured.
B. ​CONSTRUCTIVE LOSS​ : Constructive Total Loss can take place when the cargo is damaged
to such an extent that the cost of saving and repairing or reconditioning of the goods is
more than the value of the goods.
2. ​AVERAGE LOSS : ​ If loss is less than total cost, it is called an average loss. Average loss
may be Particular or General.
A. PARTICULAR AVERAGE LOSS : There are two types of particular average losses i.e. the
Total loss of a part of goods and Goods arrived in damaged condition.
(i) Total loss of a Part of Goods: When a part of total consignment is lost, this method is
applied. Value will be arrived by multiplying the number of items lost with per unit value
declared in the invoice.
(ii) Arrival of Damaged Goods: In case, the goods arrive in a damaged condition at the
point of destination, the consignee or his agent and ship surveyor attempt to arrive at the
agreed percentage of depreciated value of goods for settlement. Say, the depreciated value
is arrived at 30%, insurance company will pay the balance 70% of the declared value. If both
the parties fail to arrive at a settlement, the damaged goods will be sold, locally, in the open
market. To arrive at the claim amount, the sale proceeds will be deducted from the
wholesale value of those goods at that place and time where damaged goods are sold. The
claim amount and sale proceeds are given to the insured. Auction charges and other
incidental expenses have to be borne by the insurer. If the damaged goods can
advantageously be repaired, the underwriter pays the repair charges to the insured, not
exceeding the insured value.
(B) General Average Loss: This may occur whether the goods are insured or not. It results
from an intentional sacrifice or expenditure incurred by the master of the vessel to save the
ship or goods from danger for the common benefit of the owners of the ship and goods. It
needs to be emphasized that the sacrifice or expenditure should be made knowingly, but
prudently, and in a reasonable manner.
General average loss in a Marine Insurance would arise in the following circumstances:
(i) Some goods are thrown to lighten the ship when the ship is caught in a rough weather.
(ii) Make payment to the nearby agency to tow the ship in danger of sinking to the nearby
safe port or
(iii) Pour water to extinguish fire.
When general average loss occurs, Master of the ship reports the matter of loss to the port
authorities. An Average Adjuster is appointed for preparing the statement of general
average adjustment and fixing the contribution to be made by the owner of the vessel and
various shippers. After cargo owners make payment of their contribution, the shipping
company gives delivery of goods to the concerned owners.
The preparation of general average adjustment is a complex accounting operation. This job
is normally entrusted to the professionally trained average adjuster.
The average adjuster also gives a certificate of contribution to the shippers in respect of the
amount of contribution, payable by different parties. The insured would be able to get the
contribution certificate from the shipper, soon after payment. The insured can get
settlement of claim from the insurance company, producing the evidence of contribution
certificate and its payment.

4. Comment on the following statements:

a) Electronic Data Interchange (EDI) has no role in business.

By moving from a paper-based exchange of business document to one that is electronic,

businesses enjoy major benefits such as reduced cost, increased processing speed, reduced
errors and improved relationships with business partners. Learn more about the benefits of
EDI .
Each term in the definition is significant:

● Computer-to-computer​– EDI replaces postal mail, fax and email. While email is also an
electronic approach, the documents exchanged via email must still be handled by
people rather than computers. Having people involved slows down the processing of the
documents and also introduces errors. Instead, EDI documents can flow straight through
to the appropriate application on the receiver’s computer (e.g., the Order Management
System) and processing can begin immediately. A typical manual process looks like this,
with lots of paper and people involvement:

● Business documents​ – These are any of the documents that are typically exchanged
between businesses. The most common documents exchanged via EDI are purchase
orders, invoices and advance ship notices. But there are many, many others such as bill
of lading, customs documents, inventory documents, shipping status documents and
payment documents.
● Standard format​– Because EDI documents must be processed by computers rather than
humans, a standard format must be used so that the computer will be able to read and
understand the documents. A standard format describes what each piece of information
is and in what format (e.g., integer, decimal, mmddyy). Without a standard format, each
company would send documents using its company-specific format and, much as an
English-speaking person probably doesn’t understand Japanese, the receiver’s computer
system doesn’t understand the company-specific format of the sender’s format.
o There are several EDI standards in use today, including ANSI, EDIFACT, TRADACOMS
and ebXML. And, for each standard there are many different versions, e.g., ANSI
5010 or EDIFACT version D12, Release A. When two businesses decide to exchange
EDI documents, they must agree on the specific EDI standard and version.
o Businesses typically use an EDI translator – either as in-house software or via an EDI
service provider – to translate the EDI format so the data can be used by their
internal applications and thus enable straight through processing of documents.
● Business partners​ – The exchange of EDI documents is typically between two different
companies, referred to as business partners or trading partners. For example, Company
A may buy goods from Company B. Company A sends orders to Company B. Company A
and Company B are business partners.

b) From the exporter’s point of view, advance payment is free from any kind of credit or
transfer risks.

In this method, the payment is made either at the time of acceptance of the

order, or at the same time before the shipment. This is the safest and ideal method from

the exporter’s side. In most cases, however, this method is not likely to be favoured by

the buyer, the buyer may favour this method when he is an overseas affiliate of the

exporter, or urgently requires the goods and the exporter is in a position to dictate his

terms. The buyer may make remittance by:

(a) Purchasing a draft from the bank payable at a bank in India and dispatching it to the

exporter, or

(b) Arranging through his bank for a bank in India to be instructed by mail or capable to

pay the exporter (i.e., by mail transfer or telegraphic transfer). The draft, mail or

telegraphic transfer will be in the currency specified in the contract of sale.

From the exporter’s point of view, it is not only the simplest method but also frees from

any kind of credit or transfer risks. Payment is received before the shipment, and hence

there is no need for prior post – shipment finance of any kind. And as no interest or

commission is charged by Indian banks for payment of clean remittances, it works out to

be the cheapest method as well. However, in case the exporter has quoted in a foreign

currency, an exchange risk exists from the date of contract until payment is received from

the buyer.
c) Under bare - boat charter the ship owner do not let out the bare ship for a period of
time.

A ​bareboat charter​ or ​demise charter​ is an arrangement for the ​chartering​ or hiring of a

ship or ​boat​, whereby no ​crew​ or provisions are included as part of the agreement; instead,
the people who ​rent​ the vessel from the owner are responsible for taking care of such
things.
There are legal differences between a bareboat charter and other types of charter
arrangements, commonly called ​time​ or ​voyage​charters. In a voyage or time charter, the
charterer charters the ship (or part of it) for a particular voyage or for a set period of time.
In these charters, the charterer can direct where the ship will go but the owner of the ship
retains possession of the ship through its employment of the master and crew. In a
bare-boat or demise charter, on the other hand, the owner gives possession of the ship to
the charterer and the charterer hires its own master and crew. The bare-boat charterer is
sometimes called a "disponent owner". The giving up of possession of the ship by the owner
is the defining characteristic of a bareboat or demise charter.

d) In India, government corporations have not been established to supplement the export
effort.

The third pre- requisite of export promotion is the marketing effort. It may be noted that
‘export’ is primarily a ‘sale’ transaction. Production can be converted into ‘sale’ only through
the marketing effort. In other words ‘marketing effort’ provides the necessary link or
channel’ between production and sales. Hence, success on the export front is dependent
upon the marketing effort. Export promotion policy in India therefore, pays special attention
to the need for improving and strengthening export marketing effort. With this objective,
the Government of India have established a very comprehensive network of institutions for
servicing the export sector.In addition, separate institutions have also been established for
providing technical and specialized services to the export-sector in India. These institutions
provide necessary guidance, help and assistance to individual corporate units, especially in
the field of packaging, quality control, risk coverage, long- term credit, trade fairs and
exhibitions, settlement of disputes, package service and market information
For supplementing the export-effort by the private sector, Govt, of India have also
estab-lished a number of Corporations in the Government sector for directly undertaking
export import activity. Various state Governments have also established Export
Corporations for promoting exports from different states respectively.Market Development
Assistance: This assistance is provided for overall development of I overseas markets. It is
provided for sponsoring, inviting trade delegations within and outside the country, market
studies, publicity, setting up of warehouses/showrooms, research and development, quality
control, etc. MDA is largely available to Approved Organisations, Export Houses/Consortia of
Small Scale Industries, Individual exporters or other sponsored persons. The assistance is
given for air fare, daily allowance, participation in fairs and’ exhibitions, etc. The assistance
is disbursed by the FIEO and Ministry of Commerce.External Marketing Assistance Scheme
for Jute: The External Marketing Assistance Scheme provides grant of market assistance at
the rate of 5% and 10% of FOB value realisation on export of specified diversified products.
The benefit is available to both manufacturer-exporters and merchant exporters.
Government of India have provided various incentives for export promotion. Export
promotion policy include
(i) policies for increasing investment and production in export sector
(ii) price support measures for rendering exports more competitive,
(iii)measures for strengthening marketing effort by the export sector.

5. Write short notes on the following:

i) Port procedures

Each pilotage area has a ​Port Procedures​ and Information for Shipping Manual that defines
the standard​procedures​ to be followed in the pilotage area of the ​port​. It contains
information and guidelines to assist masters, owners and agents of vessels arriving at and
traversing the area

The state of Queensland has 24 pilotage areas described in Schedule 5 of the ​Transport
Operations (Marine Safety) Regulation 2016​ (the Regulation). In these areas, the Regional
Harbour Master has the authority to direct the master of a ship to navigate or operate a ship
in a prescribed way.

There are 21 compulsory pilotage areas described in Schedule 6 of the Regulation where a
person must not navigate a ship unless the person uses the services of a pilot.

Each pilotage area has a Port Procedures and Information for Shipping Manual that defines
the standard procedures to be followed in the pilotage area of the port. It contains
information and guidelines to assist masters, owners and agents of vessels arriving at and
traversing the area. The manual provides details of services, regulations and procedures to
be observed.

Mandatory sections of the Port Procedures and Information for Shipping Manuals are
subject to Regional Harbour Master's directions under section 86 of the ​Transport
Operations (Marine Safety) Act 1994.​ It is an offence not to comply with Regional Harbour
Master's directions without a reasonable excuse.

ii) Exchange control regulations concerning imports

An exporter of goods has an obligation to receive payment and bring the sale proceeds into
the country. The government does not allow exports for any other consideration. The
Exchange Control Regulations require the exporter to:
a​. Make a declaration to the customs authorities representing the full value of goods​,
b​. Negotiate all the shipping documents, including those relating to sales on consignment
basis, through the authorized dealer;
c​. Receive payment through the authorized dealer and
d​. Surrender the foreign exchange through the exchange control authorities to authorized
dealers.
Exporters are required to realise the sale proceeds within the prescribed period. If the
exporter has any genuine difficulty in realizing the sale proceeds within the prescribed
period, he can seek extension of time from RBI. Exporter has to prove that the delay is
beyond his control and not due to his fault or negligence.
Compliance of the above exchange control formalities is made through customs. Exchange
control authorities require the exporter to fill certain forms and submit them to the customs
authorities to ensure compliance of exchange control formalities.

iii) Chartering practice

When a tramp carrier is engaged, it is said to be under the charter, as one charterer hires
either the whole or the bulk of its space. A tramp may be chartered in some ways.
Three most important forms of engagement are:

1. Voyage Charter
2. Time Charter
3. Bareboat Charter or Charter by Demise​.
Let us now discuss them in detail.

1. Voyage Charter
A ship may be chartered either for a single voyage (say, from port A to point B) or for the
following voyage (say, from port A to port B to port C) or for a round voyage (say, from port
A to port B to port A). The shipowners provide the vessel to the charterers for carriage of an
agreed quantity of cargo from the named port or ports to be discharged at named port or
ports. Alternatively, the agreement (known as Charter party) provides for carriage of cargo
between ports within a particular range (say from any port in India to any port in Germany).
In the latter case, the charterers will be required to convey the names of specific ports to
the shipowners (which in effect is the Master of the vessel) at the time of voyage or voyages
are to be made.

For engaging a tramp on a voyage basis, the charterers are to pay freight to the shipowners.
Freight may be payable either according to the actual quantity loaded or only be calculated
– by the total capacity of the ship. In the first case, the charterers’may also be required to
pay for any capacity, which remained unused, Alternatively, the shipowners hire out the
unused capacity to another charterer.

In a voyage charter, the shipowners are not only to meet all expenses of running the ship
such as officers and crew wages, stores and provisions, insurance of ship, depreciation, etc.
but also the operating expenses like fuel cost, port charges, light dues, etc. The shipowners
recoup their expenses and earn profits from the freight paid by the charterers.
2. Time Charter
For time charter engagement, a ship is hired for a fixed period operation within the defined
territories or between agreed ports. Although the ship is operated by the command of the
charterers, it cannot be taken outside the agreed territories or agreed ports protect the
interests of the shipowners. It may also be noted that period is the essence of
the agreement, but it also provides for the voyage territories.

Under the time charter agreement, shipowners have the responsibility to deliver the vessel
at the agreed port within the specified time period in such a condition that it is in every way
fitted and equipped for the contemplated employment. The charterers, in turn, are
to redeliver the vessel at the agreed port in the same condition, in which it was taken in
charge, excepting normal wear and tear.

The entire capacity of the ship is hired, and the shipowners receive charter hire for the time
duration for which it has been hired. The charter hire is payable in advance at certain agreed
intervals. The quantity of cargo carried has not born upon the charter hire and even if no
voyage is made because of the charterer’s fault, the shipowners are entitled to the hire.

In a time charter engagement, the responsibility of scheduling the ship’s employment and
meeting port expenses, canal dues, fuels cost, cargo expenses, etc., remain with the
charterers. However, running expenses of the vessel like officers and crew wages, stores,
provisions, insurance;, etc., have to be met by the shipowners. Another feature of the time
charter engagement is that the charterers can either operate themselves or sublet the
vessel on voyage charter depending upon their requirements (provided the latter action is
not expressly prohibited in the agreement between the shipowners and the charterers). If
the market improves after the vessel is taken on time charter, and the charterers sublet it,
the charterers) earn more money than what is payable to the shipowners by way of charter
hire. Sometimes ships are time chartered on a long-term basis to fulfill the contractual
obligations like the Contract Affreightment. Such long-term charters are entered into so as
to protect the charterers from the vagaries of fluctuation in the freight market.

Expenditure-wise, the charterers have a greater responsibility under the time charter
compared to voyage charter. However, under time charter, the shipowners undertake that
the ship is in a seaworthy condition at the commencement of the period of hire and that
they will exercise due diligence or reasonable care to maintain it in seaworthy condition.
This implies that the shipowners are responsible for keeping the ship in a thoroughly
efficient
state as regards hull. Machinery and equipment during the period of the charter agreement.

3. Bareboat Charter or Charter by Demise

Under this arrangement, the shipowners let out the bare ship for a period. The difference
between the time charter and bareboat charter lies in the fact that in the latter case the
ship in the bare form lies at the disposal of the charterers who If we the full right and
responsibility of operating the ship. Table shipowners have the minimum responsibility and
act like it’ they are ‘dead’ and have no concern about the ways the ship will be used. Also
known as “Demise Charter” the charterers, in this case, become the deponent own ‘rs and
‘& are rcsl~onsible Sor Manning as well as operating the ship as if they are the owners of the
ship.

Since the ship is at the disposal of coal-tenders, they have the right to appoint the Master
and the Chief Engineer, however, subject lo the approval of the owners. They bear all costs
and expenses for the operation of the ship. For the period, the shipowners are paid a fixed
sum calculated at a certain rate per ton dead weight on summer freeboard
per calendar month payable in advance. The ship is put at the disposal of the charterers in
the seaworthy condition, and after the expiry of the period, it is redelivered to the
shipowners in the same good order and condition as for and when delivered, minus the
ordinary wear and tear.

iv) Duty drawback scheme

Under ​Duty Drawback Scheme​ relief of ​Customs​ and Central Excise ​Duties​suffered on the
inputs used in the manufacture of export product is allowed to Exporters. The
admissible ​duty drawback​ amount is paid to exporters by depositing it into their nominated
bank account.

he term drawback is applied to a certain amount of duties of Customs and Central Excise,
sometimes the whole, sometimes only a part remitted or paid by Government on the
exportation of the commodities on which they were levied. To entitle goods to drawback,
they must be exported to a foreign port, the object of the relief afforded by the drawback
being to enable the goods to be disposed of in the foreign market as if they had never been
taxed at all. For Customs purpose drawback means the refund of duty of customs and duty
of central excise that are chargeable on imported and indigenous materials used in the
manufacture of exported goods. Goods eligible for drawback applies to
a.) Export goods imported into India as such;
b.) Export goods imported into India after having been taken for use
c.) Export goods manufactured / produced out of imported material
d.) Export goods manufactured / produced out of indigenous material
e.) Export goods manufactured /produced out of imported or and indigenous
materials. The Duty Drawback is of two type​s: (i) All Industry Rate (AIR) and (ii) Brand
Rate.
The All Industry Rate (AIR)​ is essentially an average rate based on the average quantity and
value of inputs and duties (both Excise & Customs) borne by them and Service Tax suffered
by a particular export product. The All Industry Rates are notified by the Government in the
form of a Drawback Schedule every year and the present Schedule covers 2837 entries. The
legal framework in this regard is provided under Sections 75 and 76 of the Customs Act,
1962 and the Customs and Central Excise Duties and Service Tax Drawback Rules, 1995.
The Brand Rate of Duty Drawback​ is allowed in cases where the export product does not
have any AIR of Duty Drawback or the same neutralizes less than 4/5th of the duties paid on
materials used in the manufacture of export goods. This work is handled by the jurisdictional
Commissioners of Customs & Central Excise. Exporters who wish to avail of the Brand Rate
of Duty Drawback need to apply for fixation of the rate for their export goods to the
jurisdictional Central Excise Commissionerate. The Brand Rate of Duty Drawback is granted
in terms of Rules 6 and 7 of the Drawback Rules, 1995.
The ​Duty Drawback facility on export of duty paid imported goods​ is available in terms of
Sec. 74 (It is discussed in more detail in under mention para) of the Customs Act, 1962.
Under this scheme part of the Customs duty paid at the time of import is remitted on export
of the imported goods, subject to their identification and adherence to the prescribed
procedure.