We export machinery and equipment under CIF/CFR delivery terms. Quite often, the freight is less than what we estimated when we entered into the contract. So, we end up making some more profit. Are we violating any Customs or FEMA laws? What are the relevant provisions?
In a CIF/CFR contract, the buyer agrees to pay the contracted price that includes the freight element, regardless of the actual freight costs that the seller bears. The risk of variation in actual freight falls on the seller. If the actual freight is higher, the seller gets less money for the goods and if the actual freight is less, the seller gets more money for the goods. There is no illegality in such transactions. Rule 7 of the Customs (Determination of Value of Export Goods) Rules, 2007, requires the exporter to declare the value of the goods. Rules 2(b) and 3(1) of the said Rules, read with Section 14 of the Customs Act, 1962, say that the value shall be the transaction value, i.e. the price paid or payable for the goods. In your case, that is the CIF/CFR price contracted, and as long as you declare it correctly on the shipping bill, there is no violation of Customs laws.
Secondly, Section 7(1)(a) of the Foreign Exchange Management Act, 1999 only says that every exporter of goods shall furnish to the Reserve Bank of India or to such other authority a declaration in such form and in such manner as may be specified, containing true and correct material particulars, including the amount representing the full export value or, if the full export value of the goods is not ascertainable at the time of export, the value which the exporter, having regard to the prevailing market conditions, expects to receive on the sale of the goods in a market outside India. So, as long as you expect to realise the CIF/CFR value of the goods and declare it correctly in your shipping bill/EDF, there is no violation under FEMA.
Do we have to surrender the duty drawback obtained if the export proceeds are not realised within nine months of export, when we have not taken extension for realisation of export proceeds from our bank?
Yes. Please see Rule 18 of Customs and Central Excise Duties Drawback Rules, 2017, which deals with recovery of the amount of drawback where export proceeds are not realised.
Can we take a loan from our customer abroad for purchase of an office and repay the loan with interest in the next five years?
No, as the vendor is not in the eligible category of lenders under the automatic route. Also, there is a restriction on borrowing from abroad for real estate activity. In theory, you can approach the RBI for approval, but I don’t think that will work. For details, please refer to the relevant RBI Master Direction no.5/2018-19 dated March 26, 2019 (as amended), on external commercial borrowing at this link: https://rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=11510.
