MERCHANTING TRADE IN THE INTRNATIONAL TRADE.

• MERCHANTING TRADE IN THE INTRNATIONAL TRADE.

In the course of the trade and business it frequently happens that a person buy some goods from one person and sale the same to the other may be within city town village state or within any where in India. The person who buys the goods from other and sale the same to other is known as intermediary normally is may be a trader of the goods such goods or various goods including like goods. The main business of such intermediary is to buy goods for X amount and sale to other for X+ amount what ever is ‘+’ is his profit.

For example, Mr. A of Ahmadabad buy 100 pens from Mr. B of Mumbai (he is the manufacturer of the Pens) for ₹ 1000/- for 100 pens and Mr. A sell all the hundred Pens to Mr. K of Kerala for ₹ 1200/-.So here Mr. A work as an intermediary between Mr. B and Mr. K and makes profit for ₹ 200/- in selling 100 pens. Here, Mr. A may take delivery of 100 pens from Mr. B and send to Mr. K or Mr. A may instruct Mr. B that to give delivery to Mr. K at Kerala.

The above is an example of merchanting trade within India or within the Domestic area.  But, the similar transaction also takes place in the International market ie in the Course of Import and export too.

• How the merchanting trade transaction takes place in the International market?

In the following circumstances in Indian Context, a trade is called Merchanting Trade when,

1. The supplier of goods will be resident in one foreign country
2. The buyer of goods will be resident in another foreign country
3. The merchant or the intermediary will be resident in India

In the simple terms merchanting transaction is the transaction in the international market when shipment of goods is effected from one foreign country to other foreign country involving Indian Intermediary who buy/import the goods from the person of one foreign country and sale/export the same goods to other person of other foreign country. In this transaction Indian person is called intermediary.

For example, Mr. I of India purchase/ import 100 pens for USD 2000/- from Mr. C of China and sale/export the said 100 for USD 2500/- to Mr. U of USA. Here Mr. I of India gives instruction to Mr. C of China to ship the goods by Air to Mr. U of USA from China directly.

 Mr. I may instruct Mr. C to ship the goods by Air to India in such case:

1. Mr. I will have either to pay Customs duty for getting cleared the goods for Home Consumption and claim drawback at the time of export to Mr. U of USA which will be a lengthy and expensive process.
2.  Mr. I may clear the goods for ware house and subsequently export the same he may do so but it will also be expensive.

If Mr. I of India gives instruction to Mr. C of China to ship the goods to India stead directly ship to Mr. U of USA then it will not be classified as Merchanting Trade because, for a trade to be classified in Merchanting Trade should satisfy the following two conditions:

• Goods acquired should not enter the Domestic Tariff Area of the Importing Country and,
• The state of the goods should not undergo any transformation and meant for transport from country of supplier to the country of the buyer.

However, in sending the goods directly, requisite care has to be taken that the identification of shipper/exporter and purchase price from Mr. C of China by Mr. I of India  be not disclosed to the ultimate buyer i.e. Mr. U of USA.

• Which goods can be involved in the merchanting trade transactions?

Only those goods that are permitted for Export and Import under the prevailing Foreign Trade Policy of India can be involved in the merchanting trade transactions. As on the date of shipment and all the rules, regulations and directions applicable to exports (except Export Declaration Form) and imports (except Bill of Entry), are complied with for the export leg and import leg respectively.

AD bank should be satisfied with the bonafides of the transactions. Further, KYC and AML guidelines should be observed by the AD bank while handling such transactions 4.

Both the legs import and export of a merchanting trade transaction are to be routed through the same Authorised Dealer Bank. The entire merchanting trade transactions (both import and export) should be completed within an overall period of nine months and there should not be any outlay of foreign exchange beyond four months.

The commencement of merchanting trade would be the date of shipment / export leg receipt or import leg payment, whichever is first. The completion date would be the date of shipment / export leg receipt or import leg payment, whichever is the last. The export proceeds should be received prior to the remittance for Import made under the transaction.

Also See:

Master Direction – Import of Goods and Services (Updated as on October 20, 2016)