Export to Outside India through Indian Merchant and getting funds in USD in sez

[Guest]

Dear Sirs

A - Manufacturer in Sez , B - Foreign Buyer , C - Trader in India.

Contract Received by C - Trader in India to supply goods to B for value 100 USD. C - Trader approached A manufacturer to export the goods directly to B - Foreign Buyer for this C will pay to A USD 90.

Shipping Bill Filed by A mentioned Buyer as ( C ) and Consignee as ( B) in USD. Commercial Invoice raised by A to C in USD send the documents from A Bank to C Bank in India. After receiving the documents in Trader Bank C he will substitute the Commercial Invoice and forward the same documents to Foreign Party B.

Foreign Pary B after receiving the documents at his bank remit the USD value 100 to Bank of ( C ). Bank of (C ) will transfer the USD 90 TO A.

As per RBI Guidelines and FEMA can we do this transaction. Is there any violation of FEMA. It is not deemed export. It is direct export. Kindly suggest sir.
Awaiting for your valuable response in this regard

[YAGAY andSUN]

a trade is called Merchanting Trade when,
 The supplier of goods will be resident in one foreign country
 The buyer of goods will be resident in another foreign country
 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:
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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.
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.
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.

AI Summary

Merchanting trade rules require export proceeds before import remittance and the same authorised dealer bank for both legs. Merchanting trade occurs when an Indian intermediary arranges purchase from a seller in one foreign country and sale to a buyer in another without the goods entering the Domestic Tariff Area and without transformation. Only goods permitted under the Foreign Trade Policy may be used. The same Authorised Dealer bank must handle both import and export legs, observing KYC and AML requirements. Transactions must complete within nine months, have no foreign exchange outlay beyond four months, and export proceeds must be received before remittance for the import leg.