Export done in Indian rupees and realisation proceeds received in USD and saudi arabian riyals

[Guest]

Dear Sir

We exported our goods under MEIS scheme, since the contracts were in Indian rupees, and therefore prepared our shipping bills in Indian rupees, but due to some operational reasons our buyers transferred our payments in Saudi riyals and USD dollars.

Now when we have submitted our claim for MEIS entitlement, the DGFT is asking for a confirmation letter from our bankers that the payments have been received through VOSTRO ACCOUNT, to which our bankers state that the payments have been received through the NOSTRO BRC are given in USD and Saudi Riyals, hence no transaction has been routed through VOSTRO ACCOUNT.

Please advise that how we can address the issue.

Thanks in advance

[KASTURI SETHI]

DGFT is legally correct in this aspect. In this context, see the relevant extracts of Board's circular dated 1.2.2019 which are appended below :-

C.B.I. & C. Circular No. 88/07/2019-GST, dated 1-2-2019

3.1 Original Para 2(k)

Realization of export proceeds in Indian Rupee: Attention is invited to para A (v) Part- I of RBI Master Circular No. 14/2015-16 dated 01st July, 2015 (updated as on 05th November, 2015), which states that “there is no restriction on invoicing of export contracts in Indian Rupees in terms of the Rules, Regulations, Notifications and Directions framed under the Foreign Exchange Management Act, 1999. Further, in terms of Para 2.52 of the Foreign Trade Policy (2015-2020), all export contracts and invoices shall be denominated either in freely convertible currency or Indian rupees but export proceeds shall be realized in freely convertible currency. However, export proceeds against specific exports may also be realized in rupees, provided it is through a freely convertible Vostro account of a non-resident bank situated in any country other than a member country of Asian Clearing Union (ACU) or Nepal or Bhutan”.

Accordingly, it is clarified that the acceptance of LUT for supplies of goods to countries outside India Nepal or Bhutan or SEZ developer or SEZ unit will be permissible irrespective of whether the payments are made in Indian currency or convertible foreign exchange as long as they are in accordance with the applicable RBI guidelines. It may also be noted that the supply of services to SEZ developer or SEZ unit under LUT will also be permissible on the same lines. The supply of services, however, to Nepal or Bhutan will be deemed to be export of services only if the payment for such services is received by the supplier in convertible foreign exchange.

3.2 Amended Para 2(k)

Realization of export proceeds in Indian Rupee: Attention is invited to para A (v) Part- I of RBI Master Circular No. 14/2015-16 dated 01st July, 2015 (updated as on 05th November, 2015), which states that “there is no restriction on invoicing of export contracts in Indian Rupees in terms of the Rules, Regulations, Notifications and Directions framed under the Foreign Exchange Management Act, 1999. Further, in terms of Para 2.52 of the Foreign Trade Policy (2015-2020), all export contracts and invoices shall be denominated either in freely convertible currency or Indian rupees but export proceeds shall be realized in freely convertible currency. However, export proceeds against specific exports may also be realized in rupees, provided it is through a freely convertible Vostro account of a non-resident bank situated in any country other than a member country of Asian Clearing Union (ACU) or Nepal or Bhutan”. Further, attention is invited to the amendment to section 2(6) of the IGST Act, 2017 which allows realization of export proceeds of services in INR, wherever allowed by the RBI.

Accordingly, it is clarified that the acceptance of LUT for supplies of goods or services to countries outside India or SEZ developer or SEZ unit will be permissible irrespective of whether the payments are made in Indian currency or convertible foreign exchange as long as they are in accordance with the applicable RBI guidelines.

[KASTURI SETHI]

Nostro account cannot be substitute for Vostro Account. Both accounts have different specific purposes. You may go through the literal meaning/legal meaning of both terms on google.

[YAGAY andSUN]

Since, export proceeds have been received through NOSTRO Account, therefore, it won't be treated as receipt of proceeds in Freely convertible foreign currency, so DGFT had denied the MEIS benefit to you.

For information on NOSTRO & VOSTRO, Please check the following link to enrich your knowledge:-

https://www.investopedia.com/ask/answers/051815/what-difference-between-nostro-and-vostro-account.asp

AI Summary

Export Payments in USD and Riyals Disqualify MEIS Benefit Due to Nostro Account Use, Not Vostro Account as Required. An individual raised a query about export payments made in Saudi riyals and USD despite contracts being in Indian rupees under the MEIS scheme. The Directorate General of Foreign Trade (DGFT) requested confirmation from banks that payments were received through a Vostro account, but the banks confirmed receipt through a Nostro account. Respondents clarified that DGFT's stance is legally correct, as export proceeds must be realized in freely convertible currency via a Vostro account. Nostro and Vostro accounts serve different purposes, and the receipt through a Nostro account disqualifies the MEIS benefit.