‘Banks can write off import entry in IDPMS due to quality issues’

We are merchant exporters. We purchase various items from local parties and export under duty drawback (AIR) and RODTEP schemes. Sometimes we get very good prices from the buyers for various reasons, including our negotiating skills. But, our consignments are frequently held up by the Customs on the grounds that the price at which we export is more than 150 per cent of the price at which we procure goods from domestic parties.

What are the relevant legal provisions under the drawback or other rules, based on which the Customs can raise such objections? Rule 9 of the Customs and Central Excise Duty Drawback rules, 2017, says that “the drawback amount or rate determined under rule 3 shall not exceed one-third of the market price of the export product”. The first proviso at condition (1)(b) at Para 2 of the notification no.76/2021-cus(nt) dated September 23, 2021, relating to the RODTEP scheme, says that “the value of the said goods for calculation of duty credit to be allowed under the Scheme shall be the declared export FOB value of the said goods or up to 1.5 times the market price of the said goods, whichever is less”.

Rule 8(2)(iii)(b) of the Customs Valuation (Determination of Value of Export Goods) Rules, 2007, says, “the proper officer shall have the powers to raise doubts on the declared value based on certain reasons which may include the significantly higher value compared to the market value of goods of like kind and quality at the time of export”.

We had imported a product sample on a trial basis in 2017 from a prospective vendor. It did not test successfully and failed our quality control test. No payment was made to the customer as it was sent only for testing/trials. However, the vendor did not mention sample or trial shipment on the invoice. The bill of entry is outstanding in the IDPMS. Now, our bank is asking us to either get a letter from the Customs stating that the invoice was a trial shipment invoice or else make the payment of the value shown in the invoice (about $3000) to the party. How to tackle this situation?

The Para C.8 (xi) of RBI Master Direction no.17/2016-17 dated January 1, 2016 (as amended), says that “AD Category-1 banks may close the BOE for such import transactions where write-off is on account of quality issues; short shipment or destruction of goods by the port/customs/health authorities in terms of extant guidelines on the matter subject to submission of satisfactory documentation by the importer, irrespective of the amount involved. AD Bank shall settle and close ORM/BOE with appropriate ‘Adjustment Indicator’ in IDPMS”.

In your case, write-off is only on account of quality issues. So, your bank should have no hesitation in agreeing to write off and close the bill of entry in the IDPMS on the basis of your letter explaining the situation and suitable documents to support what you say.