Updated: Jul 25
I receive many inquiries related to foreign trade problems over the phone and via e-mail. Most questions are received from working professionals, entrepreneurs and job seekers. The list of questions is too long to explain in one article. However, I am trying to cover the most frequently asked question here. I hope that readers will be benefited through this article to know about the documents used in the export business.
The most frequently asked question is, "What kind of documentation is required to export?"
People generally understand that documentation is just a piece of paperwork used to claim payment after making a sale. It is not true. Documentation is a type of material that provides official information or evidence and which serves as a record. It can be in any form; paper, photo, analogue media, digital media, and e-paper. It can be financial documents, legal documents, historical documents, classified documents, operational documents, etc.
An international business transaction differs from a domestic business transaction in several ways, such as the currencies for the transaction, the laws, procedures and various logistics methods of the exporting and importing countries in this regard. But the most important difference between foreign trade and domestic trade is the documentation work.
In the domestic business, a business unit only has to meet the requirements set by the taxation department and create a simple tax invoice and transport papers for the customers. On the contrary, in international trade, the exporter and importer not only have to make many types of documents according to the requirements of different agencies but also submit them within a specified period.
The following agencies or institutions are mainly located in both countries:
Exporting and importing organizations.
Custom control department.
Exchange control authorities.
Insurance regulatory authorities.
Logistics operation authorities like port authorities, shipping, and warehousing authorities.
Export inspection agencies.
Health/sanitary inspection authorities.
Is export documentation really limited to paper works?
Absolutely not! Export documentation plays an important role in the flow and movement of goods and services in international markets. This documentation includes massive and complex paperwork for export organizations. Exporters need to understand the importance of each document. If they forget to make a document or submit it on time, the importers may be in distress at the destination, and the contract can also be cancelled. Similarly, a lack of document can also deprive the exporters of timely payment.
For better understanding, we have to look at the requirements of export documentation. Export documentation requires to:-
provide evidence of negotiated terms between two parties. These documents are known as Proforma Invoice, Purchase Order, Sales Contract, and Letter of Credit.
help transport the goods from one point of origin to the destination point.
provide a specific and complete description of the goods.
help to make clear the goods and services for export.
use as evidence of shipment and title of goods
obtain export finance and get paid from the buyer.
claim various export assistance and rewards.
fulfil export obligations.
refer transactions already done in the past and can be used to refer such transactions at a future date.
The legal importance of export documentation
Section 40 of Customs Act, 1962 (read with Section 50 of Customs Act, 1962)
According to Section 40 of the Customs Act, 1962, the person in charge of conveyance – vessel, vehicle, aircraft, etc., cannot permit loading of export cargo at the customs station unless and until the formal permission to export given by the proper customs officer, is presented. Before granting the permission, the customs officer, however, ensures that the goods being exported are in accordance with the different regulation, particularly in terms of the following:
The goods are the same type, sort, and values as declared by the exporter.
The duty or cess leviable has been appropriately determined and paid.
Section 50 of Customs Act, 1962 (Notification No. 80/2011-Cus (N.T.), Dated the 25.11. 2011)
Section 50 of the Customs Act, 1962 further states that the exporter, if in case of goods to be exported in a vessel or aircraft, has to present the shipping bill and other connected documents to the proper officer in charge. In practice, it may be said that the person in charge of the vessel, vehicle, or aircraft will not allow the loading of export goods if the customs officer concerned for export clearance does not give permission based on the presentation of the prescribed documents.
To understand its role in the export business, we can categorize the documents into two (02) parts: Legal Documents and Operational Documents.
(A) Legal Documents:
Importer-Exporter Code (IEC) – No one can import/export without IEC that is issued by DGFT.
Authorized Dealer Code (AD Code) – For export AD Code (obtained from bank branch to which RBI has issued AD Code number) and get it registered at port of export. For import no need for port registration, but it is important to mention AD code in the import declaration form (Bill of Entry).
Export/Import Licenses – If your product falls under the restricted or reserved category, it attracts a specific license for import/export.
BIS License/Compulsory Certification – The product covered under the quality control order shall conform to the Bureau of Indian Standard.
FSSAI License – It is required for the import/export of food products.
(B) Operational Documents:
These documents further categorize into two parts.
(a) Documents required at 'Pre-export' stage for export clearance:
Tax Invoice – Issued by supplier/exporter.
E-way bill till the port of clearance/loading - – Issued by the exporter.
Invoice-cum-packing list – Issued by exporter
Export declaration (Shipping Bill) – Filed by Customs House Agent appointed by the exporter.
(b) Documents required at 'Post-export' stage for export clearance:
Bill of Lading (sea export) – Issued by the shipping line.
Airway Bill (air export) – Issued by Air line.
Original Letter of Credit (LC) or copy of Purchase Order (PO).
Commercial Invoice – Issued by the exporter as per Letter of Credit or Purchase Order.
Packing List – Issued by the exporter as per LC or PO.
Certificate of Origin – Issued by Chamber of Commerce.
Free Trade Agreement (FTA) document, if required – Issued by EIA.
Pre-Inspection Certificate – Issued by an independent agency.
The export documents are necessary from the first stage when the exporter receives the purchase order until the final stage when he/she gets the payment from the buyer (importer). These documents help in the regulation of trade and the facilitation of export operations. Apart from the export documents, the importer may insist on the exporter submit the documents according to the laws and regulations of the importer's country.
In the next article, you will learn about ‘Why Correct HS Code is Important to Mention in PO and Invoices’.
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Disclaimer: This blog is for informational purposes only and should not be construed as legal or financial advice. The information contained in this blog is not intended to be a substitute for professional advice. You should always consult with a qualified professional before making any financial decisions. The author of this blog makes no representations as to the accuracy or completeness of the information contained herein. The information in this blog is subject to change without notice. The author of this blog is not liable for any losses or damages that may arise from the use of this blog.