Table of Contents
WRITING OFF OF UNREALIZED EXPORT BILLS
BRIEF INTRODUCTION
Exports are available with various incentives in India like refund of taxes paid with regard to export, various duty-free scripts, Duty Drawbacks etc. However, these incentives would be available, provided the realization of consideration in respect of export of products or services takes place.
Writing off of the number of receivables from the books of accounts shall be permissible. However, norms don't seem to be that easy when balance with regard to export bills is to be written off. The Reserve Bank of India has provided for various rules and regulations in respect of writing of unrealized export considerations.
In this article, we would be discussing about the meaning of write-off is, the guidelines provided by RBI and FEMA regarding unrealized export bills, write-off relaxation, and the extension of time provided for realization of export considerations.
MEANING
Where any business carries out the activity involving sale of products or services, then an amount is sought to be received against such sales and the same is recorded as “Accounts Receivables” in books of the seller. However, in many situations, such amounts never get released thanks to various reasons like insolvency of the customer, mutual dispute, fraud on a part of the customer etc. In such a situation, the said amount in respect of unrealized sales invoices shall be written off.
In case of export of products or services, it's obligatory on the part of the exporter to realize the total consideration of exported goods or services in foreign currency within a prescribed time period, starting from the date when the export of products and services took place. However, where any amount in respect of export bills becomes non-realizable, then, writing off such amount by the exporter would be required.
RBI GUIDELINES
1. Just in case an exporter has not been ready to realize the outstanding export dues despite his/her best efforts, he/she may opt either of the subsequent options to write off the unrealized export invoices:
- Directly approach the Authorized Dealer Category-I, who had handled the relevant shipping documents, or
- Exporter shall also be available with the option to write-off the amount, after having appropriate supporting documents, along with a request letter for the same.
2. Write off is allowed subject to the fulfilment of stipulations regarding surrender of incentives before “write-off” adduced within the A.P. (DIR Series) Circular No. 03 dated 22 July 2010.
3. After the introduction of liberalization policy, the procedure for write off was simplified, and certain limits were prescribed for ¨write-offs¨ of unrealized bills:
- Self-write-off by an exporter (Other than Status Holder Exporter) 5%*
- Self-write-off by Status Holder Exporters 10%*
- Write-off by AD (Authorized Dealer) 10%*
*Of the whole export proceeds realized during the previous yr.
CONDITIONS
Unrealized export invoices shall be allowed to write down off subject to the subsequent conditions:
1. Specified percentage for written off shall be computed on total export proceeds realized during the previous year.
2. Write off shall be allowed for such invoices which remain outstanding for period exceeding 9 months.
3. The exporter is required to provided satisfactory documentation evidence that he has made every effort to gather the dues;
4. The case must fall into any of the under noted categories:
- The overseas buyer was declared bankrupt, and a certificate from the official liquidator stating that the export earnings couldn't be recovered was produced.
- The overseas buyer isn't traceable over a fairly long period of time.
- The commodities exported were auctioned or destroyed by the importing country’s port, customs, and health officials.
- The amount unrealized refers to the balance, being payable and settled with the assistance of Indian Embassy, Foreign Chamber of Commerce, or any other similar organization.
- The unrealized amount indicates the outstanding undrawn balance of an export bill (not exceeding 10% of the invoice value) that proved unattainable despite the exporter’s best efforts.
- The cost involved in the pursual of law action, shall be disproportionate on the basis of the amount unrealized on the export bill, and where the exporter, wins a court battle against the foreign buyer, the same provisions will be applicable.
- Bills being written due to difference between LC value and the actual export value, or due to provisional and actual freight charges, and also the amount remains unrealized thanks to the foreign buyer’s failure to pay the bills.
5. If any proportionate export incentives were employed in relevance the related shipments, the exporter is required to surrender such incentive (for situations not covered by A. P. (DIR. Series) Circular No.03 dated July 22, 2010).
6. within the case of self-write-off, the exporter must submit a Chartered Accountant’s certificate to the concerned AD bank indicating following details:
- export realization within the previous twelvemonth,
- Amount write-off already claimed during the year, if any,
- The relevant GR / SDF Nos. to be written off;
- Bill No., invoice value, commodity exported, and country of export.
- A CA certificate, indicating that the exporter’s export benefits have been surrendered, if any.
NON-AVAILABILITY OF “WRITE-OFF”
The following types of export bills have been specifically excluded from this scheme:
1. Exports made to countries with which, India has externalization issues, and also where the overseas buyer deposits the export consideration in local currency, however, the quantity is not repatriated by the country’s central banking authorities.
2. The Enforcement Directorate, Directorate of Revenue Intelligence, Central Bureau of Investigation, et al are investigating the EDF (export declaration form), still as outstanding debts that are the matter of civil and criminal actions.
WRITE-OFF IN RESPECT OF PAYMENT OF CLAIMS BY ECGC AND IRDAI
1. AD shall write-off the related export bills upon receipt of an application from the exporter in the midst of documentation evidence from the ECGC/private insurance companies regulated by IRDA providing that such claim, with regard to outstanding bills, shall stand fulfilled by them.
2. Such a write-off won't be limited to the ten limit mentioned above.
3. Incentives are surrendered in accordance with the Foreign trade policy.
4. The claims, being settled in Indian rupees by the ECGC and insurance companies, being regulated by IRDA are not to be interpreted as export consideration, being realized in foreign currency.
WRITE-OFF RELAXATION
Starting from August 27, 2009, realization of export proceeds shall not be mandatorily be required under the FTP’s Export Promotion Schemes, provided the subsequent conditions are fulfilled -
1. Consistent with current criteria, the bank/depository financial institution/bank/banking concern/banking company} or AD Category – I bank on behalf of the Reserve Bank may authorize a write-off on merits;
2. The exporter presents a document from the concerned Indian Foreign Mission attesting to the very fact that the export funds weren't recovered from the buyer; and
3. The same would not be applicable, where the exporter undertakes self-write off.
4. Besides this, under the Duty Drawback Scheme, if availed of by the exporter via any of the Export Promotion Schemes under FTP 2009-14, AD Category – I banks are encouraged to not put into effect the surrender of proportionate export incentives, subject to the fulfilment of the necessities indicated above. the downside amount has got to be recovered whether or not the claim is settled by the export credit Guarantee Corporation of India Limited (ECGC) or the write –off is allowed by the reserve bank.
EXTENSION OF TIME LIMIT FOR REALISATION OF EXPORT PROCEEDS
1. The Reserve Bank of India has provided the AD Category – I banks, the permission for extending the term in respect of realization of export proceeds beyond 9 months, subject to the subsequent conditions:
- The Directorate of Enforcement / Central Bureau of Investigation, in addition as other investigating agencies, don't seem to be looking into the export transactions covered by the invoices.
- The AD Category – I bank is convinced that the exporter was unable to get export earnings because of circumstances beyond his control.
- The exporter certifies that the export proceeds are realized over the extended period of your time.
- When seeking an extension beyond 9 months from the date of export, the exporter’s total outstanding must not exceed USD 1,000,000 or 10% of the common export realizations for the previous three financial years, whichever is larger.
- The XOS statement should include all outstanding export invoices that are quite six months old from the date of export. Where an advertisement Category – I bank has granted a time extension, the date up to which the extension was granted is also stated within the ‘Remarks’ column.
- Extensions could also be granted in circumstances when the exporter has filed litigation against the customer in another country, no matter the quantity involved or unpaid.
2. When an exporter has been unable to grasp the proceeds of a cargo made during the extended term thanks to circumstances beyond his control, but expects to be able to do so if an extra extension of the amount is granted. additionally, in circumstances not covered by subparagraph (I) an application (in duplicate) should be sent to the Reserve Bank’s Regional Office concerned in form ETX through his AD Category – I bank, in the course of suitable documentary evidence
