ETD UNIT 4

EXCISE AND CUSTOMS CLEARANCE

Excise and Customs Clearance: Key Points and Required Documents

Excise Clearance involves the regulation and collection of excise duty on goods
manufactured within a country, while Customs Clearance pertains to the regulation and
collection of duties on goods being imported or exported.

Excise Clearance:

Excise Duty is a tax levied on the manufacture of goods within a country. The process
involves ensuring that all excisable goods comply with the regulations set forth by the tax
authorities.

Key Documents for Excise Clearance:

1. Excise Invoice
o Description: A document issued by the manufacturer, detailing the excise
duty paid on the goods.
o Purpose: Proof of excise duty payment and required for transport and sale.
2. Manufacturing Records
o Description: Records of production details, including quantity, quality, and
value of goods produced.
o Purpose: Verification of excisable goods and calculation of duty.
3. Form ARE-1 (for Export)
o Description: Application for Removal of Excisable Goods for Export.
o Purpose: Allows duty-free removal of goods meant for export.
4. Excise Registration Certificate
o Description: Certificate issued by the excise department authorizing the
manufacturer to produce excisable goods.
o Purpose: Legal compliance and verification.
5. Bond and Bank Guarantee (for Export under Bond)
o Description: A bond or bank guarantee submitted to the excise department.
o Purpose: Ensures compliance with export regulations without paying excise
duty upfront.

Customs Clearance:

Customs Duty is a tax levied on goods imported into or exported out of a country. Customs
clearance involves ensuring that goods comply with all regulations and that duties are
appropriately paid.

Key Documents for Customs Clearance:

1. Bill of Entry
 o Description: A declaration by the importer or exporter to the customs
authorities.
o Purpose: Basis for assessment and calculation of customs duties.
2. Commercial Invoice
o Description: Details the sale transaction, including the seller, buyer, product
description, quantity, price, and terms of sale.
o Purpose: Basis for customs valuation and duty calculation.
3. Packing List
o Description: Itemizes the contents of each package, including weight,
dimensions, and packaging type.
o Purpose: Assists customs officials in verifying the shipment's contents.
4. Bill of Lading (B/L) or Air Waybill (AWB)
o Description: A document issued by the carrier to acknowledge receipt of
cargo for shipment.
o Purpose: Acts as a contract of carriage and proof of ownership.
5. Certificate of Origin
o Description: Certifies the country where the goods were manufactured.
o Purpose: Determines applicable tariffs and trade agreements.
6. Import License (if required by the destination country)
o Description: A document required by some countries for the importation of
certain goods.
o Purpose: Ensures compliance with local import regulations.
7. Insurance Certificate
o Description: Proof that the shipment is insured against loss or damage.
o Purpose: Provides financial protection for the goods in transit.
8. Inspection Certificate
o Description: Confirms that the goods have been inspected and meet the
required standards.
o Purpose: Ensures quality and compliance with the buyer's specifications.
9. Letter of Credit (L/C) or Payment Terms Documentation
o Description: A financial document from a bank guaranteeing payment once
specific conditions are met.
o Purpose: Ensures payment security for the seller.
10. Phytosanitary Certificate (for agricultural products)
o Description: Certifies that the agricultural products meet the health and safety
standards of the importing country.
o Purpose: Prevents the spread of pests and diseases.
11. Fumigation Certificate (if applicable)
o Description: Confirms that wooden packaging materials or cargo have been
fumigated.
o Purpose: Ensures compliance with international pest control regulations.
12. Dangerous Goods Declaration (if applicable)
o Description: Details the nature of hazardous materials being shipped.
o Purpose: Ensures safe handling and transportation of dangerous goods.
13. Export License (if applicable)
o Description: Government authorization for the export of certain regulated
goods.
o Purpose: Compliance with national export controls and regulations.
14. Shipper's Letter of Instructions (SLI)
 o Description: Provides detailed instructions from the exporter to the freight
forwarder regarding the shipment.
o Purpose: Ensures accurate and efficient handling of the shipment.
15. Customs Bond (if applicable)
o Description: A guarantee that the importer will comply with all import
regulations and pay the necessary duties.
o Purpose: Protects the customs authority from financial loss.

Workflow for Excise and Customs Clearance:

1. Preparation: Gather and prepare all necessary documents.

2. Excise Clearance: Ensure all excise duties are paid, and relevant documents like the
excise invoice and Form ARE-1 (for export) are prepared.
3. Submission: Submit required documents to the customs authorities for customs
clearance.
4. Inspection: Customs officials may inspect the goods and verify documentation.
5. Assessment: Customs calculates duties and taxes based on the provided documents.
6. Payment: Duties and taxes are paid by the importer or their agent.
7. Release: Goods are released for delivery once all requirements are met and payments
made.

Proper documentation and compliance with regulations are essential to ensure smooth excise
and customs clearance, avoiding delays, penalties, and legal issues.

Document related to excise clearance - A.R(4) - Form - Softex - Form - P.P:

1. A.R. (4) Form

A.R. (4) Form is a specific form used in India for the excise clearance of goods meant for
export without payment of duty under a bond or letter of undertaking (LUT).

Key Details:

 Purpose: To allow the removal of excisable goods without payment of duty for
export.
 Contents: Includes details about the manufacturer, consignee, description of goods,
value, and proof of export.

Steps Involved:

1. Preparation: The exporter fills out the A.R. (4) form with all required details.
2. Verification: The form is submitted to the excise authorities for verification.
3. Approval: Once verified, the goods can be cleared for export without paying excise
duty.
4. Proof of Export: After export, proof of export (such as shipping bill or bill of lading)
must be submitted to the excise authorities to close the bond.
2. Softex Form

Softex Form is used by software exporters in India to declare and certify the value of
software exports. It is required for IT and IT-enabled services (ITES) companies.

Key Details:

 Purpose: To report and certify software export transactions to the Software

Technology Parks of India (STPI) or Special Economic Zone (SEZ) authorities.
 Contents: Includes details of the exporter, client, nature of software services, invoice
value, and contract details.

Steps Involved:

1. Preparation: The software exporter fills out the Softex form with details of each
export invoice.
2. Submission: The form is submitted to the STPI or SEZ authorities for certification.
3. Verification: Authorities verify the details and certify the form.
4. Submission to RBI: The certified Softex forms are then submitted to the Reserve
Bank of India (RBI) through the authorized dealer (bank).

3. P.P. Form (Postal Parcel)

P.P. Form is used for the excise clearance of goods sent through postal parcels. It is
particularly useful for exporters sending goods via post.

Key Details:

 Purpose: To facilitate the export of goods through postal channels without paying
excise duty.
 Contents: Includes details of the sender, receiver, description of goods, value, and
customs declaration.

Steps Involved:

1. Preparation: The exporter fills out the P.P. form with all necessary details about the
goods being sent.
2. Verification: The form is verified by the postal authorities.
3. Approval: Once verified, the goods can be dispatched through the postal service.
4. Proof of Export: Proof of export must be maintained and provided to the excise
authorities if required.
Summary of Documents:

Involved
Document Purpose Contents
Authorities
Excise clearance for Manufacturer details, consignee
A.R. (4)
export without duty details, goods description, value, Excise Department
Form
payment proof of export
Exporter details, client details,
Softex Declaration of software STPI, SEZ
nature of services, invoice value,
Form exports Authorities, RBI
contract details
Sender and receiver details, goods
Excise clearance for Postal Authorities,
P.P. Form description, value, customs
postal parcel exports Excise Department
declaration

These forms help streamline the process of excise clearance for different types of goods and
ensure compliance with regulatory requirements, thereby facilitating smooth and legal export
operations.

Documents related customs clearance - Lorry ticket:

A Lorry Ticket, also known as a Consignment Note or Transport Document, is a key

document in the transportation of goods by road. It plays an essential role in customs
clearance and logistics management.

Lorry Ticket (Consignment Note)

Key Details:

 Purpose: The lorry ticket serves as a document of title for the goods being
transported, a receipt for the cargo, and evidence of the contract of carriage between
the shipper and the transporter.
 Contents: Includes details about the consignor (shipper), consignee (receiver),
description of goods, quantity, weight, value, and other relevant information related to
the transport of goods by road.

Contents of a Lorry Ticket:

1. Consignor Details: Name, address, and contact information of the person or company
sending the goods.
2. Consignee Details: Name, address, and contact information of the person or company
receiving the goods.
3. Description of Goods: Detailed description of the items being transported, including
quantity, weight, and dimensions.
4. Value of Goods: The declared value of the goods for customs and insurance
purposes.
5. Vehicle Details: Information about the vehicle used for transportation, including
registration number and driver's details.
 6. Route Information: Details of the route to be taken, including any specific
instructions or stops.
7. Date and Time: The date and time of departure and expected delivery.
8. Terms of Carriage: Terms and conditions under which the goods are being
transported.
9. Signatures: Signatures of the consignor, transporter, and sometimes the consignee
upon delivery.

Role in Customs Clearance:

1. Proof of Transport: The lorry ticket serves as proof that the goods are being
transported from one location to another, which is crucial for customs authorities.
2. Customs Verification: Customs officials use the lorry ticket to verify the details of
the shipment, ensuring that the description and quantity of goods match the customs
declaration.
3. Duty Calculation: Helps in the calculation of applicable customs duties and taxes
based on the value and nature of the goods.
4. Legal Compliance: Ensures compliance with local and international transport
regulations, providing a legal framework for the transportation of goods.

Workflow Involving Lorry Ticket for Customs Clearance:

1. Preparation: The consignor prepares the lorry ticket, including all necessary details
about the shipment and the transport vehicle.
2. Submission: The lorry ticket is provided to the transporter, who uses it as a contract
of carriage.
3. Transport: The goods are transported to the customs point, with the lorry ticket
accompanying the shipment.
4. Customs Check: Customs officials inspect the goods and verify the details against
the lorry ticket and other documentation.
5. Clearance: Once verified, the goods are cleared by customs, and the lorry ticket is
stamped or signed by customs officials as proof of clearance.
6. Delivery: The goods are delivered to the consignee, who may also sign the lorry
ticket to confirm receipt.

Summary:

A lorry ticket is an essential document for the transportation of goods by road, ensuring that
all parties involved have accurate and verifiable information about the shipment. It facilitates
customs clearance by providing a clear record of the goods being transported, aiding in duty
calculation, and ensuring compliance with transport regulations. Proper preparation and use
of a lorry ticket can help streamline the logistics and customs processes, minimizing delays
and ensuring smooth delivery of goods.
Documents related foreign exchange clearance - Bill of shipment:

Foreign Exchange Clearance is essential for international trade as it involves the transfer of
funds between countries. One key document in this process is the Bill of Shipment, which
plays a crucial role in facilitating and verifying foreign exchange transactions.

Bill of Shipment

Key Details:

 Purpose: The Bill of Shipment serves as evidence of the shipment of goods and is
used to facilitate the release of foreign exchange by banks. It is crucial for verifying
that goods have been shipped and that payment can be processed.
 Contents: Includes details about the exporter, importer, shipment, value of goods, and
terms of payment.

Contents of a Bill of Shipment:

1. Exporter Details: Name, address, and contact information of the seller.

2. Importer Details: Name, address, and contact information of the buyer.
3. Description of Goods: Detailed description of the items being shipped, including
quantity, weight, and dimensions.
4. Value of Goods: The declared value of the goods for customs and foreign exchange
purposes.
5. Shipping Details: Information about the shipment, including the shipping method
(sea, air, or land), vessel or flight number, and bill of lading or air waybill number.
6. Terms of Payment: Payment terms agreed upon between the exporter and importer,
such as letters of credit (L/C), advance payment, or open account.
7. Date of Shipment: The date on which the goods were shipped.
8. Port of Loading and Destination: The port or location where the goods were loaded
and the destination port or location.
9. Signatures: Signatures of the exporter and any other relevant parties, such as the
carrier or customs officials.

Role in Foreign Exchange Clearance:

1. Verification of Shipment: The Bill of Shipment verifies that the goods have been
shipped, which is essential for the release of foreign exchange by banks.
2. Payment Processing: Banks use the Bill of Shipment to process payment under the
terms of the letter of credit (L/C) or other payment agreements.
3. Customs and Regulatory Compliance: Ensures compliance with international trade
regulations and customs requirements.
4. Proof of Transaction: Acts as proof of the export transaction, which is necessary for
accounting and auditing purposes.

Workflow Involving Bill of Shipment for Foreign Exchange Clearance:

1. Preparation: The exporter prepares the Bill of Shipment, including all necessary
details about the goods and shipment.
 2. Submission to Bank: The Bill of Shipment is submitted to the exporter's bank, along
with other required documents such as the commercial invoice and packing list.
3. Bank Verification: The bank verifies the Bill of Shipment and other documents to
ensure they comply with the terms of the letter of credit (L/C) or other payment terms.
4. Foreign Exchange Release: Upon verification, the bank releases the foreign
exchange to the exporter, facilitating the payment process.
5. Customs Clearance: The Bill of Shipment is used by customs officials to verify the
shipment details and ensure compliance with export regulations.
6. Record Keeping: Both the exporter and the bank keep records of the Bill of Shipment
for future reference and compliance with regulatory requirements.

Summary:

The Bill of Shipment is a critical document in the foreign exchange clearance process,
providing proof of shipment and ensuring the smooth transfer of funds between the exporter
and importer. It facilitates payment processing, regulatory compliance, and verification of
international trade transactions. Proper preparation and submission of the Bill of Shipment
help streamline the foreign exchange clearance process, ensuring timely and accurate
payment for goods shipped internationally.

Documents related to transportation and procedures - L/C UCP600 -

Invoice - Type of invoices/Performa - Consular-Legalised:

When dealing with international trade, various documents and procedures are required to
ensure smooth transportation, compliance with legal standards, and proper financial
transactions. Below is an overview of the key documents related to transportation and
procedures, specifically focusing on Letters of Credit (L/C) under UCP 600, invoices
(including types like proforma), and consular-legalized documents.

1. Letter of Credit (L/C) under UCP 600

UCP 600 stands for the Uniform Customs and Practice for Documentary Credits, 2007
revision, International Chamber of Commerce (ICC) publication number 600. It provides a
set of standardized rules for letters of credit used in international trade.

Key Details:

 Purpose: To provide a reliable payment mechanism that ensures payment to the

exporter upon presenting specified documents.
 Contents: Specifies the terms and conditions that must be met for the release of
funds, including shipment details, required documents, and deadlines.

Important Documents under L/C:

 Bill of Lading: Proof of shipment.

 Commercial Invoice: Details the sale transaction.
 Packing List: Itemizes the contents of the shipment.
  Certificate of Origin: Certifies the country of manufacture.
 Inspection Certificate: Confirms that the goods meet specified standards.

2. Invoice

An invoice is a commercial document issued by a seller to the buyer, indicating the products,
quantities, and agreed prices for products or services the seller has provided.

Types of Invoices:

1. Commercial Invoice:
o Purpose: Official request for payment from the buyer.
o Contents: Details of the buyer and seller, description of goods, prices, terms
of sale, and payment details.
2. Proforma Invoice:
o Purpose: Preliminary bill of sale sent to buyers in advance of a shipment or
delivery of goods.
o Contents: Similar to a commercial invoice but does not demand payment;
used to declare the value of the trade.
3. Consular Invoice:
o Purpose: Certified by the consulate of the importing country, verifying the
shipment's value, quantity, and contents.
o Contents: Includes details verified by the consulate to assist in customs
clearance.

3. Consular-Legalized Documents

Consular-legalized documents are certified by the consulate or embassy of the destination

country, ensuring the documents meet the legal requirements of that country.

Key Details:

 Purpose: To validate documents for use in the importing country, ensuring

compliance with local laws and regulations.
 Common Documents: Commercial invoices, certificates of origin, and other trade-
related documents.

Steps for Consular Legalization:

1. Preparation: Prepare the documents that need legalization.

2. Verification: Submit documents to the relevant authorities (chamber of commerce,
trade associations) for initial verification.
3. Submission to Consulate: Submit verified documents to the consulate or embassy of
the destination country.
4. Legalization: The consulate reviews and legalizes the documents, often by attaching
a seal or certificate of legalization.
Workflow Summary:

1. Letter of Credit (L/C) under UCP 600:

 Establishment: The buyer’s bank issues an L/C based on the sales contract.
 Shipment: The seller ships the goods and collects the necessary documents.
 Presentation: The seller presents the documents to their bank.
 Verification: The bank verifies the documents against the L/C terms.
 Payment: Upon verification, the bank releases payment to the seller.

2. Invoice:

 Proforma Invoice: Issued before shipment to declare the value of goods.

 Commercial Invoice: Issued post-shipment as a formal request for payment.
 Consular Invoice: May be required by some countries for customs clearance, verified
by the consulate.

3. Consular-Legalized Documents:

 Preparation: Prepare documents requiring legalization.

 Verification: Obtain initial verification from relevant authorities.
 Submission: Submit documents to the consulate/embassy.
 Legalization: Obtain consular legalization for compliance in the importing country.

Conclusion:

Proper documentation and adherence to procedures are crucial in international trade to ensure
smooth transactions, compliance with legal standards, and secure payment mechanisms.
Letters of Credit under UCP 600 provide a reliable payment method, while various types of
invoices and consular-legalized documents ensure transparency and legality in trade
activities.