On the 6th of October 2023, the Directorate General of Systems and Data Management, under the Central Board of Indirect Taxes & Customs, issued an advisory for the trade community. This advisory concerns a new check introduced for Shipping Bills, specifically in reference to the “Nature of Contract.” In this article, we will explore the implications of this advisory and how it affects the declaration of CIF (Cost, Insurance, Freight) and FOB (Free On Board) values in export-related documents.
Advisory for Trade: The Nature of Contract Check
The primary objective of this advisory is to ensure consistency in the declaration of the “Nature of Contract” at both the invoice and item levels during the export process. It emphasizes that if an exporter or Customs House Agent (CHA) declares the “Nature of Contract” for an invoice as CIF, the system will consider the unit value at the item level to be inclusive of both freight and the invoice amount. As a result, the system will calculate the correct FOB value based on this information.
This check is introduced to prevent discrepancies in the declaration of the “Nature of Contract” and to ensure that the FOB value is correctly derived based on the chosen contract type.
Implications for Different Types of “Nature of Contract”
1. CIF (Cost, Insurance, Freight): When the “Nature of Contract” in the invoice is declared as CIF, the system will derive the FOB value by proportionately deducting the declared insurance and freight amounts among the items in that invoice.
2. CI (Cost, Insurance): If the “Nature of Contract” is declared as CI, the unit value at the item level will be treated as inclusive of insurance, and the system will derive the FOB value accordingly.
3. CF (Cost, Freight): For “Nature of Contract” declared as CF, the unit value at the item level is treated as inclusive of freight, and the system will calculate the FOB value accordingly.
4. FOB (Free On Board): When the “Nature of Contract” is FOB, the unit value at the item level is considered as exclusive of both freight and insurance.
Guidelines for Trade
To comply with this new check introduced for Shipping Bills, the trade community must adhere to the following guidelines:
- Declaration of “Nature of Contract”: Ensure that the “Nature of Contract” declared in the invoice aligns with the chosen unit price option for freight.
- CIF: Choose “B” (unit price includes).
- CI: Choose “I” (unit price includes).
- CF: Choose “F” (unit price includes).
- FOB: Choose “N” (unit price does not include).
- Accurate Declaration of Amount and Currency: It is crucial to correctly declare the amount and currency of both “freight” and “insurance.” The system will derive the FOB value based on these declarations if the “Nature of Contract” is CIF, CF, or CI.
These guidelines are essential to maintain accuracy and consistency in trade documentation, especially when it comes to calculating export-related incentives or export duty, which are dependent on the FOB value.
For any further queries or assistance, you can contact the ICEGATE Helpdesk Team at [email protected] or call 1800-3010-1000.
In conclusion, this advisory serves as an important reminder to the trade community to accurately declare the “Nature of Contract” and related unit price options in shipping bills. This ensures that the FOB value is calculated correctly, which is vital for various trade-related calculations and processes. Following these guidelines will contribute to smoother and more transparent trade operations.
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Directorate General of Systems and Data Management
CENTRAL BOARD OF INDIRECT TAXES & CUSTOMS
Date: 6th October 2023
Category: Customs
Issued by: ICEGATE
Subject: Advisory for Trade regarding Check introduced for the Shipping Bill in reference to Nature of Contract
Introduction
A check has been introduced for Shipping bills in reference to ‘Nature of Contract’ that wherever an exporter/ CHA declares “Nature of Contract” for invoice as CIF, the unit value at item level for that invoice would be treated as inclusive of freight and invoice, and system would calculate the correct FOB value accordingly.
This check shall ensure that the same nature of contract is declared at invoice level and item level during export.
Export related incentives or export duty, if applicable on export goods, are calculated on the FOB Value. Therefore, it is to be noted that wherever “Nature of Contract” for invoice is declared as CIF, FOB value at item level would be derived by the system after deducting declared insurance and freight amount proportionately among the items of that invoice. Similarly, if “Nature of Contract” is declared as “CF” or “CI”, unit value at item level would be treated as inclusive of freight and inclusive of insurance respectively and thereafter FOB value would be derived by the system.
Points to be noted by Trade
1. For different types of “Nature of Contract”, trade to ensure to correctly declare “whether unit price include” or “add freight” field in the shipping bill message format, at the time of filing of shipping bill, as per following conditions:
- CIF : only B is allowed.
- CI : only I is allowed.
- CF: only F is allowed.
- FOB: only N is allowed.
2. Trade to ensure that amount and currency of “freight” and “insurance” has been declared correctly, since FOB value would be derived by the system, wherever “Nature of Contract” has been declared as “CIF”, “CF” and “CI”.
For any further queries or help kindly contact ICEGATE Helpdesk Team on [email protected] or 1800-3010-1000
