The Options Available to Exporters Under the FEMA Act with Respect to Non- Realisation and Non-Repatriation of Export Proceeds
Introduction: Under the Foreign Exchange Management Act (FEMA) and EXIM Policy, exporters are mandated to realize and repatriate export proceeds to India within a stipulated timeframe. Compliance with these regulations ensures the smooth functioning of international trade and the country’s foreign exchange reserves. However, various scenarios can lead to non-realization and non-repatriation of export proceeds. This article explores the options available to exporters under FEMA when they face difficulties in meeting these obligations.
Time Period of realisation of Export Proceeds:-
Every exporter is under obligation to realize the exporter proceeds and repatriate the fund to India within stipulated time as per the paragraph 2.2.1 of EXIM Policy and FEMA Guidelines realization of export proceeds under Foreign Exchange Management Act, 1999.
2.2.1 REALISATION OF EXPORT OR SOFTWARE PROCEEDS
Export proceeds have to be realized and repatriated to India on the due date or within nine months from the date of shipment, whichever is earlier, for all exports including Units in SEZs, Status Holder Exporters, EOUs, Units in EHTPs, STPs, BTPs.
Exceptions :-
i. Time limit for realisation is 15 months in cases of goods sent to Indian owned warehouses abroad set up with the approval of RBI.
ii. RBI may allow time upto 12 months for exports made on consignment basis to CIS and East European countries and financed in a permitted currency.
iii. Cases where A/D Branch on application in form ETX (Annexure 2(3) has allowed extension of time.
iv. Exporter intending to export goods on elongated terms of payment Credit terms may submit their proposals giving full particulars through their Banks to concerned Regional Office of RBI for consideration.
v. Exports of engineering goods on deferred payment terms, execution of turnkey projects/civil construction contracts which are collectively called as project exports and export of services.
What are the options under the FEMA laws with respect to non- repatriation?
Generally, if exporters fail their obligations, they are deemed to be under contravention. The FEMA laws allow certain additional options for the exporters to explore which are as follows:-
1. Representation before the Authorised Dealer Bank and/ or the RBI-
As per the Export Master Directions as well as FEMA Regulations, the exporters who fail their obligation, can make a representation before the Authorised Dealer Bank (‘Bank’) describing the reasonable steps taken by them for the realization of the export payment. As per Para. C.20 of the Export Master Directions, the Bank, after analyzing whether the exporter failed to realize the payment because of reasons beyond exporter’s control, may take a decision of extending the period of export realization for up to six months and not beyond.
The exporters seeking certain specific remedy/ directions beyond the ambit of the Bank, may make a representation before the regional office of the RBI. After analyzing such representation, certain directions can be issued by the RBI as it deems to be expedient for the purpose of securing the payment.
2. Write-off-
As per Para. C.23 of the Export Master Directions, the exporters have an option to self write-off the unrealized export bills. They may also approach the Bank to write-off such bill if the exporter is desirous of writing-off beyond the threshold limit of 5% of the total export proceeds realized during the calendar year preceding the year in which the write-off is being done. The Bank, in such cases, can allow write-off up to a threshold of 10% of the same value.
WRITE OFF OF UNREALISED EXPORT BILLS
The AD Branch has the discretion to allow write off of export bills which cannot be realised despite the best efforts of the exporter. The exporter is required to make an application supported by necessary documentary evidence. Write off can be effected subject to the following conditions :
i. The amount is outstanding for more than one year.
| Self “write-off” by an exporter (Other than Status Holder Exporter) | 5% |
| Self “write-off” by Status Holder Exporters | 10% |
| ‘Write-off’ by Authorized Dealer Bank | 10% |
*of the total export proceeds realized during the previous calendar year.
ii. The above limits will be related to total export proceeds realized during the previous calendar year and will be cumulatively available in a year.
iii. The total write off allowed by the Bank during that calendar year should be within 10% of export realisation in the previous calendar year.
iv. Exporter produces satisfactory documentary evidence to show that he has not been able to realise the amount despite his best efforts.
v. The write off case falls under anyone of the following categories
a. Overseas buyer has been declared insolvent and a certificate from official liquidator indicating that there is no possibility of recovery of export proceeds has been produced (ECGC to be intimated about such overseas buyer for updating their files).
b. Overseas buyer is not traceable for a reasonably long time as supported by suitable documentary evidence (in which case ECGC should be advised for updating their files).
c. Exported goods have been destroyed or auctioned off by the Port/Customs/ Health authorities in the importing country and a certificate issued by said authorities or Indian Mission or Chamber of Commerce to the above effect is produced.
d. The amount represents undrawn balance and is within 10% of invoice value and is unrealisable despite all efforts made by the exporters.
e. Cost of legal action would be disproportionate to the amount unrealised.
f. The unrealised amount represents the balance due in a case settled through the intervention of Indian Embassy, foreign Chamber of Commerce or other similar organisations.
g. Where the exporter even after winning the court case against the overseas buyer could not execute the decree for reasons beyond his control.
h. Bills drawn for difference between LC value and actual export value or between provisional and actual freight and the amount has remained unrealised and documentary evidence has been produced to the effect that there are no prospects of realisation.
v. The case is not a subject matter of any pending civil or criminal suit.
vi. Exporter has not come to the adverse notice of Enforcement Directorate or any other Law or Enforcement Agency like CBI.
i. Exporter has surrendered proportionate export incentives if any, availed of.
ii. Status holders exporters (viz. Export Houses, Trading Houses, Star Trading Houses, Superstar Trading Houses) and manufacturer exporters exporting more than 50% of their production, and recognised as such by DGFT, may be permitted to “write off” outstanding export bills upto an annual limit of 5% of their average annual realisations (not turnover) during the preceedings three calendar years. The limit of 5% will be cumulatively available in a year and subject to the following conditions.
- The exporter should submit to the concerned authorized dealer a Chartered Accountant‟s certificate indicating –
(a) the export realisation in the preceding three calendar years and also the amount of “write off” already availed of during the year, if any.
(b) The relevant GR/SDF Nos. to be written off, Bill Nos, invoice value, commodity exported, country of export.
(c) The export benefits, if any, availed of by the exporter have been surrendered.
- It is clarified that the following do not qualify for the “write off” facility :-
(a) Exports made to countries with externalization problem i.e. where the overseas buyer has deposited the value of export in local currency but the amount has not been allowed to be repatriated by the central banking authorities of the country.
(b) GR/SDF forms which are under investigation by agencies like, Enforcement Directorate, Directorate of Revenue Intelligence, Central Bureau of Investigation, etc. as also the outstanding bills which are subject matter of civil/criminal suit. The documentary evidence received should be kept for a period of 2 years or till verification by RBI inspectors whichever is earlier. A half-yearly statement as of 31st December and 30th June, furnishing full details of Bills written off has to be submitted to RBI in form EBW (Annexure 2(10)), within 15 days from close of the year.
So, With a view to simplifying and liberalising the procedure, providing full flexibility to all exporters and reducing the paper work associated with seeking extension of time or reduction in invoice value or write-off, RBI has decided to allow all exporters (including Status Holder) to:
i. write-off (including reduction in invoice value) outstanding export dues, and
ii. extend the prescribed period of realisation beyond 180 days or further period as applicable, provided, the aggregate value of such export bills written-off (including reduction in invoice value) and bills extended for realisation does not exceed 10 per cent of the export proceeds due during the calendar year and such export bills are not a subject of investigation by Enforcement Directorate / Central Bureau of Investigation or any other Investigating Agencies.
3. Filling ETX Form:-
In cases where an exporter has not been able to realise proceeds of a shipment made within the period prescribed (i.e. within nine months from the date of export), for reasons beyond his control, but expects to be able to realise proceeds if extension of the period is allowed to him, necessary application (in duplicate) should be made to the concerned Regional Office of Reserve Bank in form ETX through his authorised dealer with appropriate documentary evidence.
EXTENSION OF TIME LIMIT (ETX)
i. In cases where an exporter has not been able to realise proceeds of a shipment made within the period prescribed (i.e. within nine months from the date of export), for reasons beyond his control, but expects to be able to realise proceeds if extension of the period is allowed to him, necessary application (in duplicate) should be made to the concerned Regional Office of Reserve Bank in form ETX through his authorised dealer with appropriate documentary evidence other than cases referred to in item (ii) below.
ii. Reserve Bank of India have permitted authorized dealers to extend the period for realization of export proceeds without any reference to Reserve Bank of India beyond 12 months from the date of export upto period of six months, at a time, irrespective of invoice value, subject to following conditions :
a. Exporter submit an application for extension as per Annexure No.2(3).
b. The Authorized Dealer is satisfied that the exporter has not been able to realise export proceeds for reasons beyond his control.
c. The exporter submits a declaration that he will realize the export proceeds during the extended period.
d. The extension may be granted upto a period of 3 months at a time and while considering the extension beyond one year from the date of export the total export 23 outstanding of the exporter should not exceed USD one million or 10% of the average of export realizations during the preceding 3 financial years, whichever is higher.
So from the analysis of the above it is determined that It is obligatory on the part of the exporter to realize and repatriate the full value of goods to India within a stipulated period from the date of export as provided in the rules.
4. Netting off the payments:-
Netting off means adjustment of export receivables with the export payables.
Para 2.74 of Foreign Trade policy dealt with offsetting of Export proceeds which is as follows:-
Subject to specific approval of RBI, any payables, or equity investment made by an Authorization holder under any export promotion scheme, can be used to offset receipts of his export proceeds. In such cases, offsetting would be equal to realization of export proceeds and exporter would have to submit following additional documents:
(a) Appendix-2L in lieu of Bank Realization Certificate.
(b) Specific permission of RBI.
Thus, from the analysis of above para 2.74 of FTP Policy 2023 it is clear that exporter can net off its payment with the billing to be made to overseas parties or Importers
5. Compounding-
For exporters who failed to take any reasonable steps for realization, and further failed to seek any direction from the RBI for extension / write-off, or if the RBI refused to give such directions, there are sufficient grounds for the concerned authority to initiate proceedings for contravention under FEMA. As per Section 13 of the FEMA, a penalty up to thrice the sum involved in such contravention may be imposed. This can also be considered as a continuing offence if the exporter did not take any action even after the expiry of the stipulated period.
Conclusion: Exporters have several recourses under the FEMA Act for handling non-realisation and non-repatriation of export proceeds. These include making representations to Authorized Dealer Banks or the RBI, opting for self write-offs within permissible limits, filing ETX forms for extensions, and netting off payments. For severe cases of non-compliance, compounding can offer a resolution. By leveraging these options, exporters can manage their international trade obligations more effectively and mitigate the risks associated with non-realisation of export proceeds.
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