It has been a much debated topic that whether export benefits are available for exports to Nepal/Bhutan where payments are realized in INR. We have tried to explain the situation as under with the legal aspects as involve:

WITH REFERENCE TO FOREIGN TRADE POLICY (2015-20)

Exports of notified goods/products with ITC[HS] code, to notified markets as listed in Appendix 3B, shall be rewarded under MEIS. Appendix 3B also lists the rate(s) of rewards on various notified products [ITC (HS) code wise]. The basis of calculation of reward would be on realised FOB value of exports in free foreign exchange, or on FOB value of exports as given in the Shipping Bills in freely convertible foreign currencies, whichever is less, unless otherwise.

Further as per Para 2.52 of FTP, Receipts on Exports are described as below:

2.52 Denomination of Export Contracts

(a) All export contracts and invoices shall be denominated either infreely convertible currency or Indian rupees but export proceedsshall be realized in freely convertible currency.

(b) However, export proceeds against specific exports may also berealized in rupees, provided it is through a freely convertible Vostro account of a non resident bank situated in any country other than amember country of Asian Clearing Union (ACU) or Nepal or Bhutan.

Additionally, rupee payment through Vostro account must be againstpayment in free foreign currency by buyer in his non- resident bankaccount. Free foreign exchange remitted by buyer to his nonresidentbank (after deducting bank service charges) on account ofthis transaction would be taken as export realization under export promotion schemes of FTP.

(c) Contracts (for which payments are received through Asian Clearing Union (ACU) shall be denominated in ACU Dollar. However, participants in the ACU may settle their transactions in ACU Dollar orin ACU Euro as per RBI Notifications. Central Government may relaxprovisions of this paragraph in appropriate cases. Export contractsand invoices can be denominated in Indian rupees against EXIMBank/Government of India line of credit.

It is worth mentioning that no proper definition of freely convertible foreign exchange, or receipt in foreign currency is defined in the Foreign Trade Policy itself

However RBI (Governing body for Forex Transactions) has defined/explained freely convertible foreign exchange or receipts in foreign currency as per following FEMA Notification

Notification No. FEMA 14(R)/2016-RB Dated: May 02, 2016

3. Manner of Receipt in Foreign Exchange : –

(1) Every receipt in foreign exchange by an authorized dealer, whether by way of remittance from a foreign country or by way of reimbursement from his branch or correspondent outside India against payment for export from India, or against any other payment, shall be as mentioned below:

(A) Members of the Asian Clearing Union

(i) Bangladesh, Myanmar, Pakistan, Sri Lanka & Republic of Maldives –

a) Receipt for export of eligible goods and services by debit to the Asian Clearing Union Dollar account and ! or Asian Clearing Union Euro account in India of a bank of the member country in which the other party to the transaction is resident or by credit to the Asian Clearing Union Dollar account and ! or Asian Clearing Union Euro Account of the authorized dealer maintained with the correspondent bank in that member country ;

b) Receipt may also be made in any freely convertible currency in all other cases.

c) In respect of exports from India to Myanmar, payment may be received in any freely convertible currency or through ACU mechanism from Myanmar.

(ii) Nepal and Bhutan

(a) Receipt may be in Rupees

(b) Receipts for export of goods to Nepal may be made in free foreign exchange,

provided the importer resident in Nepal has been permitted by the Nepal Rashtra Bank to make payment in free foreign exchange. However such receipts shall not be routed through the ACU mechanism.

(iii) Islamic Republic of Iran

(a) Receipt for export of eligible goods and services, in any freely convertible currency and ! or in accordance with the directions issued by the Reserve Bank to the authorized dealers from time to time.

(b) Receipt in any freely convertible currency and ! or in accordance with the directions issued by the Reserve Bank to the authorized dealers from time to time in all other cases.

(B) All countries other than those mentioned in A above

(i) Receipt in rupees from the account of a bank situated in any country other than a member country of the Asian Clearing Union.

(ii) Receipt in any freely convertible currency.

(2) (a) In respect of an export from India, receipt shall be made in a currency appropriate to the place of final destination as mentioned in the declaration form irrespective of the country of residence of the buyer.

(b) Any other mode of receipt of export proceeds for an export from India in accordance with the directions issued by the Reserve Bank of India to authorized dealers from time to time.

(3) Authorised dealers have been permitted to allow receipts for export of goods/ software to be received from a Third party (a party other than the buyer) as per the guidelines issued by the Reserve Bank.

It can be noted from above that Manner of Receipt of Payment in Foreign currency includes payment received in rupees from Nepal/Bhutan.

THUS , as per the above legal situation explained aboveone can strongly make a case for export benefits being eligible for Exports to Nepal/Bhutan where payment is received in Indian Rupees. However, MEIS benefits are subject to Appendix 3B (Where Nepal/Bhutan are grouped under C Category) on eligible goods in eligible markets at specified rates.

Name: RUPIKA JAIN- E-mail: Info@parshotamanassociates.com

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