International Procurement

Content
1. International shipment modes & freight terms
2. Import charges
3. International Commercial Terms
4. Categories of importers
5. Identification of foreign sources
6. Import procedures & documentation
7. Payment process & payment terms
8. Types of L/Cs
9. Harmonized System of Nomenclature
10. Custom tariff & custom duties
11. Custom clearance
12. Import documents
Shipment modes & freight terms

Road Rail

Sea Air
 Shipment modes & freight terms
• Freight :
Goods that are carried in bulk on a truck, train, ship or plane

• Freight Terms : Freight Collect, Freight Prepaid

Who will be paying for all the International freight charges

• Freight Collect : Importer (buyer) will ‘collect’ (goods) and pay all
of the freight charges on their side

• Freight Prepaid : Exporter (seller) will ‘pre-pay’ the freight

charges
Import charges
In addition to Basic cost, following charges are incurred during
international procurement :-

1. Export Packaging 7. Carriage 9. Destination

charges charges terminal charges
2. Loading charges 8. Insurance 10. Delivery to
3. Delivery to port / destination
place 11. Unloading at
4. Export duty, taxes, destination
custom clearance 12. Import duty,
5. Origin terminal taxes & custom
charges clearance
6. Loading on carriage
Import charges
 International Commercial Terms
• Published by ICC (International Chamber of Commerce) @ 2020
• Provide internationally accepted definitions and rules of
interpretation for most common commercial terms
• Terms that the buyer and seller both agree to during
international transactions
• Accepted by governments and legal authorities around the
world
• State which tasks, costs and risks are associated with the buyer
and the seller
International Commercial Terms
EXW – Ex-Works or Ex-Warehouse Any
Freight FCA – Free Carrier Mode
Collect FAS – Free Alongside Ship
Terms FOB – Free On Board Sea
CFR – Cost & Freight Mode
CIF – Cost, Insurance & Freight
Freight CPT – Carriage Paid To
Prepaid
CIP – Carriage & Insurance Paid To
Terms Any
DAP – Delivered At Place Mode
DPU – Delivered At Place Unloaded
DDP – Delivered Duty Paid
International Commercial Terms
 International Commercial Terms
• EXW – Ex-Works or Ex-Warehouse

• Seller places the goods at the disposal of the buyer at the seller’s
premises or at another named place (i.e., works, factory,
warehouse, etc.)

• Seller does not need to load the goods on any collecting vehicle.
Nor does it need to clear them for export, where such clearance
is applicable
 International Commercial Terms
• FCA – Free Carrier

• Seller delivers the goods to the carrier or another person

nominated by the buyer at the seller’s premises or another
named place

• Parties are well advised to specify as explicitly as possible the

point within the named place of delivery, as the risk passes to
the buyer at that point
 International Commercial Terms
• FAS – Free Alongside Ship

• Seller delivers the goods alongside the vessel (e.g., on a quay or

a barge) nominated by the buyer at the named port of shipment

• The risk of loss of or damage to the goods passes when the

products are alongside the ship. Buyer bears all costs from that
moment onwards
 International Commercial Terms
• FOB – Free On Board

• Seller delivers the goods on board the vessel nominated by the

buyer at the named port of shipment

• The risk of loss of or damage to the goods passes when the

products are on board the vessel. Buyer bears all costs from that
moment onwards
 International Commercial Terms
• CFR – Cost and Freight

• Seller delivers the goods on board the vessel

• The risk of loss of or damage to the goods passes when the

products are on board the vessel

• Seller must contract for and pay the costs and freight necessary
to bring the goods to the named port of destination
 International Commercial Terms
• CIF – Cost, Insurance and Freight

• Seller delivers the goods on board the vessel. The risk of loss or
damage to the goods passes when the products are on the ship

• Seller must contract for and pay the costs, insurance and freight
necessary to bring the goods to the named port of destination

• Seller is required to obtain insurance only on minimum cover.

Should the buyer wish to have more insurance protection, it will
need either to agree as much expressly with the seller or to
make its own extra insurance arrangements
 International Commercial Terms
• CPT – Carriage Paid To

• Seller delivers the goods to the carrier or another person

nominated by the seller at an agreed place (if any such site is
agreed between parties)

• Seller must contract for and pay the costs of carriage necessary
to bring the goods to the named place of destination
 International Commercial Terms
• CIP – Carriage And Insurance Paid To

• Seller has the same responsibilities as CPT, but they also contract
for insurance cover against the buyer’s risk of loss of or damage
to the goods during the carriage

• Seller is required to obtain insurance only on minimum cover.

Should the buyer wish to have more insurance protection, it will
need either to agree as much expressly with the seller or to
make its own extra insurance arrangements
 International Commercial Terms
• DAP – Delivered At Place

• Seller delivers when the goods are placed at the disposal of the
buyer on the arriving means of transport ready for unloading at
the named place of destination

• Seller bears all risks involved in bringing the goods to the named
place
 International Commercial Terms
• DPU – Delivered At Place Unloaded

• DPU replaces the former Incoterm® DAT (Delivered At Terminal).

Seller delivers when the goods, once unloaded are placed at the
disposal of the buyer at a named place of destination

• Seller bears all risks involved in bringing the goods to and

unloading them at the named place of destination
 International Commercial Terms
• DDP – Delivered Duty Paid

• Seller delivers the goods when the goods are placed at the
disposal of the buyer, cleared for import on the arriving means
of transport ready for unloading at the named place of
destination

• Seller bears all the costs and risks involved in bringing the goods
to the place of destination. They must clear the products not
only for export but also for import, to pay any duty for both
export and import and to carry out all customs formalities
Categories of Importers
 Established Importers –
Annual Basis – Annual Quota
(Defines those importers who are given quota
licenses for imports of raw material & machinery,
etc. to help the industry to buy them as & when
required.
 Actual Users –
a) Industrial users
i) Existing units
ii) Priority industries
iii) Proposed units
b) Services (Non-industrial)
i) Units such as hospitals & institutions, etc.
Identification of foreign sources

• Ministry of commerce
• Foreign consulates
• Indian embassies
Import procedures & documentation
• Important Reference Documents:
 Import Trade Control Handbook of Rules & Procedures
 Import Trade Control Policy – Vol. I (known as Red
Book) – Policy of the Govt. with regard to import of
materials
 Import Trade Control Policy – Vol. II – Policy with
regards to registered exporters

• Relevant Legislations:
 Import & Export Control Act
 Import Control Order
Import procedures & documentation
Import Procedure:
Most of the procedure remains same with following
distinguishing points :

• Foreign Currency
• Procurement time – All stages
• Packing type, shipping modes
• Payment terms, payment process
• Custom clearance procedure
• Custom Tariff / Import duties
Import procedures & documentation
Purchase Order to include following information:
• Import licence details
• Country of origin
• Payment term
• Insurance terms
• Period of shipment
• Mode of shipment
• Port of entry
• Markings
• HSN / BTN no.
Payment Process
Payment terms
1. Advance payment :
 Payment done before shipment

2. Letter of credit (L/C) :

 Commitment by a bank on behalf of the buyer that
payment will be made to the exporter
 Terms and conditions stated in of LC to fulfil
 Confirmed through presentation of all required
documents
 Bank fee (% of L/C amount)
Payment terms
3. Documents against Payments - D.A.P or D/P basis :
 Shipping documents submitted to bank by exporter
with instructions to discharge documents to the
importer against payment
 Collecting bank hands over the shipping documents
only when the importer has paid

4. Documents against Acceptance (D/A)

 Shipping documents submitted to bank by exporter
with instructions discharge documents to the importer
only if the importer accepts the accompanying bill of
exchange or draft by signing it
Types of L/Cs

1. Revocable : Terms and conditions can be amended/

cancelled by the Issuing Bank, without prior notice to the
beneficiary
2. Irrevocable : Terms and conditions of which can neither
be amended nor cancelled without consent of the
beneficiary
3. Standby: Guarantee of Payment, if the beneficiary is not
paid from its customer
4. Revolving : Used for regular shipments of same items
Harmonized System of Nomenclature
• HSN - Implemented worldwide since 1988
• Standardized system of classification of imported goods
• Internationally accepted multipurpose tools for customs &
trade procedure
• Used by more than 150 countries, including India
e.g. 62.13.90.00 – Handkerchiefs made of textile matter
62.13.90.10 – Handkerchiefs made from man made fiber
62.13.90.90 – Handkerchiefs made from silk
85.17.00.00 – Mobile phones
87.03.21.91– Motor cars
Custom Tariff

• Variant of Indirect Tax or duty to be paid on all goods

imported and a few goods exported out of the country
• Published by CBIC (Central Board of Indirect Taxes & Customs)
• Levied as per the value of goods or dimensions, weight and
other such criteria according to the goods
Custom Tariff * % are indicative only. Always check latest Tariff %.
Sr. Item Tariff Code Basic Customs Duty (%)
(HSN) From To
1 Air conditioners 8415 10 20
2 Aviation turbine fuel 2710 19 20 0 5
3 Bath, sink, shower bath, wash basin, etc., made of
3922 10 15
plastic
4 Colored gemstones that are cut and polished 71 5 7.5
5 8414 30
Compressors for refrigerators and air conditioners 7.5 10
00/8414 80 11
6 Diamonds which are broken, half-cut, or semi-
71 5 7.5
processed
7 Diamonds that are lab grown 71 5 7.5
8 Footwears 6401 to 6405 20 25
9 Household refrigerators 8418 10 20
10 Jewlery articles and their parts, either of metal clad
7113 15 20
with precious metal or of precious metal
11 Miscellaneous plastic articles such as furniture fittings,
office stationary, statuettes, decorative sheets, bangles, 3926 10 15
beads, etc.
12 Plastic articles for packing and conveyance such as
3923 10 15
bottles, containers, cases, insulated wares, etc.
13 Radial car tyres 4011 10 10 10 15
14 Silversmith/goldsmith wares/articles and their parts
made of metal clad with precious metal or of precious 7114 15 20
metal
15 Tableware, household plastic items, kitchenware 3924 10 15
16 Trunks, executive cases, suitcases, briefcases, travel
4202 10 15
bags, other bags, etc.
17 Speakers 8518 29 100 10 15
18 Washing machines that are less than 10kg 8450 10 20
Custom Duties
Types of custom duty Rates Applicable
On all goods imported in India.
Actual fee depends on:
0 to 100% (depending upon the HS
1.Type of goods
code and its origin)
Basic Customs Duty (BCD) 2.Region imported from
3.What these products made from
5%, 15%, 25%, 35%
Some goods are exempted from
BCD such as lifesaving drugs
On imported goods which are
equivalent to the locally produced
Special Additional Duty (SAD) 4.00% good subject to sales tax.
Calculated on total assessable
value of good.
On goods that received tax
benefits or subsidies in the
0% to 12% (depends upon the country of manufacture. This duty
Countervailing Duty (CVD)
goods) prevents undue advantage of
these goods over locally produced
goods.
Introduced in 2018 to support
Social Welfare Surcharge (SWS) 10% government social welfare project,
which replaces Education Cesses.
Custom Duties
Types of custom duty Rates Applicable
Imposed to prevent dumping,
which is an unfair international
Anti-dumping Duty As per notification trade practice where goods are
sold below market value, thereby
damaging local industry.
On goods such as tobacco, and
pollution causing goods such as
coal and cars. This was introduced
Compensation cess Depends upon product type
to compensate revenue loss of
states due to the implementation
of IGST.
Imposed by Indian Customs
authorities on all goods imported
Safeguard Duty As per notification
in Indian that are damaging local
producers.
The Integrated Goods & Services
Tax (IGST) introduced in 2017
Integrated Goods & Services Tax
5.00%, 12%, 18%, and 28% brings all imported and local goods
(IGST)
under one of the seven different
rates.
Applied apart from other taxes as
Customs handling fee 1.00%
applicable.
Import documents
• Importer • Exporter • Customs
 Purchase Order  Invoice  Bill of Entry
 Import License  Packing List (BOE)
 L/C  Certificate of
 Product Catalogue, Origin
Technical write-up  Bill of Lading /
 Test reports if any Airway Bill
 Declarations,
supporting
documents if reqd.
 Insurance certificate
Custom Clearance

• Preparation & submission of documentation required to

import or export of goods into or out of a country

• Steps to follow:
 Document inspection
 Tax and duty calculation
 Payment of taxes and duties
 Release of shipment