Inco Terms and Terminology of International Trade

8/13/2019 Inco Terms and Terminology of International Trade

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INCO TERMS AND TERMINOLOGY OF INTERNATIONAL

TRADE In international trading the two parties, i.e. the buyer and theseller are at a distance, unknown to each other. Transactions are

done through correspondence and the deals are finalized. Thesetransactions generate a set of documents confirming the sale,price, quantity, time and mode of supply etc.Thus, the contractcovers:

a. The contract of sale andb. The contract of Carriage

Being at a distance and finalizing the contract by documents, it isthe terms used for delivery, which are dependent uponinterpretations that vary because of commercial laws such as Sale

of Goods Act or the Contract Act that give different understandingto each party in relation to their local applications of these laws.

To avoid misunderstandings and misinterpretations of these

terms of contract which could result in delays, losses and legalproceedings, the International Chamber of Commerce, Paris cameto an agreed understanding,accepted by the international tradingcommunity, which spelt out the meaning of the terms of carriage,

the liabilities, risks and costs involved of the seller and the buyer.These terms are known as INCO Terms.Understanding these risks and cost factors reduced the

misunderstandings, losses and even legal proceeding, it is truethat these terms of carriage have no legal sanctions but theyhave international acceptance and even the Courts have acceptedtheir definitions and scope.

Some scope and limitations of INCO terms:

Inco terms facilitate export credit etc. Inco terms helps to determine liability It is not a contract of sale It does not determine the price of goods Inco terms do not override laws of the land of contracting

parties Inco terms do not establish a relationship among parties

involved in export/import trade.

INDIAN CUSTOMS WATERS :

This means the Waters extending into the sea upto the limit ofcontinuous zone of India under Section 5 of the territorial waters,



continental shelf, Exclusive Economic Zone and other Maritime

Zones Act 1976 (8 of 1976) and includes any bay, gulf, harbour,creek or tidal river.In the provisions of law made for the prevention or detection of

illegal export of goods i.e. in Chapter IV B & C of the Customs act1962 the term 'Specified Area' includes this Customs waters. Thisis the widened area, transactions within which can be detrimentalto national interest. This definition within which can be

detrimental to national interest. This definition has been linked upwith the definition of India, and import of any goods whichentered Indian Customs water are held to be imported goods and

are liable for import duty from the point when any steamer entersthe Indian Customs waters.

I.G.M. AND E.G.M. : IGM meaning import General manifest, is the document to befiled by the Master of Vessel within 24 hours of arrival at a port.

It will contain a list of goods loaded on board destination wise andalso the list of crew members with the details of their personal

belonging, list of ship's the port clearance from the last port ofcall etc.EGM meaning Export General Manifest, is a document to be filed

by the steamer agents on behalf of the master of the vessel

within 7 days of the sailing of the vessel. This would containcomplete details of all cargo loaded on board as well as carried asbottom cargo, destination wise, list of crew members with details

of their personal property, ship's stores. The EGM is filed with the

Export Documentation Centre alongwith the duplicate copies of allShipping Bills concerned.BILL OF LADING DATE : This is the date on which the goods have been actually loaded on

the vessel. This date is shown on the Bill of Lading and is

normally accepted as such. At times, in case of dispute CustomsOfficer may verify the information such as ship's log book entry

etc. to find out the correct date of loading. This date is veryimportant as the validity of the import licence is by reference tothis date. Any import licence issued subsequent to this date is not

valid for the goods. Similarly loading of goods after the expiry ofthe licence is not covered by the licence.

FOB VALUE : Free on Board (on the vessel). This is the value of the goods

which includes the cost/price of the goods and all other expensesincluded upto the stage of loading of the goods on the vessel.



This value is the value of the goods for export under Section 14

of the Customs Act 1962.C.I.F .VALUE : This means the value which is the sum-total of cost, insurance

and freight. The cost means cost of goods which may be eitherinclusive of commission/discount or otherwise. In case thecommission is not admissible under the law, the same is requiredto be included. Insurance charges are marine insurance charges

for the passage of the goods from the port of loading to the portof discharge. If Inland insurance is shown separately from theport of discharge to place of destination, the same has to

bededucted from the insurance charges for assessment purposes.Freight is the charge for the transport of the cargo from the port

of loading to the port of discharge. The C. I. F price is, generallythe value of the goods under Section 14 of the Customs Act forpurposes of import duty. In order to arrive at the assessable

value of the goods, landing charges are required to be added(1%) to the C. I. F. Value.

PORT TRUST CHARGES : These are in the nature of Wharfage and demurrage charges. TheWharfage charges are applicable for fixed working days from the

landing date generally to 4 days). Thereafter the demurrage

charges are made applicable. These charges are made leviable onimport/export cargo which are lying within the port premises. Thescale of these charges are prescribed by the Port Trust and are

shown in their schedules for the different categories of goods.

These charges do not form part assessable value for the purposeof Customs duty.LANDING CHARGES : This represents the charges for unloading the handling. Under the

Customs valuation Rule 1988, the landing charges have been

fixed at one percent of the CIF value. In addition to the freightand insurance charges, the landing charges are added to the

C.I.F. to assure at the assessable value.C.C.P. This is a short form for the "Customs Clearance Permit" and is

issued by the Import Licensing Authorities for the clearance ofspecific goods to be imported wherein no foreign exchange is

involved or required to be remitted. The CCP is issued with thespecific description, quantity and value for the goods concerned.

STATE TRADING ENTERPRISES



issuance of the Show Cause Notice is waived on request and with

the consent of the party. If the Show Cause Notice is not issuedwithin six months from the date of seizure of the goods, or withinsuch extended time as the Collector may decide-in any case

within one year - the goods seized should be released to theperson from whom they have been seized.FREE TRADE ZONE / EXPORT PROCESSING ZONES : The Govt. had, for purposes of developing the export trade of the

country, started a number of Export Processing Zones in thecountry. The first such zone - then called the Free Trade Zone -was started in 1965 / 66 in Gandhidam (Kutch - Gujarat State).

Subsequently similar zones were started in Bombay (exclusivelyfor electronic items), Delhi, Kolkata, Chennai and Cochin.

Capital goods, components, raw materials, spares and packingmaterials are allowed to be imported without payment of duty foruse in the zone for manufacture of goods exclusively for export.

Similarly indigenous goods are allowed to be sold for use insidethe zone without payment of Central Excise duty. As no duty is to

be paid on the input and considering the comparatively cheaplabour available in the country, goods manufactured in the zoneare capable of being sold in the international market at

competitive prices. This enables the country to earn the much

needed foreign exchange. Besides, considering the nature of thegoods, 25% of the goods manufactured in the zone are allowed tobe sold to the Domestic Tariff area (i.e., within the country

excluding the zone) on payment of duty leviable on the finished

goods as it imported. Other incentives such as Tax Holiday fromIncome Tax, exemption / reimbursement of sales tax, priority inpower allocation etc., are also offered to attract manufacturingunits to the zone.

FULL EXPORT VALUE :

The full export value has not been defined under the CustomsAct. However, Section 18 of the Foreign Exchange Regulation Act

1973 speaks of full export value of the goods. The full exportvalue of the goods is not equal to the FOB value declared in theShipping Bill. The same is the value which the Exporter receives

in full on the sale of the exported goods in the overseas market;naturally the same will be including FOB value, freight and

insurance provided the export contract is on CIF basis. Further,discounts, commission and over price if any, are required to be

disclosed if the said amounts are payable to the Exporter. Inother words, these also fall as part of Full Export Value. In case of



goods, shipped on consignment account, the full export value will

be the value which the Exporter is likely to get in the overseasmarket on the sale of such goods on his own account. Thepayment of full export value of the goods has to be recovered in

the prescribed manner i.e., through the Bank approved by theReserve Bank of India as per the provisions of F.E.R.A. 1978.PROFORMA INVOICE : This is a provisional document drawn by the Exporters giving

details of description, quantity and price and terms of supply ofthe goods to enable him go through the exchange controlformalities for opening Letter of Credit etc., The proforma invoice,

accepted by the foreign buyer is submitted to the CustomsAuthorities along with the Shipping Bill and other related

documents for assessment and passing of the goods forshipment.LETTER OF CREDIT :

This is the most important mode of receipt of payment forexported goods.

For details, please refer to Export Import Finance.BILL OF EXCHANGE : It is defined as an unconditional written order, in which the

person drawing the draft (drawer) instructs another person

(drawee) to pay a certain sum of money on a definite date ondemand or at a fixed future time to third person (payee) or to hisorder or to bearer. Three parties are concerned in this viz. (1) the

drawer who executes the draft or orders the payment; (2) payee

to whom the negotiable instrument is made payable and (3) thedrawee to whom the draft is addressed and who is ordered to paythe instrument.G.R. FORM:

This is a declaration form prescribed by the Reserve Bank of India

to be submitted in duplicate along with the Shipping Bills to theCustoms for processing the shipping Bills to the Customs for

processing the shipping Documents. This should contain thedetails of Shipper (name and address), consignee (name andaddress), description of goods, the full export value in foreign

currency (and in Indian Rupees). The original copy afterverification of the declaration including the full export value is

retained by the Customs Authorities and passed on to theReserve Bank. The duplicate, submitted by the Shipper to his

Bank along with other shipping documents is sent by the Bank tothe Reserve Bank after duly endorsing it regarding realisation of



the sale proceeds. The Reserve Bank of India will match the

original and duplicate and thus confirm timely realisation of theforeign exchange.AR4 FORM :

An application AR4 has to be filed by every manufacturer for theclearance of excisable goods from his factory for export. Theclearances can be "under claim for rebate of duty: or "underbond". The goods can be examined and sealed at the factory by a

Central Excise Officer having jurisdiction over the factory. If theclearances are without examination by the Central Excise Officer,the examination is carried out at the port by the customs officers.

The AR4 should contain the following particulars besides theentries to be made in the particular columns of the forms :

a. Particulars of export licence obtained from the foreign trade

development authorities in respect of commodities for which

export licence is required.b. The full address of the Exporter.

c. Marks and numbers and special markings on the package /cases.

d. In case of rebate of duty, a declaration to the effect that theamount of rebate should be paid direct to the Exporter if the

Exporter is other than the manufacturer.

After shipment of the goods the AR4 form is duly endorsed by the

Customs Officer to that effect. This is taken as evidence ofshipment by the Central Excise Authorities for considering rebate / cancellation of Bond.CONSULAR INVOICE :

This is a document prepared in the language of the foreigncountry to which the goods are destined, containing all the usualdetails on the Commercial Invoice. The special forms used for this

would be available from the Consulates concerned or authorisedprinters. The Consular Invoice should be prepared and executed

in observance of the Customs Law of the country concerned.Usually four or more copies are required.SHIPPING BILL :

This is the statutory document prescribed for processing in theCustoms Department for shipment of goods to places outside the

country. The format, size, colour of different copies etc., are allprescribed and should be strictly observed. It is submitted in

quadruplicate (including export promotion copy). The assessment



and collection of duty is done on the original copy and shipment

of the goods on the duplicate copy.BILL OF ENTRY : This is the statutory document prescribed for processing in the

Customs Department for clearance of goods imported from aforeign country. The format, size, colour of different copies etc.,are all prescribed and should be strictly observed. The Bill ofEntry is to be filed in quadruplicate along with other documents

such as Invoice, Packing list, Certificate of Origin, IndentAcceptance, Import Licence if required etc., The clearance of thegoods is allowed on the strength of the duplicate copy duly

endorsed to that effect by the Customs after all formalities ofassessment and collection of duty are completed.

MATE's RECEIPTS : This is the receipt issued by the officer on duty on board the shipimmediately on completion of loading a consignment. On the

strength of the mate's receipt the steamer agents issue the Bill ofLading which along with other documents is negotiated through

the bank for realisation of the sale proceeds.BILL OF LADING : This is the principal Shipping document between the Shipper and

Ocean Carrier, Shipper and consignee and carrier and consignee.

It serves three distinct purposes -

a. It is a negotiable instrument and a document of ownershipwhich covers the goods thereon and, if and when made out" to order ", endorsed and passed on to another person,

passes the title to the goods to that person.b. It is the receipt from the Ocean Carrier for the goods

shipped.

c. It defines the terms and conditions of carriage of the goodsand is an evidence of contract between the Shipper and the

carrier for conveyance of the goods from one port toanother, for freight charges as billed.

Generally the steamer agents issue three negotiable copies.Further non-negotiable copies are issued on the request of the

Shipper. DUTY AND CESS :

The Customs duty is levied and collected under the provisions ofSection 12 of the Customs Act 62 read with the provisions of

Indian Customs Tariff Act 1975, on the imported / exported



goods. The rates of duties are shown in the tariff Schedule I for

imported goods and Schedule II for revenue and is appropriatedaccordingly as Government revenue in general. The cess is leviedand collected under the specific Acts of the Central Government,

which have been enacted for the development of specific industryor agriculture produce. Thus, on import of textiles, cess iscollected for the development of textile industry. The cess iscollected by the Customs Department on behalf of other

departments. Similarly on goods exported out of India, such asagricultural produce like oil, spices etc., the cess is collected bythe Customs on behalf of other departments of the Government

of India. The amount so collected as cess, is generally used forthe development / protection of the particular commodity or

industry.SHIP'S STORES : Bonafide import made for the maintenance of vessels, such as

spare parts etc., and also other items like provisions required forthe crew and the passengers of the vessels (Air crafts) are known

as ship's stores. The provisions may vary depending upon theneeds of passengers and crew.These imports are processed only against the warehousing

(Bond) Bill of Entry and the Bill of Entry also declares that the

goods covered by the same are ship's provisions or spare partsfor maintenance of the steamer. These goods are deposited in thepublic bonded warehouses or private warehouses of the steamer

agents, or those of their suppliers. The exbonding for the

purposes of the supplies to the vessels are made against (green)exbond shipping bills with the caption - "ship stores". The goodsare loaded or delivered against the Shipping Bill only to theCaptain of the Vessel and under the preventive control and

supervision.

The import of the stores are exempted from the Import TradeControl regulations vide a clause in the Import Trade Control

order. For shortages, duty is payable on these goods by preparinghome consumption Bill of Entry.EXPORT OF ANTIQUES :

The export of antique is prohibited under the Antiques and ArtTreasures Act 1972. The antiques as per the said Act covers

Coins, Sculpture, Painting, Objects or things detached frombuilding or cave, object / thing of historical importance etc.,

DANGEROUS DRUGS :



The Dangerous Drugs are specified under the Dangerous Drugs

Act 1930 and rules framed thereunder.The dangerous drugs are opium, poppy capsules, charess,morphine and its preparations, mixtures & extracts of these

drugs.The import and export of dangerous drugs require a certificatefrom the Narcotics Commissioner.TRIPTYQUE PROCEDURE :

This is a facility for temporary importation of cars by touristswithout payment of duty. This procedure is also known asclearance on "Garnett de passage". The system allows temporary

importation of motor vehicles in India, subject to the conditionthat the vehicles are re-exported or are surrendered to the

Customs within a period of 6 months, extendable to 12 monthsby the collector, or earlier if the holder leaves India before this 6months or 12 months.

The payment of duty in case of misuse etc., is guaranteed by theSwitzerland based International Automobile Association

represented here by their agents, the Automobile Association ofSouth India. The persons who bring cars to India under the aboveprocedure are not expected to be gainfully employed in India.

SMALL SCALE INDUSTRIES :

In a developing country like ours the need was felt for accordingsome protection and giving some incentives to small industries sothat they can compete with multinational or other giant units.

For this purpose a Small Scale Industry has been defined as an

Industry whose plant and machinery cost less than Rs.65 lakhs,as decided by the State Industries Department. This limitperiodically undergoes change commensurate with the economichealth of the country.

Once a unit is registered as a SSI Unit, several duty concessions

are available on the Central Excise side and also State Sales Tax,besides subsidies from the State Financial Corporation etc.,

MODVAT IN CENTRAL EXCISE : VAT, that is, Value Added Tax, is prevalent in computing theExcise Revenue in almost all developed countries. In India, in the

1986 Budget a Modified Form of Value Added Tax was introducedand it is called "Modvat".

The Modvat in India is that the manufacturer of specifiedcommodities is allowed to take credit of the duty paid on the

inputs for payment of duty on his manufactured product. Toillustrate, take the case of Soda Ash, which is an input in the



manufacture of Sodium Silicate which, in turn, is one of the main

inputs in the manufacture of soap. If Soda Ash of value Rs.100/-attracts an excise duty of Rs.10/- the manufacturer of SodiumSilicate is allowed to take a credit of that Rs.10/- for payment of

duty on his product Sodium Silicate. If the duty paid on SodiumSilicate manufactured out of the above Soda Ash is Rs.25/-, themanufacturer of Sodium Silicate actually suffers only a dutyamount of Rs.15/-. And again when the soap manufacturer

utilises the Sodium Silicate on which Rs.25/- for payment of dutyon the soap he manufactures. So if the duty on the soapmanufactured out of the Sodium Silicate (on which has been paid

a duty of Rs.25/-) comes to Rs.50/-, the soap manufactureractually incurs only Rs.25/-. This facility is to prevent the

cascading effect of duty on inputs, on duty on final product.COFEPOSA ACT : Cofeposa Act is the abbreviated term for conservation of Foreign

Exchange And Prevention of Smuggling Activities Act. This is aspecific statute under which preventive detention of persons

engaged or persons who are likely to be engaged in Customs andForeign Exchange violations is resorted to. The intention behindthis legislation is mainly to prevent the drain of foreign exchange

which is very precious to the country. The main causes of drain of

foreign exchange are by smuggling and by compnsatorypayments. By keeping the persons indulging in smugglingconfired to the jail, their smuggling activities are curbed for the

time being. Preventive detention is ordered by the State

Government or by the Central Government and not by the orderof a Magistrate. A smuggler or a foreign exchange violator is sentto jail by the Magistrate after the charge against him is proved.COFEPOSA detention is preventive in nature and it is not ordered

after the offence is proved in a Court Trial.

Imports from Singapore Vide notification no. 75/2005 customs of 22/07/05

Customs duty concession on imports of goods from Singapore hasbeen announced. The concession will be as follows:-

Duty as in excess of 95% of the applied rate of duty -2413

tariff lines Duty as in excess of 90% of the applied rate of duty - 2202

tariff lines Whole of duty exemption - 308 tariff lines



Hence, there will be 100% exemption for 308 items, the other

two exemptions are for the amounts in excess of 95% and 90%of the peak duty of 15%. Hence, the three exemptions whichapply are (1) Zero (2) 14.25% and 13.5% of the duty on imports

from Singapore.As part of simplifying the procedures, it has been decided tomake the GR Forms available online on the Reserve Bank'swebsite www.rbi.org.in. Accordingly, the exporters have now the

option to use GR Forms available online as well. Whiledownloading the GR-Forms, the exporter may ensure to use'Legal' size paper i.e. 8.5 x 14 inches. Further, both the printer

(printing preference) and the paper size in the page setup optionhave to be set to legal size before printing. The GR number will

be automatically allotted when the document goes to the printqueue.The exporters will continue to have the facility of purchasing the

GR Forms from the Regional Offices of the Reserve Bank, ashitherto. However, this facility would be phased out within a

period of one year.

Inco Terms and Terminology of International Trade

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