Chatroom: 'Seller and buyer can agree to deviate from Incoterms'

Q. We are exporting certain medical surgery items to Rwanda on DDP terms. In the export invoice, we want to show import licensing charges payable to Rwanda FDA and also 15 per cent withholding tax. We are not clear on how to proceed with making the shipping bill and comply with FEMA regulations. Please guide us.

The Incoterms spell out the obligations of the buyer and seller. It is always open for the buyer and seller to agree on deviations from the obligations mentioned in the Incoterms. For example, you can have a FOB freight paid contract, where the price is on FOB basis, but the buyer and seller agree that the seller will pay the freight and claim reimbursement of the actual freight from the buyer. That will differ from a CFR contract by shifting the risk of variation in the freight element to the buyer. In case of such deviations, the invoices should be made out in accordance with the contract.

Similarly, in a DDP contract, the seller must bear all costs for delivering the goods at the named place of destination, by the agreed date, or within the agreed period, but it is always open for the buyer to agree to reimburse any other costs. In such contracts, the seller can claim any other reimbursement as agreed with the buyer, besides the price as per the DDP terms. Usually, it is better to claim such reimbursements through a debit note rather than mix it up with the invoice. Under the Customs laws, you are required to declare the transaction value, i.e., the price paid or payable for the goods. In my opinion, whatever does not form part of the value of goods, but is claimed as reimbursement, need not enter the EDPMS.

Q. We have received a foreign inward remittance of $2000 from an Indian residing in the USA for manufacture and supply of gold jewellery. She will be coming to India at March-end, and will pay the balance of $1500 and take delivery of the ornament across the counter. We have told her that we will issue a GST invoice. The customer intends to take the jewellery with her when she flies back to the USA. Our banker is asking us to prove this is an export by producing the shipping bill. As she is taking this for personal use and is carrying it in her personal baggage, she will not have a shipping bill. What is the evidence to prove that this is an export and what documents need to be produced?

As far as you are concerned, it is a domestic supply. Once you deliver the ornaments to your customer, you have no control on whether she will put it in a locker, give it to a relative or take it with her. So, you can change the purpose code against your inward remittances to P1590 and ask the bank to treat them not as payments for exports, but as payments against domestic supply.