RBI has revised the guidelines of the Merchanting Trade Transactions

Jan 24, 2020 | by Avantis RegTech Legal Research Team

Finance & Taxation Compliance

The Reserve Bank of India (RBI) on January 23, 2020, has revised the guidelines of the Merchanting Trade Transactions to further facilitate merchanting trade transactions (MTT). RBI vide Circular A.P. (DIR Series) Circular No.115 dated March 28, 2014, has revised the guidelines as under:

 For a trade to be classified as merchanting trade, goods acquired shall not enter the Domestic Tariff Area.

 Considering that in some cases, the goods acquired may require certain specific processing/ value-addition, the state of goods so acquired may be allowed transformation subject to the AD bank being satisfied with the documentary evidence and bonafides of the transaction.

 The MTT shall be undertaken for the goods that are permitted for exports / imports under the prevailing Foreign Trade Policy (FTP) of India

 AD bank shall satisfy itself with the bonafides of the transactions. The entire merchanting trade is to be routed through the same AD bank. 

 The entire MTT shall be completed within an overall period of nine months and there shall not be any outlay of foreign exchange beyond four months.

 Short-term credit either by way of suppliers' credit or buyers' credit may be extended for MTT to the extent not backed by advance remittance for the export leg.

 Payment for import leg may also be allowed to be made out of the balances in EEFC account of the merchant trader.

 Merchanting traders may be allowed to make advance payment for the import leg on demand made by the overseas supplier.

 Letter of Credit to the supplier for the import leg is permitted against confirmed export order.

 AD bank shall ensure one-to-one matching in case of each MTT and report defaults in any leg by the traders to the concerned Regional Office of the Reserve Bank, on half yearly basis, within 15 days from the close of each half year, i.e. June and December.

 Merchant traders with outstanding of 5% or more of their annual export earnings shall be liable for caution listing.

 Third party payments for export and import legs of the MTT are not allowed.

 Agency commission is not allowed in MTTs. 

 AD bank may write-off the unrealized amount of export leg, without any ceiling, on the request made by the Merchanting trader.

 AD bank may approach Regional Office (RO) concerned of the Reserve Bank for regularization of the MTT for deviation

[RBI Circular No. A.P. (DIR Series) Circular No.20]


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