Increased role of CAs under liberalized export processes
As part of the Statement on Developmental and Regulatory Policies on 4th December 2020, RBI announced several measures to enhance export competitiveness, ease of doing business for exporters, and minimize procedural delays. To implement these, RBI issued APDIR circular 8 dated 4.12.2020.
Additional powers have been delegated to Authorised Dealer (AD) banks to
(a) regularise cases of direct dispatch of shipping documents by the exporter irrespective of the value of export shipment;
(b) write off unrealized export bills without limits in specified circumstances;
(c) allow set-off of export receivables against import payables with overseas group/associate companies under certain conditions when both the export and import legs have taken place within the same calendar year; and
(d) consider a refund of export proceeds without insisting on import of goods which are perishable in nature or had been auctioned/destroyed by port/customs/ health authorities/any other accredited agency in the importing country, subject to production of documentary evidence.
We shall examine here the rules relating to write off unrealized export bills and allowing set-off viz.: b & c here, where Chartered Accountant/Auditor is called upon to undertake additional responsibilities.
Write-off of export receivables:
Export bills outstanding for more than a year can be written off subject to a variety of conditions by exporters themselves [called ‘self-write-off’] up to 5% [10% if status holder exporters] of the total export proceeds realized during the calendar year preceding the year in which the write-off is being done, banks up to 10% and RBI for any higher amount. One of the important conditions that continues is that in case of self-write off, the AD bank should obtain from the exporter, a certificate from Chartered Accountant indicating the export realization in the preceding calendar year and details of the amount of write-off, if any, already availed of during the current calendar year along with the requisite details of the EDF/Export Bill under the write-off request. The certificate should also indicate that the export incentives, if any, availed by the exporter have been surrendered. AD banks should put in place a system to carry out random check/percentage check of the export bills so written-off by their Internal Inspectors/Auditors (including External Auditors). This is essentially to detect any misuse of the provisions.
Set-off of export receivables against import payables:
Since 2011, AD banks have been allowed to deal with cases of “set-off” of export receivables against import payables subject to conditions. One of the important conditions is that the overseas entity should be the same. RBI has been receiving requests for allowing such set-off with their overseas group/associate companies either on a net basis or gross basis, through an in-house or outsourced centralized settlement arrangement. In the above said APDIR circular, this has been allowed, substantially increasing the number of conditions. Knowing well that bank managers are not equipped to ensure some of the conditions, RBI itself has indicated, for the first time for this permission that “AD bank may seek Auditors/CA certificate wherever felt necessary”. One can easily visualize that banks will insist for such a certificate confirming compliance of the conditions almost routinely. Hence it is necessary to understand the conditions to be complied with and hence the responsibility of the certifying Cas/Auditors from now onwards.
The conditions to be complied with and hence the CA’s certificate to cover are:
- The invoices under the transaction are not under investigation by the Directorate of Enforcement/Central Bureau of Investigation or any other investigative agency
- Import/export of goods/services has been undertaken as per the extant Foreign Trade policy
- The export/import transactions with ACU countries are kept outside the arrangement
- Set-off of export receivables against goods shall not be allowed against import payables for services and vice versa
- AD bank shall ensure that import payables/export receivables are outstanding at the time of allowing set-off. Further, set-off shall be allowed between the export and import legs taking place during the same calendar year
- In the case of a bilateral settlement, the set-off shall be in respect of the same overseas buyer/ supplier subject to it being supported by verifiable agreement/ mutual consent
- In the case of settlement within the group/associate companies, the arrangement shall be backed by a written, legally enforceable agreement/contract. AD bank shall ensure that the terms of an agreement are strictly adhered to.
- Set-off shall not result in tax evasion/avoidance by any of the entities involved in such an arrangement
- Third-party guidelines shall be adhered to by the concerned entities, wherever applicable.
There are a few other conditions that are applicable to and ensured by banks but CA or the auditor is likely to be called upon to certify each and every above condition. Better be ready with the format in which to issue, documents to be verified, and of course the charge to levy!
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