Payment of advance does not create lien over supplier's assets: Expert

In case of any damage to the unfinished work at the supplier’s end, you have no liability or obligations and so, you need not take insurance for that. Representative image
Q. We opened a letter of credit through our bank. The last date for presenting it has expired. The beneficiary has not informed us about the shipment and is not answering our queries. Our bank is reminding us to close the expired LC. Our non-fund-based LC facility is also blocked. Are all bindings under LC automatically terminated once the LC expires?

Your bank is not under any obligation to pay against documents not presented in conformity with the terms and conditions of the LC within the validity of the LC. But they may be apprehensive that the beneficiary may have presented the documents under LC to the negotiating bank within the validity period of LC, and thereafter the document may have been lost in transit. In a freely negotiable LC any bank can negotiate the documents. I think that is the reason they are asking you to ascertain the facts.  

Q. Against some orders for capital goods, we give part-advances to foreign manufacturers. Invariably, they use the funds to make the capital goods ordered. In such cases, do we get a lien or right over such goods? If so, how can we register the lien or charge over the goods?  In case any untoward event leads to destruction of that unfinished work before shipment, will we have to bear the loss? If so, can we take insurance for it?

Payment of advance does not create any lien over the supplier’s assets. Your rights arise only from the contract between you and the supplier. In case of any damage to the unfinished work at the supplier’s end, you have no liability or obligations and so, you need not take insurance for that. You can hold the supplier responsible for shipment of machine in accordance with the contract, regardless of any untoward incidents at this end.

Q. Is it mandatory to ask a foreign exporter to declare in his invoice that this import into India is as per FTP 2015-20, as extended by one year, and the item is freely importable or restricted (subject to DGFT's permission)?

No. The foreign party is not expected to know the details of our FTP.

Q. Under EPCG scheme, can we opt to pay the IGST at the time of import and take credit of the same?

As per Para 5.01 (d) of FTP, in case Integrated Tax and Compensation Cess are paid in cash on imports under EPCG, incidence of the said Integrated Tax and Compensation Cess would not be taken for computation of net duty saved, provided Input Tax Credit is not availed. So, the option to pay IGST is there, but if you take Credit of it, your export obligation will have to be calculated as though you availed exemption of IGST. If, however, you do not take Credit of IGST paid, you need not count it as duty saved for calculating export obligation.

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