CHAPTER 1

INTRODUCTION

1
 OBJECTIVE OF THE STUDY

• TO GAIN COMPREHENSIVE KNOWLEDGE OF REAL TIME

WORK ENVIROMENT OF THE FINANCE DEPARTMENT

• TO UNDERSTAND THE PROCEDURE RELATING TO LETTER

OF CREDITS AND IMPORTS IN MARUTI SUZUKI INDIA LTD.

VISION:

“To be the leader in the Indian automobile industry, creating customer delight and
shareholder’s wealth; a pride of India”

2
 MISSION

To provide a wide range of modern, high quality fuel efficient vehicles in order to meet
the need of different customers, both in domestic and export markets.

FOCUS

• Building a continuously improving organisation adaptable to quick changes

• Providing value and satisfaction to the customer

• Aligning and fully involving all our employees, suppliers and dealers to face
competition

• Maximising Shareholder's value

3
CHAPTER 2

4
REVIEW OF LITERATURE

5
A quantitative study has been done which has been layered with qualitative inputs
gathered on the basis of data collected.

The data collected is secondary in nature as it is collected from previous years balance
sheets of Maruti Suzuki India ltd.

During the study the whole process of letter of credits were studied and also the whole
procedure of imports was taken into consideration.

IMPORTS

Imports in to India are governed by Foreign Trade (Development & Regulation) Act
1992. Under this Act, imports of all goods are Free except for the items regulated by the
policy or any other law for the time being in force. In exercise of the powers conferred by
the Foreign Trade (Development & Regulation) Act 1992 the Government has issued the
following Rules & Order:

IMPORT PROCEDURE
• The buyer and seller enter into a contract.
• The buyer approaches the bank to issue a LC in favour of beneficiary.
• The LC is issued and sent, beneficiary ships the goods to the buyer and
collects the documents.
• The beneficiary submits the under LC documents to the issuing bank
through their bankers.

6
• The issuing bank debits the account of the customer and makes payment
to the beneficiary.

Im po

7
 LETTER OF CREDIT

Letter of credit is an undertaking by the importers bank that if the exporter exports the
goods and produces documents as stipulated in the letter, the bank would make payment
to the exporter. The exporter, now relies on the bank which opened the letter of credit for
payment instead of relying on the importer.

A letter of credit differs from a bank guarantee. An issuing or confirming bank's

obligation is independent of, and unqualified by, the contract of sale under the
transaction. A commercial credit is neither a performance bond, nor it is a guarantee of
the quantity or quality of the goods shipped.

Letters of Credit are Separate Transactions

A contract for sale of goods between the seller and the buyer incorporates mode of
settlement. Letters of credit by their nature are separate from the sale contract, and banks
are not concerned or bound by such sale contracts even if the credits bear reference to
them.

The credits stipulate documents which have to be tendered for payment and it, therefore,
follows that in credits parties deal with documents and not with goods, services or
performances to which the documents relate.

It is, therefore, in the interest of all the parties concerned that the conditions and terms of
credit are complete and precise and barefit of excessive details.

8
Payment under a letter of credit does not depend on the performance obligation on the
part of the exporter except those which the credit imposes. Banks accept documents
under letters of credit for what those document purport to be on their face. Contract
between the buyer and the seller is obligatory between themselves. The

seller(beneficiary) cannot take advantage of any contractual terms in between the buyer
and the opening bank and between the opening bank and the advising/confirming bank.

Parties to a Letter of Credit:

Following persons are generally parties, to a letter of Credit:

Beneficiary: The exporter of goods in whose favor the L/C has been established.
Customer/importer : The person we intends to import the goods and instructs bank to
established Letter of Credit.

Issuing Bank: The Banker in the importers Country who opened the L/C. Correspondent
Bank or Advising Bank: The banker in the exporters country, who is authorized by the
issuing bank to advise the beneficiary of the Credit and to effect such payment or to
accept and pay such bills of exchange or to negotiate against Stipulated documents and
on Compliance of Stipulated terms and condition specified by the importer on the
exporter.

Confirming Bank: The banker in the exporters(beneficiary) country, who at the desire of
the beneficiary adds confirmation to the letter of Credit so that beneficiary can get
payment without recourse from the Confirming bank. The Confirming bank may be
correspondent bank itself or some other bank.

9
 MECHANISM OF LETTER OF CREDIT

Procedure for opening of Letter of Credit

Exporter Contract of sale Importer

(Beneficiary (Applicant)

Forwards Applies for

L/C to Opening of L/C

Opens L/C and

Advising Bank Issuing Bank
Sends it to

The procedure for the issue of letter of credit as explained above is as follows:
1. The exporter and the importer enter into an export contract which provides for
payment by means of a letter of credit.

10
 2. The importer approaches his bank to open the Letter of Credit in favor of the
exporter.
3. The importer’s bank sends the Letter of Credit to the exporter through one of its
corresponding bank in the exporter’s country known as advising bank.
4. Advising bank authenticates the letter of credit and sends it to the exporter.

Procedure for Utilization of Letter of Credit

Exporter Ships Goods to Importer

Presents Documents Recovers

And obtains payment amount from

Negotiating Bank Obtains Reimbursement Issuing Bank

From bank

The procedure for utilization of Letter of Credit as explained above is as follows:

1. The exporter sends the shipment as per terms and conditions of the credit.
2. The exporter collects and presents the required set of documents to the negotiating
bank.
3. The negotiating bank after being satisfied that there is no discrepancy in
documents makes the payment to the exporter.

11
 4. The issuing bank scrutinizes the documents and if the same are found to be non
discrepant, the amount is reimbursed to the negotiating bank.
5. The issuing bank obtains payment from the importer who in return gets the
documents.

TYPES OF LETTER CREDIT

1) PAYMENT, ACCEPTANCE AND NEGOTIATION CREDIT

o Payment credit –In this case the payment will be made to the beneficiary
against the document to be submitted by him. The documents are not
accompanied by bill of exchange. In payment credit the issuing bank
nominates a bank in the exporter’s country as the paying bank. The paying
bank acts as an agent of the issuing bank. When the document is presented to
it, it pays the beneficiary. It gets reimbursement from the issuing bank for the
amount paid.

o Negotiations credit - In a negotiation credit the documents are accompanied

by a sight draft (bill of exchange). The bill of exchange may be drawn on the
issuing bank or any other bank stipulated in the credit. The bank which
negotiates the document purchases the bill of exchange and pays the amount
to the beneficiary who tenders the documents. The negotiating bank is
reimbursed by the issuing bank.

12
 o Acceptance credit- It calls for a usance bill of exchange of a specified period
to be drawn under the credit. For example the letter of credit may require the
exporter to draw 90 days bill. The advantage under this method is that the
buyer need not pay immediately, he pays only on the due date of the bill. The
seller gets the bill accepted by the bank in case he is in need of funds,
discounts it with his bank. Thus the seller can also get payment immediately.

o Deferred payment credit - This method is like acceptance credit with the
exception that no draft is drawn. It is considered inferior to the earlier method
from the exporter points of view because he does not get a banker’s
acceptance which he could discount and raise finance.

2) REVOCABLE AND IRREVOCABLE CREDIT

o Revocable credit –A revocable credit can be cancelled or amended by the

issuing bank at any time without prior notice to the beneficiary. The
cancellation and amendments takes effect against the bank which has
negotiated the bills only on receipt of notice of such cancellation or
amendments. The issuing bank is liable for bills negotiated confirming to the
terms and condition of the credit before the notice of revocation is received by
the negotiating bank.

o Irrevocable credit- It constitutes a definite undertaking by the issuing bank to

accept or pay bills drawn on it or another bank or make payment (without a
bill) provided the terms and conditions of the credit are compiled with. An
irrevocable credit can neither be amended nor cancelled without the

13
 agreement of all parties concerned. So the exporter can be safe that bills
drawn under the credit will be honored by the issuing bank provided the
condition of the letter of credit are fulfilled.

3) CONFIRMED AND UNCONFIRMED CREDIT

o Confirmed- In this case the confirming bank which is advising bank in

most of the cases gives a definite undertaking in addition to the issuing bank
to make the payments provided the term and condition to the credit are
satisfied. When the advising bank confirms a credit, it undertakes to negotiate
the bills drawn without recourse. All confirmed credits are irrevocable. It is
because no bank in the exporter’s country would be willing to undertake a
liability on a revocable credit on which there is no definite undertaking by the
issuing bank. The advising bank confirms the L/C only when there is specific
request from the issuing bank. It will not do solely at the request the
beneficiary.

o Unconfirmed credit- The confirming bank which is advising bank does

not give a confirmation to the exporter.

4) WITHOUT RECOURSE AND WITH RECOURSE

14
 Without recourse- In case the document are rejected by the issuing bank or
payment is not made by the issuing for any reason, exporter should not be
called to pay back the amount he received earlier on negotiation of document
if the credit is confirmed , there is no need to draw the bill without recourse.

 With recourse- If the documents are the rejected by the issuing bank,
exporter is called to pay back the amount which is received by him at the time
of negotiation

15
 CHAPTER 3

COMPANY PROFILE

16
 MARUTI UDYOG LIMITED

Maruti Udyog Limited (MUL) was established in Feb 1981 through an Act of Parliament,
to meet the growing demand of a personal mode of transport caused by the lack of an
efficient public transport system.

A license and a Joint Venture agreement was signed between Government of India and
Suzuki Motor Company (now Suzuki Motor Corporation of Japan) in Oct 1982. Suzuki
Motor Company was chosen from seven prospective partners worldwide. This was due
not only to their undisputed leadership in small cars but also to their commitment to
actively bring to MUL contemporary technology and Japanese management practices
(which had catapulted Japan over USA to the status of the top auto manufacturing
country in the world).

Spread over a sprawling 297 acres with 3 fully-integrated production facilities, the Maruti
Udyog Plant has already rolled out over 4.3 million vehicles. In fact, on an average, two
vehicles roll out of the factory every minute. And it takes on an average, just 14 hours to
make a car. Maruti Suzuki has an incredible range of 11 models available in 50 variants.

17
 MARUTI CULTURE

Their employees are their greatest strength and asset. It is this underlying philosophy that
has moulded their workforce into a team with common goals and objectives. Their
Employee-Management relationship is therefore characterized by:

• Participative Management.

• Team work & Kaizen.

• Communication and information sharing.

• Open office culture for easy accessibility

To implement this philosophy, they have taken several measures like a flat organizational
structure. There are only three levels of responsibilities ranging from the Board Of
Directors, Division Heads to Department Heads. Other visible features of this philosophy
are an open office, common uniforms (at all levels), and a common canteen for all.

This structure ensures better communication and speedy decision making processes. It
also creates an environment that builds trust, transparency and a sense of belonging
amongst employees.

Objectives:

• Modernization of the Indian Automobile Industry

• Production of fuel-efficient vehicles to conserve scarce resources
• Production of large number of motor vehicles which was necessary for
economic growth

18
 WHY MARUTI SUZUKI

The Quality Advantage

A car is an engineering product, only as good as the technology used to make it. Actual
users of our technology are saying something very clearly Maruti Suzuki is No.1 in
quality:

Maruti Suzuki owners experience fewer problems with their vehicles than any other can
manufacturer in India (J.D. Power IQS Study 2004). The Alto was chosen No.1 in the
premium compact car segment and the Esteem in the entry level mid-size car segment
across 9 parameters.

The J.D. Power APEAL Study 2004 proclaimed the Wagon R. No. 1 in the premium
compact car segment and the Esteem No.1 in the entry level mid-size car segment. This
study measures owner delight in terms of design, content, layout and performance of
vehicles across 8 parameters.

Maruti Suzuki has a sales network of 307 state-of-the-art showrooms across 189 cities*,
with a workforce of over 6000 trained sales personnel to guide our customers in finding
the right car. Our high sales and customer care standards led us to achieve the No.1
nameplate in the J.D. Power SSI study 2004. The SSI study measures sales satisfaction
across 6 parameters: deal received, paperwork, dealer facility, salesperson, delivery
timing and delivery process. Maruti Suzuki has not only got the No.1 nameplate in the
J.D. Power SSI study 2004, but also ranked way above the industry average (Maruti
Suzuki was at 784 while industry average was at 760). What is significant is that it was
ranked above Skoda, Ford, Chevrolet, Mitsubishi and Hyundai.

19
To be really happy with the car you own, it should have a reliable service network at
hand and within easy reach. Their 1036 city strong service network is equipped to
service 20,000 vehicles a day. No wonder Maruti Suzuki has been awarded the No.1

nameplate in customer satisfaction in India for the fifth year in a row, a feat
unprecedented for any automobile market leader in the world.

In the J.D. Power CSI study 2004, Maruti Suzuki scored the highest across all 7
parameters: least problems experienced with vehicle serviced, highest service quality,
best in-service experience, best service delivery, best in-service experience, most user-
friendly service and best service initiation experience.

In fact, 92% of Maruti Suzuki owners feel that work gets done right the first time during
service. The J.D. Power CSI study 2004 also reveals that 97% of Maruti Suzuki owners
would probable recommend the same make of vehicle, while 90% owners would
probable repurchase the same make of vehicle.

20
 MARUTI UDYOG LIMITED-PROFILE

CHAIRMAN MR. SHINZO NAKANISHI

MANAGING DIRECTOR MR. JAGDISH KHATTRA

HEAD OFFICE MARUTI UDYOG LIMITED,

11TH FLOOR, JEEVAN PRAKASH BUILDING
25, KASTURBA GANDHI MARG,
NEW DELHI – 11 00 01
TELEPHONE NO. 23316831

FACTORY MARUTI UDYOG LIMITED

PALAM GURGAON ROAD
GURGAON – 12 00 15
HARYANA

DATE OF INCORPORATION FEBURARY 1981

INCORPORATED AS MARUTI UDYOG
LIMITED

OCTOBER 1982
AS JOINT VENTURE BETWEEN THE INDIAN
GOVERNMENT AND SUZUKI MOTOR
COMPANY,JAPAN

COMPANY DESCRIPTION THE COMPANY DESIGNS AND

MANUFACTURES AUTOMOBILES

MAIN PRODUCTS MARUTI 800, OMNI, ESTEEM, ZEN ESTILO,

WAGON R, GYPSY, VERSA, ALTO, SWIFT,
SX4

21
 CORE VALUES:

• Customer obsession
• Fast, flexible and first mover
• Innovation and creativity
• Networking and partnership
• Openness and learning

PRODUCTION MILESTONE

• 1ST VEHICLE PRODUCED, DECEMBER 1983

• 100000 VEHICLES PRODUCED BY AUGUST, 1986

• 500000 VEHICLES PRODUCED BY JUNE, 1990

• 1000000 VEHICLES PRODUCED BY MARCH, 1994

• 1500000 VEHICLES PRODUCED BY APRIL, 1996

• 2000000 VEHICLES PRODUCED BY OCTOBER, 1997

• 2500000 VEHICLES PRODUCED BY MARCH, 1999

• 3000000 VEHICLES PRODUCED BY JUNE, 2000

• 3500000 VEHICLES PRODUCED BY APRIL, 2003

• 4500000 VEHICLES PRODUCED BY APRIL 2004

• 6000000 VEHICLES PRODUCED BY 2005

22
 • 8000000 VEHICLES PRODUCED BY 2006

• 11000000 VEHICLES PRODUCED BY 2007

ORGANIZATIONAL STRUCTURE

Maruti Udyog limited being into heavy manufacturing and distribution, has a large
human resource and work force at all levels. It follows a flat system of hierarchy which
has a similar structure in all divisions namely sales & distribution, production,
Information technology, research and development, human resource, marketing and
finance.

Maruti have taken several measures like a flat organizational structure. There are only
three levels of responsibilities ranging from the Board of Directors, Division Heads to
Department Heads. This structure ensures better communication and speedy decision
making processes. It also creates an environment that builds trust, transparency and a
sense of belonging amongst employees

23
 BOARD OF DIRECTORS OF MUL

• MR SHINZO NAKANISHI CHAIRMAN

• MR JAGDISH KHATTAR MANAGING DIRECTOR

• MR. TSUNEO KOBAYASHI SENIOR MANAGING

DIRECTOR

• MR HIROFUMI NAGAO JOINT MANAGING

DIRECTOR

• MR SHINCHI TAKEUCHI JOINT MANAGING

DIRECTOR

• MR SHUJI OISHU DIRECTOR

(MARKETING&SALES)

• MR O SUZUKI DIRECTOR

• MR R C BHARGAV DIRECTOR

24
 • MR AMAL GANGULI DIRECTOR

• MR D S BRAR DIRECTOR

• MR MANVINDER SINGH BANGA DIRECTOR

• MS PALLAVI SHROFF DIRECTOR

SUBSIDIARY COMPANIES

• MARUTI INSURANCE BROKERS LIMITED- the company is engaged in the

business of selling insurance policies to Maruti owners in a tie up with National
Insurance Company Ltd.

• MARUTI INSURANCE DISTRIBUTION SERVICE LIMITED- The

Company is engaged in the business of selling insurance policies to Maruti
owners in a tie up with Bajaj Allianz General Insurance Company Ltd.

• TRUE VALUE SOLUTIONS LIMITED-The Company has contributed

towards smooth operation of the business process at the Maruti True Value outlets
and supported the dealerships in enhancing the sale of certified pre-owned cars
under the brand Maruti True Value.

• MARUTI INSURANCE AGENCY SOLUTIONS LIMITED-The Company is

engaged in the business of selling insurance policies to Maruti owners in a tie up
with New Indian Assurance Limited.

25
 • MARUTI INSURANCE AGENCY NETWORK LIMITED-THE Company is
engaged in the business of selling insurance policies to Maruti owners in a tie up
with Royal Sundaram Alliance General Insurance Company Limited.

PRODUCT PROFILE OF MUL

MARUTI 800

26
It has gone beyond being just a car; it has actually changed the live styles of countless
people, by bringing the joy of motoring to millions across the length and the breadth of
the country.

• ALTO

27
The alto is a great combination of economy, practicality and styling. It exemplifies the
benchmark in build, quality and reliability in a compact car.

• ZEN ESTILO

28
 .

Zen Estilo is the first car to position itself on “Style”.

Unique distinctive monoform”Shape” of the car which has been liked by todays” Youth”
has been used in the positioning of the car.

• WAGON R

29
The Wagon R’S original tall body design, spaciousness, ergonomically designed
interior and flexible seating all set it apart from other cars

• SWIFT

30
The modern, racy design is unlike any Suzuki yet and way, way ahead of the Maruti cars
we get in India

• OMNI

31
The Omni is truly India’s Original Multipurpose Vehicle. it is available in six avatars – 5
seater, 8 seater, cargo, ambulance, CNG and LPG.

• VERSA

32
Equipped with twin AC’s large sliding doors and flexible seating, the Versa encourages
families and friends to enjoy long drives and gateways together.

• ESTEEM

33
Undoubtedly one of India’s favorite entry – level “C” class vehicles, the esteem is the
perfect combination of power, comfort and economy

GYPSY

34
Be it the wild outdoors or the urban jungle, the Gypsy King glide by with ease.

• GRAND VITARA

35
Live the grand life with the adventurous and successful; the new restyled Grand Vitara
XL –7 is now available in India directly imported from Suzuki, Japan

• SX4

36
A perfect blend of performance, style and comfort. SX4 combines sophistication and pure
luxury on the inside with Imposing and dynamic exterior styling on the outside. And
underneath it’s hood lurks a completely new M Series engine, bursting with performance
It’s true, that SX4 embodies all that a man wants in a car and more.

37
 PRICES OF MARUTI PRODUCTS

Car market leader Maruti Udyog Limited has announced a marginal increase in price of
certain models. The increase, which comes into effect from today, varies from 0.17
percent to 1.47 percent.

The price increase is due to rise in input costs and freight costs, which increased
following the rise in oil prices. In this phase, the company has decided to pass on only a
part of the increase in costs to the customers. There is no change in the prices of Swift,
Zen, Baleno (Vxi) and WagonR (Petrol).

Ex-Showroom Prices in Delhi (in Rs)

Change
Model New Old Increase %
M800 Std 191646 191146 500 0.26%
M800 Std Ac 213062 212562 500 0.24%
Alto Std 231585 231085 500 0.22%
Alto Lx 265262 264762 500 0.19%
Alto Lxi 283878 283378 500 0.18%
Omni Cargo LPG 194725 192725 2000 1.04%
Omni Cargo 213706 213206 500 0.23%
Omni (Eight Seater) 221268 220768 500 0.23%
Omni LPG 230388 227388 3000 1.32%
Esteem Lx 445968 444968 1000 0.22%
Esteem Lxi 476223 475223 1000 0.21%
Esteem Vxi 511520 510520 1000 0.20%

Baleno Lxi 576173 575173 1000 0.17%

38
 Versa Dx 433575 432575 1000 0.23%
Versa Dx2 471779 470779 1000 0.21%
Versa Std 360182 359182 1000 0.28%
WagonR Lx LPG 345106 340106 5000 1.47%
WagonR Lxi LPG 373160 368160 5000 1.36%

MARUTI ALL INDIA SALES – 3 YR TREND

Segment 2003-04 Growth 2004-05 Growt 2005-06 Growth

h
A1 (Mini - Hatchback) 167,561 17% 116,262 -31% 89,223 -23%
A2 (Compact - Hatchback) 176,132 47% 271,280 54% 335,136 24%
A3 (Mid Size) 14,173 28% 29,637 109% 31,939 8%
A4/A5/A6 NA NA NA NA NA NA
(Exec./Prem./Luxury)
C (Van Type) 59,526 15% 65,019 9% 66,366 2%
Passenger Cars - MUL 417,392 28% 482,198 16% 522,664 8%
Passenger Cars - Total Industry 758,123 26% 885,029 17% 948,669 7%
MUV (Utility Vehicles) 3,555 12% 5,204 46% 4,374 -16%
Passenger Vehicles - MUL 420,947 28% 487,402 16% 527,038 8%
Passenger Vehicles - Total 901,150 24% 1,050,246 17% 1,129,31 8%
Industry 6

MARKET SHARE

39
 2005-06 Market Share-Segment A2
TATA
20%

MARUTI HYUNDAI
59% 21%

2005-06 Market Share-Segment A3

HYUNDAI TATA
16% 20%
MARUTI
17%
FORD
14%
OTHERS GM
7% HONDA
6%
20%

2005-06 Market Share-Passenger Cars

TATA FORD
HONDA
HYUNDAI 16% 3%
4% GM
17%
1%

TOYOTA
1%

OTHERS
MARUTI 3%
55%

40
 COMPETITION MODELS

Segment Maruti Competition

A1 (Mini - M800
Hatchback)
A2 (Compact - Zen, WagonR, Hyundai - Santro & Getz; Tata - Indica
Hatchback) Alto, Swift & Palio; GM - Corsa Sail
A3 (Mid Size) Esteem, Baleno Hyundai - Accent; Tata - Indigo & Petra;
Honda - City; GM - Corsa, Optra, &
Aveo; Ford - Ikon, Fusion, & Fiesta
A4/A5/A6 Hyundai - Elantra & Sonata; Honda -
(Exec./Prem./Luxury) Accord; GM - Vectra; Ford - Mondeo;
Skoda - Octavia & Superb; Toyota -
Corolla & Camry; Daimler Chrysler -
C,E, & S Class;
C (Van Type) Omni, Versa
MUV (Utility Gypsy, Grand Mitsubishi - Pajero; Hyundai - Terracan
Vehicles) Vitara & Tucson; Ford - Endeavor; Toyota -
Prado & Innova; Nissan - X Trail; Honda
- CRV; GM - Forrester & Tavera; Tata -
Sumo & Safari; Mahindra - Jeeps,
Scorpio, & Bolero

41
 THE PRODUCTION PROCESS AT MARUTI

STEEL COILS

BLANKING

PRESSING

WELDING

PAINTING

FROM FROM
ASSEMBLY VENDORS
VENDORS

FROM
VEHICLE INSPECTION
VENDORS

TEST RUN

SUPPLY & DISPATCH

42
 CHAPTER 4

DATA ANALYSIS &

INTERPRETATION

43
 THE FINANCE DEPARTMENT:

Vision:

To increase shareholder’s wealth by:

• Innovative & cost effective management of financial resources
• Providing timely, accurate and value added analysis for better decision making &
Cost Management

Objectives

• Innovative & cost effective funds management

• Providing timely, accurate and relevant information and value added analysis for
decision making and cost management.
• Tax planning and ensuring compliance with regulatory system.
• Simplifying the procedures and encouraging transparency.
• E-enabling the procedures.
• Encouraging cost consciousness amongst employees
• Providing optimum satisfaction to internal customers
• Extending services beyond the enterprise – to vendors, dealers etc.
• Continuously improving employee’s knowledge, skills & motivation by training
& communication.

44
 JMD (N)

ED
(FINANCE)

DVM/CGM
(FINANCE)

VPE CAR BAC CFP SAC IAU

Departments:

• Budget & Cost Department (BAC)

o Performs Budgeting, maintains cost records as per cost audit reports &
coordinates cost audit.

45
• Corporate Accounts & Reporting Department (CAR)

o Assesses & analyses profitability on monthly, half yearly and yearly basis
o Coordinates statutory audit
o Processes and does Income Tax and Wealth Tax Planning

• Sales Accounting Department (SAC)

o Prepares accounts for the sale of vehicle, spare parts and scrap, and all
payments made to dealers towards commission, interest etc.

• Vendor Payments And Excise Department (VPE)

o Manages Excise and coordinates with Excise department,

MODVAT/CENVAT claims on components, etc.
o Makes payments to vendors for towards supply of indigenous components.
o Arranges lease finance or other funding for projects for vendors.
o Works & Imports

• Corporate Finance & Payment Department (CFP)

o Performs Investment planning, Treasury Management and Working

Capital funding, arrangement of foreign currency and rupee loans,
arranges fund based & non fund based limits from banks, negotiates
documents against inland and export LCs, opening of import LCs, etc.
o Foreign Exchange related activities: Exchange rates are constantly
monitored to decide whether the company should hedge its foreign
currency exposures on loans, imports & exports.

46
 o Banking
o Employee Payments

• Internal Audit (IAU-reports to JMD)

o It identifies areas where there is a need for better control systems

and makes suggestions for the same.
Ensures compliance with statutory requirements and that no financial loss occurs to the
company for any deficiency in the system.

THE BASICS OF INTERNATIONAL TRADE

Incoterms - International Commercial Terms

Any trade contract imposes certain rights and obligations on the buyer and seller, these
rights and obligations vary in accordance with the convenience of the parties concerned
and as agreed by them. Certain specific terms used for these rights and obligations are
known as ‘Incoterms’ or ‘contract terms’ or ‘trade terms’.

Adoption of these terms is optional .The parties who wish to use these rules should
specify that their contracts will be governed by ‘Incoterms 2000 ’. The latest 2000
version defines 13 contract terms. These are:-

47
CONTRACT TERMS STANDARD ABBREVIATION
E – Term
1) Ex Works EXW

F – Terms
2) Free Carrier Carriage Unpaid FCA
3) Free Alongside Ship FAS
4) Free on Board FOB

C – Terms
5) Cost and Freight CFR
6) Cost, Insurance and Freight CIF
7) Carriage Paid to CPT
8) Carriage and Insurance Paid to CIP

D – Terms
9) Delivered at frontier DAF
10) Delivered Ex Ship DES
11) Delivered Ex Quay DEQ
12) Duty Unpaid DDU
13) Delivered Duty Paid DDP

In the above table

 E term is the departure term. The seller’s responsibility is only till the goods remain at
his place.

48
 F term – Main carriage is unpaid. The seller hands over the goods to a nominated
carrier, free of risk and expense to the buyer.
 C term – Main carriage is paid. The seller bears certain costs even after point where
the risk of loss or damage to the goods is reached.
 D term – Signifies the arrival of goods at the destination.

Free On Board (FOB):

It means that the seller pays for transportation of the goods to the port of shipment, plus
loading costs. The buyer pays freight, insurance, unloading costs and transportation from
the port of destination to his factory. The passing of risks occurs when the goods pass the
ship's rail at the port of shipment. Internationally the term specifies the port of origin.

Cost and Freight (CFR)

It means that the seller pays for transportation to the port of shipment, loading and
freight. The buyer pays for the insurance and transportation of the goods from the port of
destination to his factory. The passing of risk occurs when the goods pass the ship's rail at
the port of shipment.

Cost, Insurance and Freight (CIF)

When a price is quoted CIF, it means that the selling price includes the cost of the goods,
the freight or transport costs and also the cost of marine insurance. The seller under CIF

49
must obtain in transferable form a marine insurance policy to cover the risks of transit
with insurers of repute

VARIOUS MODES OF PAYMENT

Advance remittance

In this case the importer makes full payment in advance for the goods to be exported.
This is possible when the goods enjoy sellers market. The exporter despatches the goods
after he receives full payment from the importer. This is the most beneficial term from
exporter’s point of view as the entire risk of the transaction is financed solely by the
importer which entails additional cost to him.

Open account

This is reverse of Advance Remittance. Under this method goods are despatched directly
to the buyer. The buyer takes delivery of the goods without making a payment to the
seller. Buyer makes the payment to the seller at a pre determined future date, say 1 month
after each shipment. Open account is possible where the commodity commands buyers
market. It is advantageous to the importer as the exporter bears the entire risk and meets
all the financial requirements of the trade.

Consignment sale

The exporter has his selling agents abroad to whom the goods are dispatched. They
receive the goods without making any payment. The goods are sold by the selling agents

50
on behalf of the exporter and as and when the sale proceeds are received they are remitted
to the exporter. Consignment sale is prevalent in export of traditional goods from India.

Bill for collection

In this case the goods are dispatched to the importers country but the relative documents
are sent through a bank for collection. The bank hands over the documents to the

importer only on receiving the payment for those goods by the importer. Still the exporter
faces the risk of non payment by the importer, in case of repudiation by the importer.

Letter Of Credit

Letter of credit is an undertaking by the importers bank that if the exporter exports the
goods and produces documents as stipulated in the letter, the bank would make payment
to the exporter. The exporter, now relies on the bank which opened the letter of credit for
payment instead of relying on the importer.

Precautions to be taken at the time of establishing Letter of Credit

Letter of credit offers almost complete protection to the seller but the buyer is put to
many disadvantages and has to make payments against documents only. Before agreeing

51
to open a letter of credit in favour of the seller, the opener must be satisfied with the
creditworthiness and general reputation of the seller. Entire success of an L/C transaction
depends on proper conduct of the seller.

Confidential report on the seller must be obtained at the time of first transaction with him.

Letter of credit also does not offer any protection for the quality/quantity of goods
supplied under the L/C. It would, therefore be necessary to know the nature of goods and
specify submission of quality reports/inspection reports from an independent agency to
ensure receipt of goods of proper quality. This is particularly important in case of import
of chemicals and such other goods. The opener has to submit an L/C application to the
opening bank. The instructions contained in the L/C application is the mandate for the
issuing bank and letter of credit will be issued in accordance with this application. It is,
therefore, necessary that complete and precise information must be given in the L/C
application form specifying therein the description, unit rate and quantity of the goods
covered under L/C and details of documents required in absolute clear and unambiguous
terms. The reference to underlying sale contract must be avoided as far as possible. The
L/C application must nevertheless contain all the required/information based on which
L/C could be opened by the bank.

After the L/C has been issued by the bank, a copy thereof must be obtained immediately.
The L/C must be scrutinized to ensure that it has been properly issued and is in
conformity with L/C application. Discrepancy, if any, must be brought to the notice of
opening bank immediately.

Import contact may be concluded either in terms of INR or in foreign currency. Where
the contracts are in INR, the related documents are also prepared in INR and no

conversion is involved. However, where the bill is drawn in foreign currency, the
payment is made in Indian rupees equivalent to the foreign currency. The equivalent

52
rupee value is arrived at by applying suitable exchange rate. These rates are applied by
banks to standardise the foreign exchange-rupee conversion process.

When the price of foreign currency is quoted in terms of home or local currency it is
called direct quotation basis. This has been in application since 02.08.1993. However,
there is a difference between inter-bank exchange rates and merchant rates.

Merchant rates are the exchange rates applied by the bankers for transaction with their
customers for various purposes, including imports and exports. These rates are calculated
by the banks as per the guidelines issued by the Foreign Exchange Dealers Association of
India (FEDAI). Inter-bank rates are the rate for transactions amongst the authorised
dealers in foreign exchange and depend on the market conditions.

Since exchange rates are volatile, documents delivered by the bank at the time of a
favourable exchange rate will enable the Indian purchaser to pay less of Indian rupees.
Forex rates are always quoted as two way price i.e. at a rate at which the bank is willing
to sell foreign currency(buying rate) and at a rate at which the bank is willing to buy
foreign currency(selling rate). There is always some difference in buying and selling
rates. However, the maximum spread available to bank is restricted in terms of celling
imposed by RBI. All exchange rates by authorised dealers are quoted in terms of their
capacity as buyer or seller.

Uniform Customs and Practice for Documentary Credit

53
On June 1, 2007 the new Uniform Customs and Practices for Documentary Credits,
published as International Chamber of Commerce publication No 600, came into effect.
The first version of the UCP was drafted at the ICC congress in Vienna in 1933
(ICC-Publication No. 82). After the first revision in 1951, the UCP were again revised
in 1962, latter revision being of particular significance, since for the first time Great
Britain and the Common wealth accepted the UCP. The UCP were again revised in 1974
and 1993; the 1993 revision obtained the blessing of the UNCITRAL (United Nations
Commission on International Trade Law) which recommended that the UCP be applied
to all documentary credits. The stated goal of the current revision has been identical to
previous ones,i.e.

- take into account developments in banking, transportation and insurance

- review the wording of the UCP to avoid differing interpretations and applications.

In a note to its members and the national committees the ICC itself labeled the
new revision as "the most comprehensive in the entire history of the rules."

The changes are as follows:

1) The ICC has shortened the number of articles from 49 to 38. This change is mostly
cosmetic however, since substantive changes are barely noticeable.

2) The drafters of the UCP600 unfortunately have given up the division of the text with
upper case characters.

54
3) The criterion of inconsistency of documents (Article 13 a sentence 3 UCP 500)
was watered down to read now "Data in a document, when read in context with the
credit, the document itself and international standard banking practice,need not be
identical to, but must not conflict with, data in that document, any other stipulated
document or the credit (Article 14d UCP 600).

4) The term "to honour" has been newly introduced and obligates the issuing bank to
comply with its payment obligations whether they are based on sight payment, deferred
payment, acceptance, deferred payments or negotiation L/Cs.

5) The term to negotiate has been newly introduced (Article 2 UCP 600) and means
"the purchase by the nominated bank of drafts ...by advancing or agreeing to advance
funds to the beneficiary on or before the banking day on which reimbursement is due to
the nominated bank.

6) ”Article 12 b UCP 600 allows that a nominating bank prepay or purchase a draft
accepted or a deferred payment undertaking incurred by that nominated bank.
In this context it should be remembered that individual agreements take precedence over
general terms and conditions. Under this doctrine the discounting of deferred-payment
L/Cs is - contrary to the wording of Article 12 b UCP 600- not allowed,.

7) One of the most important structural changes of the UCP 600 consists of the
introduction of articles regarding definitions (Article 2) and interpretation (Article 3).
These new articles summarize what in the UCP 500 had been spread over various articles
relating to specific documents. The goal of the UCP 600 was to reduce redundancy [3]. It
remains doubtful however, whether these summaries, in particular article 3, are
advantageous.

8) Article 3 contains, without any numbering or division, in twelve paragraphs of

completely differing content. Beginning with the concept of irrevocability of LCs,

55
continuing to creation of originals, time related concepts like "on or about", "to", "until",
"till", “from” and “between”, and "beginning", "middle" and "end" of a month.

9) The most important practical change is the reduction of time to examine documents
from previously seven bank working days (UCP 13 b UCP 500) to now five (Article 14b
UCP 600). At this point it is not clear whether this will lead to a quicker examination of
documents, as is the ICCs intention, or rather convince banks to use the entire time
allotted for examination.

DIFFERENT ARTICLES

Article 1-5 Definition, Interpretation, independence of credits and underlying

contracts.

Article 6-10 Availability, expiry date and place, obligations of issuing and confirming
bank, advising credits and amendments.

Article 11-17 Pre-Advised Credits, nominated bank, reimbursement arrangements,

complying presentations and discrepant documents, waiver, original documents and
notices

Article 18 Commercial invoice

56
 Article 19-27 Transport Documents

Article28 Insurance documents

Article29-37 Extension of Expiry Date, tolerances, partial drawings and partial

shipments, Disclaimers

Article38-39 Transferability of Credits and Assignment of Proceeds.

DOCUMENTS INVOLVED IN THE PROCESS

1) Bill Of Lading: A formal receipt by the ship owner or the master of the ship
acknowledging that the goods of the stated specifications, quantity and condition are in
a certain ship or at least received in the custody of the ship owner for the purpose of
shipment.
Each Shipping Company has its own Bill of lading and as soon as the exporter obtains
the Mate’s receipt, he should prepare the Bill of Lading in the forms obtained from the
shipping company or its agent. Following details are required:
Name of the consigner
o Name and destination of the vessel
o Details of the goods (Description, Quantity, Destination...etc.)
o No. of packages
o Date and place of shipment
o Gross and net weight
o Amount of freight

57
2) Insurance Policy/ Certificate: Shipping across the international boundaries is a
risky business. The goods may be handled at several different stages: receipt, loading,
unloading, warehousing. The carriers themselves are susceptible to mechanical failures,
Natural Disasters. To guard against the risk that goods might be lost or damaged in
transit, an insurance policy/ certificate is required and it indicates the following details:

o Specific risks to be covered

o Amount of coverage
o Time period of the coverage

3) Certificate of Origin: It is a signed statement providing evidence of the origin of the

merchandise. It must be issued by an independent official organization such as
chambers of commerce.

4) Packing List/ Note: A packing list enables the buyer or seller to locate a particular
item if there are several packages with different contents. It contains the following
details:

o Date of packing
o Order no.
o Shipping details
o Connecting invoice no
o Details of goods ( Quantity, Weight, and/or item wise details)

5) Certificate of Inspection: This is a document signed by an independent third party,

attesting to the quality, type and number etc of goods being shipped by the seller.
Requiring such certificate offers some assurance to the buyer that file merchandise
shipped is the one ordered.

58
6) Shipping Order: Issued by the shipping line intimating the exporter about the
reservation of space of shipment of cargo through a particular vessel from a specified
port and on a specified date.

7) Commercial Invoice: It is a prima facie evidence of the contract of sale and

purchase. The invoice should be strictly in accordance with the contract of sale and
should be on the paper of seller and must be signed by him or by the person acting on
his behalf. It contains the following details:-
o Detailed description of the goods consigned
o Consigners name
o Consignee’s name
o Name of steamer
o No. and date of bill of lading
o Order acceptance
o Country of Origin
o Selling price to the purchaser
o Import license no.
o Terms of payment
o Terms of sale
o Amount of freight and Insurance
o Packing particulars
o Marks and No. of packages

8) Short Shipment Form: It is an application to the Customs Authorities at port

advising the short shipment of goods and for claiming the return of the duty and/or cess
paid on such short shipped goods.

59
 IMPORTS
IMPORTANT TERMINOLOGIES IN IMPORT

Imports in to India are governed by Foreign Trade (Development & Regulation) Act
1992. Under this Act, imports of all goods are Free except for the items regulated by the
policy or any other law for the time being in force. In exercise of the powers conferred by
the Foreign Trade (Development & Regulation) Act 1992 the Government has issued the
following Rules & Order:

Foreign Trade (Regulation) Rules, 1993, which inter alias, provide for grant of special
license, application for grant of license, fee, conditions for licenses, refusal of license,
amendment of license, suspension of a license, cancellation of license, declaration as to
the value and quality of imported goods, declaration as to the Importer- Exporter Code
number, utilization of imported goods, provisions regarding making, signing of any
declaration/statement or documents, power to enter the premises and inspect, search and
seizure of goods, documents, things and conveyance, settlement, confiscation and
redemption and confiscation of conveyance.

Foreign Trade (Exemption from Application of Rules in Certain Cases) Order 1993

Notifications under Foreign Trade (Development & Regulation) Act 1992.

Select the commodity/Product you wish to import:

Be aware of the import potential and the commercial viability of the commodity/product.

Check whether the items of your interest fall in the Restricted list of ITC (HS)
Classifications of Exports & Imports items.

60
Prohibited items are not permitted to be imported at all. List of Prohibited items of import
are detailed below:

Tallow, Fat or Oils rendered, unrendered or otherwise of any animal origin, animal rennet
and wild animals including their parts and products and ivory any part and products,
including ivory.

For import of items appearing in restricted list you need secure import license. Third
category of items comes under the Canalized list of items. Import of items included in
Canalized list is permitted to be imported through Canalizing Agencies.

Thus items not appearing in Prohibited list, restricted list and or in Canalized list can be
imported freely without any import license. A large number of Consumer goods are
freely importable without license.

Registration with Regional Licensing Authority and obtaining IEC Code

Registration with Regional Licensing Authority is a pre-requisite for import of goods.

The Customs will not allow clearance of goods unless:

The importer has obtained IE Code Number from Regional Licensing Authority.
However, no such registration is necessary for persons importing goods from/ to Nepal
provided Value of a single Consignment does not exceed Rs. 25000/=

Obtaining IEC Code Number

An application for grant of IEC Code Number should be made in the prescribed proforma
given at Appendix 3.I. The application duly signed by the applicant should be supported
by the following documents:

61
Bank Receipt (in duplicate)/demand draft for payment of the fee of Rs.1000/- Certificate
from the Banker of the applicant firm as per Annexure1 to the form. Two copies of
passport size photographs of the applicant duly attested by the banker of the applicant.

A copy of Permanent Account Number issued by Income Tax Authorities, if PAN has not
been allotted, a copy of the letter of legal authority may be furnished. If there is any non-
resident interest in the firm and NRI investment is to be made with repatriable benefits,
full particulars thereof along with a photocopy of RBI's approval. If there is NRI
investment without repatriation benefit, a simple declaration indicating whether it is held
with the general/specific permission of the RBI on the letter head of the firm should be
furnished. In case of specific approval, a copy may also be furnished.

Declaration by the applicant that the proprietors/partners/directors of the applicant

firm/company, as the case may be, are not associated as proprietor/partners/directors with
any other firm/company the IEC No. is allotted with a condition that be can export only
with the prior approval of the RBI.

Profile of the exporter/importer in a given format at Appendix 3.II.

The Registered Office or HO or Branch Office (duly authorized by the HO in this behalf)
should apply for allotment of IEC No. However, only one IEC no. is allotted to a
company and the same is valid for all its branches/offices/units. The application for grant
of IEC No. should be made to the Regional Licensing Authority concerned as specified in
Appendix 3.III.

62
The application fee shall be deposited by way of deposit in an authorized branch of
Central Bank of India indicating the head of Account 1453 Foreign Trade and Export
Promotion Minor Head 102. Import License Application Fee.

The IEC No. is likely to be granted within 3 days of the receipt of the complete
application and requisite documents.

How to fill up IEC application:

• Application form should be made in the prescribed form in duplicate along with
the above enclosures, mentioned against serial 1 to 8 of above paragraph, also in
duplicate.
• The form should be neatly typed /hand written in bold capital letters only.
• Each copy of the application form should be signed in ink by the authorized
person.
• Items of information relevant to applicant should only be filled and remaining
items may be marked not applicable.
• Modification of particulars of the applicant should also be furnished on this form
by filling the relevant items.

However, in case an IE Code holder no longer wishes to operate under the allotted code
number, the matter should be brought under the notice of the Regional Licensing
Authority to make the Code number inoperative.

Import Policy:

For items not mentioned as Prohibited, Restricted or Canalized List for import in
ITC(HS) Classification of Export and Import items; import of such items are freely
permitted. There is no need to obtain any license or permission for importing such goods.
The ITC(HS) Classification of Export and Import items contains 99 chapters and in each
chapter there are column heading covering Exim Code, items description, policy and

63
nature or restriction. The information related to import policy for any item can be
obtained from our site under Customs Duty Calculator Schedule.

SELECTING AN OVERSEES SUPPLIER

Imports can be made from any country of the world except Fiji and Iraq. The information
regarding overseas supplier can generally be obtained from the following sources:

Trade Directories and Yellow Pages, like Singapore yellow pages, Japan yellow pages,
USA yellow pages etc. available from leading booksellers in India including. Consulate
Generals and Trade Representatives of various countries in India and abroad.

Friends and relatives in foreign countries. International Trade Fairs and Exhibitions for
which you may contact:

International Trade Promotion Organization (ITPO), Pragati Maidan, New Delhi.

Chamber of Commerce. Directorate of Industries, etc. Indenting Agents of Foreign
Suppliers.

The advertisement in foreign papers may also be useful.

Similar information’s are also available in our Import-Export database.

Capability and Creditworthiness of Overseas Supplier

Successful completion of an import transaction will mainly depend upon the capability of
the overseas supplier to fulfill his contract. The credit worthiness of the overseas supplier,
his capacity to fulfill that contract, etc. should, therefore, be properly verified before
entering into a contract with him. Confidential reports about the supplier may be obtained
through the banks and Indian embassies abroad. Reputed overseas suppliers normally

64
have their Indenting Agents with offices in India and contract can also be finalized
through them for smoother operations. The importer can also take the assistance of Credit
Information Agencies for specific commercial information on overseas suppliers. They
may also contact Trade Information Centers of the country concerned.

Correct address of these agencies can be obtained from the overseas countries trade
representatives posted in India.

PAYMENT AGAINST IMPORTS.

Payment under better of Credit is a universally accepted mode of payment. A Letter of

Credit is a Signed instrument and an undertaking by the banker of the buyer to pay the
seller a certain sum of money on presentation of documents evidencing Shipment of
Specified goods subject to Compliance with the stipulated terms and Conditions.

SCRUITINY OF DOCUMENTS

This is a very important function and this should be done with great care. After receiving
the document from the overseas supplier's bank the importer's bank will scrutinize them
to verify the extent of correctness as per the terms of the L/C. For discrepancies in the
documents following principles are adopted:

If discrepancies are such which violates any of exchange control or import control
regulations, the documents should straightaway be rejected.

If the discrepancies are of trivial nature not affecting the character of the transactions the
documents may be accepted on merits.

If the documents are rejected, immediate notice to that effect should be given to the bank
to safeguard the importer's interests. The documents prescribed by the beneficiary are

65
carefully scrutinized by the issuing banker. The importer should also scrutinize the
documents to ensure that:

They were presented when the credit was in force and had not expired.
The amendments and special instructions have been taken care of
The amount of bill does not exceed the value of L/C

All documents required in the L/C have been made available

Documents carry required endorsements

The documents do not contain discrepancies which violate any exchange control/import
control regulations

The invoice is duly signed, tallies with amount of draft, Exact quantities are shown and is
drawn in appropriate currency of the origin of goods

Bill of leading is presented in full set of negotiable copies and is on board bill of lading
and duly signed In case the goods are imported on cash against documents(CAD),
documents against payment(D/P) or documents against acceptance(D/A) basis, the
importer needs to take delivery of documents from the banker before completion of the
customs formalities. This process, known as retirement of documents, needs the importer
to apply to authorized dealer/banker who is in possession of documents. This can be done
by tendering the funds equivalent to the value of documents and the bank charges
exchange control copy of import license, where applicable, Form A-1 duly completed for
remittance of foreign exchange.

The documents are released to the importers against payment in case of DP bills and
against acceptance in case of DA bills. The payment in either case is accepted only from
the bank account of importer. If the bank is out of funds the interest is charged to the
importer's account. For any overdue period a penal interest will be charged.

66
Time limit for import remittance:

The remittance against imports should be completed not later than 6 months from the date
of shipment. Accordingly, deferred payment arrangements involving payments beyond
6months are not permissible without approval of RBI/GOl.

However, no objection to importers withholding a small part of the cost of the goods not
exceeding 15 percent towards guarantee of performance etc. Authorized dealers may
make remittances of amounts so withheld provided the earlier remittance had been made
through them. No interest payment should be allowed to be remitted on these withheld
amounts.

Sometimes, settlement of import dues may be delayed due to disputes, financial

difficulties, Authorized dealers are permitted by the RBI to make remittances in such
cases even if the period of 6 months expires, provided-

Authorized dealer is satisfied about the bona fides of the circumstances leading to the
delay in payment.

No payment of interest is involved for the additional period.

In case, where the overseas supplier insists on payment of interest, it may be allowed in
accordance with the provisions contained in Para 7A.12 up to a maximum period of 60
days beyond 180days from the date of shipment provided the import bill is paid within
that period. Remittances against import of books may be allowed without restrictions as
to time-limit, provided no interest payment is involved nor has the importer forgone any
part of the discount/rebate normally allowed to importers towards compensation for delay
in settlement of dues.

67
Interest remittance on import bills-interest accrued on usance bills under 'normal interest
clause' or of overdue interest paid on sight bills for a period. not exceeding 6 months
from the date of shipment in respect of imports without prior approval of RBI. In case of
pre-payment of usance import bills, remittances may be made only after reducing the
proportionate interest for the unexpired portion of usance at the rate at which the interest
has been claimed or the 'prime' rate (or its equivalent) of the country in the currency of
which the goods are invoiced, whichever is higher. Where interest is not separately
claimed remittances may be allowed after deducting the proportionate interest for the
unexpired portion of usance at the prevailing 'prime'.

However, interest under normal interest clause would mean interest at the prime rate (or
its equivalent) of the country in the currency of which the goods are invoiced.

Importer’s documents-The importer should comply with certain obligations: submission

of Exchange Control Copy of Bill of Entry for Home Consumption/Postal Wrappers to
the authorized dealer. This will act as evidence that the goods, for which the payment was
made, have actually been imported into India.

Authorized dealers should ensure that in all cases, including cases of advance remittances
permitted (Vide Para 7A, 10, these are submitted by their importer customers and are
verified. In respect of imports made on D/A basis, since goods would normally be cleared
before the due date of payment, authorized dealers should insist on production of
documentary evidence of import i.e. Exchange Control Copy of Bill of Entry for Home
Consumption/ postal wrappers at the time of effecting remittance of import bill.
Authorized dealers should also advise this requirement to their importer customers in
writing while delivering the documents against acceptance.

68
Custom clearance of imported goods

Customs Authorities and the Clearing agents play the key role in the import of goods. All
goods imported into India have to pass through the procedure of Customs clearance as
they cross Indian border. The goods are examined, appraised, assessed, evaluated and
then allowed to be taken out of charge of the Customs for use by the importer. The entire
process of customs clearance is complex and to carry out this procedure smoothly, the
help of accredited customs clearing agents has to be taken.

The importers need to present a Bill of Entry on receipt of the advise of the arrival of the
vessel. The B/E is noted in Import Department, with corresponding endorsement made
against the consignment entry in the IGM along with the date. The B/E will then be
presented in the Appraising Department with all the relevant documents like invoice, Bill
of Lading, Import license and catalogue literature. The appraising procedure may be of
two types.

The First Check Procedure-Applicable only when appraisers/assessing group finds it

difficult to complete the assessment on the basis of the documents made available.

The Scrutinizing Appraiser in the group gives the examination order. The goods are then
examined in the docks and the B/E returned to the Scrutinizing Appraiser for completion
and license debit. In this case the Customs 'out of charge' is given by the Accounts
Department soon after the recovery of duty.

The Second Check Procedure-Under this 80 to 90 percent of the consignments are

cleared.

If the documents are adequate for determining the classification, value, ITC license, the
form is completed by the Appraiser and then countersigned by The Assistant Collector. It

69
is then forwarded to the License Department for licensing debit and audit. Then it is
returned to the importers for payment of duty in the Accounts/Cash department. After
recovery of duty the original B/E is retained in the Accounts Department and the
duplicate and other copies are returned to the importer for getting the goods examined in
the docks.

In the docks, the Shed Appraiser/Examiner shall examine the goods and if in order, shall
give the out of charge for taking delivery from the custodian of the goods viz. Port Trust,
after payment of Port Trust charges.

Irrespective of the procedure, examination of cargo for assessment purpose is chiefly the
function of the Appraising Department having special staff of examiners in the docks/Air
cargo shed. The records of the examination and weighment should be declared, attested
and dated at the time of the examination. If the examination spreads over more than one
day, the result on each day's progress should be disclosed.

These apart some of the Customs house in India have introduced the simplified computer
procedure for speedy clearance of consignment through B/E.

Hedging against Forex risk:

Exchange risk arising on account of adverse movement of the exchange rates, can be
avoided by the following methods:

• By requesting the supplier to invoice the goods in Indian rupees (possible only
when the seller agrees to it)
• By entering into a forward exchange contract.

This involves booking of forward exchange contract with the bank of the importer.

70
For booking forward contract the importer should approach his bank with which an L/C
has been opened. The bank will book a forward contract only against genuine trade
transaction. The bank will verify suitable documents to ensure the authenticity and the
amount of permitted currency of the underlying transaction. The amount, date and
number of the forward contract will be marked on such documents under the stamp and
signature of the bank to ensure that more than one forward contract is not booked in
respect of the same underlying transaction. A transaction may be covered either in parts
or in whole. The period and extent to which an exposure is to be covered is left to the
choice of the customer. Ordinarily, the maturity of the forward contract matches with that
of the underlying transaction. If the documents of import are not received within the
agreed period of the contract, the contract needs to be cancelled(an fresh contract booked
if desired) for which the bank will levy cancellation charges as per FEDAI rules. In case
the documents are received before the stipulated date and the importer wants early
delivery, the bank will again levy charges for early delivery, as per FEDAI rules.

The importers should be careful in choosing the period of forward contract. Otherwise
early delivery or cancellation of forward contract would lead to unnecessary charges. The
RBI allows substitution of an import order on specific request, provided the bank is
satisfied with the circumstance leading to the non-performance of the contract.

Where the documents are under a contract(Non-L/C case), the seller will submit the
complete set of documents to his bankers with the request to either purchase/discount the
documents to his banker with the request to either purchase/discount the documents or
same on collection basis to the importer. In the former case the seller's bank finances the
sellers whereas in the latter case, no financial facility is extended to the overseas seller.
The seller's banker may advance some money against documents sent on collection basis
while, treating the documents as collateral security.

When the documents are under L/C, the documents are prepared strictly in conformity
with the letter of credit.

71
After preparing the documents the overseas seller will tender the documents to his banker
for negotiation. The bank, after receiving the documents, will examine them to ensure
that they are strictly drawn as per the terms of the credit. Following this the overseas
banker will send the documents to the importer's banker in India. The importer’s bank
will advise the importer to collect the shipping documents either against payment or
acceptance as per the terms of the contract.

In case the documents are drawn under L/C, the issuing banker(of the overseas supplier)
will examine the documents and if found in order it will hand over the same to the
importer after debiting his account with amount involved or against acceptance as per the
terms of the credit.

If the documents are not in line with the terms of the credit, the overseas banker can
either refuse to negotiate further and ask the seller to send them on collection basis only;
or it can contact the importer's bank(in the buyer's country) for authorization; or it can
also make payment under the reserve against seller's indemnity.

STANDARISED MESSAGE FORMATS FOR COLLECTIONS,

DOCUMENTARY CREDITS AND GUARANTEE AND RELATED
MESSAGES

72
MT400 Advice of Payment under a Collection

MT410 Acknowledgement of Receipt of a Collection

MT412 Advice of Acceptance under a Collection

MT422 Advice of Fate and Request for Instructions of a Collection

MT430 Amendment of Instructions of a Collection

MT700 Issue of a Documentary Credit

MT701 Continuation of MT700

MT705 Pre-Advice of a Documentary Credit

MT707 Amendment to a Documentary Credit

MT710 Advice of a Third Bank's Documentary Credit

MT711 continuation of MT710

MT720 Transfer of a Documentary Credit

MT721 Continuation of MT720

MT730 Acknowledgement of the receipt of a Documentary Credit

MT734 Advice of Refusal of documents under a Documentary Credit

MT740 Authorization to Reimburse

MT742 Reimbursement Claim

MT747 Amendment to an Authorization to Reimburse

MT750 Advice of Discrepancy

MT752 Authorization to Pay Accept or Negotiate

MT754 Advice of Payment, Acceptance or Negotiation

73
MT756 Advice of Reimbursement or Payment

MT760 Issue of or the request for the issue of a Guarantee

MT767 Guarantee Amendment

MT768 Acknowledgement of a Guarantee Message

MT769 Advice of reduction or Release of a Guarantee

74
 CHAPTER 5

CONCLUSION &
RECOMMENDATION

75
 CONCLUSION

Maruti Udyog Limited (MUL) was established in Feb 1981 through an Act of Parliament,
to meet the growing demand of a personal mode of transport caused by the lack of an
efficient public transport system.

Its objectives are Modernization of the Indian Automobile Industry,Production of fuel-

efficient vehicles to conserve scarce resources,Production of large number of motor
vehicles which was necessary for economic growth

Maruti Udyog limited being into heavy manufacturing and distribution, has a large
human resource and work force at all levels. It follows a flat system of hierarchy which
has a similar structure in all divisions namely sales & distribution, production,
Information technology, research and development, human resource, marketing and
finance.

Imports in to India are governed by Foreign Trade (Development & Regulation) Act
1992. Under this Act, imports of all goods are Free except for the items regulated by the
policy or any other law for the time being in force. In exercise of the powers conferred by
the Foreign Trade (Development & Regulation) Act 1992 the Government has issued the
following Rules & Order:

Letter of credit is an undertaking by the importers bank that if the exporter exports the
goods and produces documents as stipulated in the letter, the bank would make payment
to the exporter. The exporter, now relies on the bank which opened the letter of credit for
payment instead of relying on the importer

Therefore Import and Procedure and Letter of Credits has been studied

76
 RECOMMENDATION:

It is always better if the issuing bank (in importers country) and the advising bank (in
exporter’s country) are same. At the time of negotiation with the advising bank, MUL
should confirm whether it (advising bank) has a branch in the importers country too. If it
has a branch in the importers country then MUL should ask the importer to open an L/C
4
5
2. LC in that bank only so that there are no extra charges being paid on account of not having a
.Advis BKE arrangement.
ed
P
D If the advising bank doesn’t have its branch in the importers country then MUL should
A
ask its advising bank to make a BKE arrangement with the importer’s bank so that there
BAN is no intermediate bank in any transaction. Advising bank most likely will not deny it as
K MUL is providing huge profits to these banks.

77
 CHAPTER 6

BIBLOGRAPHY

78
 BIBLOGRAPHY

• www.maruti.co.in
• www.wikipedia.org
• www.google.com
• Multi induction manuals
• Annual reports

79
 CHAPTER 7

APPENDICES

80
Q1)Which Cars do you prefer?

A)Maruti 800

B)Alto

C)Zen

D)Esteem

E)Swift

Q1) How training and development important to employees?

A) Yes

B) No

Q2) How training and development is being done?

A) Yes

B) No

A3) Are you aware of training and development?

A) Yes

B) No

Q4) Which method should be adopted for training and development

A)Primary

B)Secondary

81
Q5 What is the most stressful aspect of your training?
A) Shift timings
B) Call flow
C) Handling customer behavior
D) Any other
E) Nil

Q6 How can the stress level be reduced?

A) On the floor activities
B) Team outings
C) Stress management classes
D) Role change

Q7 What on-the-floor activities would you like to be introduced to motivate you?

A) Competitions

B) Quiz brain teaser games

C) Team Building games

Q8 Do you get performance based non- monetary incentives?

A) Yes
B) No
C)Sometimes

Q 9 How is your relationship with your boss?

A) Very good
B) Good

82
 C) Satisfactory

Q10 What all can be done to improve the relationship?

A) Skip level meetings

B) Frequent team shuffling
C) Training

Q11 What can you say about the communication system in your department?

A) Open & transparent

B) Rigid

C) Unstructured

Q12 How well do you think the appraisal system works for you?

A) Excellent

B) Good

C) Satisfactory

D) Unsatisfactory

Name _______________________

Address______________________

Phone No______________________

D/o/B__________________________

83