Merchanting Trade is done when, the supplier of goods will be resident in one foreign country, the buyer of goods will be resident in another foreign country and the merchant or the intermediary will be resident in India. Sometimes what happened in the normal course of business a person buys some goods from one person and sale to another person may be within the same city/ town/ village/ state or within anywhere in the domestic country.
As per the revised guidelines, Merchanting Trade Transaction should satisfy the following condition: 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 bonafide 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 bonafide 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 an advance remittance for the export leg. Payment for import leg may also be allowed to be made out of the balances in the EEFC account of the merchant trader. The formula to determine if a particular merchanting trade does result in a profit is clearly defined and is as follows: Merchanting Trade Transaction Profit = Exports proceeds of the Merchanting Trade Transaction – (Import Payments + Related Expenses for the transaction). This needs to be checked for every transaction by the AD Banks. The Merchanting Trade Transaction buyer is declared insolvent along with proof from the Liquidator who certifies that the amount cannot be recovered from the buyer. Auction of the goods exported or Destruction of the goods exported by the authorities in the importing country (by Port or Customs or Health authorities) and certified proof of the same is provided. The unrealized amount is the balance due in a settlement case intervened by the Indian Embassy, Foreign Chamber of Commerce, etc.
