Indian currency bought by the Asian Development Bank by payment to the Reserve Bank of India in foreign exchange, Customs - Exim - SEZ

[Sudhir M]

Hi Experts, In this notification Goods specified if exported under claim for drawback are likely to be smuggled back into India - Supersession Notification No. 49-Customs (G.S.R. 225) dated the 1st February 1963 - G.S.R. 1318 - Customs -Tariff there is mentioned about "Indian currency bought by the Asian Development Bank by payment to the Reserve Bank of India in foreign exchange"

want to understand the meaning of this

Posts / Replies

[YAGAY andSUN]

Great question! — The language in older Customs Notifications like G.S.R. 1318 or the superseded Notification No. 49-Customs dated 1st February 1963 can be quite dense and historical in context.

You're referring to this specific line:

"Indian currency bought by the Asian Development Bank by payment to the Reserve Bank of India in foreign exchange"

Let's break it down:

Meaning and Context: This clause refers to a specific kind of export — Indian currency purchased by an international organization (Asian Development Bank / ADB) in foreign exchange via the Reserve Bank of India (RBI).

Here's what it means:

• The Asian Development Bank (ADB), like other multilateral institutions (e.g., IMF, World Bank), needs to operate in multiple currencies, including Indian Rupees (INR).
• To acquire INR, ADB pays the Reserve Bank of India in foreign exchange (e.g., USD, EUR, etc.).
• The RBI, in return, gives ADB Indian currency (INR).
• This INR is often used for ADB’s developmental projects or loans in India.

So, in this context, the Indian currency is “exported” in a non-physical sense — it leaves the RBI’s control and enters the account of a foreign institution in exchange for foreign currency.

Why it's in a Customs Notification?

The old Customs notification (and its supersession) was primarily meant to:

• Restrict or control exports under drawback schemes where there was a risk of smuggling or circular trade — especially for precious goods or currency.
• It includes specific exceptions or categories of “goods” (including currency) that may be treated differently or regulated under special rules.

So this line is essentially a carve-out or specification stating that when Indian currency is bought by ADB in exchange for foreign exchange (through RBI), it's not considered smuggling or misuse, and has regulatory clearance.

Takeaway: This phrase refers to a permissible transaction where Indian Rupees are acquired by ADB by paying foreign exchange to RBI, and is included in the Customs context because:

• It touches on the movement of currency.
• It has implications for foreign exchange management and drawback provisions.

This is not a typical commercial export, but a regulated financial arrangement between a multilateral institution and India’s central bank.

The clause in Notification No. 49-Customs (G.S.R. 225), dated 1st February 1963, stating:

**"the goods specified if exported under claim for drawback are likely to be smuggled back into India"**

addresses concerns regarding the export of certain goods under the Duty Drawback Scheme. The notification highlights that exporting these goods while claiming a drawback could lead to them being illicitly re-imported into India, potentially undermining revenue and regulatory controls.

Duty Drawback Scheme Overview: The Duty Drawback Scheme allows exporters to claim a refund of customs duties paid on imported inputs used in the manufacture of exported goods. This mechanism aims to make Indian exports more competitive by neutralizing the impact of indirect taxes.

Context of the Notification: Historically, certain goods, especially high-value items like gold, silver, and precious metals, were prone to misuse under the Duty Drawback Scheme. Exporters might claim drawbacks and then illegally bring back the same goods into India, effectively evading duties and taxes. To curb this malpractice, the government issued notifications like G.S.R. 225, identifying specific goods susceptible to such misuse.

Implications of the Notification:

• Identification of Susceptible Goods: The notification lists goods that, if exported under the Duty Drawback Scheme, have a high risk of being smuggled back into India.
• Regulatory Measures: By identifying these goods, the government can implement stricter monitoring, documentation, and controls to prevent their illegal re-importation.
• Policy Adjustments: Exporters dealing with goods listed in such notifications may face additional compliance requirements, such as providing proof of legitimate export and non-re-importation, to avail of the Duty Drawback benefits.

Conclusion: The clause serves as a cautionary measure, ensuring that the Duty Drawback Scheme is not exploited for illicit activities. Exporters must stay informed about such notifications and adhere to the specified conditions to ensure compliance and avoid potential legal issues.

***