The trigger for this topic is a question that a reader asked:

Question : What are the RBI guidelines for availing Letter of credit facility and/or buyers credit facility for the import of second hand capital goods? Is it possible for a company to avail these facilities for second hand machinery?

RBI Master Direction: “Import of Goods and Services” & “External Commercial Borrowing and Trade Credit” are silent on the above subject.

Reference is found in Exchange Control Manual in relation to second hand machinery, extract of the same is given below:

In terms of Export-Import Policy presently in force, second hand capital goods are allowed to be imported freely subject to certain conditions. Such imports sometimes involve payment against delivery of second hand plant and machinery abroad on ‘as is where is basis’. In the absence of shipping documents, it will not be possible for authorised dealers to open letters of credit or make remittances against such imports. Applications for opening of Letters of Credit or for making remittances in regard to imports with such payment conditions should, therefore, be referred to Reserve Bank for prior approval with full details

Based on the understanding of above, buyers credit can be taken on the second hand goods without RBI Approval subject

1. Machine delivery is not taken abroad on ‘as is where is basis’
2. Import of the given category of second hand machinery is allowed in current Foreign Trade Policy.

Reference

• Foreign Trade Policy
• Foreign Trade Procedures
• Master Direction – External Commercial Borrowings, Trade Credit, Borrowing and Lending in Foreign Currency by Authorised Dealers and Persons other than Authorised Dealers: Dated: 19-09-2016
• RBI Master Direction –  Import of Goods and Services: Dated: 31-03-2016