DGFT Notifies Rules for Inventory-Based E-commerce Exports

The Directorate General of Foreign Trade has notified rules allowing e-commerce companies, including foreign-funded firms, to hold Indian-made goods in inventory exclusively for exports, while requiring such transactions to be routed through a separate legal entity, according to Global Trade Research Initiative.

Under the framework, the export entity must be registered with DGFT as an Exporter-on-Record, or EOR, and hold an Importer-Exporter Code and GST registration, GTRI said. Indian suppliers, designated as Sellers-on-Record, must be GST registered and can supply only goods of Indian origin.

The EOR can acquire ownership of goods only after receiving a confirmed order from an overseas buyer, preventing e-commerce firms from purchasing goods merely to build inventory in anticipation of future demand. Export inventory must also be kept separate and digitally linked to the domestic seller, overseas order and export documentation.

The export entity will have to pay the Indian seller within seven days of accepting the goods, irrespective of whether payment has been received from the overseas buyer or whether the product is subsequently returned, GTRI said.

The EOR will be eligible to claim export incentives including Duty Drawback, Remission of Duties and Taxes on Exported Products and Rebate of State and Central Taxes and Levies. These benefits must be distributed among sellers in proportion to the free-on-board value of their goods reflected in the shipping bill, although the EOR may deduct an administrative charge.

GST refunds will remain with the EOR, while benefits under Advance Authorisation and the Export Promotion Capital Goods scheme will not be subject to the sharing requirement.

The EOR will also bear the cost and responsibility for handling returned or rejected export consignments. Goods returned from overseas cannot be sold in India either directly or through another entity, and exporters have been encouraged to use notified E-Commerce Export Hubs wherever feasible.

The framework follows the July 23 Press Note easing FDI restrictions on foreign-funded business-to-consumer and inventory-based e-commerce for exports of Indian-made goods. The relaxation will, however, become operational only after corresponding amendments are made under the Foreign Exchange Management Act and the Non-Debt Instruments Rules, GTRI said.

GTRI said the framework could operate either through separate domestic and export websites and inventories, or through a common platform where the export entity acquires ownership only after receiving an overseas order. The Handbook of Procedures is expected to provide greater clarity on the operational model.

The think tank said the policy could reduce the role of micro, small and medium enterprises from exporters to domestic suppliers, as they would receive payment in rupees while the e-commerce entity owns and exports the goods.

GTRI also said the arrangement broadly resembles the existing export-house model under which small firms supply goods to larger exporters for overseas sale, raising the question of whether a separate relaxation in FDI rules was necessary.

It warned that while the relaxation is currently limited to exports, permitting foreign-funded e-commerce companies to own inventory could eventually lead to demands for extending the model to domestic sales as well.