Paragraphs 2 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Paragraphs 2.38 to 2.42 of the Policy cover five different ways of trading. They deal with sale of goods on the high seas, merchanting trade, the general rule on exports, the documents a supporting manufacturer needs to share in a benefit, and third party exports. Paragraphs 2.64, 2.67 and 2.73 of the Handbook add the procedure for the export policy, direct negotiation of export documents and conversion of a shipping bill.
This article is based on the chapter-wise text of the Foreign Trade Policy, 2023 published on the DGFT website, as consulted on 2 October 2026; the copy carries no "updated up to" date. The procedure is taken from Chapter 2 of the Handbook of Procedures, 2023 as published on the DGFT website (file of July 2026), consulted on 2 October 2026. Later Notifications and Public Notices should be checked.
A sale on the high seas for import into India is allowed subject to the Policy or any other law (paragraph 2.38). Merchanting trade is allowed subject to Reserve Bank guidelines, except for goods under CITES or SCOMET (paragraph 2.39). All goods may be exported without restriction except as regulated by ITC(HS), the Policy or other law (paragraph 2.40). Supporting manufacturers and third party exporters must appear in the export documents (paragraphs 2.41 and 2.42).
Paragraph 2.38: sale on the high seas
Paragraph 2.38 has one sentence. A sale of goods on the high seas for import into India may be made subject to the Policy or any other law in force. The Policy adds nothing on documents, price or payment. The goods must still be importable under the Policy, and Customs and indirect tax law apply to the sale. We deal with those in our articles on high seas sales under GST and on merchanting trade against high seas sale and re-export.
Paragraph 2.39: merchanting trade
Merchanting trade involves shipment of goods from one foreign country to another foreign country without touching Indian ports, or shipment of goods within one specific foreign country, with an Indian intermediary. Paragraph 2.39 allows it subject to compliance with Reserve Bank guidelines, except for goods in CITES or under SCOMET.
Two points follow. First, the Policy leaves the money rules to the Reserve Bank guidelines; this article explains no foreign exchange regulation. Our article on merchanting trade rules and RBI guidelines and our article on import payments, advances, merchanting trade and reporting under the 2026 Regulations cover them. Second, the exclusion is of two kinds of goods, those in the CITES list and those in SCOMET; the paragraph does not list them, and the SCOMET categories are discussed under Chapter 10 of the Policy.
Paragraph 2.40: exports without restriction
The heading of paragraph 2.40 uses a different one-word label from this article. The rule says that all goods may be exported without any restriction except to the extent that such exports are regulated by ITC(HS) or any other provision of the Policy or any other law for the time being in force. DGFT may, through a Public Notice, specify the terms and conditions on which goods not included in ITC(HS) may be exported without an authorisation.
So the starting point is open and the restrictions are the exceptions; look at the item's entry in ITC(HS), then the Policy, then other laws. Paragraph 2.64 of the Handbook points the same way: the export policy is in Chapter 2 of the Policy, and a schedule of ITC(HS) lists items that may be exported without an authorisation but subject to terms and conditions. This article gives no item.
Paragraph 2.41: supporting manufacturers
For any benefit to accrue to the supporting manufacturer, defined in paragraph 11.59 of the Policy, the names of both the supporting manufacturer and the merchant exporter must figure in the concerned export documents, especially the Tax Invoice, Shipping Bill, Bill of Export and Airway Bill.
Paragraph 11.59(a) defines a supporting manufacturer as one who manufactures goods or any part, accessories or components of a good for a merchant exporter or a manufacturer exporter under a specific authorisation. For the EPCG Scheme, paragraph 11.59(b) says it is the one in whose premises or factory the capital goods imported or procured under the EPCG authorisation are installed.
Paragraph 2.42: third party exports
Third party exports, except deemed exports, as defined in Chapter 11 are allowed under the Policy. The export documents, such as the shipping bill, show the names of both the manufacturing exporter or manufacturer and the third party exporter. Paragraph 2.42 then lists three documents that should be in the name of the third party exporter: the e-Bank Realisation Certificate or the export realisations from the Reserve Bank's EDPMS where available in DGFT IT systems, the export order and the invoice.
Paragraph 11.61 of the Policy defines third party exports as exports made by an exporter or manufacturer on behalf of another exporter or exporters. It repeats the shipping bill rule, but for the third party exporter's name it lists the Bank Realisation Certificate (BRC), Self Declaration Form (SDF), export order and invoice. So the two paragraphs print different realisation documents: paragraph 2.42 names the e-BRC or EDPMS realisations, and paragraph 11.61 names the BRC and SDF. This article reconciles nothing; the safe course is to check which form is current in DGFT systems.
| Paragraph | Who | What the document must show |
|---|---|---|
| 2.41 | Supporting manufacturer and merchant exporter | Both names in the tax invoice, shipping bill, bill of export, airway bill |
| 2.42 | Manufacturer exporter and third party exporter | Both names on the shipping bill; e-BRC or EDPMS realisations, export order and invoice in the third party exporter's name |
| 11.61 | Same | BRC, SDF, export order and invoice in the third party exporter's name |
If you are setting up as a merchant or third party exporter, registration for indirect tax matters; see our GST registration for exporters service.
What the Handbook requires
Paragraph 2.64: export policy
The Handbook says the policy relating to exports is given in Chapter 2 of the Policy and that Schedule 2, Appendix 1 of ITC(HS) lists items which may be exported without an authorisation but subject to the terms and conditions specified there.
Paragraph 2.67: direct negotiation of export documents
Where the exporter directly negotiates documents, not through an authorised dealer, with the permission of the Reserve Bank, three documents are submitted to avail benefits under export promotion schemes:
- the Reserve Bank's permission for direct negotiation (not required for status holders);
- a copy of the Foreign Inward Remittance Certificate as per Form 10-H of the Income Tax Department, in place of the BRC; and
- a statement giving details of the shipping bills or invoices against which the certificate was issued.
Paragraph 2.73: conversion of a shipping bill
Customs, after recording reasons in writing, may permit conversion of any scheme shipping bill on which the benefit of that scheme has not been availed, in accordance with the Regulations under the Customs Act, 1962. The exporter is entitled to the benefit under the scheme in which the shipment is subsequently converted. Our article on section 149 of the Customs Act, 1962 on amendment of the shipping bill covers the Customs side.
These paragraphs rest on policy made under section 5 of the Foreign Trade (Development and Regulation) Act, 1992 (see our article on section 5 of the FTDR Act), and the Handbook procedure on the Director General's power in section 6.
A worked example
Anand Trading Private Limited, an invented merchant exporter, ships garments made by Rohini Garments, an invented supporting manufacturer. Under paragraph 2.41 both names must appear on the invoice, shipping bill and airway bill for the benefit to reach Rohini. If Rohini's goods are exported on behalf of Zenith Exports, an invented third party exporter, paragraph 2.42 requires both names on the shipping bill and the export order and invoice in Zenith's name.
Need help with an export structure?
If you are a merchant exporter, a third party exporter or a supporting manufacturer, the invoice and the registration must line up before the first shipment. Our team can look at the structure with you through our GST registration for exporters service.
Key takeaways
- Sale on the high seas is allowed subject to the Policy or any other law (paragraph 2.38).
- Merchanting trade is allowed subject to Reserve Bank guidelines, except goods in CITES or under SCOMET (paragraph 2.39).
- Exports are unrestricted except as regulated by ITC(HS), the Policy or other law (paragraph 2.40).
- Both names must appear in the export documents for a supporting manufacturer (2.41) and a third party export (2.42).
- Paragraphs 2.42 and 11.61 print different realisation documents; both are given above.
Read next
- Paragraphs 2.43 to 2.45 of the Foreign Trade Policy, 2023: export of samples, gifts and passenger baggage
- Paragraphs 2.36, 2.37 and 2.51 of the Foreign Trade Policy, 2023: bonded warehouses for imports and exports
- Merchanting trade against high seas sale and re-export
- Shipping bill: export documentation and process
Disclaimer: Based on the chapter-wise text of the Foreign Trade Policy, 2023 and the Handbook of Procedures, 2023 published on the DGFT website, and on the later Notifications named in this article, as consulted on 2 October 2026. The copies carry no "updated up to" date. Notifications, Public Notices, Trade Notices, the ITC(HS) schedules, Appendices and forms change often; the current text on the DGFT website should be checked before acting. This article is general information, not legal advice; check the official text before acting.