Sales to SEZ unit: MERCHANT EXPORT? OR ACTUAL EXPORT?

This query is : Resolved

Dipen (Querist)
Follow

02 August 2010 A company sells goods to SEZ Unit. Law says sell to SEZ unit is export of the supplier under SEZ act, Excise act and in Custom act.

But will that would be MERCHANT EXPORT of supplier company or would it be Actual Export of supplier.

I am confuse between Merchant Export and Export.

Please provide me the legal definition, if any, of Merchant export and export.

Many thanks for investing your valuable time to my query.

VINOD ARORA

VINOD ARORA (Expert)
Follow

02 August 2010 Supplies from Domestic Tariff Area (DTA) to SEZ are treated as physical export. DTA supplier would be entitled to :

Drawback/DEPB
CST Exemption
Exemption from State Levies
Discharge of EP if any on the suppliers
Income Tax benefit as applicable to physical export under section 80 HHC of the Income Tax Act.

Please explain your purpose of using the word merchant export in this context.

Message likes : 1 times

Dipen

Dipen (Querist)
Follow

04 August 2010 Vinodsir,

I have KVIC (Khadi and Village Industries Unit) KVIC ppl says they will not accept merchant export.

KVIC ppl say selling goods to SEZ unit will be Merchant Export. I havent done merchant export thats why I didn't know what is merchant export.

I totaly disagree with KVIC ppl but I don't know how to prove it. Thats why I wanted legal definition of Merchant export.

Please help me out if you have any knowledge of merchant export.

Thanks for your precious time invested in query.

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
Follow

23 July 2025 Great question! The difference between **Merchant Export** and **Actual Export** is often misunderstood, especially in transactions involving SEZ units.

### What is **Merchant Export?**

* **Merchant Export** means a scenario where a company (merchant exporter) **buys goods from a manufacturer or supplier and then exports them** to a foreign buyer. The merchant exporter **does not manufacture the goods themselves** but acts as an intermediary/exporter.
* The merchant exporter **takes title and ownership** of the goods before export.
* The merchant exporter arranges export, documentation, and assumes export risks.
* Often, the manufacturer sells goods to the merchant exporter as a domestic sale.

### What is **Actual Export (Manufacturer Export)?**

* **Actual Export** or **Manufacturer Export** means the company **manufactures or produces the goods themselves** and **exports directly** to the foreign buyer or SEZ unit.
* The supplier/manufacturer is the actual exporter in this case.
* The export is considered physical export of the manufacturer's goods directly from India to outside India (or to SEZ units treated as export).

---

### SEZ Supplies: Legal Treatment

* Supplies made **from Domestic Tariff Area (DTA) to SEZ units** are treated as **physical exports** under Customs Act, Excise Act, SEZ Act.
* The DTA supplier is treated as an **actual exporter**, entitled to export benefits (like duty drawbacks, CST exemption, income tax benefits under Section 80HHC).
* These are **not merchant exports** because the goods move physically from DTA to SEZ unit, which is considered export.

---

### Why does KVIC call sale to SEZ “Merchant Export”?

* Sometimes, organizations like KVIC might consider sale to SEZ as merchant export because:

* The SEZ unit might be a trader who re-exports or further sells the goods.
* Or they treat the SEZ unit as a domestic buyer.
* However, legally, under Customs and SEZ laws, **sale from DTA to SEZ is treated as export by the supplier (actual export)**.

---

### How to prove this?

1. Refer to **Section 2(6) of the Customs Act, 1962** — defines “export of goods” including supplies to SEZ units.
2. Refer to **Notification under SEZ Act** — clearly states supply from DTA to SEZ is export.
3. Refer to **Central Excise notifications and Customs circulars** explaining export benefits on supplies to SEZ.
4. Income Tax Act **Section 80HHC** — applies export benefits to supplies to SEZ.

---

### Summary

| Aspect | Merchant Export | Actual Export (Manufacturer Export) |
| ------------------ | --------------------------------- | ----------------------------------- |
| Role | Intermediary/exporter (trader) | Manufacturer exporting own goods |
| Ownership of goods | Transfers before export | Exports own manufactured goods |
| Sale to SEZ unit | No (generally not applicable) | Yes, considered export by supplier |
| Export benefits | Merchant exporter claims benefits | Manufacturer claims benefits |

---

If you want, I can help draft a formal explanation or legal note to present to KVIC or any authority to clarify this point. Would you like that?

You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now