Can an exporter sell surplus fabric imported under an IP in the local market?

Home Academy Commercial Management A–ZLesson 2

Module 12: IP

Sourcing Raw Materials Under Import Permit

Reading Time: 16 minLesson 38 of 105Comprehensive Master Manual

Lesson Contents Overview

1. Learning Objectives 2. Core Lesson Content 3. Department Comparisons 6. Real Factory Case Study 7. Trade Terminology 8. Interview Questions (2) 9. FAQs (1) 10. Key Takeaways 11. Resources & Downloads

Learning Objectives

Coordinate with foreign buyers to ensure flawless shipping document issuance for IP cargo.

Calculate customs bond entitlement deductions for goods imported under Import Permits.

Manage airway bills (AWB) and ocean bills of lading consigned under IP terms.

Execute factory store inventory recording and material passbook endorsement for IP imports.

Prev: Import Permit (IP) Fundamentals

Module 12•Lesson 38 of 105

Next: IP Documentation & Regulatory Approval SOP

Comprehensive Technical GuidanceTextbook & Training SOP

1. Document Architecture for IP Sourcing

When sourcing raw materials under an Import Permit, the commercial documentation package differs fundamentally from an L/C shipment:

Mandatory Wording on Supplier Documents:

Commercial Invoice: Must state:

"These goods are supplied Free of Cost (FOC) by [Buyer Name] to [Factory Name] for 100% export garment manufacturing against Export PO #[Number]. Value declared for customs valuation purpose only. No foreign exchange transaction is involved."
Air Waybill (AWB) / Ocean Bill of Lading (B/L):
- Shipper: Overseas Supplier / Buyer Sourcing Hub.
- Consignee: Garment Factory Name, Factory Address, and Bond License Number (NOT a bank).
- Notify Party: Factory Commercial Department and Designated Port C&F Clearing Agent.

2. Bond Passbook Accounting for IP Materials

All raw materials entering Bangladesh under an IP must be entered into the Customs Bonded Warehouse Passbook (Register 16-Kha):

Port Gate Entry: C&F agent presents approved IP and Bill of Entry to Customs Bond Officer.
Debit Entry in Passbook: The quantity (e.g., 5,000 meters of fabric) is officially debited against the factory's annual bond entitlement.
Factory Store GRN: The factory store manager issues a Goods Received Note (GRN) cross-referencing the IP and Bill of Entry numbers.
Reconciliation at Export: When finished garments are exported, the quantity is credited back in the bond passbook based on the Utilization Declaration (UD).

Sourcing Workflow: BTB L/C vs. Import Permit (IP) Sourcing

Parameter	Standard BTB Sourcing	Import Permit (IP) Sourcing
Financial Liability	Factory pays supplier via L/C at maturity	Zero payment (Buyer covers 100% cost)
Bank Credit Consumption	Consumes 60%–75% Master L/C BTB limit	Consumes 0% bank credit limit
Transport Document Consignee	Consigned to Order of Opening Bank	Consigned Directly to Factory / Exporter
Customs Bond Passbook	Recorded under BTB entitlement	Recorded under Special IP entitlement
UD Integration	Covered in main BTB consumption sheet	Requires special FOC declaration clause in UD

Practical Commercial Flow

Managing $25,000 Buyer-Nominated YKK Zippers under IP

Buyer nominates specialized waterproof zippers valued at $25,000 supplied FOC from YKK Japan. Factory Commercial team obtains an IP from CCI&E. Zippers arrive via air freight consigned to factory. C&F agent clears goods through Dhaka Airport Customs under bonded passbook #B-889. Zippers enter factory store with zero duty and zero cash outlay.

Factory Real-Life Scenario

Scenario: An overseas trim supplier shipped $15,000 worth of leather patches by air freight with an invoice showing "Value: USD 0.00", which customs rejected as an invalid declaration.

Solution: Commercial team secured an amended invoice showing the true commercial value ($15,000) with the mandatory clause "Value for Customs Purpose Only - Free of Cost Supply" and submitted the approved IP.

Impact: Customs cleared the shipment under bond without imposing valuation penalties.

Commercial Officer Best Practice

Never allow overseas suppliers to write "$0.00" on shipping invoices. Customs requires a realistic declared value for statistical tracking and bond passbook entries.

Top Beginner Mistakes to Avoid

Failing to record IP imported fabrics in the bonded warehouse passbook, resulting in audit shortfalls during annual customs review.
Consigning the Air Waybill to a commercial bank instead of the factory on FOC shipments.

Important Commercial & Trade Terminology (2 Terms)

Consignee

The party legally entitled to receive the cargo from the carrier upon arrival.

💡 Note: On IP shipments, the consignee is the factory, not a bank.

Customs Valuation Purpose

A declared monetary value on FOC documents used exclusively by customs to assess bond liability, with no financial payment owed.

💡 Note: Mandatory on all FOC invoices.

Interview Preparation Questions & Answers (2 Questions)

Master these high-frequency interview questions for Commercial Officer, Merchandising, and Export Executive roles.

Frequently Asked Questions (1 FAQs)

Clear, beginner-friendly answers to the most common questions about the Commercial Department.

No, all raw materials imported under an IP are strictly bonded for export production. Selling them locally constitutes illegal bond leakage and is punishable by severe criminal penalties.

Key Takeaways & Summary Points

1Buyer shipping documents for IP cargo must explicitly match the factory's legal name, BIN, Bond License, and the approved IP reference number.

2All raw materials imported under an IP must be accounted for in the factory's Customs Bonded Material Passbook.

3The Commercial Department must link the IP import volume to the specific export Master L/C or PO in the Utilization Declaration (UD).

4FOC imports do not consume the factory's BTB foreign exchange limit, preserving bank credit lines for other raw material purchases.

Executive Lesson Summary

Sourcing raw materials under Import Permits allows garment manufacturers to integrate specialized buyer-supplied materials seamlessly while preserving working capital and bank credit limits.