Exchange Rate Variation (ERV)

In case of a contract involving substantial import content(s) and having a long delivery period (exceeding one year from the date of contract), an appropriate Foreign Exchange Variation clause may be formulated by the Purchase Organization in consultation with its Finance Wing, as needed, and incorporated in the Tender Enquiry Document. In that clause, the tenderers are to be asked to indicate import content(s) and the currency(ies) used for calculating the value of import content(s) in their total quoted price, which (i.e. the total quoted price) will be in Indian Rupees. The tenderers may be asked to indicate the Base Exchange Rate for each such foreign currency used for converting the FE content into Indian Rupees and the extent of foreign exchange rate variation risk they are willing to bear. To work out the variation due to changes (if any) in the exchange rate(s), the base date for this purpose will be the due date of opening of tenders/seven days prior to the due date of opening of tenders …….. (the purchase organization is to decide and adopt a particular suitable date). The variation may be allowed between the above base date and the date of remittance to the foreign principal/mid-point of manufacture of the foreign component/….. (the purchase organization is to choose the appropriate date). The applicable exchange rates as above will be according to the TT Selling Rates of Exchange as quoted by authorized Exchange Bankers approved by the Reserve Bank of India on the dates in question. No variation in price in this regard will be allowed if the variation in the rate of exchange remains within the limit of plus/minus ……. percent. (The purchase organization is to decide the figure). Any increase or decrease in the Customs Duty by reason of the variation in the rate of exchange in terms of the contract will be to the buyer’s account. In case Delivery period is refixed/ extended, ERV will not be admissible, if this is due to default of the supplier. The purchase organization may formulate an appropriate ERV clause on similar lines as above in consultation with their Finance Wing.” The following documents should be furnished by the supplier for claiming ERV:
(a) A bill of ERV claim enclosing working sheet
(b) Banker’s Certificate/debit advice detailing F.E. paid, date of remittance and exchange rate
(c) Copies of import order placed on supplier
(d) Invoice of supplier for the relevant import order
    • Nikhil Gupta
    • January 3rd, 2012

    I wanted to know how is the FERV adjusted in the purchasers books?

      • Khanna Arvind
      • January 10th, 2012

      Please consult a charted accountant.

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