DGFT Notification: Direct Back-to-Back Inland Letter of Credit Rules

The Directorate General of Foreign Trade (DGFT) has refined the procedures for holders of Advance Authorizations to utilize the Inland Letter of Credit (LC) for domestic procurement. This provision allows exporters to source raw materials from local suppliers without immediate cash outflow, using the LC as a financial instrument that satisfies the requirements of the scheme. Under the Foreign Trade Policy 2023 and subsequent trade notices, the 'Back-to-Back Inland Letter of Credit' facilitates easier access to inputs. The domestic supplier can then seek Deemed Export benefits or claim international prices by supplying against the Advance Authorization holder's requirements. This mechanism is crucial for MSMEs that face liquidity constraints when sourcing high-value raw materials locally. ## What this means for exporters Exporters must ensure that the Inland LC specifically mentions the Advance Authorization number and is issued by an authorized bank. Proper documentation is required during the redemption of the Export Obligation Discharge Certificate (EODC) to prove that the domestic sourcing was compliant with the policy. This updates the conventional payment methods and encourages local value addition while maintaining the tax-neutral status of the export product.