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Indirect Tax Laws and Practice · Export Promotion Schemes under Foreign Trade Policy

Status Holders and Merchant Exporter Provisions under FTP

Updated 11 October 2026 · Fact-checked

A status holder is an exporter recognised under the Foreign Trade Policy on the basis of export performance and given extra benefits and facilitation. Every exporter needs an Importer-Exporter Code under section 7 of the FT(D&R) Act, 1992. A merchant exporter exports goods bought from others. Solve questions by checking IEC, status, and compliance.

Understand Status Holders and Merchant Exporter Provisions

Start with the legal base. The Foreign Trade (Development and Regulation) Act, 1992 lets the Central Government make Orders to develop and regulate foreign trade by facilitating imports and increasing exports (section 3). The government announces the Foreign Trade Policy (FTP) by notification in the Official Gazette and may amend it (section 5). The FTP is where schemes, status recognition and benefits sit.

The first gate is the Importer-Exporter Code (IEC). Under section 7, no person can make any import or export except under an IEC granted by the Director General of Foreign Trade (DGFT) or an authorised officer, following the DGFT's procedure. For services or technology, the IEC is necessary only when the provider takes benefits under the FTP or deals with specified services or technologies. In practice, you apply for the IEC online on the DGFT portal. The detailed application steps and documents come from the FTP and its Handbook of Procedures, not from the Act, so know them as procedure rather than as statute.

A status holder is an exporter that the FTP recognises after it reaches prescribed export performance levels. The FTP groups them into recognition categories, commonly called one star, two star, three star, four star and five star export houses. Higher status brings more facilitation, such as simpler procedures and relaxed compliance conditions. The exact export performance thresholds, the look-back period and the list of benefits change with each policy. Check the FTP in force for your term. Do not quote a rupee or dollar threshold from memory unless the question gives it.

A merchant exporter is a person who exports goods that he does not manufacture. He buys from a manufacturer or supplier and exports. He still needs an IEC and must follow the Act and the FTP. Under GST, supplies to a merchant exporter are usually taxed at a concessional rate when the conditions are met, and the exporter must export within the prescribed time. Keep this link to GST in mind, but the question will tell you which rule to apply.

Compliance matters. Section 11 says no export or import may be made except as per the Act, rules, orders and the FTP. Breach can bring penalty, confiscation, and suspension or cancellation of the IEC (section 8). So status and benefits depend on staying compliant.

Key rules to remember

IEC requirement
No import or export without an IEC granted by the DGFT or authorised officer (section 7)
For services or technology, IEC is needed only if the provider takes FTP benefits or deals with specified services or technologies.
Penalty for contravention
Penalty ≥ ₹10,000 and up to 5 × value of goods, services or technology, whichever is more (section 11(2))
Applies where a person makes, abets or attempts an export or import in contravention of the Act, rules, orders or FTP.
Penalty for false documents
Penalty of not less than ₹10,000 or more than 5 × value, whichever is more (section 11(3))
Applies where a person uses a document knowing it is forged, tampered with or materially false.
Suspension or cancellation of IEC
Notice in writing + reasonable opportunity to represent + hearing if desired, then suspend or cancel (section 8(1))
After suspension or cancellation, import or export is possible only under a special licence (section 8(2)).
Suspension for unpaid penalty
IEC may be suspended by the Adjudicating Authority till penalty is paid or recovered (section 11(7))
This is in addition to the recovery modes in section 11(5).
Confiscation
Goods, package and conveyance liable to confiscation; release on redemption charges equal to market value (section 11(8) and (9))
Conditions and manner are prescribed by rules.

How to solve Status Holders and Merchant Exporter Provisions questions

Use this order for any question on status holders, IEC or merchant exporters.

  1. 1Identify the person: manufacturer exporter, merchant exporter, or service provider.
  2. 2Check the IEC. For goods, it is required under section 7. For services, it is needed only if FTP benefits are taken or specified services are involved.
  3. 3Check the compliance record. Look for contravention, false documents or unpaid penalty that can lead to action under section 8 or 11.
  4. 4For status, use the thresholds and benefits given in the question or in the FTP in force. Do not assume figures.
  5. 5Match the facts to the category (one to five star) and list only the benefits asked for.
  6. 6For merchant exporters, link the supply chain: purchase from the supplier, then export within the allowed time and with the IEC.
  7. 7State the consequence with the right section: penalty, confiscation, suspension or cancellation.
  8. 8Close with a clear conclusion in one line.

Quickest way: Four-check scan

When to use it: Use for MCQs and short case questions where time is tight.

  1. Check 1: Is there a valid IEC? If not, the export or import is not allowed (section 7).
  2. Check 2: Is a status benefit claimed? Match it to the FTP category and the data given.
  3. Check 3: Any breach? Think penalty (section 11), then IEC action (section 8).
  4. Check 4: Is the person a merchant exporter? Then also check GST and export-time conditions given in the facts.

Common mistakes in Status Holders and Merchant Exporter Provisions

  • Saying services always need an IEC.

    Students remember section 7 only for goods.

    Fix: Recall the proviso: for services or technology, the IEC is needed only when the provider takes FTP benefits or deals with specified services or technologies.

  • Quoting export thresholds for star houses from memory.

    Figures are in notes from older policies.

    Fix: Use the figures given in the question. If none is given, state the principle and say the threshold is as per the FTP in force.

  • Treating a merchant exporter as exempt from IEC or FTP rules.

    Confusion because he does not manufacture.

    Fix: A merchant exporter is an exporter. He needs an IEC and must comply with the Act and the FTP.

  • Cancelling the IEC without notice in an answer.

    Students jump to the penalty.

    Fix: Mention the written notice, grounds, a reasonable chance to represent and a hearing if desired (section 8(1)).

  • Mixing up section 8 and section 11.

    Both deal with contraventions.

    Fix: Section 8 is about suspension or cancellation of the IEC. Section 11 covers contravention, penalty, recovery and confiscation.

  • Stating the penalty as a fixed ₹10,000.

    Only the lower limit is remembered.

    Fix: Write it as not less than ₹10,000 and up to five times the value, whichever is more.

Worked examples

Example 1

Sharma Traders, Kanpur, buys leather goods from manufacturers and exports them. It has no IEC. It exports a consignment worth ₹4,00,000. Discuss the position and the maximum penalty on the basis of section 11(2).

Show the solution
  1. Sharma Traders is a merchant exporter. It does not manufacture the goods.
  2. Under section 7, no export can be made except under an IEC. Exporting without one is a contravention of the Act.
  3. Section 11(2) applies: penalty is not less than ₹10,000 and not more than five times the value, whichever is more.
  4. Five times the value = 5 × ₹4,00,000 = ₹20,00,000.
  5. The upper figure ₹20,00,000 is more than ₹10,000, so the range is ₹10,000 to ₹20,00,000. The goods are also liable to confiscation under section 11(8).

Answer: The export is a contravention. Penalty can range from ₹10,000 up to ₹20,00,000, and the goods may be confiscated. It should obtain an IEC first.

Example 2

Kaveri Exports holds an IEC and has been recognised as a status holder. The DGFT finds it submitted a forged certificate. Explain the possible action and the procedure for suspending its IEC.

Show the solution
  1. Using a document known to be forged or materially false is covered by section 11(3). The penalty is not less than ₹10,000 or more than five times the value, whichever is more.
  2. Contravention of the Act or the FTP is also a ground under section 8(1)(a) for suspension or cancellation of the IEC.
  3. Procedure: the DGFT may call for records, then issue a written notice stating the grounds.
  4. Kaveri must get a reasonable time to represent in writing and, if it wants, to be heard.
  5. The IEC may then be suspended for a period set in the order, or cancelled.
  6. Once suspended or cancelled, Kaveri can import or export only under a special licence under section 8(2). Status benefits depend on a valid IEC, so they cannot be used meanwhile.

Answer: Kaveri faces a penalty under section 11(3) and suspension or cancellation of its IEC under section 8(1) after notice and hearing. Meanwhile it needs a special licence to trade.

Exam tips

  • Learn sections 7, 8 and 11 of the FT(D&R) Act in plain words. Case questions test them.
  • Do not invent star-house thresholds. Use the question's data and name the FTP as the source.
  • In penalty problems, compute 5 × value and compare with ₹10,000 before writing the range.
  • For merchant exporters, connect the FTP with GST conditions only if the facts mention them.
  • If the paper mentions MEIS or SEIS, treat them as discontinued, historical schemes.

Practice questions from Export Promotion Schemes under Foreign Trade Policy

Status Holders and Merchant Exporter Provisions: frequently asked questions

What are the star categories of status holders?

The FTP recognises exporters as one star, two star, three star, four star and five star export houses based on export performance. The thresholds are set in the FTP in force and can change, so check the policy or the question data.

How do I get an Importer-Exporter Code?

Section 7 requires an IEC granted by the DGFT or an authorised officer. You apply online on the DGFT portal as per the procedure the DGFT specifies. Details of documents come from the FTP and its procedures.

Is an IEC needed for exporting services?

Only in limited cases. For services or technology, it is necessary when the provider takes benefits under the FTP or deals with specified services or technologies.

Who is a merchant exporter?

A merchant exporter exports goods that someone else manufactured. He needs an IEC and must follow the Act, the rules and the FTP like any other exporter.

Can an IEC be cancelled?

Yes. Under section 8, the DGFT or an authorised officer can suspend or cancel it on specified grounds after a written notice and a fair chance to be heard. Afterwards, trade is possible only under a special licence.