Different Reference Format: Is It a Discrepancy?

Intro

In documentary credit operations, should a bank raise a discrepancy simply because a document contains a reference in a different format from those seen on previous presentations? Not necessarily! The key is to examine what the LC actually requires, rather than assume that a familiar format has become a mandatory requirement.

In this Q&A, Mr. Old Man considers whether a different LUT reference on an Indian tax invoice justifies raising a discrepancy under a USD-denominated LC issued in Nepal.

Question

Dear Sir,

We seek your advice on whether a discrepancy should be raised in the following case.

In Nepal, when opening a USD-denominated LC for imports from India, we require the tax invoice to mention the LUT number under Field 46 of the LC, which stipulates the following:

TAX INVOICE (ZERO INTEGRATED GOODS AND SERVICES TAX – IGST FREE) MENTIONING LUT/BOND NO./APPLICATION RECEIPT NO. (ARN) OR CERTIFICATE EVIDENCING SHIPMENT IS MADE FROM SPECIAL ECONOMIC ZONE CERTIFIED BY INDIAN CUSTOMS/INDIAN GOVERNMENT AGENCY.

Usually, we receive tax invoices bearing an LUT number with a reference starting with “AD……”, sometimes also indicating the applicable financial year.

However, we recently received a tax invoice bearing a reference starting with “03/LUT/…..”, with validity stated only up to 2018.

Can we raise a discrepancy in this case?

Please advise.

Best regards,
Pratima Gurung

_______

Answer

Dear Pratima,

Thank you for your question.

Provided that the invoice contains the information required by the LC and otherwise complies with the applicable provisions of UCP 600, the different format of the LUT reference does not, in itself, constitute a discrepancy.

You cannot raise a discrepancy merely because the reference starts with “03/LUT” instead of “AD”, as this format differs from those appearing on invoices previously received. The LC does not prescribe a specific format for the LUT reference.

However, the fact that the stated validity ends in 2018 raises a separate question. If there is a genuine concern that the LUT was no longer valid at the time of shipment, or that the invoice does not meet applicable Indian tax requirements, further clarification may be necessary. This concern should not automatically be treated as a documentary discrepancy under the LC.

The fundamental principle is that documents must be examined against the terms and conditions of the credit and the applicable provisions of UCP 600, not against the formats commonly encountered in previous transactions.

Best regards,
Mr. Old Man