Under the Advance Authorisation Scheme, the Directorate General of Foreign Trade (DGFT) India grants a licence, also known as Advance licence, to manufacturer exporter, merchant exporter and even sub-contractors (provided the name of such subcontractors appears in the main contract) to import Duty-free raw materials required for export productions but with the condition of export obligation within a certified time frame.

Introduction

When a manufacturer produces a product, the inputs or raw material used for making the export product might attract duties and taxes. These duties and taxes make the product cost in the market. To make the product at the original price (excluding the number of duties and taxes from the final price) in the market, the Government of India has designed various Duty exemption and emission scheme to offset the input duties and taxes.

The Directorate General of Foreign Trade (DGFT) organisation is an attached office of the Ministry of Commerce and Industry. This Directorate, with headquarters at New Delhi, is responsible for formulating and implementing the Foreign Trade Policy with the main objective of promoting India’s exports. One of the incentive policies is Advance Authorisation Scheme also known as Advance Licence Scheme. An advance licence is issued under Duty Exemption Scheme.

The Advance Authorisation Scheme is prescribed under Chapter 4 Duty Exemption and Remission Scheme of Foreign Trade Policy (FTP). The objective of this scheme is to boost exports by creating a favourable atmosphere to export industries, diversification of export markets and the development of export support services.

For import of raw material at zero duty, an application for grant of an Advance Authorisation / Advance Authorisation for Annual Requirement / DEPB / DFIA is required to be made by Registered office or Head office or a branch office or manufacturing unit of the eligible exporter, to the concerned Regional Authority (RA).

If the applicant is a branch office or manufacturing unit(s) of an exporter, it shall furnish a self-certified copy of valid RCMC where the name of the branch office or manufacturing unit is mentioned.

Contents of this article

  • Introduction
  • Eligible Applicant/Export/Supply
  • Categories of inputs Imported Under AAS
  • Ineligible Categories of the item for  Import Under AAS
  • Duties Excluded from payment Under AAS
  • Minimum value addition Under AAS
  • Calculation of Value Addition
  • Eligibility for Annual Requirement under AAS
  • Export Obligation
  • Maintenance of records of Export obligation under AAS
  • Steps to apply for Advance Authorisation (Advance Licence)
  • Wrapping Up

Eligible Applicant/ Export/ Supply

Advance Authorisation can be issued either to a manufacturer exporter or merchant exporter tied to a supporting manufacturer.

The Advance Authorisations are issued on a pre-export or post export basis, following the FTP and procedures in force on the date of issue of Authorisation.

The Advance Authorisations are issued both for physical exports as well as deemed exports. These are also issued based on the annual requirements of the exporter, which enables him/her to plan his manufacturing/export programme on a long-term basis.

Advance Authorisation for pharmaceutical products manufactured through the Non-Infringing (NI) process shall be issued to manufacturer exporter only.

Categories of inputs Imported Under AAS

Those raw materials/inputs specified in the Standard Input-Output Norms (SION), notified by the DGFT, are allowed duty-free in terms of Para 4.7 of Handbook of Procedures (HBP) Vol.1.

Currently, DGFT has notified 11,000 products in the SION.

However, if the export product is not listed under SION, on may go under Self-declaration. The application under this scheme shall be made along with a Certificate from Chartered Engineer in the prescribed format. An exporter (manufacturer or merchant) who holds an AEO Certificate under the Common Accreditation Programme of CBEC is also eligible to opt for this scheme.

Ineligible Categories of the item for Import Under AAS

However, The Advance Authorisations are not permissible on import for some specified items like vegetable or fruits having a basic customs duty of more than 30%, edible oils, cereals, spices, honey, rough marble black/slabs, horn and any other organ of the animal. The Advance Authorisation holder is required to fulfil the export obligation (EO) by exporting a specified quantity/value of the resultant product.

Duties Excluded from payment Under AAS

Raw material imported under Advance Authorisations are exempted from several duties like payment of basic customs duty, additional customs duty, education cess, anti-dumping duty, Countervailing Duty, Transition Product Specific Safeguard Duty and safeguard duty, if any.

Howe9ver, imports under Advance Authorisation for physical exports are also exempt from the whole of the integrated tax and Compensation Cess.

Minimum value addition under AAS

Under the Advance Authorisation Scheme, raw materials are imported before the completion of Export Obligation for which Minimum Value Addition is required to be achieved is 15%. In the case of Tea, the minimum value addition shall be 50%.

It means that the final value of the export item should be a percentage value above the value of inputs used.

For Example, If the inputs used under Advance authorisation worth Rs.100, then the final product must be sold for at least Rs.115.

Calculation of Value Addition

Value-Addition (VA): will be calculated as follow (except) for Gem and jewellery section.

VA = [(A-B) x 100]/B

A = FOB value of export realized/FOR value of supply received

B = CIF value of inputs covered by authorisation plus any other imported materials used on which benefit of duty drawback (DBK) is claimed or intended to be claimed.

Eligibility for Annual Requirement under AAS

Advance Authorisation for Annual requirement shall issue after fulfilling the below conditions:

  • Only be issued for raw material or inputs notified in SION.
  • Exporters must have at least past export performance from the preceding two financial years.
  • Entitlement in terms of CIF value of imports shall be up to 300% of the FOB value of physical export and/or FOR value of deemed export in preceding financial year or Rs 1 crore, whichever is higher.

Export Obligation

Authorization holders are required to complete exporting process within a specified period otherwise it would attract penalties for not complying with Export obligation (EO). The authorization holder shall furnish prescribed documents in ANF 4F in support of the fulfillment of Export Obligation (EO).

Maintenance of records of Export obligation under AAS 

The imports/exports against Advance Authorisations and their utilization require proper monitoring as the goods are imported duty-free against a liability to export. For this, the Advance Authorisation holder is required to maintain a proper record of his imports and exports and to pay the duties in case he/she is unable to fulfil his export obligation, the Advance Authorisation holder is required to indicate the Advance Authorization No./ date on the body of the Shipping Bill/Invoice (in case of deemed exports).

After fulfilment of the specified export obligation, the Advance Authorisation holder is required to submit relevant export documents along with Advance Authorisation to the DGFT authorities for obtaining an Export Obligation Discharge Certificate (EODC). After obtaining EODC, the Advance Authorisation Authorization holder produces the same before the Customs to obtain redemption of bond/Bank Guarantee filed by him/her.

Further under this scheme, the proof of export must be furnished within 18 months.

Steps to apply for Advance Authorisation (Advance Licence)

To apply for an authorisation, one has to make an online application with one’s digital signature on the DGFT Website https://www.dgft.gov.in/CP/ under application form ANF-4A.

Step 1: List down the inputs and raw material that goes into the export product.

Step 2: Apply for AA from DGFT.

Step 3: Get the licence from DGFT and go to customs, register the bond, and import all the inputs that go into the export product duty-free.

Step 4: Do the export, endorse the AA number on the shipping bills while exporting. Get the money for export. Banks would issue an eBRC, that is, Electronic Bank Realization Certificate for getting the money for exports.

Step 5: Apply for DGFT for the issue of Export Obligation Discharge Certificate for fulfilling exporting.

Step 6: Close the Bond at Customs.

Wrapping Up

With the aim to promotes the Export of products, not the taxes, Advance Authorization Scheme (AAS) facilitates exporters to make an export product, without paying the duties involved in the procurement of Inputs or raw materials.