The Advance Authorization Scheme allows import of inputs (raw materials) without any duty payment at Customs. These inputs have to be physically incorporated in the product (after making normal allowance for wastage) which is going to be exported. The exemption of duty is subjected to fulfillment of export obligation.
Duties Exempted under this scheme
- Basic Customs Duty
- Additional Customs Duty
- Education Cess
- Anti-dumping Duty
- Countervailing Duty
- Safeguard Duty
- Transition Product Specific Safeguard Duty wherever applicable
- Integrated Tax
- Compensation Cess
- Modes of obtaining Advance Authorization
- Standard Input Output Norms (SION): The Director General of Foreign Trade (DGFT), issues standard norms that define the amount of input required in the manufacture of a unit of the output product that will be exported. It is available for a wide range of products.
- Self Declaration: When the SION is not available for a particular product. In such a case, an application may be made to the Regional Authority who will issue the Advance Authorization upon review.
- Prior Fixation of Norms: where the SION is not defined the exporter can make an application to the DGFT for fixation of norms. After providing all the required data to the DGFT, the committee shall endeavour to either fix these norms or provide ad-hoc norms on the basis of the application made.
- Self Ratification: This is available only to an exporter who holds the Authorized Economic Operator (AEO) Certificate. Ratification by the norms committee is not required under this scheme and the regional authority may issue Advance Authorization upon fulfillment of the relevant conditions.
- Annual Requirement: Exporters who have past export performance in at least two preceding financial years can apply for Advance Authorization for annual requirement.
Eligible Modes of Export / Supply Eligible for Advance Authorization
1. Physical export (including export to SEZ)
2. Intermediate supply
3. Supply of goods to EOU / STP / EHTP /BTP
4. Supply of capital goods against EPCG Authorisation
5. Supply of goods to projects financed by multilateral or bilateral Agencies / Funds
6. Supply of goods required for setting up of any mega power project
7. Supply of goods to United Nations or International organization for their official use
8. Supply of goods to nuclear power projects
9. Supply of “stores” on board of foreign going vessel / aircraft
The export obligation is calculated in terms of the Value Addition achieved by the exported product. Calculation of Value Addition (VA) is as follows:
VA = ((A-B)/B)*100
A = FOB value of export realized / FOR value of supply received
B = CIF value of inputs covered by Authorization, plus value of any other input used on which benefit of Drawback is claimed or intended to be claimed.
Minimum Value Addition
- Minimum value addition required for advance authorization is 15%
- For Tea – 50 %
- Items with value addition less than 15% is notified in Appendix – 4D
- For Gems & Jewellery Sector is given in paragraph 4.61 of Handbook of Procedures.
- Import validity – 12 months
- Import validity can be extended maximum upto 12 months, subjected to various conditions
- Export Validity – 18 months from date of issue of licence
- Export validity can be extended maximum upto 12 months, subjected to various conditions
Additional provisions under Advance Authorization scheme
- Transfer of duty free material between different units of same company
- Enhancement and Reduction of Advance Authorization value
- Amendment of Export item and inputs
- Exports/Deemed Export supplies in anticipation or subsequent to issue of an Authorization.
- Re-export of defective goods
Important to remember
- Special rules apply for Gems & Jewelry, Spices, Apparels and Drugs (Pharma products) under Advance Authorization
- Not all products are eligible for Advance authorization under Self – Declaration and Self Ratification modes.
- Applicants have to provide various undertakings and bank guarantees wherever necessary
- Every Advance Authorization holder shall maintain a true and proper account of consumption and utilization of duty free imported / domestically procured inputs against each authorization
- In case Authorization holder fails to complete EO or fails to submit relevant information / documents, Regional Authority shall enforce penal action.