Steps to apply for duty free imports under Advance Authorization Scheme

.
Sep 23
3 min read

An overview of the Advance Authorisation Scheme

The Advance Authorisation (AA) Scheme, which is also called the Advance Licence Scheme, is a program run by India's Directorate General of Foreign Trade (DGFT) to encourage exports. It allows for the duty-free import of commodities needed to make goods for export, such as raw materials, fuel, oil, catalysts, and required spare parts (up to 10% of CIF value).

This scheme helps both manufacturer-exporters and merchant exporters who work with manufacturers. It also applies to subcontractors working on some humanitarian or UN contracts, as long as they get paid in freely convertible foreign exchange. For pharmaceuticals, only manufacturer-exporters can apply.

What inputs are covered and what are the duty exemptions?

Inputs that can be exempt from duty are:

Items that are physically part of the export product (with some provision for waste)

Fuel, oil, and catalysts used up during production

Required spare parts sent with the product (up to 10% of CIF value) (economictimes.indiatimes.com)

Certain spices can be used for crushing, grinding, sterilizing, or making oleoresin, but not for cleaning, grading, or packing (economictimes.indiatimes.com).

The AA scheme exempts duty on:

1)Basic Duty at Customs

2)Extra Customs Duty

3)Education Cess

4)Anti Dumping Duty

5)Countervailing Duty (anti-subsidy)

6)Safeguard Duty

7)Integrated GST (IGST) and, if applicable, Compensation Cess

8)Value Addition and Export Obligation (EO)

The Handbook of Procedures (HBP) mentions that some items may have lower thresholds than the minimum value addition of 15%, except for tea, which has a minimum value addition of 50%. The export obligation (EO) must usually be met within 18 months of the license being issued; imports under the license must happen within 12 months.

SION, Ad-hoc, Self-declaration, and Self-ratification are all standards for input quantities. To figure out how much of a product may be put in, DGFT sets Standard Input-Output Norms (SION) for most products, taking into account waste.

When SIONs don't work for an exporter or their process, they can use other options, such as:

Ad-hoc norms: Set by the Norms Committee or chosen from DGFT's searchable database on a "No-Norm Repeat" basis

Self-declaration: Exporters can suggest their own rules if SIONs are not accessible

Self-ratification: Exporters with Authorized Economic Operator (AEO) status can issue without a review by the Norms Committee

How to Apply:

Requirements: As needed, you must have a valid Importer-Exporter Code (IEC), a digital signature certificate (DSC), and a Registration-Cum-Membership Certificate (RCMC)

Apply Online: Use DGFT's digital site to send in the ANF-4A form and any other papers that support it. There is no need for a physical copy.

Review of the Regional Authority: The right DGFT Regional Authority looks at the application, gives out the Advance Authorization, and decides on export duties and rules based on SION, ad-hoc, or other criteria.

Customs Registration & Bond: At the port of entry, you need to register the authorization with customs. Provide a bond or bank guarantee to make sure that the export obligation is met.

Importing and Manufacturing: Import duty-free inputs, make sure they are actually utilized in export products, and follow the "actual user" condition—inputs must be used in the authorized factory and cannot be moved, even after EO.

Discharge and Redemption:

After the export duty is paid:

Submit form ANF-4F and proof of export (shipping bills, e-BRCs) to the DGFT Regional Authority.

The authority will send an Export Obligation Discharge Certificate (EODC) or redemption certificate, which will end the authorization.

Annual Advance Authorization (AAA)

An Annual Advance Authorisation to exporters that need the same inputs every year and have a good track record of exporting (at least two financial years) can be issued under SION. Following are its benefits:

You can import more than once with one license. The CIF value can be up to 300% of the FOB export value from the previous year or Rs 1 crore, whichever is higher.

Important Conditions and Recent Changes:

Condition for the Actual User: Inputs can't be sold or transferred; only final commodities can be sold after the EO.

Before Import: For certain commodities (such those listed in Appendix 4J or certain SIONs), imports must come before exports.

Trade Facilitation: The DGFT's searchable ad-hoc norms database makes it easier to get permission under the "No-Norm Repeat" method.

Quality Control Order (QCO) Exemptions: Inputs under AA may not have to follow mandatory QCOs starting in March 2024, as long as the license is properly endorsed.