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Advance Authorisation Scheme: How does it help exporters?
Advance Authorisation Scheme is issued by the DGFT to allow duty-free import of materials that are incorporated in export products. Learn more about it in this blog.
The export industry is one of the major pillars of the Indian economy, contributing significantly to its growth. According to a Ministry of Trade and Commerce report, India’s overall exports stood at $61 billion as of September 20221. To further accelerate exports, the Government of India takes active measures to support Indian exporters by offering various export incentives and duty exemptions that enable easy trade. The Advance Authorisation Scheme (AA) is one such duty exemption scheme offered by the government.
What is the Advance Authorisation Scheme?
The Government of India provides duty exemption for exporters under the Advance Authorisation Scheme (AA). Issued by the Directorate General of Foreign Trade (DGFT), it encourages importing essential raw materials and additives that are incorporated physically into goods intended for exports. Raw materials like fuel, oil, electricity or catalysts may be used in the manufacturing of exported goods, which can be imported duty-free through the Advance Authorisation Scheme (AA). The program also provides a standard allowance for the losses faced by exporters on these materials2.
What are the methods to issue an Advance License?
There are four ways through which exporters can apply for an Advance Authorisation license:
SION (Standard Input and Output Norms)
Also known as IO (Input Output) norms, this method is applicable for products that fall into various categories like chemical, electronics, engineering, food products, handicrafts, leather, plastic, sports and textile. It defines the amount of inputs required to produce output for export purpose3.
Self-declared norms
If the required export product is not present in the SION, an application needs to be made to the Regional Authority (RA) who will issue the Advance Authorization after a review4.
Self-ratification
In this method, Advance Authorisation Scheme is applicable to exporters who have obtained Authorized Economic Operator (AEO) Certificate.
Applicant specific prior-fixation of norms
You must first contact the Norms Committee to amend the norms through this procedure. DGFT will only grant a license based on predetermined standards.
What are the duties exempted under the Advance Authorisation Scheme?
Within the Advance Authorisation Scheme, several duties are waived, including the basic customs duty, education cess, social welfare cess, anti-dumping duty, countervailing duty, and safeguard duty. Furthermore, this scheme extends exemptions to IGST and compensation cess.
Eligibility for Advance Authorization Scheme
Either a manufacturer exporter or merchant exporter, affiliated with the supporting manager, can avail of the benefits of AA. The license is also available for the following5:
• Intermediate supply
• Physical exports
• Supplies made in particular deemed exports categories
• Stores supply onboarded on foreign-going aircraft or vessels in accordance with the Standard Input Output Norms (SION) related to the items.
• Intermediate supply
• Physical exports
• Supplies made in particular deemed exports categories
• Stores supply onboarded on foreign-going aircraft or vessels in accordance with the Standard Input Output Norms (SION) related to the items.
Products eligible under the Advance Authorization Scheme
The following are the products eligible under the advance authorization scheme for export4:
• Advance Authorisation Scheme permits the export of items that are prohibited under Chapter 7 and Chapter 15 of ITC (HS) Schedule 25, unless specified. The norms committee sets pre-import conditions for these exports, subject to specific guidelines.
• Export Obligation Period (EOP) for these goods is 90 days post-import clearance.
• Non-compliance incurs a penalty of five times the CIF value, with a prohibition on material transfer.
• “Wheat Flour (Atta)” export is allowed under outlined conditions, with a 180-day EOP and similar penalties for non-compliance. No domestic wheat sourcing or third-party exports are permitted under these regulations.
• Advance Authorisation Scheme permits the export of items that are prohibited under Chapter 7 and Chapter 15 of ITC (HS) Schedule 25, unless specified. The norms committee sets pre-import conditions for these exports, subject to specific guidelines.
• Export Obligation Period (EOP) for these goods is 90 days post-import clearance.
• Non-compliance incurs a penalty of five times the CIF value, with a prohibition on material transfer.
• “Wheat Flour (Atta)” export is allowed under outlined conditions, with a 180-day EOP and similar penalties for non-compliance. No domestic wheat sourcing or third-party exports are permitted under these regulations.
Documents required to register under the Advance Authorisation Scheme
Following documents are required to apply for the AA license on the DGFT website:
1. Valid copy of SSI/IEM/MSME/copy of GST certificate
2. Copy of Import Export Code (IEC) and Registration Cum-Membership Certificate (RCMC)
3. Application form ANF 4A
4. MSME/SSI/Manufacturing proof
5. Copy of Export House Certificate
1. Valid copy of SSI/IEM/MSME/copy of GST certificate
2. Copy of Import Export Code (IEC) and Registration Cum-Membership Certificate (RCMC)
3. Application form ANF 4A
4. MSME/SSI/Manufacturing proof
5. Copy of Export House Certificate
What is the Advance License for deemed exports?
“Deemed Exports” denote transactions where goods supplied stay within India, and payment is received in Indian rupees or free foreign exchange. The Foreign Trade Policy recognizes certain categories of supply as "Deemed Exports" if manufactured in India6:
• Supply against Advance Authorisation/DFIA.
• Supply to EOUs/STP/EHTP/BTP units.
• Capital goods supply to EPCG holders
• Supply to projects funded by specified Agencies/Funds via ICB
• Supply of goods for installation purposes, spares to fertilizer plants, and projects with zero customs duty permissions
• Supply to power projects, refineries, UN-funded projects, and nuclear power projects meeting specific bidding criteria
• Supply against Advance Authorisation/DFIA.
• Supply to EOUs/STP/EHTP/BTP units.
• Capital goods supply to EPCG holders
• Supply to projects funded by specified Agencies/Funds via ICB
• Supply of goods for installation purposes, spares to fertilizer plants, and projects with zero customs duty permissions
• Supply to power projects, refineries, UN-funded projects, and nuclear power projects meeting specific bidding criteria
Step-by-step process to obtain an advance authorization license
Below is the process to obtain an advanced license online:
Step 1:
Visit the official website of DGFT.
Step 2:
Use your DSC to log in and select services in the online Ecom application option.
Step 3:
Select Advance Authorisation (DES).
Step 4:
Input all the information and upload the necessary documents.
Step 5:
Submit the application after filling in all the details.
Step 6:
After a successful application, DGFT will issue the Advance License.
Benefits of the Advance Authorisation Scheme
When importing goods from another country, importers must pay import duty. When exporting products from India, exporters must declare their income and pay taxes on the export amount. If raw materials required for manufacturing are imported, businesses end up paying duties at both ends. The Advance Authorisation scheme benefits in this regard. Below is the list of duties exempted under the AA scheme6:
1. Basic Customs Duty
2. Anti-Dumping Duty
3. Countervailing Duty
4. Education Cess
5. Safeguard Duty
6. Integrated Tax and Compensation Cess
7. Additional Custom Duty
8. Duty Drawback
1. Basic Customs Duty
2. Anti-Dumping Duty
3. Countervailing Duty
4. Education Cess
5. Safeguard Duty
6. Integrated Tax and Compensation Cess
7. Additional Custom Duty
8. Duty Drawback
Export obligation under Advance Authorization Scheme
The export obligation under the Advance Authorization Scheme is as follows10:
As per para 4.42 (a) & (c) of HBP, the Export Obligation (EO) period under the advance authorization scheme is 18 and 24 months, respectively. For authorizations expiring post-01 Feb 2020, this EO period automatically extends by 6 months. Post this extension, options for further extensions per HBP 4.42 (e) and (f) persist.
In line with para 4.42 (d) of HBP, items listed in 4J see an EO extension equivalent to half of the initial EO period. Now, for authorizations expiring after 01 February 2020, items under Appendix 4J receive an additional automatic extension of six months to their EO period.
As per para 4.42 (a) & (c) of HBP, the Export Obligation (EO) period under the advance authorization scheme is 18 and 24 months, respectively. For authorizations expiring post-01 Feb 2020, this EO period automatically extends by 6 months. Post this extension, options for further extensions per HBP 4.42 (e) and (f) persist.
In line with para 4.42 (d) of HBP, items listed in 4J see an EO extension equivalent to half of the initial EO period. Now, for authorizations expiring after 01 February 2020, items under Appendix 4J receive an additional automatic extension of six months to their EO period.
When is Advance Authorization Scheme issued?
AA can be issued based on:
Inputs based on SION
DGFT has predefined norms and quantities for inputs or imported items required for manufacturing export products. Exporters can apply for AA license to get duty exemption on these goods.
Self-declaration
If the SION norms do not include the list of inputs or if quantities are less than what an exporter requires for manufacturing, then the exporter can apply for AA license through self-declaration, along with the input number needed.
Advance Authorisation is a beneficial scheme for exporters. The Government of India and worldwide organizations have introduced many export incentive schemes and processes to make international trade simpler for exporters. With e-commerce exports gaining awareness and popularity, Indian exporters are now able to sell internationally and expand their businesses without setting up physical stores or warehouses abroad.
Advance Authorisation is a beneficial scheme for exporters. The Government of India and worldwide organizations have introduced many export incentive schemes and processes to make international trade simpler for exporters. With e-commerce exports gaining awareness and popularity, Indian exporters are now able to sell internationally and expand their businesses without setting up physical stores or warehouses abroad.
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More blogs on export schemes
Frequently Asked Questions
How do I close the advance license from DGFT?
The applicant can visit DGFT website and follow this process to close their advance license: DGFT Website → Services → Advance Authorisation → Closure of Advance Authorisation
Is Advance authorisation transferable?
The AA license is not transferable even after the completion of the export.
Is IGST exemption available under Advance Authorisation?
Yes, IGST is exempted under the Advance Authorisation scheme.
What is the redemption of the advance license?
When an exporter has completed export obligation, they must submit proof of export to DGFT and apply for a license for redemption for closure.
What is the validity of Advance Authorisation Scheme?
The AA license is valid for 12 from the date of issuance.
Published on September 29, 2022.
Sources:
1. https://commerce.gov.in/trade-statistics/latest-trade-figures/
2. https://www.dgft.org/standard_input_output_norms_io_norms_sion.html
3. https://www.aepcindia.com/system/files/FAQ%20on%20AAS-SAAS.pdf
4. file:///C:/Users/pc/Downloads/HBP2023_Chapter04%20as%20on%2030.10.2023.pdf
5. https://content.dgft.gov.in/Website/dgftprod/64c14faa-53ac-4387-bcf3-d355fee40bc8/Schedule%202%20-%20Export%20Policy%20New.pdf
6. https://www.meity.gov.in/writereaddata/files/DeemedExportScheme(1).pdf
7. https://www.dripcapital.com/en-in/resources/blog/advance-authorization
8. https://content.dgft.gov.in/Website/FTP%20Chapter%204%20as%20on%20June%2030%202019.pdf
9. https://cleartax.in/s/advance-authorization-scheme
10. https://pib.gov.in/PressReleasePage.aspx?PRID=1613365
Sources:
1. https://commerce.gov.in/trade-statistics/latest-trade-figures/
2. https://www.dgft.org/standard_input_output_norms_io_norms_sion.html
3. https://www.aepcindia.com/system/files/FAQ%20on%20AAS-SAAS.pdf
4. file:///C:/Users/pc/Downloads/HBP2023_Chapter04%20as%20on%2030.10.2023.pdf
5. https://content.dgft.gov.in/Website/dgftprod/64c14faa-53ac-4387-bcf3-d355fee40bc8/Schedule%202%20-%20Export%20Policy%20New.pdf
6. https://www.meity.gov.in/writereaddata/files/DeemedExportScheme(1).pdf
7. https://www.dripcapital.com/en-in/resources/blog/advance-authorization
8. https://content.dgft.gov.in/Website/FTP%20Chapter%204%20as%20on%20June%2030%202019.pdf
9. https://cleartax.in/s/advance-authorization-scheme
10. https://pib.gov.in/PressReleasePage.aspx?PRID=1613365
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*Map not to scale. The map has been used for design and representational purpose only, it does not depict the geographical boundaries of the country. These do not conform to the external boundaries of India recognized by the Survey of India.
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