Advance Authorization Scheme

Advance Authorisation Scheme allows duty-free import of inputs, which are physically integrated into the export product. In addition to any information, its provisions extend to fuel, oil, packaging material, and catalyst consumed/utilized in the production process of the export product. This article looks at the regulations connected with Advance Authorization Scheme.

Eligibility for Advance Authorization Scheme

Advance Authorization can be availed by manufacturer exporters or merchant exporters who are linked with supporting manufacturers for physical exports (including exports to SEZ), intermediate supplies, and supply of ‘stores’ on board foreign going vessels/aircraft (conditions apply). Apart from that, Advance Authorization is issued to sub-contractors to any project (where the name of the sub-contractors appears in the main contract), United Nations Organizations (UNO), aid programs of the United Nations or other multilateral agencies, the likes of which are paid for in free foreign exchange. Advance Authorization for the import of raw sugar can be issued to either a manufacturer exporter or merchant exporter associated with supporting manufacturers. Note: The quantity of inputs allowed for a given product is based on specific norms defined for that export product, which considers the wastage generated in the manufacturing process. DGFT provides a sector-wise list of Standard Input-Output Norms (SION) under which the exporters may apply. Alternatively, exporters may use it for their ad-hoc norms in cases where the SION does not suit the exporter.

Exemptions of Duty

Imports of commodities under this scheme are exempted from paying essential customs duty, additional customs duty, education, anti-dumping duty, and safeguard duty. However, imports for supplies covered under specific stores are not exempted from the payment of applicable anti-dumping and security obligations.

Duty-free importable items under the scheme

The following items can be imported without payment of duty under this scheme:

Inputs that are physically incorporated in the product to be exported after making regular allowance for wastage
Fuel, oil, and catalysts are consumed or utilized to obtain the export product.
Mandatory spares that are required to be exported along with the resultant export product – up to 10% of the CIF value (Cost, Insurance, and Freight) of Authorization
Specified spices would be allowed to be imported duty-free only for activities like crushing, grinding, sterilization, and manufacture of oil or oleoresin and not for more specific activities like cleaning, grading, re-packing, etc.

User Conditions

Materials imported under the ambit of Advance Tax are subject to conditions meted out to the user. It will not be transferable despite completing the expert obligation. However, the Authorization holder may dispose of the product manufactured out of duty-free imports upon completing the export obligation. Exported goods benefitted from the CENVAT credit facility shall be utilized for no other purpose than the manufacture of dutiable goods. For this purpose, the Authorization holder must produce a certificate from either the jurisdictional Central Excise Superintendent or Chartered Accountant. Further, the manufacturing wastes/scrap may be disposed of by remitting the applicable duty before fulfilling the export obligation.

Minimum Value Addition

Inputs exported under Advance Authorization generally require a minimum value addition of 15%. The recommended value addition differs for the following goods:

Physical exports (for which payments aren’t received in freely convertible currency) - subject to value additions as specified in Appendix-11 of HBP v 1.
The import of Tea – a minimum value addition of 50%.
Duty-free import of spices -permitted only for value addition purposes like crushing, grinding, sterilization, or manufacture of oils and oleoresins and not for simple cleaning, grading, re-packing, etc.

Free Provision of Inputs

The facility of Advance Authorization is applicable where the foreign buyer supplies a few or all of the inputs without imposing any charges on the exporter. Given such a scenario, the notional value of free-of-cost inputs and the importance of other duty-free inputs are considered for calculating value addition. If all the information is supplied without cost, the exporter will be facilitated with the option of complying with the provisions prescribed by the DoR (Directorate of Drawback).

Export Obligation Period

Any firm or company registered with BIFR or possessing a unit under BIFR will be facilitated with an extension of the Export Obligation Period (EOP) following the formulated rehabilitation package. The provision hinges on the approval of BIFR and is also extended to SSI units as per the rehabilitation scheme of the concerned State Government.

Annual Requirement

Status Certificate holders and other categories of exporters with a performance record of two years are entitled to Advance Authorization for Annual Requirements.

Advance Release Order (ARO) and Invalidation Order

Holders of Advance Authorization, Advance Authorization for Annual Requirement, and Duty-Free Import Authorization, who are aiming to source inputs from indigenous sources/State Trading Enterprises (instead of direct import) are facilitated to start them either against Advance Release Order (ARO) or Invalidation letter denominated in free foreign exchange or Indian rupees.

Back-to-Back Inland Letter of Credit

Holders of Advance Authorization, Advance Authorization for Annual Requirement, and DFIA are entitled to avail of the facility of Back-to-Back Inland Letter of Credit (instead of the ARO or Invalidation letter) following the procedures specified in HBP v 1.

Prohibited Commodities

The following commodities are not eligible for imports against Advanced Authorization/DFIA.

Commodities are classified as prohibited under ITC(HS).
Commodities reserved for imports by STEs.

These commodities can be procured from STEs against an ARO or Invalidation letter despite the prohibition. The export of restricted items is bound by Export Authorization or permission requirements under Schedule II of ITC (HS).

Admissibility of Drawback

The facility of Drawback is provided for any duty-paid material used in the export of goods, based on the drawback rate fixed by the DoR (Directorate of Drawback).

Prerequisites for Applying for Advance Authorisation Scheme

To apply for an Advance Authorisation scheme, an IEC is required. As mentioned in Chapter 4 of Foreign Trade Policy and Handbook of Procedures, other prerequisites may be referred to.

Application procedure for Advance Authorization Scheme

Access the official webpage of DGFT and proceed with the registration process. Provide the Registration Details and Select Register User as “Exporter/Importer.”

Furnish the OTPs received by email and mobile number. Upon successfully validating the OTP, you can receive a notification containing the temporary password you need to change upon the first login.
Access the official webpage of DGFT and proceed with the registration process. Provide the Registration Details and Select Register User as “Exporter/Importer”
Furnish the OTPs received by email and mobile number. Upon successfully validating the OTP, you can receive a notification containing the temporary password you need to change upon the first login.
After the successful registration, login into the DGFT web portal, navigate to the Services option and select Advance Authorization.
On the new page, the user can start with the new application by clicking on ‘Start Fresh application’ or selecting the existing application and clicking on ‘Proceed with Existing Application.
Furnish all details in the application form.
After providing the details, Select the Attachment Type option to upload the documents.
After E-sign the application, an E-payment receipt and payment details will be generated, and the application will be successfully submitted to DGFT.