The Directorate General of Foreign Trade (DGFT) has made an important change providing relief to the exporters using the Advance Authorisation scheme.
On July 16, 2024, through Public Notice No. 14/2024-25, DGFT announced the reduction in the composition fee payable under Para 4.49(b) of HBP 2023, by exporters for shortfall in FOB (Free on Board) value. This fee has been reduced from 3% to 1% of the shortfall in the export value.
This reduction is a crucial development for exporters utilizing the Advance Authorisation scheme.
Key Points of the Amendment vide DGFT Public Notice No. 14/2024-25 dated 16-07-2024
- Reduced Composition Fee for Shortfall in FOB Value:
- Through this amendment, the penalty levied in the form of a composition fee for shortfall in Free on Board (FOB) value has been reduced from 3% to 1%.
- Applicability:
- This reduction is applicable to exporters who have met their export obligations in terms of quantity but have not achieved the prescribed minimum value addition for Advance Authorisation.
Understanding Para 4.49(b) of HBP
Para 4.49 (b) of the Handbook of Procedures (HBP), 2023 pertains to the provisions for exporters who have obtained an Advance Authorisation and fulfilled their export obligation in quantity but have a shortfall in value.
Advance Authorisation Scheme
Advance Authorisation under Chapter 4 of the Foreign Trade Policy allows duty-free import of inputs for export production. Exporters, in turn, are required to meet the specified export obligation both in quantity and value.
Shortfall in FOB Value
Previously, a composition fee of 3% was imposed on the shortfall in FOB value if the minimum value addition prescribed was not achieved. This fee has now been significantly reduced to 1% of the shortfall in FOB value, calculated as per the expected export obligation considering minimum value addition.
Example
Consider an exporter who has an Advance Authorisation to export 1,000 units of a product with an expected FOB value of $100,000. Say, the exporter fulfills the quantity obligation by exporting the required 1,000 units but due to unforeseen market conditions achieves only $90,000 in FOB value.
Here, the exporter faces a $10,000 shortfall in export obligation. Previously, the composition fee for the $10,000 shortfall would have been 3%, amounting to $300. With the new amendment, the fee is reduced to 1%, amounting to just $100. This significant reduction eases the financial burden on exporters facing similar situations.
Comments from Exportobiz.com
This is a welcome move from DGFT, particularly for exporters who, despite fulfilling their export obligations in terms of quantity, are struggling to meet the export obligations in value.
It has been observed in many cases that exporters suffer due to factors beyond their control, such as market downturns, global partners pulling out of agreements, and fluctuating international prices, which can significantly impact the FOB value. The reduction of the composition fee to one-third of its previous rate is a substantial relief for such exporters.
However, it is yet to be clarified whether this relief is limited to Advance Authorisation Licenses obtained under FTP 2023 only or if it extends to licenses under previous Foreign Trade Policies as well. Clarity in this regard is requested from DGFT.
