The Advance Authorisation (AA) Scheme is one of the most popular and successful initiative under the Indian Foreign Trade Policy (FTP) 2023, designed to support and empower exporters. For those in the export business, this scheme offers a substantial advantage by allowing the import of raw materials without payment of customs duty—on the condition that these materials are used in the production of export goods.
So, why is the Advance Authorisation Scheme so appealing?
For the obvious reason that this scheme facilitates duty-free imports of the necessary inputs or raw materials required for manufacturing export products. This isn’t just about saving money; it’s a strategic tool that helps exporters stay competitive in the global market by significantly reducing input costs.
In this blog, we’ll take a closer look at the Advance Authorisation Scheme, understanding its key provisions, who can avail this scheme, and the steps involved in taking advantage of this opportunity. Whether you’re an experienced exporter or just exploring your options, understanding the intricacies of the AA Scheme could be the key to unlocking new levels of success in your export business.
Key Provisions of the Advance Authorisation Scheme
Duty-Free Imports:
The AA Scheme allows duty-free imports of inputs that are physically incorporated into the export product. The norms for value, quantity, and wastage of these inputs are defined under the Standard Input Output Norms (SION) or set by the Norms Committee (as per Para 4.03 of FTP).
Minimum Value Addition:
To qualify for the AA Scheme, exporters must achieve a minimum value addition of 15% on their export products (as per Para 4.09 of FTP).
Minimum value addition can be understood as the increase in value that must be achieved when converting the duty-free imported inputs into the final export product.
Governing Chapters:
The detailed provisions of the AA Scheme are laid out in Chapter 4 of the Foreign Trade Policy (FTP) and the Handbook of Procedures (HBP). These Foreign Trade Policy provisions provide all the necessary guidelines and requirements related to the AA Scheme.
Eligibility Criteria
Types of Exporters:
Advance Authorisation can be issued to:
- Manufacturer exporters
- Merchant exporters tied to supporting manufacturers (as per Para 4.05 of FTP).
Deemed Exports:
For deemed exports, a Project Authority Certificate (PAC) from the customer is mandatory. This is outlined in Clause 2(iii) of the Guidelines for Applicants in ANF 4A.
Customs Bond Requirements:
A Customs Bond must be submitted for the duty saved. According to Condition (iv) in Customs Notification No. 21/2023 dated 01-04-2023, the bond should cover an amount equal to the duty saved plus interest at 15% per annum from the date of clearance.
Duties Exempted
The AA Scheme exempts the following duties:
- Basic Customs Duty (BCD)
- Additional Customs Duty under sections 3(1), 3(2), and 3(5) of the Customs Tariff Act
- Anti-Dumping Duty
- Countervailing Duty
- Safeguard Duty
- Transition Product Specific Safeguard Duty
- IGST and Compensation Cess under sections 3(7) and 3(9) of the Customs Tariff Act (as per Para 4.14 of FTP).
Validity of Advance Authorisation
For Deemed Exports:
The validity of Advance Authorisation for imports related to deemed exports (Chapter 7 of FTP) is co-terminus with the contracted project duration or 12 months from the date of authorisation, whichever is later.
For Other Supplies:
For other supplies, the validity period for imports under AA is 12 months from the date of issue of authorisation. Additionally, one revalidation for an extra 12 months from the expiry date is allowed (as per Para 4.39 of HBP).
Transfer and Sale Restrictions
The AA Scheme operates under the Actual User Condition, meaning the imported materials must be used by the authorisation holder and cannot be transferred, even after fulfilling the export obligation. However, products manufactured from duty-free inputs can be sold once the export obligation is met (as per Para 4.16 of FTP).
Export Obligation (EO)
The EO under AA is determined by the value and quantity specified in the licence, according to the norms set by the Norms Committee. The period for EO fulfilment is 18 months from the date of issue of AA. For supplies to projects in India under Chapter 7 of FTP or projects abroad, the EO period is co-terminus with the contracted project duration or 18 months, whichever is longer (as per Para 4.40 of HBP).
Extension of EO Period:
Two extensions of six months each are permitted, but no further extensions beyond 12 months from the expiry of the EO period are allowed (as per Para 4.40 (e) and (f) of HBP).
Customs Bond Vacation
After fulfilling the EO, the authorisation holder must file an online application in ANF 4F to the concerned Regional Authority, uploading the necessary documents supporting EO fulfilment (as per Para 4.46 of HBP). Once the Export Obligation Discharge Certificate (EODC) is received from DGFT, it must be submitted to Customs for the vacation of the Customs Bond.
Closure of AA License: Comply with Guidelines to Avoid Penalties
While the Advance Authorisation Scheme is filled with opportunities, it’s crucial to be aware of the challenges that can arise, particularly when it comes to the closure of licenses.
Many exporters struggle to meet their export obligations within the stipulated timeframe, leading to complications, heavy interest and penalties. This is where professional guidance and expert knowledge become invaluable.
By working with professionals who understand the nuances of the AA Scheme, you can ensure that all requirements are met timely and accurately.
Proper management and adherence to the guidelines are key to making the most of the AA Scheme without encountering unnecessary hurdles.
Comments from Exportobiz
The Advance Authorisation Scheme under FTP 2023 offers substantial benefits for exporters by enabling duty-free imports of essential inputs. Understanding the scheme’s provisions, eligibility criteria, customs bond requirements, and duties exempted is crucial for maximizing these benefits. By adhering to the guidelines and fulfilling export obligations, exporters can significantly reduce production costs, enhance their global competitiveness, and avoid potential legal challenges related to the non-closure of licenses.
This guide aims to provide exporters with a clear and comprehensive understanding of the AA Scheme, helping them navigate the complexities of international trade with greater ease and efficiency.
