Advance License Scheme Explained: Import Raw Materials Duty-Free Without MIP Applicability

Before understanding the exemption, it is important to know what the Minimum Import Price (MIP) is.

MIP is a trade restriction tool used by the Indian government through the Directorate General of Foreign Trade (DGFT). It protects domestic producers from the import of very cheap, low-priced goods.

• Price Floor: The DGFT sets a floor price (for example, $100 per unit) for a specific product like certain steel coils, paperboards, or chemicals.
• Restriction: If a shipment of that product arrives at an Indian port at a value lower than the set MIP (e.g., at $90 per unit), the Customs authority will not allow the import.
• Purpose: The main goal is to prevent dumping and to help domestic farmers and manufacturers get a fair price for their products.

However, MIP creates a problem for exporters who need cheap raw materials to compete globally. This is where the Advance Authorisation Scheme steps in.

The Advance Authorisation Scheme (AAS) is the most popular Duty Exemption Scheme under the Foreign Trade Policy (FTP). It is also commonly called the Advance License.

The basic idea is simple: ‘Import a part, export a whole, pay no tax on the part.’

The license allows exporters to import essential inputs that will be physically included in the product they export. These imports are exempted from almost all duties and taxes, including:

• Basic Customs Duty (BCD)
• Integrated Goods and Services Tax (IGST)
• Compensation Cess
• Anti-Dumping Duty (ADD), Safeguard Duty, and others, wherever applicable.

• Manufacturer Exporters (who manufacture the goods themselves).
• Merchant Exporters (who export the goods but get them manufactured by a supporting manufacturer).

When you take an Advance License, you are agreeing to an Export Obligation (EO). This means you must export the finished product within a set time, usually 18 months, and achieve a minimum Value Addition of at least 15%.

The most significant benefit for exporters dealing with MIP-restricted goods is the explicit exemption provided under the Foreign Trade Policy (FTP).

Any raw material import that is subject to a Minimum Import Price (MIP) restriction shall be exempted from this restriction if the import is made under a valid Advance Authorisation (AA).

This exemption is provided in the FTP (e.g., Para 4.18 of FTP 2023 and related DGFT Policy Circulars) and is acknowledged by Customs.

The government understands that the MIP is designed to protect the domestic market. 

Since goods imported under the Advance License are mandatorily exported and cannot be sold in the domestic market, the MIP restriction is not needed. Removing the MIP barrier ensures that Indian exporters remain highly competitive on the global stage.

To use the MIP exemption, you must strictly follow the Actual User Condition:

• The raw material you import duty-free and without MIP compliance must be used only by you (the license holder) or your supporting manufacturer.
• The material must be physically consumed in the production of the final export product.
• The imported material and the product made from it cannot be sold into the Domestic Tariff Area (DTA).

If you fail to export or sell the imported material domestically, you face heavy penalties and must pay the full duties plus interest and a composition fee.

The DGFT regularly issues notifications imposing MIP on new items to protect the domestic industry. For instance, in 2025, MIP restrictions were imposed on certain API (Active Pharmaceutical Ingredients) and specific paper products (like Virgin Multi-layer Paper Board) to stop cheap imports.

In all such cases, the DGFT has promptly issued clarifying policy circulars confirming that imports under the Advance Authorisation and DFIA (Duty-Free Import Authorisation) schemes remain exempt from the new MIP rules.

This recurring pattern confirms that the MIP exemption is a stable and critical feature of the Advance Authorisation Scheme for exporters.

The process to use the MIP exemption is built into the customs clearance stage:

• Obtain AA: You must first secure the Advance Authorisation (AA) from the DGFT Regional Authority.
• Ensure Endorsement: Although the MIP exemption is standard, ensure your AA document and all supporting import documents clearly reference the Advance Authorisation number and the exemption clauses from the FTP.
• Customs Clearance: At the time of import, the Customs Authority will clear the goods without applying the MIP check, as the consignment is linked to a valid AA that allows the exemption.

This process allows for faster and cost-effective raw material sourcing, giving your export-import business a distinct edge.

The Advance Authorisation Scheme offers Indian exporters a significant competitive edge: the power to import necessary inputs duty-free at the lowest global market price. So, there’s no burden of the Minimum Import Price (MIP) restriction. This exemption helps manage your cost structure and compete effectively overseas. 

To secure this benefit long-term, ensure every import document clearly links to your Advance License, and you strictly maintain the Actual User condition, meaning zero domestic sale of the imported, MIP-exempt material. 

Protecting your license through documentation and on-time Export Obligation fulfilment is the final step in converting policy benefits directly into maximum profit.