Advance License Closure Procedure- Detailed Guide
The main purpose of the Advance License Scheme, implemented as part of the foreign trade policy, is to offer duty-free access to essential raw materials and inputs necessary for the production of export goods.
Eligibility for the benefits of the Advance Authorisation Scheme is extended to both manufacturer exporters and merchant exporters affiliated with supporting manufacturers.
The benefits of the Advance License are extended to the following eligible exports:
- Exports to Special Economic Zone
- Physical Exports
- Deemed exports like Exports to BTP, EHTP units, EOU, etc.
- Intermediate supply to another Advance License Holder
Navigating the Advanced License closure procedure can be complex at times as it requires coordination with both the Directorate General of Foreign Trade (DGFT) and Customs Authorities. A thorough comprehension of the entire process is essential to mitigate challenges during the application and closure phases of the Advanced License.
Here we aim to provide a comprehensive overview of the Advanced License closure procedure, offering valuable insights to facilitate an easier understanding of the process from initiation to conclusion.
Steps to Follow for Advance License Closure Procedure
A DGFT-issued Advance License is acquired for specific benefits, and it necessitates closure upon fulfilling all requirements and completing export obligations. So without any further ado, let us delve into a comprehensive step-by-step guide to understand the entire procedure of an Advance License.
Step 1 - Prepare a list with all the raw materials you need for a duty-free Import
The very first step of the Advance License Closure Procedure is to have a list that includes the quantities of all the necessary raw materials needed to produce one unit of the export product.
This list holds significance throughout the entire advanced license process, providing clarity and aiding in determining the appropriate Advance License method for the application.
Step 2 - Application for Advance License at DGFT
Now that we have the list all prepared, the next step is to know the four ways through which the exporters and importers can obtain an Advance License from the DGFT:
- Self- Declaration basis
- Self-Ratification basis
- SION (Standard Input Output Norms)
- Prior Fixation of norms
Your application for the Advance License will be made online and then sent to the concerned DGFT office with a Digital Signature. Here you will need the following documents:
- A valid copy of RCMC (Registration Cum-Membership Certificate) and IEC (Importer Exporter Code)
- RCMC/IEC should ensure that the applicant is a manufacturer exporter
- RCMC/IEC must contain the address where the raw materials would be transported for processing.
- Application form ANF 4A- two copies properly filled along with striking off the options that are not applicable, and putting a tick mark against the relevant options.
- A copy of IEM/SSI/MSME/ Copy of GST Certificate
- The SSI/MSME/Manufacturing proof must contain the export products mentioned in the Advance License.
- A copy of the Export House Certificate (If Required)
Once you have all the required documents in place, visit the DGFT Website- www.dgft.gov.in and put up your application with the help of DSC.
First, you have to log in. Then go to Select Services from Online Ecom Application, then click on “Advance Authorisation” option.
Then fill in all the relevant details, attach the required documents carefully, and submit your application.
Here your work ends. Now the DGFT will provide the License after the application is successfully processed, verified, and accepted.
Step 3 - Registration of Advance License at Customs
Following the License issuance from the DGFT, now it is time to register the license at customs to verify whether it is genuine or not.
Your imported materials at the Port will need clearance, thus, license registration at the port is essential. The Customs Department will then process a bank guarantee or bond during license registration at the port.
Step 4 – Import Raw Materials/Inputs Duty-free
Once the bong or bank guarantee is executed during the license registration process at customs, the exporter becomes eligible to clear the imported material at the port. The inputs that are imported under the Advance License are subject to Actual User condition, this would not be transferred even when the export obligation is fulfilled.
Now you should take the raw materials to the factory and begin manufacturing the export product in order to complete the export obligation.
Step 5 - Export Obligation under the Advance Authorisation Scheme
Export Obligation is an essential requirement for issuing the license under the Advance Authorisation Scheme. Along with having the benefits of duty-free imports, the exporter is expected to accomplish a specific target of exports (value-added goods of imported materials), this is termed as Export Obligation.
Export Obligation is specified on the license that you receive under the scheme, and it must be completed both in terms of quality and quantity.
Calculation of Value Addition
The minimum value addition to be fulfilled is 15% under the Advance Authorisation Scheme. (the value might be different for certain products).
To calculate the Value Addition, here’s what you can do:
Value Addition (VA)= (A-B)*100/B
A= FOB value of export realised
B= IF value of inputs covered by authorisation, plus the value of any other input used on which benefit of DBK is claimed.
Let us understand this with an example:
So there is an exporter importing inputs worth Rs. 600 and the produced material with that input for export is worth Rs. 700. Then the calculation of value Addition will be:
Hence, Value Addition would be 16%.
The time period is also an Export Obligation. You can import for 12 months from the date the License was issued. Whereas, the time period mentioned to complete exports is 18 months from the date of license issuance.
Step 6 - Redemption/Closure of Advance License at DGFT
After fulfilling the Export Obligation (EO), the exporter must present evidence of the export to DGFT to move towards the Advance License closure Procedure.
To redeem the Advance License, the exporter needs to complete the Application form ANF 4F, sign each page, and submit it to the regional DGFT authority. The ANF should contain details such as Authorisation No, issuance date, CIF Value of the license, Export obligation, and Norms Details.
The application form must also include export specifics like Shipping bill number, export quantity, and FOB Value. Import item details, such as Quantity and CIF value of import, bill of entry details, etc., should also be included.
Once the regional DGFT authority verifies the completeness of the application, they will issue the Export Obligation Discharge Certificate/Redemption Letter to the Authorization holder.
Step 7 - Bond/BG Cancellation at Customs
Following the redemption or closure of the Advance License by DGFT, the final crucial step in the Advance License process involves cancelling the Bond or Bank Guarantee executed during the Import. To fulfil this last step, the Redemption Letter or Original EODC must be submitted to customs along with the required documents.
The following documents are required:
- Original Advance License
- Copy of Bill of Entry
- No Bond Certificate
- ANF 4F duly certified by the Chartered Accountant
- Copy of Shipping bills
- Other applicable documents submitted to the DGFT
To Sum Up
An Advance License, issued by the DGFT, allows exporters to import goods without paying customs duties, fostering international competitiveness. By committing to an Export Obligation, exporters benefit from reduced production costs, contributing to global competitiveness and promoting international trade growth.
Advance License Closure Procedure or any other DGFT-related processes might turn out to be complicated at times. Thus, it is always a good idea to get guidance from professional DGFT consultants who have been in the field for years of experience.