Advance License Redemption Procedure: Compliances to be Followed after taking an Advance License
Advance License Scheme that has been introduced under the foreign trade policy aims to provide duty-free raw materials and inputs that are needed for manufacturing the final export products. This license can be availed by the manufacturer exporter and also the merchant exporter who is connected with the supporting manufacturers. The process of getting the Advance License is a bit complicated and it involves both DGFT and Custom authorities.
The exports that are eligible to have an Advance License are:
- Physical exports
- Exports to SEZ
- Intermediate supply to any other holder of this license
- Deemed exports like exports to EOU, BTP, EHTP units, and others.
An Advance License must be obtained from DGFT but you must also close it after completion of the export obligation and meeting all the compliances. The export obligation is the condition of issuing the Advance License under the Advance Authorization Scheme. It holds the condition that the exporters will get to enjoy the benefits of duty-free imports through this license but they must also meet a specific export target (value-added goods of the imported materials). You will see the Export Obligation mentioned on the Advance License received under the scheme. It has to be fulfilled both in terms of quantity & value.
Redemption/Closure of Advance License at DGFT
Once you are done with the export obligation, you need to proceed with the closure of the Advance License. For doing this, the exporters are required to submit proof of exports at DGFT.
To proceed with the redemption, an exporter must submit the Application form ANF 4F to the regional DGFT authorities with their signature on every single page of the form.
In this process, an exporter must provide all the details about the authorization and applicant in the ANF. It includes the authorization number, date of issuing it, CIF value of the license, norm details, export obligation, etc.
The application form must be filled with all the details including export quantity, FOB value, and the total number of shipping bills. You will also have to provide details about the imported materials such as bill of entry, quantity, CIF value of imports, etc. Once you are done filling out all the details, you need to submit this application to the regional DGFT authorities. They will thoroughly check it and then proceed to issue the Export Obligation Discharge Certificate/Letter of Redemption to the holder of the certificate.
What are the compliances that need to be followed after taking an Advance License?
Compliance after taking an Advance License is a topic that is often ignored by exporters. But, it is very important to know these compliances so that your trade business can avoid all the unwanted penalties of the government.
Compliances under the Advance Authorization Scheme differ according to the type of application. There are six types of applications in total for this scheme and each of these has different compliances.
Let us understand this with the help of an example. Suppose you are an exporter who has applied under [No norms self-declaration basis], then once you receive the Advance License from the regional DGFT office, you will need to go for following the Fixation of Norms at the DGFT headquarters which is situated in New Delhi. In case the norms are not fixed at a given time or they get rejected, then you will be required to pay the entire duty fee along with interest.
Mention the Advance License number on the shipping bills
While you are importing the raw materials, the exports will begin to accomplish the export obligation. Now, you must remember to file the shipping bills under the Advance License scheme and also attach the correct number and date of the license.
As an exporter, it is also mandatory for you to properly check that the HS code and description of the export products in the shipping bills match with the ones mentioned in the Advance License & Norms made by Norm’s committee.
Citing the number of duty-free inputs used
Every exporter of our country must follow this compliance correctly. This can be better understood with the help of an example.
Suppose you have a business of garments. You have taken an Advance License to export 15000 women’s tops. Here, the raw material allowed is the fabric for the tops. Now, while you are ready for shipping these 15000 pieces of women’s tops, this quantity needs to be properly mentioned along with how much fabric was used to make these 15000 clothing pieces.
There should not be any kind of mistakes while adding the number of goods to the shipping bill. Otherwise, the license holder will have to either amend the shipping bill or else they will have to pay customs duty + interest.
If you are planning to opt for a third-party export procedure then mention your Advance Authorization number and date correctly on the shipping bill. Also, mention your name on the bill as a supporting manufacturer. In case you fail to meet any of these conditions, then the shipping bill will not be applicable for fulfilling the export obligation.
Supplying to EOU units
For supply to EOU units to be calculated as deemed exports, you will need to have a copy of CT-3/ARE-3 duly. It must be signed by the jurisdictional excise/GST authorities authorizing the item of supply, its quantity, value, and date of such supply.
A lot of the exporters do not focus on proper documentation when it comes to deemed exports. And, due to this, such supplies are not considered by DGFT for redemption and accordingly the one holding the Advance Authorization has to pay Customs duty along with included interest.
Supplying to Special Economic Zone
As an exporter, whenever you are planning to export to a special economic zone (SEZ) unit to fulfill the export obligation then there are two very essential things you need to know.
First of all, you will require obtaining a Bill of export. This bill is similar to the shipping bills of direct exports. Secondly, the payment that you receive for your exports from SEZ units must be coming from a foreign currency account. Both of these conditions must be fulfilled or else they will not be included in the exports list.
Net to net basis Advance License
When you have collected the Advance License from net to net basis, then the technical specifications of the materials including part no. and model no. needs to be mentioned clearly on every export document.
Moreover, if you are opting for redemption in this case, then you will have to get an Accountability certificate issued by a chartered engineer.
Being in the export business you are likely to issue Advance Licenses from time to time. Therefore, you must conduct proper audits and accounting frequently so that you do not make mistakes and end up paying for redemption.
With this, we come to the end of this blog. Here, we have shared all the compliance that an exporter must know about so that they can avoid all the unwanted penalties imposed on international trade. You can connect with a DGFT consultant to know more about this scheme and how it is beneficial for exporters.