ADVANCE LICENSE /Duty exemption scheme

Advance Authorisation Scheme: An Overview

Advance Authorisation Scheme (AAS) or Advance License Scheme is a duty exemption scheme issued by the Government of India (GOI) under the Foreign Trade Policy 2015-2020. This scheme exempts the payment of import duties on raw materials/inputs required for manufacturing products for export. With the Advance License, import of raw materials/inputs can be instigated at zero customs duty for production of export products. The motive is to enhance the competitiveness of Indian products in the global market. Exempting duties on raw materials automatically reduces the expenses of the final export product.

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The Concept at ease

Trading and manufacturing taxes are collected in the form of Customs Duty, GST, VAT etc. in any country. Logically, a tax should be paid where the goods or services are being consumed.

If you are catering goods or services outside India then the tax should be paid in the consuming country.

If you’re exporting to some XYZ country, why should you pay any tax to your country for producing or trading it?

Coming back to the original question-

Advance License helps exporters to avoid paying customs duty for importing raw materials for the product or service to be exported.

Here’s an example

If you’re an exporter of trousers and you plan to source its raw material, the fabric, and zips through Imports. In India, imports attract customs duty. Should you pay customs duty on fabric and zips knowing that you’re using that raw material in trouser export? 

No, you are not liable to pay any customs duty in this case and that liability gets removed after obtaining an advance license.

Products eligible to be imported duty-free 

Advance authorization licenses the exporter to import raw materials with exempted duties. Chapter 9 of FTP, 9.44 defines raw material as an input(s) required for the manufacturing of goods. These inputs can either be considered as raw/natural/unrefined/unmanufactured or manufactured state. 

List of items eligible to be imported without payment of duty under the scheme:

  • Physically incorporated inputs that have to be exported after making a normal allowance for wastage.

  • Fuel, oil, catalyst consumed/ utilized for acquiring the export product.

  • Spare that are mandatory to be exported along with the export product- up to 10% of the CIF value (Cost, Insurance, and Freight) of Authorisation.

  • Spices that are specified to be allowed for a duty-free import, only to be utilized in activities like crushing, grinding, sterilization, manufacture of oil or oleoresin and not for simpler activities like cleaning, grading, re-packing, etc.

What are the Duties Exempted under the Advance authorisation Scheme?

Beneath the Advance License, imports are exempted from payment of:

  • Basic Customs Duty (BCD)

  • Additional Customs Duty

  • Education Cess

  • Anti-dumping Duty

  • Countervailing Duty

  • Safeguard Duty

  • Transition Product Specific Safeguard Duty, wherever applicable. 

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Advance License for Deemed Exports

Deemed Exports is a term used to define the supply of finished goods that do not leave the country, and transactions for payment can be either in INR or foreign exchange.

These are the supplies that are categorized under Deemed Exports:

  • Supply of goods to EOU/ STP /EHTP /BTP units.

  • Supply of goods against Advance Authorisation/ Advance for annual requirement/ DFIA

  • Supply of Capital Goods/ Machinery against EPCG Authorisation.

  • Supply to other projects that are Government Funded.

The application for an Advance License for Deemed Exports can be placed in the DGFT office. 

What are Standard Input-Output Norms?

The DGFT issued the Standard Input-Output Norms (SION) with an aim to determine the number of inputs required for the production of a unit of output to be exported. 

This method has pre-fixed norms for thousands of products of different segments such as Chemical and allied products, Electronics, Engineering, Food products, Handicrafts, Leather, Plastics, Sports, textile, etc.

What are Self-Declared Norms?

This method enables the exporter to apply for an Advanced Authorisation License on the basis of self-declaration. This can be claimed by the exporter if the product isn’t eligible under SION or they aren’t satisfied with the import quantity allowed. 

The Advance License would be close if the norms are accepted by the Norms Committee. However, if the applied norms are rejected, the applicant will be paying Customs Duty along with Interest on the excess import quantity and further close the Advance License.

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What is the Applicant Specific-Prior Fixation Norms?

After getting the norms rectified by the Norms Committee the DGFT will provide the applicant an Advance License on the basis of the fixed norms. Except for this, the entire process remains the same.

Self- Ratification Advance Authorisation Scheme

The DGFT instituted this scheme for the smooth functioning of business procedures. Under the Self -Ratification Advance Authorisation Scheme an Advance License is provided by the DGFT based on self-declaration without any direct involvement of the Norms Committee in Delhi for ratification of the norms. These are assumed to be self-ratified, thus, no further questioning is done. However, the eligibility of exporters under this method is limited, there are a few conditions to be adhered to by the exporters:

  1. Only the exporter having an AEO (Authorised Economic Operator) can apply under this scheme.

  2. The scheme isn’t available for all the export products mentioned in Chapters 1-24 and Chapter 71 of ITC HS, etc.

  3. Before exporting, inputs must be imported and incorporated physically in the export product. 

  4. An audit may be held by the DGFT or the authority.

  5. If the audit finds any misdeclaration or it’s found that the claimed inputs aren’t involved/utilized in the manufacturing process or excess quantity consumed is falsely mentioned, demand and recovery actions will be initiated.

Why seek DGFT Consultancy from the DGFT Guru?

  • DGFT Guru has a team of expert consultants with more than thirty years of experience. Our advanced authorisation scheme experts have solved over 7000 cases with excellence. The aim is to provide our clients with top-notch Consultancy services at a reasonable cost.

  • Our DGFT Consultants work with immense dedication and make sure to get involved and keep our clients updated about the latest government policies, amendments, schemes, and all the related information that can maximize profits.

  • We minted to assist our exporters with the best import-export consultancy services thus, we have made ourselves available 24/7. Our DGFT Advisors will be at your service throughout the procedure and will be assisting you with the documentation from the initial stage.

  • The Gurus have highly experienced, well-trained, professional DGFT Consultants who attain a great understanding of the working process of the DGFT office, and take regular follow-ups to obtain and close Advance Licenses at the earliest.

-FAQ-