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Invalidation Letter, Advance Release Order, and Certificate of Supplies

The Advance Authorisation Scheme (Advance License) is widely known as a duty exemption tool for imports. However, what if you want to source raw materials indigenously instead of importing them?

Many holders of an advance authorisation license are unaware that they can use their license to procure inputs locally without paying taxes. To do this, you need to understand three critical documents: Invalidation Letter, Advance Release Order (ARO), and Certificate of Supplies.

This guide explains these terms and how they help you fulfil your export obligation under the Advance Authorisation Scheme using domestic inputs.

What is the Advance Authorisation Scheme

The Advance Authorisation Scheme (AAS), often called the Advance License Scheme, is a policy by the DGFT (Directorate General of Foreign Trade). It allows the duty-free import of inputs (raw materials) that are physically incorporated into the export product.

While it is primarily an advance license for import, the government encourages domestic sourcing to boost local manufacturing. By invalidating the “direct import” portion of your license, you can procure goods from domestic suppliers or EOUs (Export Oriented Units) effectively.

Eligible Exports under the Scheme:

Physical Exports
Exports to SEZ (Special Economic Zones)
Intermediate supply to other Advance License owners
Deemed exports (Supplies to EOU, BTP, EHTP units)

What is an Invalidation Letter?

An Invalidation Letter is a request to the DGFT to cancel or invalidate your right to directly import certain inputs under the advance license. Instead, this right is transferred to a domestic supplier.

If an Advance License holder wants to buy inputs from a domestic manufacturer (instead of importing), they apply for an Invalidation Letter.

The Domestic Supplier can then use this letter to apply for their own Advance Intermediate Authorisation.
This allows the supplier to import their raw materials duty-free to manufacture the goods they will sell to you.

What are the Benefits of an Invalidation Letter?

The domestic supplier gets the benefit of duty-free imports.
The transaction is treated as a “Deemed Export” for the supplier.
Helps in fulfilling the Advance License export obligation using local content.

What is an Advance Release Order (ARO)?

An Advance Release Order (ARO) allows an advance license holder to source inputs from other specific categories of domestic suppliers, such as EOUs, SEZs, or EHTPs, instead of direct imports.

Key Features

Transactions can take place in either foreign exchange or Indian currency.
An application for ARO is made to the Regional Licensing Authority.
If the ARO and Advance License are issued together, the ARO validity matches the license validity.

What are the Benefits of an Advance Release Order?

The supplier can claim a Refund of Duty Drawback.
Eligible for a refund of Terminal Excise Duty (TED).
Useful for suppliers who do not wish to import inputs themselves but want export benefits.

Invalidation Letter vs. Advance Release Order: What’s the Difference?

Feature	Invalidation Letter	Advance Release Order
Purpose	To procure from a Domestic Manufacturer who needs to import inputs.	To procure from EOUs, SEZs, or domestic suppliers claiming Drawback.
Supplier Benefit	Supplier gets an Advance Intermediate License for duty-free import.	Supplier gets Deemed Export benefits (Drawback/TED Refund).
DGFT Process	Requires invalidating the import portion of the license.	Requires a specific Release Order from the RA.

What is a Certificate of Supplies?

The Certificate of Supplies is the proof required to demonstrate that goods were actually supplied to the Advance Authorisation holder. It serves as evidence for the advance authorisation procedure of closure.

Why is a Certificate of Supplies Required?

For the Supplier: It proves they supplied goods to a license holder, qualifying them for Deemed Export benefits.
For the License Holder: It acts as proof that they procured the materials duty-free to manufacture the final Advance License export product.

If a domestic seller supplies goods to an Advance License holder, the Certificate of Supplies exempts the taxes/duties that would otherwise be applicable for domestic consumption.

What are the Norms for Issuing Advance Authorisation?

To apply for an Advance License application, you must follow specific norms regarding input consumption:

Standard Input Output Norms (SION): Pre-determined norms fixed by the Norms Committee for standard products (Chemicals, Electronics, etc.).
Self-Declaration: If SION does not exist, exporters can apply based on their own consumption data (subject to ratification).
Ad-Hoc Norms: For products where SION is not eligible, you can apply to the Norms Committee for specific fixation.
Self-Ratification Scheme: Available for Authorised Economic Operators (AEO). They can self-certify norms without immediate committee approval.

Conclusion

Export-import businesses often focus solely on the Advance License for import, missing out on cost-effective domestic sourcing options. By leveraging instruments like the Invalidation Letter and Advance Release Order, you can optimise your supply chain while staying compliant with DGFT advance authorisation rules.

However, the advance authorisation procedure for these documents involves strict documentation. A small error in the Certificate of Supplies or ARO application can lead to the rejection of your export obligation discharge.

FAQs

Can I use an Advance Import License for domestic sourcing?

Yes, but not directly. You must convert the “import” validity into domestic validity by obtaining an Invalidation Letter or ARO from the DGFT.

Does domestic sourcing count towards the export obligation?

Yes. Procuring goods via Invalidation or ARO is considered valid input sourcing for fulfilling the export obligation under the Advance Authorisation Scheme.

What is the difference between ARO and Invalidation?

Invalidation is used when the domestic supplier wants to import their own raw materials duty-free. ARO is used when the domestic supplier wants Deemed Export benefits like Duty Drawback or TED refund.