Advance Authorisation Scheme- FAQs

Keshav Kumar Roy

Q.1 What is Advance Authorisation (‘AA’) Scheme?

Ans: Advance Authorization (earlier known as Advance License) is input duties neutralization scheme under the Foreign Trade Policy (‘FTP’) intended to reduce working capital requirements for exporters.
Advance Authorisation is issued to allow duty free import of input, which is physically incorporated in export product (making normal allowance for wastage).

Fuel, oil, catalyst which is consumed / utilized in the process of production of export product, may also be allowed.

Q.2 Which duties are exempted under Advance Authorisation Scheme?

Ans: Under Advance Authorisation scheme following duties are exempted:

• Basis custom duty, Education Cess
• Education Cess, Social Welfare Surcharge thereon
• Anti-dumping Duty, Countervailing Duty, Safeguard Duty, leviable under the Customs Act, 1965 and Customs Tariff Act, 1975. Additionally, Import IGST and Compensation Cess are also exempted subject certain conditions

Q.3 Whether any obligation is attached to AA Scheme?

Ans: The exporter of goods, who has procured inputs under AA scheme without payment of input duties, must fulfil “export obligation” by way of export of finished products made out such inputs with minimum addition in value procured of raw material.

Q.4 What is Export obligation?

Ans: Export obligation means obligations to export products cover by Advance authorisation or permission in terms of quantity, value or both as may be prescribed or specified by Regional or competent authority.

Q.5 How the quantity and value of imports are determined under an Authorization?

Ans: Advance Authorisation is issued for inputs in relation to resultant product, the eligible quantum of inputs may be determined on the following basis:

• As per Standard Input Output Norms (SION)
• Self declaration basis by Applicant
• Self Ratification Scheme by Applicant

Q.6 What is SION (Standard Input Output Norms)?

Ans: Standard Input Output Norms (SION) in short is standard norms which define the amount of input/inputs required to manufacture unit of output for export purpose.

Input output norms are applicable for the products such as electronics, engineering, chemical, food products, handicraft plastic and leather products etc.

Q.7 What is Self declaration and Self Ratification by Applicant?

Ans: Where there is no SION/valid Adhoc Norms for an export product and where SION has been notified but exporter intends to use additional inputs in the manufacturing process, eligible exporter can apply for an Advance Authorisation under this scheme on self declaration and self ratification basis.

Q.8 Whether AA is issued on the basis of particular input or all inputs? Whether any Spares which is imported for export with final product is allowed under such scheme?

Ans: Advance Authorisation shall be issued on the basis of particular input imported for those particular transactions (E.g. A want to import raw material X which is mfg in India then export, so he can take Advance authorisation to only on raw material X of that particular transaction).
Import of Mandatory Spares which can be exported with those product which is cover under Advance authorisation can be allowed duty free (i.e. under Advance authorisation) to the extent of 10% of CIF value of Authorisation.

Q.9 Who can apply for Advance Authorisation Scheme?

Ans: Advance authorisation can be issued to:-

• Manufacturer exporter
• Merchant exporter tied to supporting manufacturer

Q.10 Whether any conditions prescribed for AA scheme?

Ans: Advance Authorisation shall be issued on the basis of the following conditions:

• Physical export (including export to SEZ) by Authorisation holder
• Intermediate supply
• Authorisation holder shall be a “Actual user”
• Pre-import condition

Q 11 What is pre-import condition under AA scheme? What happen if Authorisation holder does not fulfil pre-import condition?

Ans: Under the advance authorization scheme a person can import the inputs first and make the export of resultant products later on is called Pre-import condition.

A person has to first import inputs & make resultant product for physical exports by a person who intend to claim the exemption from IGST also.

If any person chooses to make the physical exports of the goods first and then import the inputs as replenishment then he can do so but in the situation exemption from IGST will not be available to him, but he can take the benefit of BCD.

Q.12 What are the implications of Actual user condition?

Ans: “Actual user” under Advance Authorisation implies that procured goods have to be used by the authorization holder only, although he may transfer the same for job work. Other implications of Actual user condition are as follows:

Raw material imported under Advance Authorisation shall be subject to ‘Actual User’ condition.

Actual User condition means, raw material imported under advance authorisation shall not be transferable even after completion of export obligation.

Authorisation holder will have option to dispose of product manufactured out of duty free input once export obligation is completed.

Goods imported against such Advance Authorisation shall be utilized only in the manufacture of dutiable goods whether within the same factory or outside (by a supporting manufacturer like Job worker).

Waste / Scrap arising out of manufacturing process, as allowed, can be disposed off on payment of applicable duty even before fulfilment of export obligation.

Q.13 What will be happen if Authorisation holder does not satisfy the conditions of “Actual user” even after satisfying the condition of “Export obligation”?

Ans: If any Authorisation holder not satisfying conditions of Actual user( i.e. sale raw material to other person without processing) even satisfying the condition of export obligation, raw material which is imported under Advance Authorisation shall required to pay all custom duties with interest on import of such goods.

Q.14 What is the Annual Advance Authorisation Scheme?

Ans: It shall be issued to only be issued for Items notified in “Standard Input Output Norms (SION)” for a year. It shall not be available in respect of SION where any item appear in Appendix (4-J) prescribed in Aayat Niryat Forms of FTP.

He will not require to take every time each licence of AA scheme for each time import of raw material for export purpose.

Q.15 How Annual Advance Authorization differs from General Authorization?

Ans: If any person who is importing a particular input & manufacturing resultant product during the whole year, it is very difficult to take licence under AA scheme for every particular transaction imported with export obligation of such input imported. So government has made a Annual Advance Authorisation Scheme. In this scheme authorisation holder can import duty free input for export of manufactured goods several time during the year at one licence.

Q.16 Who is eligible for taking Annual Advance Authorisation Scheme?

Ans: Importers fulfilling following criteria are eligible for taking Annual Advance Authorization;

• Exporter having past export performance of at least 2 preceding financial year.
• Status certificate holder.
• FOB value of Export realised in foreign currency (except some cases in Rs.) is more than 15% of CIF value of input (i.e. imported) cover by Authorisation.

Q.17 What is the eligible quantum under Annual Advance Authorisation Scheme?

Ans: Entitlement of amount of raw material imported under Annual Advance Authorisation Scheme:-
Amount for annual Advance Authorisation scheme=Higher of the following:

• 300% of (FOB value of Physical export or/ and FOR value of Deemed export)
• 1 crore

Example: A ltd having 3 year export performance, he regularly imported input “A” and input “B” which is manufactured in India All output produce from input “A” is Exported outside India and output produce from input “B” is supply in DTA. Standard Input to output of both input are different. They want to take Annual Advance authorisation, following are the previous year export performance details:-

Physical export-20 lakh

Deemed export-15 lakh

Calculate total amount which is eligible for Advance authorisation during the year.

Q.18 What will be in above situation if output produce from product B is also exported?

Ans:-

a) Eligible Input for Advance authorisation =Input “A”

Total amount for Advance authorisation={300% of (20 lakh +15 lakh)} or 1 crore , whichever is higher =1.05 crore

b) One scheme is available for on the basis of standard input output norms, in this case separate application for advance authorisation is required for input “B”.

Q.18 What is the minimum amount of Export (i.e. Minimum value additions) of finish goods through raw material imported under Advance Authorisation Scheme?

Ans: Minimum value of export will be more than 15% of CIF value of raw material imported.

a) Minimum value addition required to be achieved under Advance Authorisation is 15%.

b) Export Products where value addition could be less than 15% are given in Appendix 4D.

c) In case of Tea, minimum value addition shall be 50%.

Value Additions=(A-B)*100/B

A=FOB value of export realized

B= CIF value of inputs covered by Authorisation, plus value of any other input used on which benefit of DBK is claimed.

Q.19 What is the meaning of DBK(Duty Drawback Scheme) under the above calculation?

Ans: As per section 75 of the Customs Act, 1962, a person who has imported inputs for manufacturing of export product, Central government give relief of Customs and IGST duties suffered on such inputs is called DBK (Duty Drawback).

Q.20 Whether AA scheme is applicable in case of free of cost raw material imported by Authorisation holder? If yes than what is the export obligation for the same?

Ans: If inputs are procured free of cost from outside India for manufacturing of exported goods or utilized such input for production of exported goods then AA scheme is available.

Following are the implication in case of free of cost raw material imported:-

1) For the purpose of calculation of value addition notional value of free of cost input shall be added in the CIF value of import & FOB value of export.

2) In such a case realisation of export proceeds=Total amount of Export realised (i.e. CIF value of import+15%)-national value of free of cost input.

Example:- X ltd has advance authorisation scheme for input ‘A’ imported outside India and after manufacturing of such input it will exported. X ltd received free of cost input ‘A’ from Y ltd which is outside India for exporting final product to them, the national value of such input is 20 lakh. They imported additional input of Rs. 30 lakh as CIF value. And final product exported on FOB value to Y ltd at Rs. 58 lakh, Y ltd paid only 38 lakh (after deducting amount given as free of cost)

Q.21 Whether X ltd has completed his export obligation or not.

Ans:- Notional value of Free of cost input=20 lakh+ Additional input imported 30 lakh.

For export obligation, total CIF value of input=50 lakh

Total Export obligation=50 lakh +15% of 50 Lakh =57.5 lakh

For realisation of amount

FOB value of export realised =57.5 lakh-20 lakh (free of cost)=37.5 lakh

Hence

Actual realisation of amount=38 lakh.

FOB value of sale to Y ltd is Rs 58 lakh which is higher than 57.5 lakh (calculated above)

Yes, X ltd has completed his export obligation.

Q.21 Is there any validity period for import & export of goods under Advance Authorisation scheme?

Ans: An authorization is valid for 12 months for procurement of inputs, i.e. goods must be procured within 12 months from the date of issue of authorization.

Further the export of finished goods must be completed within 18 months from date of issue of Authorisation.

Q.22 What will be happen if Authorisation holder not satisfying the conditions of Export obligation and validity period?

Ans: If any Authorisation holder not satisfying conditions of Export obligation (i.e. Export realisation=CIF of input +15% and manufacture & Export),Validity period (i.e. 18 months), raw material which is imported under Advance Authorisation shall required to pay all custom duties with interest on import of such goods.

Example:- X ltd imported 1000 units under Advance authorisation at Rs.100000 under CIF value. X ltd manufactured output from 900 units input is 900 units (Input/output=1:1) and export 500 output at Rs. 150000, remaining unit i.e. 500, X ltd wants to sale remaining 100 unit input in domestic market on Payment of GST and balance 400 output sale to P ltd in India on payment of GST. There is some waste & scrap made during the process the value of same is 5000 which is also sale in India.

Ans:

a) Value addition for export obligation=100000+100000*15/100=115000

Hence X ltd has completed his export obligation.

b) While looking sale of 100 unit input on payment of GST, it is not satisfying conditions of “Actual user”, It is required to pay custom duty along with interest on such 100 units.

c) Balance of 400 unit of output first disposed off and then sale in India on payment of Tax

d) On waste & Scrap it is required to sale with payment of Tax (i.e. GST)