Article discusses Benefit for Advance Authorisation License holder, Who can Avail the Benefit of Advance Authorisation, Maximum limit for the License value, How to Avail the Benefit under Advance Authorisation, Conditions for Advance Authorisation scheme, Currency for the realization of Export Proceeds, Validity period of the License, Time limit for fulfillment of Export Obligation (EO), Consequences for Non-fulfilment of Export Obligation and Documentation requirements for Advance Authorisation License.

Introduction: – India’s Foreign Trade policy (FTP) has, conventionally, been formulated for five years at a time and reviewed annually. The focus of the FTP has been to provide a framework of rules and procedures for exports and imports and a set of incentives for promoting exports. The benefits under Foreign trade policy encourages the exporter to export the goods as well as service.

Advance Authorisation is a license issued under chapter 4 of Foreign Trade Policy 2015-20. This Advance Authorisation enables Duty-free import of inputs for export production, including replenishment of inputs or duty remission subject to the fulfillment of an export obligation.

Benefit for Advance Authorisation License holder: –

The exporter who gets Advance Authorisation license can be benefited by non-payment of Basic Customs Duty, Additional Customs Duty, Education Cess, Anti-dumping Duty, Countervailing Duty, Safeguard Duty, Transition Product-Specific Safeguard Duty, wherever applicable and IGST as well at the time of Import of Inputs / Raw materials, which will be the cost saving to the company and reduces the cash outflow for the company.

Who can Avail the Benefit of Advance Authorisation?

a) Advance Authorisation license can be issued either to manufacturer exporters or merchant exporter tied to supporting manufacturer exporter except in the case of pharmaceutical products manufactured through a non-infringing process where it is allowed to only manufacturers.

b) The manufacturers/ Merchant exporters have to engage in physical exports, Intermediate supply for those exports, and it can also be issued for Deemed exports as specified in 7.02 (b), (c), (e), (f), (g), & (h) of

c) This benefit can also be issued on the supply of Stores on board of foreign going vessel/ aircraft, subject to condition.

Maximum limit for the License value: –

The maximum CIF value for Advance Authorisation license shall be under

I. In the case of Status holders, the maximum license value will be up to 300% of FOB and/or FOR value of preceding year’s exports and/or supplies.

II. In the case of non-status holders, the license value should be to 300% of FOB or Rs.10 crore and/or FOR value of preceding year’s exports and/or supplies, whichever is higher.

The applicant shall be entitled for a license in excess of entitlement of CIF mentioned above when the applicant shall furnish 100% bank guarantee to the customs authority.

How to Avail the Benefit under Advance Authorisation?

The persons who are eligible and willing to get the benefit of Advance Authorization, then those people have to file ANF-4A online application with the help of a digital signature. The Applicant must have Importer Exporter Code (IEC) as well as RCMC also.

Conditions for Advance Authorisation scheme: –

Advanced Authorization is issued to allow duty-free import of inputs, which is physically incorporated in the export product, in addition, Fuel, Oil, Catalyst which is consumed/utilized in the process of production of export products may also be allowed. Advance Authorisation can be issued on the import of spices covered under Chapter 9 of ITC(HS) only for activities like crushing/ grinding/ sterilization/ manufacturer of oils or oleoresins.

Advance Authorisation is issued for inputs in relation to the resultant product, considering: –

I. Standard Input-Output Norms (SION), notified in HBP of FTP 2015-20. (or),

II. On the basis of self-declaration as per 4.07 of HBP of FTP 2015-20. (Or),

III. Prior fixation by the Input-output Norms Committee. (or),

IV. Self-ratification scheme in terms of 4.07A of HBP of FTP 2015-20.

This means the resultant product which is produced from imported inputs under Advanced Authorisation should be as per input-output norms which are specified as above.

i. Fulfillment of Export Obligation (EO): –

Here, the Export obligation means, the license holder has to export the goods/products which are manufactured by using those Inputs / Raw materials imported under the Advance Authorisation scheme. The holder of the Advance Authorisation license has to fulfill the export obligation within the prescribed time limit.

ii. Value Addition: –

Another criterion for Advance Authorisation is that there should be a minimum value addition for the purpose of fulfillment of Export Obligation. The value addition under Advance Authorisation shall be: –

Value Addition = A-B/B *100

A = FOB value of Export realized / FOR value of supply received.

B = CIF value of inputs covered by Authorisation, plus the value of any other input used on which benefit of Duty Draw Back is claimed or intended to be claimed.

Illustration 1: –

FOB value of Export = 10,00,000/-

Quantity of Goods produced = 1200 units

Price per unit = 1000/-

CIF value of Inputs under Advance Authorisation license = 2,00,000/-

Then value addition should be 400% i.e., (10,00,000 – 2,00,000 / 2,00,000*100.)

In the above example the value addition for the goods imported under Advance Authorisation is 400% that means the export value should be minimum of 8,00,000/- (2,00,000 /- * 400%).

Therefore, the license holder has an export obligation of 8000 units and the remaining 4000 units he is allowed to sell in DTA also.

Illustration 2: –

FOB value of Exports = 10,00,000/-

Quantity of goods produced = 8000 units

Price per Unit =1000/-

CIF value of Inputs under Advance Authorisation license = 2,00,000/-

In this example also, the value addition should be 400% i.e., (10,00,000 – 2,00,000 / 2,00,000*100.)

Therefore, in the present example, the license holder has to export the entire 8000 units which are produced by him then he is not allowed to sell in the domestic market.

Points to be noted: –

i. The minimum value addition required to be achieved under Advance Authorisation is 15%.

ii. The export products for which value addition could be less than 15% for those products listed in Appendix 4D.

iii. In the case of Tea, the Minimum value addition shall be 50%.

Currency for the realization of Export Proceeds: –

i. Export proceeds shall be realized in freely convertible Currency except otherwise specified.

ii. Exports to SEZ Units shall be taken into Account for the discharge of export obligation provided payment is realized from foreign currency Account from SEZ unit.

iii. Export to SEZ Developers / co-developers can also be taken into account for the discharge of export obligation even if payment is realized in Indian rupees.

iv. Authorization holder needs to file a Bill of export for export to SEZ unit/ developer/ co-developer in accordance with the procedure given in SEZ Rules, 2006.

Validity period of the License: –

  1. The validity period for import of Advance Authorisation shall be 12 months from the date of the issue of Authorisation.
  2. The validity of Advance Authorisation for supplies under chapter 7 of FTP 2015-20, shall be co-terminus with contracted duration of project execution or 12 months from the date of issue of Advance Authorisation whichever is later.
  3. Regional Authority may consider a request of original Authorisation holder and grant one revalidation for six months from the expiry date, Request for revalidation of Authorisation shall be filed online in ANF-4D.

Time limit for fulfillment of Export Obligation (EO): –

  1. Period for the fulfillment of the export obligation under Advance Authorisation shall be 18 months from the date of issue of Authorisation. Period of EO fulfillment under an Advance Authorisation shall commence from the date of issue of Authorisation unless otherwise specified.
  2. Export Obligation for items falling in categories of defense, military store, aerospace, and nuclear energy shall be 24 months from the date of issue of authorization or co-terminus with contracted duration of the export order whichever is more.

Consequences for Non-fulfilment of Export Obligation: –

The license holder who hasn’t fulfilled the Export Obligation (EO) is required to pay the Customs Duty saved along with Interest at the specified rate under Sec 28AA of Customs Act 1962. In terms of Sec 11(2) of FT(D&R) act 1992, the defaulted license holder shall be liable to pay 1,000/- or five times of the value of the goods imported whichever is higher as penalty i.e., the defaulted license holder has to pay penalty of 5 times of the CIF value of goods imported.

Documentation requirements: –

utilization of duty-free imported / domestically procured goods against each authorisation as prescribed in Appendix 4H or 4I, as applicable. These records are required to be sent to the concerned Regional Authority at the beginning of each licensing year for all those authorisations, which have been redeemed in the previous licensing year. However, these records in the said format are required to be submitted for authorisations issued on or after 13-05-2005. Such records should be preserved for a period of at least three years from the date of redemption.

Conclusion: –

Therefore, it can be concluded that the scheme of Advance Authorisation under FTP 2015-20, is a beneficial scheme to import Raw materials/ Inputs from overseas for manufacturer exporter/merchant exporters tied up with manufacturers who can fulfill the Export Obligation within the time frame. The same can be a threat to the Going concern of the business if the Export obligation hasn’t been fulfilled within the time frame due to the degree of penalty levied. It is evident that proper planning and consultation will let the exporters relish the benefits under FTP.

The Author can be reached at sivakrishna@hiregange.com

Author Bio

Qualification: Student - CA/CS/CMA
Company: Hiregange and associates
Location: BANGALORE, Karnataka, IN
Member Since: 07 Dec 2019 | Total Posts: 1

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