Advance authorization is an order issued to endorse the import of duty-free inputs which are physically integrated into the export product. Its provisions extend to fuel, oil, energy, and catalysts which are consumed or utilized to obtain export products. This article looks at the regulations connected with Advance Authorization Scheme.
What is DUTY EXEMPTION & REMISSION SCHEME?
Duty exemption schemes enable duty free import of inputs required for export production. An Advance Licence is issued as a duty exemption scheme. A Duty Remission Scheme enables post export replenishment/ remission of duty on inputs used in the export product. Duty remission schemes consist of (a) DFRC (Duty Free Replenishment Certificate) and (b) DEPB (Duty Entitlement Passbook Scheme).
DFRC permits duty free replenishment of inputs used in the export product. DEPB allows drawback of import charges on inputs used in the export product.
ADVANCE AUTHORISATION SCHEME
An Advance Authorisation is issued to allow duty free import of inputs, which are physically incorporated in export product (making normal allowance for wastage). In addition, fuel, oil, energy, catalysts which are consumed/ utilised to obtain export product, may also be allowed. DGFT, by means of Public Notice, may exclude any product(s) from purview of Advance Authorisation.
Advance Authorization can be availed by manufacturer exporters or merchant exporters who are linked with supporting manufacturers for physical exports (including exports to SEZ), intermediate supplies, and supply of ‘stores’ on board of foreign going vessel/aircraft (conditions apply).
Apart from that, Advance Authorization is issued to sub-contractors to any project (where the name of the sub-contractors appears in the main contract), United Nations Organizations (UNO), aid programs of the United Nations or other multilateral agencies; the likes of which are paid for in free foreign exchange.
Advance Authorization for the import of raw sugar can be issued to either a manufacturer exporter or merchant exporters who are associated with supporting manufacturers.
Imports of commodities under this scheme are exempted from the payment of basic customs duty, additional customs duty, education, anti-dumping duty, and safeguard duty. However, imports for supplies covered under specific supplies are not exempted from the payment of applicable anti-dumping and safeguard duty.
Materials imported under the ambit of Advance Tax are subject to conditions meted out to the user. It will not be transferable despite completing the expert obligation, though the Authorization holder may dispose of the product manufactured out of duty-free imports upon the completion of the export obligation.
Exported goods benefited with CENVAT credit facility shall be utilized for no other purpose than the manufacture of dutiable goods. For this purpose, the Authorization holder needs to produce a certificate from either the jurisdictional Central Excise Superintendent or Chartered Accountant.
Further, the manufacturing wastes/scrap may be disposed of by remitting the applicable duty before fulfilling the export obligation.
HOW TO CALCULATE VALUE ADDITION
Value addition (VA) for the purpose of this Chapter (Except for Gems and Jewellery Sector) shall be:-
A – B
VA = ———– x 100
A = FOB value of export realised / FOR value of supply received. B = CIF value of inputs covered by authorisation, plus any other imported materials used on which benefit of DBK (Duty Drawback) is claimed.
MINIMUM VALUE ADDITION
Inputs exported under Advance Authorization generally require a minimum value addition of 15%. The recommended value addition differs for the following goods:
Physical exports (for which payments aren’t received in freely convertible currency) – subject to value additions as specified in Appendix-11 of Handbook of Procedures-(Vol. I)
The import of Tea – a minimum value addition of 50%.
Duty-free import of spices -permitted only for value addition purposes like crushing, grinding, sterilization or manufacture of oils and oleoresins and not for simple cleaning, grading, re-packing, etc.
FREE PROVISION OF INPUTS
The facility of Advance Authorization is applicable where a few or all of the inputs are supplied by the foreign buyer without imposing any charges on the exporter. Given such a scenario, the notional value of free of cost inputs and the value of other duty-free inputs are considered for the calculation of value addition. If all the inputs are supplied without any cost, the exporter will be facilitated with the option of complying with the provisions prescribed by the DOR (Directorate of Drawback).
EXPORT OBLIGATION PERIOD
Any firm or company registered with BIFR or in possession of a unit which is under BIFR will be facilitated with an extension of the Export Obligation Period (EOP) in accordance with the formulated rehabilitation package. The provision hinges on the approval of BIFR and is also extended to SSI units as per the rehabilitation scheme of the concerned State Government.
Advance Authorisation can also be issued for annual requirement.
Status Certificate holders and other categories of exporters with a performance record of two years are entitled to Advance Authorization for Annual Requirement.
Entitlement in terms of CIF value of imports shall be upto 300% of the FOB value of physical export and / or FOR value of deemed export in preceding licensing year or Rs 1 crore, whichever is higher.
ADVANCE RELEASE ORDER (ARO) AND INVALIDATION ORDER
Holders of Advance Authorization, Advance Authorization for Annual Requirement and Duty Free Import Authorization, who are aiming to source inputs from indigenous sources/State Trading Enterprises (in lieu of direct import) are facilitated to source them either against Advance Release Order (ARO) or Invalidation letter denominated in free foreign exchange or Indian rupees.
BACK-TO-BACK INLAND LETTER OF CREDIT
Holders of Advance Authorization, Advance Authorization for Annual Requirement and DFIA are entitled to avail the facility of Back-to-Back Inland Letter of Credit (in lieu of the ARO or Invalidation letter) in accordance with the procedures specified in HBP v 1.
The following commodities are not eligible for imports against Advanced Authorization/DFIA (Duty Free Import Authorisation (DFIA) Scheme)
Commodities classified as prohibited under ITC (HS) (ITC (HS) codes are better known as Indian Trade Clarification (ITC) and are based on Harmonized System (HS) of Coding).
Commodities reserved for imports by STEs (State Trading Enterprises)
Despite the prohibition, these commodities can be procured from STEs against an ARO (Advance Release Order) or Invalidation letter.
The export of restricted items is bound by the requirements of Export Authorization or permission under Schedule II of ITC (HS).
ADMISSIBILITY OF DRAWBACK
In case of an Advance Authorisation, drawback shall be available for any duty paid material, whether imported or indigenous, used in goods exported, as per drawback rate fixed by DOR, Ministry of Finance (Directorate of Drawback). Drawback allowed shall be mentioned in Authorisation.