Advance Authorization Scheme

Advance Authorization Scheme

Advance Authorization Scheme

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.

Applicability

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 exporter who are associated with supporting manufacturers.

Exemptions

Imports of commodities under this scheme is 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.

User Conditions

Materials imported under the ambit of Advance Tax is 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 benefitted 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.

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 HBP v 1.
  • 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.

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.

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.

Prohibited Commodities

The following commodities are not eligible for imports against Advanced Authorization/DFIA.

  • Commodities classified as prohibited under ITC(HS).
  • Commodities reserved for imports by STEs.

Despite the prohibition, these commodities can be procured from STEs against an ARO 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

The facility of Drawback is provided for any duty paid material used in the export of goods, based on the drawback rate fixed by the DoR (Directorate of Drawback).

Post by Sreeram Viswanath

IndiaFilings is India's largest online compliance services platform dedicated to helping people start and grow their business, at an affordable cost. We were started in 2014 with the mission of making it easier for Entrepreneurs to start their business. We have since helped start and operate tens of thousands of businesses by offering a range of business services. Our aim is to help the entrepreneur on the legal and regulatory requirements, and be a partner throughout the business lifecycle, offering support at every stage to ensure the business remains compliant and continually growing.