Advance Authorization Scheme under DGFT | Eligibility, Benefits & Application Process

Introduction

In order to boost country’s export, The Government of India has introduced various duty exemption and remission scheme to support exporters and enhance the competitiveness of Indian Product in the Global Market.

Advance authorization is duty exemption schemes which allow duty free import of input which is physically incorporated in the export product (making normal allowance of wastage). However this exemption is not limited to only inputs material but in case of fuel, oil, catalyst which is consumed /utilized in the process of production of export of product may also we allowed.

1. What types of entities are eligible for Advance Authorisation?

a. Advance Authorisation can be issued either to a Manufacturer Exporter or to a Merchant Exporter tied to a Supporting Manufacturer.

b. For pharmaceutical products manufactured through the Non-Infringing (NI) process, as specified in Para 4.18 of the Handbook of Procedures, Advance Authorisation shall be issued only to a Manufacturer Exporter.

2. On what basis is an Advance Authorisation issued?

Advance Authorisation is issued for inputs in relation to the resultant product on the following basis:

a. As per Standard Input Output Norms (SION) as notified.

b. On the basis of Self Declaration, as per Paragraph 4.07.

c. Applicant-specific prior fixation of norms by the Norms Committee.

d. On the basis of Self-Ratification Scheme in terms of Para 4.06.

3. Under what circumstances can an Advance Authorisation be issued?

An Advance Authorisation shall be issued in the following cases:

i. Physical Export (including Export to SEZ)

ii. Intermediate supply

iii. Supply of goods on board of foreign going vessel/aircraft, subject to the condition that there is specific Standard Input Output Norms in respect of the item supplied.

iv. Supply of goods to the categories mentioned in Paragraph 7.02 of the FTP.

4. What is the minimum value addition requirement for Advance Authorisation?

The value addition requirement under the Advance Authorisation Scheme varies depending on the product category and the nature of the product.

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. Minimum value addition for the Gems & Jewellery sector is given in Paragraph 4.60 of the Handbook.

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

e. In case of Spices, minimum value addition shall be 25%.

5. Which duties and taxes are exempt from payment under the Advance Authorisation Scheme?

The following duties have been exempted under the Advance Authorisation Scheme:

a. Basic Customs Duty

b. Additional Customs Duty

c. Education Cess

d. Anti-Dumping Duty

e. Countervailing Duty

f. Safeguard Duty etc.

6. What is the validity period for import under Advance Authorisation?

a. Validity period of Advance Authorization shall be 12 months from the date of issue of the authorization. It means that imports under the authorization must be made within the aforesaid period of 12 months. However, revalidation is allowed for a further period of 12 months, once only, and an application for revalidation is required to be made.

b. Validity of Advance Authorization in case of deemed exports shall be co-terminus with the contract duration of project execution or 12 months from the date of issue of the authorization, whichever is later.

7. What is self-ratification scheme under advance authorization?

When there is no SION/Valid Ad hoc Norms for the export product, or where SION has been notified but the exporter intends to use additional inputs in the manufacturing process, an eligible exporter can apply for an Advance Authorization under this scheme on a self-declaration and self-ratification basis.

Here, the term "Additional Input" refers not to an additional quantity or value of an input specified in a norm, but to another input that is not specified in the existing norm.

For example, if the inputs specified under the norms are Material X (M-X) and Material Y (M-Y) only, then Material Z (M-Z) would represent the additional input.

The Regional Authority of DGFT may issue the Advance Authorization in such cases, and the cases need not be referred to the Norms Committees for ratification of norms. An application under this scheme shall be made along with a certificate from a Chartered Engineer in the prescribed format.

8. What is the Pre-Import Condition?

Under the Advance Authorisation Scheme, inputs are subject to the pre-import condition and must be incorporated into the export product, allowing for normal wastage and consumption.

In case of local procurement under Invalidation or Advance Release Order (ARO), the input shall be procured prior to the manufacture of the export product and must be physically incorporated into the export product.

9. What is the Formula for Minimum Value Addition in Exported Goods?

Value addition for the purpose of this chapter shall be calculated using the following formula:

VA = ((X - Y) / Y) × 100

Where:

X = FOB value of exports realized / FOR value of supplies received.

Y = CIF value of inputs covered by the authorization, plus the value of any other inputs used on which the benefit of duty drawback is claimed or intended to be claimed.

10. Is the Import of Spares Allowed Under Advance Authorisation?

Yes, spares required to be supplied along with the export product can be imported duty-free under Advance Authorisation, up to a value of 10% of the CIF value of the authorization.

11. What is the Actual User Condition for Advance Authorisation?

To obtain Advance Authorisation, an entity is required to fulfil various prescribed conditions, one of which is the Actual User Condition.

The Actual User Condition means that inputs imported under Advance Authorisation must be used by the authorization holder in the manufacture of export goods. Such inputs shall not be transferable, even after the completion of the export obligation.

However, the authorization holder may dispose of the products manufactured using duty-free inputs after fulfilment of the export obligation.

Waste or scrap arising from the manufacturing process, as permitted under the applicable provisions, may be disposed of on payment of the applicable duties, even before fulfilment of the export obligation.

How to Apply for Advance Authorisation?

The following steps must be followed to file an application for Advance Authorisation:

a. Create login credentials on the DGFT portal.

b. Link the Importer Exporter Code (IEC) with the DGFT portal, if it is not already linked.

c. Fill in the application form with the prescribed details, including:

i. Basic details.

ii. Registration-cum-Membership Certificate (RCMC) details.

iii. Excise and GST details, wherever applicable.

iv. Other details as prescribed.

d. Pay the applicable application fee.

The application fee for Advance Authorisation is ₹1 per thousand or part thereof, subject to a minimum of ₹500 and a maximum of ₹1,00,000, calculated on the CIF value or duty saved amount of the authorization, as applicable.