Advance Authorisation Duty Exemption Scheme

By Author: LawCrux Advisors
Total Articles: 15
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Advance Authorisation (DES) is a duty exemption scheme which enables duty free import of inputs for export production. Initiation of this scheme by Indian Government is a great step to boost the exports of the country. In this context we are describing herewith the full procedure for obtaining and redeeming Advance Authorisation.
Advance Authorisation facilitates duty free import of inputs, which are physically exported 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 the purview of Advance Authorisation.

Duty free mandatory import of spares is allowed upto 10% of CIF value of Authorisation. Advance Authorisation is based on SION or self declared norms as per Para 4.7 of HBP v1. Advance Authorisation can be issued either to a manufacturer exporter or a merchant exporter tied to supporting manufacturer(s).

Advance Authorisation shall be issued for
a) Physical Exports (including exports to SEZ)
b) Intermediate ...
... Supplies
c) Supply of goods to the categories mentioned in ‘Deemed Exports’.
d) Supply of ‘Stores’ on board of foreign going vessel/aircraft.

In addition, in respect of supply of goods to specified projects mentioned in paragraph 8.2 (d), (f) and (j) of FTP, an Advance Authorisation can also be availed by sub-contractor to such project provided name of sub contractor(s) appears in main contract.

Advance Authorisation exempted from payment of Basic Customs Duty, Additional Customs Duty, Education-cess, Anti-dumping Duty and Safeguard Duty, if any. It is non-transferrable and subject to Actual user condition.

Minimum value addition of 15%, except for items specified in Appendix-11B of HBP v1 (copper cathode and copper wire roads) and for items in Gems and Jewellery sector.

 
Value Addition

VA = {(A-B)/B} x 100

- A = FOB value of exports realised / FOR value of supply received.

- B = CIF value of inputs covered by authorisation, plus value of any other input used on which benefit of DBK is claimed or intended to be claimed.

Export Obligation (EO) shall be fulfilled in 18 months except in case of supplies to turnkey projects under ‘Deemed Exports’ category where EO must be fulfilled during contracted duration. One extension of EO upto 6 months can be considered subject to payment of composition fee of 0.5% of the shortfall in EO. EO Period for Advance Authorisation issued with input(s) as mentioned in Appendix 30A shall be as per period stipulated against each entry therein. The application for the enhancement/ reduction in the value of Authorisation shall be made in ANF-4E.

Advance Authorisation for Annual Requirement
Exporters having past export performance (in preceding two years) shall be entitled for Advance Authorisation for Annual Requirement. Entitlement in terms of CIF value of imports shall be upto 300% of the FOB value of physical exports / FOR value of deemed exports in preceding licensing year or Rs. 1 crore, whichever is higher.

Advance Authorisation/Advance Authorisation for Annual Requirement/Duty Free Import Authorisation intending to source inputs from indigenous sources/STEs, in lieu of direct import has option to source them either against ARO or Invalidation Letter. However, supplies may be obtained against Authorisation from EOU/EHTP/BTP/STP/SEZ units, without conversion into ARO or Invalidation Letter. Transferee of DFIA shall also be eligible for ARO/Invalidation Letter facility.

Procedure
- Where applicant is branch office or manufacturing unit of an exporter, it shall furnish self certified copy of valid RCMC where name of branch office or manufacturing unit is given.

- Where SION are published, an application in ANF-4A along with documents prescribed, shall be submitted to RA concerned.

- If Norms are not published, ANF-4B to Norms Committee (NC) at DGFT Headquarters for fixation of Norms.

- Original copy of application along with Fee to be filed to RA concerned and self certified copy of same to NC.

Self Declared Authorisations where SION does not exist
a) Where SION are not fixed, Advance Authorisation may be issued based on self-declaration and an undertaking by applicant for a final adjustment as per Adhoc/SION fixed by NC. However, no Advance Authorisation shall be issued for import of products mentioned under Para 4.7 (a) 0f HBP v1.

b) For export of perfumes, perfumery compounds and various feed ingredients containing vitamins, no Authorisation shall be issued by RA under this para and applicants shall apply under Para 4.4.2 above to the NC. Where export and/or import of biotechnology items are involved, Authorisation under this paragraph shall be issued by RA only on submission of a “No Objection Certificate” from Department of Biotechnology.

Entitlement
a) CIF value of such authorisation shall be maximum 500% of FOB value and/or for value of preceding year’s exports and/or supplies in case of status holder and Rs.5 crores or 500% of FOB/FOR value of preceding year’s exports/supplies, whichever is more, for others.

b) For entitlement of authorisation in excess of above, applicant should furnish 100% Bank Guarantee to Customs authority to cover exemption from customs duties.

c) Applicant shall give an undertaking that he shall abide by norms fixed by NC and accordingly pay duty, together with interest, on unutilised inputs as per norms fixed by NC.

d) NC should finalise the norms within 4 months, otherwise the norms shall be treated as final after that period.

Authorisation holder shall furnish prescribed documents in ANF 4F in support of fulfilment of EO. After fulfilment of EO, RA shall forward a copy of redemption letter to Customs Authority at port of registration. Such details shall also be placed by the zonal offices in their website immediately after issuance of EO Discharge/Redemption Letter/No Bond Certificate (in case of No BG/LUT facility) and by DGFT Headquarter in DGFT website on monthly basis.

Regularisation of Bonafide Default
(i) If EO fall short in terms of quantity, the Authorisation holder shall pay customs duty on unutilised value of imported/indigenously procured material along with interest as notified.
(ii) If EO fall short in value
a) No penalty if minimum value addition achieved.
b) If VA falls below the minimum VA prescribed, Authorisation holder shall be required to deposit an amount equal to 1% of shortfall in FOB value.
(iii) If EO is not fulfilled both in terms of quantity and value, the Authorisation holder shall pay as per (a) and (b) above.
(iv) In case an exporter is unable to complete EO undertaken in full and has not made any import under Authorisation, he will also have an option to get the authorisation cancelled and apply for drawback.

Lost EP (Export Promotion) Copy of Shipping Bill and/or BRC
Request for EODC (Export Obligation Discharge Certificate), subject to submission of following documents in lieu of original documents:-
a) A duplicate/customs certified/self-attested copy of the shipping bill in lieu of the original; duplicate/Bank certified copy of BRC in lieu of original.
b) An application fee equivalent to 1% of duty saved amount. No fee if document is lost by Government Agencies and a documentary proof to this effect is submitted.
c) An affidavit by exporter about loss of document and an undertaking to submit it to RA, if found subsequently.
d) An indemnity bond by exporter to the effect that he would indemnify government for financial loss, if any.

Other Important Points
- Re-import of Exported Goods
Goods exported under Advance Authorization may be imported in same or substantially same form subject to Department of Revenue (DOR) Conditions.

- Prohibited items of imports and exports mentioned in ITC(HS) shall not be imported and exported under Advance Authorisation/DFIA.

- Maintenance of Proper Accounts: Account should be maintained of consumption and utilisation of duty free goods procured against each authorisation as prescribed in Appendix-23.

Advance Licence is an age-old scheme which has travelled through decades. Earlier to 1995, there were two types of Advance Licences viz., quantity based and value based (popularly known as QBAL and VBAL). The Department of Revenue has also issued relevant exemption Notifications, time to time, to govern the imports against such Advance Licences to encourage the exporters.