Ways to Get Advance Authorisation on Export Inputs

Advance Authorisation Scheme (AA) is a tax and duties neutralization scheme under foreign trade policy (FTP).  The main goal for the introduction of AA is to limit the working capital requirements for exporters.

Under this scheme, any input goods that increases value to an export product during the manufacturing process will be left from any duty-charges. Along with the components of the export product, fuels, oil and catalyst taken during the integration/ production procedures can also be imported tax-free.

The imported goods are removed from below duties:

  • Basic Customs Duty
  • Additional Customs Duty
  • Education Cess
  • Anti-dumping duty
  • Safeguard Duty & Transition Product-Specific Safeguard Duty
  • Integrated tax
  • Compensation Cess
  • as and where applicable.

Applicability Of Advance Authorisation

The advantages of the AA scheme can be availed by any manufacturing exporter or any other exporter tied with a supporting manufacturer.  The scheme is applied to

  • Physical exports,
  • Exports to SEZ,
  • Intermediate supply
  • Supplies made to specified categories of deemed exports

Additionally, AAS is issued to sub-contractors to any project (in case of deemed exports), 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.

Getting Advance Authorization

An exporter can get the benefits AA on the below grounds:

  1. Standard Input-Output Norms (SION):
    SION is a set of standard norm that defines how much input is necessary to manufacture the given export product. The DGFT issues these norms, on the recommendations of Norms committee. SION is available for a wide range of products.
  2. Self-declaration:
    Without SION for a particular product, the exporter can apply to the regional authority. The regional authority, upon detailed review, can issue AA to the exporter.
    The exporter can also make an application to the norms committee, before the fixation of norms. By receiving the necessary documents, the Norm committee can change the norms or issue an Ad-hoc norm. The ad-hoc norms are valid for a single authorisation and repeat authorisation for the same cannot be issued.
  3. Self-Ratification Scheme:
    Exporters registered under Authorised Economic Operator(AEO) can get AA under this scheme. The exporter can opt-in for AA in case SION or valid ad-hoc norm is unavailable. The exporter can also opt-in for the scheme if he wants to import additional manufacturing inputs, though SION is notified for the given goods. Under the scheme, ratification by the norms committee is not necessary. The exporter can directly apply to the regional authority, who may issue Advance Authorization upon completion of the valid conditions.

P.S: AA can be issued for annual requirements on SION notified goods. To get Annual Advance Authorisation, the exporter needs to have a performance record of the last 2 financial years.

Calculation Of Value Addition (VA)

As per AA, inputs exported should add a minimal value of 15%. In order to calculate VA

VA = (A-B) x 100/B

A = FOB value of export realised / FOR value of supply received.
B = CIF value of inputs covered by the authorisation, plus any other imported materials used on which benefit of DBK (Duty Drawback) is claimed.

The given value addition may change for the below

  • Physical exports for which payments are not received in free convertible currency
  • Minimum VA for tea is 50%
  • Specific spices required for value-added activities such as crushing, grinding, sterilization, manufacture of oil & oleoresins, but not for simple cleaning, grading, re-packing, etc.
  • Gems and jewellery.

Major points to note

  • Advance Authorisation is issued with a validity of 12 months.
  • The export obligation has to be fulfilled within a time span of 18 months or as notified by the DGFT.
  • The authorisation is non-transferable and any import under the scheme can be done by the actual user only.

Enquire with Certicom Consulting for more details.