Advance Authorisation Scheme (AA) is a tax and duties neutralization scheme under the foreign trade policy (FTP). The primary goal for the introduction of AA is to reduce the working capital requirements for exporters.
Under this scheme, any input goods that adds value to an export product during the manufacturing process shall be exempted from any duty-charges. In addition to the components of the export product, fuels, oil and catalyst consumed during the integration/ production procedures can also be imported duty-free.
The imported goods are exempted from the following 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 benefits of the AA scheme can be availed by any a manufacturing exporter or any other exporter tied with a supporting manufacturer. The scheme is applicable 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.
Availing Advance Authorization
An exporter can avail the benefits AA on the following grounds:
- Standard Input-Output Norms (SION):
SION is a set of standard norm that defines how much input is required 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. - Self-declaration:
In absence of SION for a particular product, the exporter can apply to the regional authority. The regional authority, upon thorough review, can issue AA to the exporter.
The exporter can also make an application to the norms committee, prior to the fixation of norms. Upon receiving the required documents, the Norm committee can modify 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. - Self-Ratification Scheme:
Exporters registered under Authorised Economic Operator(AEO) can avail AA under this scheme. The exporter can simply 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, even if SION is notified for the given goods. Under the scheme, ratification by the norms committee is not required. The exporter can directly apply to the regional authority, who may issue Advance Authorization upon fulfillment of the relevant conditions.
P.S: AA can be issued for annual requirements on SION notified goods. In order to avail Annual Advance Authorisation, the exporter needs to have a performance record of the last 2 financial years.
Export Obligation
AAS is one of the many schemes implemented by the government to endorse exports in India. While the manufacturer enjoys the benefits of duty-free imports, they are required to reach a certain target of export (value-added product of imported goods). The manufacturer is given a certain period to meet this requirement. This requirement is known as an export obligation.
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
Where,
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.
Exceptions:
The recommended value addition may differ for the follows
- Physical exports for which payments are not received in freely 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.
Key points to note
- Advance Authorisation is issued with a validity of 12 months.
- The export obligation has to be fulfilled within a 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.
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