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    How to apply for duty-free imports under the Advance Authorisation Scheme

    How to apply for duty-free imports under the Advance Authorisation Scheme

    The Advance Authorisation Scheme, also called the Advance Licence Scheme, is a duty exemption programme offered to manufacturers so that they can import raw materials duty-free in order to produce export-oriented products.

    The Directorate General of Foreign Trade (DGFT) specifies the number of inputs allowed for any given product by issuing a sector-wise list of standard input-output norms (SION). It spells out the required quantity of inputs needed for specific products, while also taking into account any wastage that may occur during manufacturing.

    In cases wherein the SION may not apply to an exporter or a manufacturing process, the exporter can apply for an advance licence under ad hoc norms. Where there are no SION or ad hoc norms, an exporter can apply for this scheme with a self-declaration and self-ratification.

    This scheme is open to manufacturer-exporters but not limited to them. Merchant exporters linked to supporting manufacturers can also apply. Suppliers to the United Nations and other aid programmes, who act as subcontractors of the projects, can apply for this scheme if their names appear on the contract. The payment here must be received in convertible foreign exchange. In the case of pharma imports, the authorisation will be extended only to manufacturer-exporters.

    Under this scheme, manufacturers enjoy exemption from basic customs duty, education cess, social welfare cess, anti-dumping duty, countervailing duty and safeguard duty. Integrated goods and services tax and compensation cess are also exempted under this scheme.

    What inputs does the scheme cover?

    The list of inputs that qualify for duty exemption under this scheme is pretty comprehensive. It covers inputs that are physically incorporated into the final product such as fuel, oil and other catalysts consumed or used to produce the export product. For spare parts that have to be mandatorily exported with the final product, the authorisation scheme grants a cover of up to 10% of the CIF (cost, insurance, freight) value.

    Biotechnological items are allowed if the Department of Biotechnology approves and issues a no-objection certificate.

    Specified spices can be imported duty-free only by manufacturers who crush, grind, sterilise or manufacture oil or oleoresin. Cleaning, grading and packaging do not qualify as manufacturing, so spices imported for this purpose will not qualify for duty exemption.

    A special advance authorisation scheme is available for duty-free import of fabric subject to SION and on the condition that the fabric is physically incorporated into the export product.

    Value-addition Requirement

    The raw materials imported under the scheme can be exported after a value-addition of at least 15%. However, for tea, the value-addition requirement is 50%.

    Appendix 4D, a part of the Handbook of Procedures 2015-2020, lists the products where value-addition can be less than 15%. Appendix 4C details the value-addition requirement for products for which payments are not received in freely convertible foreign exchange.

    Paperwork and fine print

    Exporters and manufacturers can apply for the scheme on the DGFT's website ( www.dgft.gov.in) with a valid importer-exporter (IEC) code. The condition for issuing an advance authorisation is to meet the export obligation — in terms of value and quantity of exports within a stipulated time frame.

    Applicants must assure that export proceeds are realised in freely convertible currency, unless otherwise specified. In case exported goods are re-imported, the regional authority concerned should be informed within a month.

    The validity of the authorisation is 12 months from the date of issue. However, it is advisable to retain evidence of completing your obligations for at least 18 months from the date of issue of the advance authorisation.

    For items notified in the SION, advance authorisation is also available as an annual requirement. However, the exporters have to share their export performance for the last two years. The value of the export realised should be more than 15% of the CIF value of the input covered by the scheme.

    The article was first published on economictimes.indiatimes.com

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