What is Advance Authorization Scheme?

The Advance Authorization Scheme of the Government of India is a key initiative to boost exports by allowing duty-free import of inputs used in manufacturing products for export. Overall, the reduction in total production cost enhances Indian products’ competitiveness in world markets. The Advance Authorization Scheme encourages exporters to obtain the requisite raw material without imposing extra cost burden with various types of exemptions on various duties. The article expands on the Advance Authorization Scheme, which sets out who is eligible, how a firm can avail itself, what the advantages are, and how it operates under India’s foreign trade policy.

Understanding the Advance Authorization Scheme

The Advance Authorization Scheme allows exporters to import the inputs needed for manufacturing export goods under the scheme without incurring customs duty. Inputs may be raw materials or components that could even be related to fuel and energy utilized in the production process. The ultimate purpose of this scheme is to promote export-oriented units through decreased procurement of necessary materials, as it would enhance the profitability of units in high-volume export.

Key Features of the Advance Authorization Scheme

1. Duty Exemption: The scheme exempts various types of duties levied on importing inputs, such as Basic Customs Duty, Additional Customs Duty, Education Cess, Anti-dumping Duty, and Safeguard Duty. This exemption significantly reduces production costs for exporters.
2. Export Obligation: To avail of the scheme, exporters must fulfill an export obligation, which is the value of exports they need to complete within a given time horizon. Normally, they must comply with this obligation within 12 to 18 months from the date of authorization.
3. Actual User Condition: The actual user must physically incorporate the inputs imported under this scheme into the final export product. This means that only the actual user can import these goods, and they cannot sell or transfer them without fulfilling export obligations.
4. Minimum Value Addition: Exporters must also provide at least a minimum value addition to the product. Expectations of 15 per cent, on average, but product demands vary and different products have different percentages; teas must be at least 50%.
5. Validity Period: An Advance Authorization shall be valid for 12 months from its date of issue. In the case of deemed exports or specific projects, the validity shall be extended based on project timelines.

Eligibility Criteria

The Advance Authorization Scheme is open to the following exporters exporting from India:

• Manufacturer Exporters: The scheme specifically allows manufacturing house exporters to avail of this facility.
• Merchant Exporters: These are exporters who do not manufacture but are in contact with an associated sub-contractor who manufactures for export.
• Subcontractors: Parties undertaking projects where they are identified by name in contracts also enjoy this scheme.
• Suppliers to United Nations Organizations: Exporters are eligible to supply goods under UN aid programs if they receive payments in freely convertible foreign exchange.

Exporters applying for the scheme must show export performance over the past two financial years.

Application Process

Applying for the Advance Authorization Scheme involves several steps:

1. Registration: The exporter must register at the Directorate General of Foreign Trade Portal and obtain an Importer Exporter Code.
2. Filing Application: After registration, applicants may file an online application for Advance Authorization on the DGFT portal, including details of the required inputs and their usage in production.
3. Documentation: Applicants must submit proof of past exports, input-output norms (SION), and details about the manufacturing process at the time of application.
4. Approval: After applying, the DGFT officials will scrutinize it for granting authorization with reference to the eligibility criteria and accuracy of documentation.

Benefits of the Advance Authorization Scheme

The Advance Authorization Scheme offers several advantages to exporters:

1. Cost Reduction: Removal of customs duty on imported inputs reduces the production cost of exporters immensely, thus making them relatively competitive for competing business ventures worldwide.
2. Improved Cash Flow: Duty exemptions free cash otherwise held in customs duties and taxes. Freed liquidity can then be channelled into other business expenses or growth initiatives.
3. Streamlined Import Process: The scheme has smoothened the importation of critical raw materials so that there is no delay at customs checkpoints when trying to enter the country.
4. Enhanced Export Performance: Reducing the cost and improving cash flows in the exporters encourages the former to increase production and export volume, which will have a positive contribution to India’s trade balance.

Compliance and Monitoring

Although the Advance Authorization Scheme offers tremendous benefits, the scheme involves various compliances:

• Exporters must maintain records of all imports under the scheme and complete their export obligations within the given time frame.
• Failure to meet any of such obligations may attract penalties or total revocation of the benefits under the scheme.
• Authorities shall regularly audit to uncover whether businesses comply with regulations and properly use imported inputs.

Final Thoughts

Now that you’re familiar with the Advance Authorization Scheme, explore its benefits for your export business. Verify all application details to ensure compliance with regulatory standards. This scheme helps reduce production costs and boosts efficiency in global markets. Stay updated on policy changes in duty exemptions to maximize your advantages under this facilitative program.