Advance Authorisation Scheme – Benefits, Process & More

Exporters in India can cut costs significantly under the Advance Authorisation Scheme (AAS), a duty exemption initiative by the Directorate General of Foreign Trade (DGFT). This scheme allows duty-free import of raw materials, inputs, fuel, oil, and catalysts that are either incorporated in the export product or used during its manufacturing, after accounting for standard wastage. It allows businesses to import raw materials and inputs without paying various duties, including basic customs duty, integrated goods and services tax (IGST), safeguard duty, anti-dumping duty, and more. Designed to boost global competitiveness, this scheme is a key incentive for new exporters aiming to lower input costs and price.

This blog will explore the advance authorisation scheme in detail, including its benefits, eligibility criteria, challenges facing exporters, and more. 

What Does The Advance Authorisation Scheme Offer To Exporters?

The Advance Authorisation Scheme helps Indian exporters cut costs and stay globally competitive by allowing duty-free import of inputs used in manufacturing export products. Key benefits for exporters include:

1. Duty-Free Imports

Under the Advance Authorisation Scheme, exporters don’t have to pay the following duties on the import of some goods like raw materials, fuel, components, catalysts, oil, packaging materials, etc.

• Basic Customs Duty
• Additional Customs Duty
• Anti-dumping Duty
• Safeguard Duty
• IGST and Compensation Cess

No GST is levied on these inputs if they’re used in producing export goods.

2. Stronger Cash Flow

No upfront payment of duties means more working capital for operations. This is important for new exporters managing limited cash reserves.

3. Lower Production Costs

Waiver of duties cuts manufacturing costs. Exporters can price products more competitively in global markets, matching international input rates.

4. Broad Input Coverage & Flexibility

You can import a wide range of raw materials, but they must be approved under the scheme. The inputs you import must exactly match what’s allowed under Standard Input-Output Norms (SION). It’s a government-approved list that tells you how much raw material you’re allowed to use to make a specific export product. If your product isn’t covered under SION, you can still apply by giving your own estimate. This is called self-declaration. It provides flexibility, especially for new, customised, or niche products.

5. Simplified Process

Documentation is streamlined. Once approved by DGFT, businesses can begin importing under the authorisation. This supports new entrants in navigating trade processes smoothly.

6. Relaxed Import Rules For Faster Processing

Exporters can now claim duty exemptions if their Bill of Entry is filed after the authorisation is issued, even if the goods arrived earlier. This change in rules gives exporters faster access to duty-free imports and improves the ease of doing business.

What Is the Eligibility, Process, and Compliance Under the Advance Authorisation Scheme?

Here is the eligibility criteria under the Advance Authorisation Scheme:

• Type of Exporter: Manufacturer exporters and merchant exporters tied to a supporting manufacturer are eligible.
• Product Coverage: The export product must be covered under the Standard Input Output Norms (SION) notified by the Directorate General of Foreign Trade (DGFT). If your product is not listed under SION, you can still apply for the Advance Authorisation scheme, but you should keep these points in mind:
  • Exporters can apply based on self-declaration.
  • Self-ratification is available to exporters who possess an Authorised Economic Operator (AEO) certificate.
  • Applicant-specific norms can be fixed by the Norms Committee in the DGFT.
• Value Addition: The exported product must involve a minimum of 15% value addition, except for certain sectors (such as gems & jewellery, tea, and spices, which have different prescribed limits).
• Export Obligation: The exporter must fulfill the export obligation within the stipulated timeframe, using the imported items in the production of the export product.
• Actual User Condition: Inputs imported under this scheme must be used only by the authorisation holder and cannot be transferred; they can only be sold after fulfilling the export obligation.

Here are some other key conditions:

• Inputs Covered: Inputs physically incorporated in the export product, as well as fuel, oil, and catalysts consumed during production, are included. For spices, duty-free import is only allowed for specific activities like crushing, grinding, sterilisation, or the manufacture of value-added products.
• Documentation: Applicants must submit an Importer Exporter Code (IEC), digital signature, application form (ANF-4A), export order/letter of credit, technical details of the manufacturing process, and, if required, proof of past export performance.

Application routes:

• As per SION norms for products with notified norms.
• Self-declaration when SION norms are unavailable.
• Self-ratification for AEO-certified exporters.
• Applicant-specific norm fixation through the DGFT’s Norms Committee.

The application process for the Advanced Authorisation Scheme is given below:

Exporters (either those who make the goods themselves or those who buy from manufacturers) can apply for the Advance Authorisation scheme from the DGFT.

Exporters must give detailed information in the application process. This includes what raw materials will be used, what finished products will be exported, and how the product will be made. They can support these details with one of these methods, including DGFT SION, self-declaration, Norms Committee fixation, or the Self-Ratification scheme.

Obtaining the Authorisation

Once the Advance Authorisation is approved, the government gives a license that clearly states:

• How much raw material can you import without paying duty
• How much wastage is allowed during production

These limits are based on pre-defined norms for the product you plan to export.

Import Duty-Free Inputs

The exporter can import raw materials, fuel, oil, or catalysts duty-free as per the license. Items commonly exempt from duty include basic customs duty, IGST, compensation cess, anti-dumping and safeguard duties.

Manufacture and Export Obligation

Imported inputs must be physically incorporated in the finished export product (not, e.g., packaging material). The exporter is required to complete imports within 12 months from license issue, and must fulfill the export obligation, i.e., export the finished product, within 18 months.

Documentation and Record-Keeping

Crucial documents for application include Import Export Code (IEC), Bill of Materials, export order or letter of credit, manufacturing details, and, for repeat applicants, past export performance. You must carefully record what you import, how you use those materials, and what you eventually export. These records are required for compliance and verification processes, and failing to do so can lead to penalties or cancellations of benefits under the scheme.

Proof of Export and Closure

After fulfilling export obligations, proof (e.g., shipping bills, bank realisation certificates) must be submitted to DGFT for closure.

Here are some important points you should remember:

• Only actual users can import under this scheme, and licenses are non-transferable, even after obligations are met.
• Only inputs actually used in the final product (with standard wastage) are allowed.
• No benefits for activities like repacking or cleaning, manufacturing or value addition is a must.
• Documentation and compliance requirements are rigorous and time-sensitive; failure to meet obligations may result in penalties or the need to pay back the waived duties with interest.
• Extensions for the import or export period may be sought per DGFT policy, but should be planned for in advance.
• Failure to meet export obligations results in a demand for all exempted duties + interest.
• In exceptional cases, DGFT may announce one-time amnesty schemes to allow defaulting exporters to regularise their cases without heavy penalties.

This process is regulated under the Foreign Trade Policy and Handbook of Procedures, and periodic updates or clarifications are provided by DGFT.

What Are the Common Challenges Exporters Face And How To Solve Them?

Let’s explore some major challenges exporters face when operating under the Advance Authorisation scheme and effective ways to overcome these problems. 

1. Long Processing Time for Authorisation

Obtaining the advance license can be time-consuming due to bureaucratic procedures, leading to missed export deadlines and cash flow setbacks. Exporters should apply well ahead of their production schedule and maintain persistent follow-ups with the DGFT. Using professional services or platforms that expedite filing and tracking status can mitigate delays. The government is also working on streamlining processes to shorten turnaround times.

2. Complex Documentation and Compliance Requirements

The application requires detailed documentation such as Import Export Code (IEC), bills of materials, export orders, technical and manufacturing process details, and past export performance. This complexity increases the chances of errors or incomplete submissions, which can delay approvals. Hiring consultants familiar with DGFT requirements or attending DGFT workshops/webinars can help exporters navigate documentation with confidence and accuracy.

3. Export Obligation (EO) Compliance

Though AAS allows exporters to import raw materials without paying duties, they must use those materials to make goods for export, not for local sale. They usually need to complete this process within 18 months. Failure leads to penalties, including paying back duties with interest and potential restrictions on future scheme benefits. It is essential to have a well-planned timeline for production and exports. You should also have built-in buffers to overcome unforeseen delays caused by supply chain disruptions, etc. 

4. Delays in Export Obligation Discharge Certificate (EODC)

The EODC is proof that the exporter met their EO, essential for duty exemption benefits and refunds. Delays in issuance cause financial constraints. The government is automating the EODC process, which aims to hasten compliance verification and reduce exporter wait times.

5. Lack of Digital Integration with Customs

Manual coordination between DGFT and Customs can lead to delays in clearance and compliance tracking. Several ongoing government initiatives aim to synchronise digital solutions between these bodies. This can lead to seamless processing, which eventually reduces manual interventions and errors.

6. Choosing the Correct Type of Norm for Application

Exporters often face difficulties deciding between applying under fixed SION-based norms or proposing self-declared norms if the product is not listed. This choice can have a direct impact on the speed of approval and compliance risk. Seeking expert advice or consulting DGFT help desks before application can prevent costly mistakes.

How to Choosing Between The Advance Authorisation And Other Export Schemes?

When choosing between the Advance Authorisation Scheme and other export promotion schemes like the Export Promotion Capital Goods (EPCG) scheme, the decision mainly depends on the type of imports, export obligations, beneficiary profiles, duty benefits, and compliance requirements as follows:

1. Nature of Imports Allowed

While the Advance Authorisation scheme is helpful, the rules around what can be imported and how they can be used are strict or unclear. Exporters may struggle with getting approval for the materials they need, matching import items to export products, and constant documentation and compliance checks. Even though the scheme is beneficial, its implementation can be complex and not always flexible. It serves short-term operational production needs.

Other schemes like EPCG focus on duty-free import of capital goods (machinery, equipment) that are used long-term in production.

2. Export Obligation Conditions

Under AAS, exporters must fulfill the export obligation by exporting products equivalent to the imported raw materials, typically within 18-36 months. EPCG requires exporters to fulfill an export obligation over a longer period (usually 6 years), quantified as multiple times the duty saved on capital goods.

3. Beneficiary Profiles

AAS suits manufacturers with high-volume production lines that require steady, short-term raw material supplies. EPCG benefits companies investing in capital assets for medium- to long-term growth.

4. Type of Duty Benefits

AAS is an incentive for exporters. It exempts basic customs duty, IGST, compensation, and other similar taxes on inputs. EPCG primarily focuses on customs duty exemption or reduction on capital goods imports.

5. Compliance Requirements

AAS involves adhering to SION for inputs used and faster turnover of export obligations. EPCG requires extensive record-keeping and long-term compliance monitoring.

6. Recent Flexibility in AAS

The government has relaxed rules in AAS to allow duty-free benefits even if goods are shipped before licence issuance, provided the Bill of Entry is filed after the licence date. This improves procedural ease and exporter confidence.

7. Eligibility

AAS is available to manufacturer exporters or merchant exporters linked with supporting manufacturers. Other schemes have different eligibility criteria based on scheme objectives.

Exporters who need to import raw materials without paying customs duty, and who want to quickly produce and export finished goods, often use the Advance Authorisation Scheme. In contrast, those investing in capital goods for long-term growth select schemes like EPCG. The choice depends on operational needs, export timelines, and the type of inputs required.

How Platforms Like ShiprocketX Simplify Ecommerce Export Fulfillment?

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Conclusion

The Advance Authorisation Scheme can significantly reduce production costs and improve your export competitiveness if used correctly. However, misuse or non-compliance can lead to penalties. For new exporters, knowing the rules, maintaining accurate records, and following timelines is non-negotiable. It’s important for new exporters to understand the scheme fully before applying, and when in doubt, consult a DGFT expert or legal advisor.