The Advance Authorization Scheme (AAS) is a crucial policy introduced by the Government of India under the Foreign Trade Policy (FTP) to support exporters and encourage economic growth. Managed by the Directorate General of Foreign Trade (DGFT), this scheme enables duty-free import of inputs required to produce export goods. By reducing the cost burden on exporters, the scheme significantly enhances their competitiveness in international markets.In this article, we will explore the objectives, benefits, eligibility, process, and challenges of the Advance Authorization Scheme.
What Is the Advance Authorization Scheme?
The Advance Authorization Scheme allows exporters to import raw materials, components, consumables, and packaging materials required for the manufacturing of export products without paying customs duties. The duty exemption applies to the Basic Customs Duty (BCD), Anti-Dumping Duty (ADD), Safeguard Duty, and other taxes applicable at the time of import.However, the scheme mandates that the finished goods manufactured from the imported inputs must be exported within a specific timeframe, as per the conditions mentioned in the license.
Key Objectives of the Advance Authorization Scheme
- Promote Exports: By reducing production costs, the scheme enhances the global competitiveness of Indian goods.
- Support Manufacturers: Exporters, especially in sectors requiring significant raw materials, benefit from duty-free imports.
- Encourage Economic Growth: The scheme aims to boost India’s export performance and contribute to economic development.
- Ease of Trade: Simplified procedures and approvals enable exporters to focus on manufacturing and export activities.
Benefits of the Advance Authorization Scheme
- Duty-Free Imports: Exporters can import raw materials and inputs without paying customs duties, thus reducing production costs.
- Improved Cash Flow: Duty exemption eliminates the need to block capital for customs duties, improving liquidity.
- Enhanced Competitiveness: Cost-effective production helps Indian exporters compete better in global markets.
- Flexibility in Input Sourcing: Exporters can source quality inputs from international markets without cost constraints.
- Exemption on Taxes: The scheme provides relief from Basic Customs Duty, Countervailing Duty (CVD), and other taxes.
- Deemed Exports: Supplies to EOU (Export Oriented Units) and SEZ (Special Economic Zones) are also eligible for benefits.
Eligibility Criteria for the Advance Authorization Scheme
The Advance Authorization Scheme is available to:
- Manufacturer Exporters: Businesses involved in manufacturing and exporting products.
- Merchant Exporters: Businesses engaged in export trading who can tie up with supporting manufacturers.
- Specific Sectors: Exporters in industries such as textiles, electronics, pharmaceuticals, chemicals, and engineering.
To qualify for the scheme, exporters must:
- Submit a valid export order or letter of credit.
- Meet the value addition requirements, which differ for various sectors.
- Export the goods within a specified timeframe, typically 18 months from the date of authorization.
How to Apply for the Advance Authorization Scheme
The DGFT has streamlined the process to ensure exporters can benefit easily from the Advance Authorization Scheme. Below are the steps to apply:
1. Application Filing
- Exporters must submit an online application to the DGFT through the DGFT portal.
- The application must include details such as:
- Description of raw materials and export products.
- Quantity and value of inputs required.
- Export obligation (EO) based on export orders.
2. Issuance of Advance Authorization License
- Upon verification, DGFT issues the Advance Authorization License.
- This license enables exporters to import duty-free inputs as per the specified norms.
3. Procurement of Inputs
- Exporters can begin importing raw materials or inputs without paying customs duties using the issued license.
4. Fulfillment of Export Obligation
- Exporters are required to manufacture and export goods using the duty-free imports within the stipulated timeframe (18 months).
- A minimum value addition of 15% is mandatory for most products. This ensures that the export process contributes to domestic economic value.
5. Submission of Export Documents
- Once the export obligation is fulfilled, exporters must submit the following documents to the DGFT:
- Bill of Entry (for imports)
- Shipping Bill (for exports)
- Export invoices
- Bank Realization Certificate (BRC) as proof of export proceeds realization.
6. Redemption of License
- After verification, the DGFT redeems the Advance Authorization License, confirming that the export obligations have been successfully met.
Value Addition Under the Scheme
Value addition is a critical requirement under the Advance Authorization Scheme. It ensures that the duty-free imports lead to significant value generation for the economy. The formula to calculate value addition is:
Where:
- FOB is the Free on Board value of export goods.
- CIF is the Cost, Insurance, and Freight value of imported inputs.
Common Challenges Faced by Exporters
Despite its benefits, exporters face certain challenges under the Advance Authorization Scheme:
- Compliance Burden: Documentation and reporting requirements can be time-consuming and complex.
- Export Obligation: Exporters must fulfill their commitments within the prescribed timeframe to avoid penalties.
- Input Norms: Restrictions on the quantity and type of inputs can limit operational flexibility.
- Value Addition Requirement: Meeting value addition norms can be challenging for certain industries.
- Changes in Trade Policy: Frequent updates to the Foreign Trade Policy may create uncertainty.
Conclusion
The Advance Authorization Scheme is a vital initiative that empowers Indian exporters by reducing production costs and facilitating duty-free imports of inputs. By improving cash flow, enhancing global competitiveness, and promoting export-oriented growth, the scheme significantly contributes to the Indian economy. However, exporters must stay informed about compliance requirements, export obligations, and value addition norms to maximize the scheme’s benefits.For businesses looking to leverage this scheme effectively, understanding its nuances and maintaining proper documentation is key. The Advance Authorization Scheme remains a cornerstone of India’s export strategy, helping Indian goods reach global markets while fostering domestic growth.
