Advance Authorization Scheme

The Advance Authorisation Scheme (AAS) is a key export promotion initiative of the Government of India, designed to encourage the export of value-added goods by allowing duty-free import of inputs required for manufacturing export products. Administered under the Foreign Trade Policy (FTP) and managed by the Directorate General of Foreign Trade (DGFT), the scheme enables exporters to remain globally competitive by reducing input costs and improving liquidity.

Objectives of the Scheme

The main objectives of the Advance Authorisation Scheme are to:

• Promote export-oriented manufacturing by reducing the burden of import duties on inputs.
• Enable exporters to import raw materials, components, and consumables required for production without payment of customs duty.
• Encourage value addition and competitiveness in international markets.
• Facilitate Make in India by integrating Indian exporters into global supply chains.

By exempting duties on imported inputs used in export production, the scheme ensures that exports are not burdened by domestic taxes or tariffs, following the principle that “exports should be free of duties and taxes.”

Legal and Policy Framework

The scheme is governed under:

• Foreign Trade (Development and Regulation) Act, 1992
• Foreign Trade Policy (FTP), 2023 and its earlier versions
• Handbook of Procedures (HBP) issued by DGFT
• Relevant Customs Notifications providing duty exemptions

The Advance Authorisation was earlier known as the Advance Licence Scheme, which was introduced under the Export-Import Policy (1992–1997) and later renamed with refinements in 2002.

Key Features of the Scheme

1. Duty-Free Import: Allows duty-free import of inputs that are physically incorporated into export products, including:
   • Raw materials and components
   • Fuel and lubricants used in manufacturing
   • Catalysts, consumables, and packing materials
2. Exemption Coverage: Imports under the scheme are exempt from:
   • Basic Customs Duty (BCD)
   • Additional Customs Duty (CVD)
   • Anti-dumping and Safeguard Duty (in some cases)
   • Integrated Goods and Services Tax (IGST) and Compensation Cess (subject to specific notifications)
3. Value Addition Requirement: Exporters must achieve a minimum value addition (VA), calculated as:

   VA=(FOB value of export − CIF value of import)CIF value of import×100VA = \frac{(FOB\ value\ of\ export\ -\ CIF\ value\ of\ import)}{CIF\ value\ of\ import} \times 100VA=CIF value of import(FOB value of export − CIF value of import)​×100
   The minimum value addition is usually 15%, although it may vary depending on the product or sector.

4. Export Obligation (EO): The exporter must fulfil a specified export obligation within a prescribed period (generally 18 months from the date of issue). The EO requires the exporter to export the finished goods equivalent to the quantity of imported inputs and achieve the required value addition.
5. Authorisation Types: Advance Authorisation can be issued to:
   • Manufacturer Exporters
   • Merchant Exporters tied to Supporting Manufacturers
   • Sub-contractors or Job-workers (in specific cases)
6. Validity:
   • The validity for import is 12 months from the date of issue.
   • Export obligation must be completed within 18 months (extendable in special circumstances).
7. Transferability:
   • The authorisation and materials imported are non-transferable, meaning they must be used only for the approved export product.
   • However, after fulfilment of export obligation and closure, the imported or domestically procured goods may be transferred with DGFT permission.

Types of Advance Authorisation

The DGFT issues Advance Authorisation under different modes depending on the nature of exports:

1. Advance Authorisation for Physical Exports: Issued for inputs required to manufacture products meant for direct export.
2. Advance Authorisation for Intermediate Supplies: Granted to manufacturers supplying inputs to another exporter who will make the final export product.
3. Advance Authorisation for Deemed Exports: Applicable when goods are supplied to projects funded by international agencies, Export Oriented Units (EOUs), or Special Economic Zones (SEZs).
4. Advance Authorisation for Annual Requirement: Issued to status holders (recognised exporters) with a record of at least two years of export performance, allowing them to import inputs for anticipated export requirements within a financial year.

Conditions for Issuance

• The applicant must provide input–output norms (SIONs), which specify the quantity of inputs required to produce a specific quantity of export product.
• In cases where SION is not prescribed, ad hoc norms can be approved by the Norms Committee of DGFT.
• The exporter must furnish bank guarantee, bond, or letter of undertaking (LUT) to customs authorities for duty-free imports.

Advance Authorisation for Job Work and EOUs

• Inputs imported under the scheme may be sent to job workers for processing, provided that the final product is exported under the supervision of the authorisation holder.
• Export Oriented Units (EOUs) and SEZ units are also eligible for benefits under the scheme for deemed exports or physical exports.

Monitoring and Compliance

• Export performance is monitored through export obligation discharge certificates (EODC) issued by DGFT.
• Failure to meet export obligations within the stipulated time can lead to:
  • Payment of duty along with interest on imported goods.
  • Penal action under the Foreign Trade (Regulation) Rules, 1993.

Advantages of the Scheme

• Reduces Input Cost: Duty-free imports enhance competitiveness in global markets.
• Improves Cash Flow: Avoids the need to pay duties upfront and claim refunds later.
• Encourages Export Diversification: Supports a wide range of industries including textiles, engineering, chemicals, pharmaceuticals, and gems & jewellery.
• Flexibility: Authorisations can be customised according to production needs and export plans.
• Supports Make in India: Encourages domestic value addition and employment generation.

Limitations and Challenges

• Complex Documentation: Application, verification, and monitoring processes can be time-consuming.
• Strict Compliance: Non-fulfilment of export obligations leads to heavy penalties.
• Limited Transferability: Imported inputs must be used only for authorised products.
• Possible Misuse: Risk of diversion of duty-free imports for domestic use, necessitating strict surveillance.
• Dependence on Accurate SIONs: Incorrect norms may lead to underutilisation or excess imports.

Difference Between Advance Authorisation and Other Export Promotion Schemes

Recent Developments

Under the Foreign Trade Policy 2023, the Advance Authorisation Scheme has been further simplified through:

• Online processing of applications and issuance via the DGFT portal.
• Paperless submission and self-declaration norms for authorised exporters.
• Inclusion of EOU, SEZ, and Deemed Export transactions for greater flexibility.
• Provision for IGST and Compensation Cess exemption under specific notifications.