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It is always preferable to maintain a favourable balance of trade, i.e., the value of exports should be greater than the value of imports. The government has introduced various schemes to boost exports made by the country. All export and import-related activities are governed by the Foreign Trade Policy (FTP), which is aimed at enhancing the country’s exports and use trade expansion as an effective instrument of economic growth and employment generation. The present Foreign Trade Policy (2015-2020) aims to keep in line with the ‘Make in India’ vision and support exports made by Special Economic Zones (SEZs), Export Oriented Units (EOUs), etc. It also contains various export promotion schemes which involve either the exemption or remission of customs duty. The Advance Authorization Scheme is one such export promotion scheme.
The Advance Authorization Scheme is a scheme where the import of inputs will be allowed to be made duty-free (after making normal allowance for wastage) if they are physically incorporated in a product which is going to be exported. An export obligation is usually set as a condition for issuing Advance Authorization.
The inputs imported are exempt from duties like Basic Customs Duty, Additional Customs Duty, Education Cess, Anti-dumping duty, Safeguard Duty and Transition Product-Specific Safeguard duty, Integrated tax, and Compensation Cess, wherever applicable, subject to certain conditions.
The following items can be imported without payment of duty under this scheme:
The Advance Authorization Scheme is available to either a manufacturer exporter directly or a merchant exporter tied with a supporting manufacturer. The authorization is available for the following:
Advance Authorization is valid for 12 months from the date of issue of such Authorization. In the case of deemed exports, the Authorization is linked to the contracted duration of project execution or 12 months from the date of issue of such Authorization, whichever is more. However, the export obligation may be fulfilled within 18 months from the date of issue of Authorization or as notified by the DGFT. Unless specified, the export proceeds should be realized in freely convertible currency.
The Advance Authorization issued and the materials imported thereunder will be with actual user condition. This means that the actual user alone may import such goods. The authorization will not be transferable even after completion of export obligation.
Advance Authorization can be issued for inputs used in the product that is to be exported on the basis of the following:
Subject to certain conditions, where an item is specified in SION, Advance Authorization can be issued for the annual requirements. It is not available on a self-declaration basis. Exporters need to have a past export performance in at least two preceding financial years, in order to be entitled to such authorization.
Under Advance Authorization, the minimum Value Addition to be achieved is 15%, except for physical exports for which payments are not received in freely convertible currency and other specified export products. For tea, minimum Value Addition is 50% Where certain items are supplied free of cost by the foreign buyer, its notional value will be added in the CIF value of import and FOB value of export for the purpose of calculating Value Addition. Irrespective of the currency of realization, Exports to SEZ units/supplies to developers/co-developers would be covered.
The whole reason behind allowing duty-free inputs is to boost exports. The entity will incorporate these acquired inputs into a product so that it may be exported. Export Obligation (EO) in the case of Advance Authorisation is the value of export that needs to compulsorily be achieved within a prescribed time period. The EO is usually mentioned in the Authorisation issued. After achieving the EO, the entity has to provide evidence of the same. Not achieving the EO in the prescribed time period could result in penalties. Other export promotion schemes like the Export Promotion Capital Goods (EPCG) Scheme have different conditions when it comes to the export obligation.