AEO Package for MSMEs

The Indian Authorised Economic Operator (‘AEO’) Programme was developed by the World Customs Organisation and later introduced in India by the Central Board of Indirect Taxes & Customs (‘CBIC’) in 2011.

The Indian AEO Programme is a voluntary programme administered by the CBIC. The AEO Programme seeks to provide benefits in the form of simplified customs procedures and faster customs clearances to those business entities that offer a high degree of security guarantees regarding their role in the supply chain. 

The CBIC vide ‘Circular No. 33/2016-Customs’ dated 22 July 2016 merged the two facilitation schemes, i.e. ACP (Accredited Client Programme) and AEO, into a combined three-tier AEO Programme. The combined three-tier AEO programme enhanced the scope of these programmes and provided further benefits to the entities. 

The objective of the combiner three-tier AEO Programme is to provide business entities with an internationally recognised quality mark that indicates their secure role in the international supply chain and ensure that their customs procedures are compliant and efficient. Thus, an entity with an AEO status can be considered a reliable trading partner and secure trader. 

On 15 December 2020, the CBIC vide ‘Circular No. 54/2020-Customs’ introduced and promoted the ‘Liberalised MSME AEO Package’. Through the ‘Liberalised MSME AEO Package’, the CBIC encouraged all eligible MSMEs to obtain advantages of faster custom clearances and the related benefits.

Features of the AEO Programme

• Including Direct Port Delivery of imports for ensuring just-in-time inventory management by manufacturers regarding clearance from the wharf to the warehouse.
• Including Direct Port Entry for factory stuffed containers intended for export by AEOs.
• Special focus on the small and medium scale entities, i.e. an entity handling 25 export or import documents annually.
• Providing deferred payment of duties by delinking customs clearance and duty payment.
• Mutual recognition agreements with different customs administrations.
• Faster dispersal of drawback amount.
• Fast-tracking of adjudications and refunds
• Extending facilitation to exports in addition to imports
• Acceptance of self-certified copies of PTA/FTA origin related or any other required certificates for clearance. 
• Request based on-site examination/inspection. 
• Paperless declarations without supporting documents.
• Recognition by the Partner Government Agencies and other stakeholders. 

Who can Apply for AEO Status?

Any business entity involved in the international supply chain carrying out custom related activities can apply for AEO status under the AEO Programme, including:

• Exporters and importers.
• Logistic providers such as airlines, carriers, freight forwarders, etc.
• Custodians or terminal operators.
• Customs house agents.
• Warehouse operators.
• Port operators, authorised couriers, stevedores, etc.

The businesses not involved in customs-related activities or work are not eligible to apply for AEO status. In general,  insurance companies, banks, consultants, etc., are ineligible for AEO status.

Eligibility Criteria for Obtaining AEO Certificate

Section 3 of the AEO Programme guidelines provided in the CBIC circular dated 22 July 2016 provides the eligibility criteria and conditions for granting an AEO certificate. The eligibility criteria for a business entity for obtaining AEO status are as follows:

• The business entity must be established in India.
• The business must be involved in customs-related activities.
• The business must have handled a minimum of 25 customs documents, i.e. either shipping bills or bills of entry in the last financial year.
• The business must be carrying out the customs-related activity for at least the last three financial years.
• The business should not be issued with a show-cause notice during the last three financial years involving forgery, fraud, clandestine removal of excisable goods, outright smuggling, or cases where the service tax is collected but not deposited with the government. 
• The business must be financially solvent during the last three financial years preceding the date of application for AEO status. 
• The business must have appropriate internal measures and controls to ensure the security and safety of the business and its supply chain.
• The business must have a system of managing commercial and transport records.

Relaxation Provided to MSMEs

Under the circular dated 22 July 2016, the MSMEs could not avail AEO Programme due to various conditions. To support the MSMEs against the challenges of the COVID-19 pandemic, the CBIC introduced the ‘Liberalised MSME AEO Package’ for MSMEs in line with the Prime Minister’s Aatmanirbhar Bharat Abhiyan. 

The CBIC examined the difficulties faced by the MSMEs (Micro, Small and Medium Enterprises) while applying for ACO certificate and relaxed various compliances and security requirements for MSMEs under the ‘Liberalised MSME AEO Package’, which are as follows:

• The condition that the business must have handled a minimum of 25 customs documents in the last financial year was relaxed. The MSMEs handling ten documents (five documents each half-year) are eligible and can apply for an AEO certificate.
• The condition of business carrying out customs-related activities for the last three financial years was reduced to the last two financial years for MSMEs to obtain AEO status.
• The condition of not receiving a show-cause notice during the last three financial years involving forgery, fraud,  clandestine removal of excisable goods, etc during the last three financial years was reduced to the last two financial years for MSMEs.
• The condition of the business being financially solvent during the last three financial years was relaxed to last two financial years for the MSMEs to avail AEO status. 
• The various annexures required to be filed for AEO T1 and AEO T2 accreditation, i.e. annexure A, B, C, D, E.1 to E.4 have been supplanted with two annexures, i.e. MSME annexure 1 and 2.
• The annexures required to be filed for AEO T2 accreditation, i.e. annexure E.5.1 and E.5.7 for physical verification has been rationalised with one annexure of MSME annexure 3.
• The time limit for processing the MSME AEO T1 and T2 applications was reduced to fifteen working days (usually one month) and three months (usually six months), respectively.
• The benefit of relaxation in furnishing a bank guarantee for the AEOs for MSME AEO T1 and MSME T2 was further relaxed to 25% from 50% and 10% from 25% required to be furnished by an exporter or importer who is not an AEO certificate holder, respectively.

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