Duty exemption schemes under Export Promotion Schemes

Advance Authorization Scheme:

• Advance Authorisations (AA) are issued to allow duty free import of inputs that are physically incorporated in the export product (after making normal allowance for wastage) as well as certain items like fuel, oil, catalysts which are consumed in the course of their use to obtain the export product. The raw materials/inputs are allowed in terms of Standard Input-Output Norms (SION) or self-declared norms of exporter. The AA are issued on pre-export or post export basis in accordance with the FTP and procedures in force on the date of issue.
• The holder is required to fulfil export obligation (EO) by exporting specified quantity/value of resultant product. The AA and the materials imported are not transferable even after completion of EO.
• AA usually has a minimum of 15% value addition.
• All Industry Rate (AIR) of Duty Drawback is not admissible with AA. However, Brand Rate of Duty Drawback may be claimed in respect of duty-paid inputs (not specified in the norms) which are used in the export product provided such duty paid inputs have been endorsed by Regional Authority for drawback payment on the AA. This specification ensures value addition norms.
• AA are issued for physical exports as well as deemed exports. These are also issued on the basis of annual requirements of exporter, which enables planning manufacturing / exports on a longer term basis. However, self declared norms are not permitted under annual requirement under FTP 2015-20. Advance Authorisation for Annual Requirement is also not available in respect of SION where any item of input appears in Appendix 4-J of FTP 2015-20.
• AA are issued either to a manufacturer exporter or merchant exporter tied to supporting manufacturer(s) or to sub-contractors in respect of supplies of goods to specified projects provided the name of such sub-contractor appears in the main contract.
• AA holders are to file a bond with 100% Bank Guarantee for the duty difference at the time of importing duty free inputs. Certain categories of exporters are conditionally exempt from filing Bank Guarantee in terms of Circular No. 58/2004-Cus. dated 21-10-2004 as amended last by 15/2014- Customs dated 18.12.2014.
• Normal validity of an AA is 12 months for making imports but there is provision for RA to consider request of original authorization holder and grant one revalidation for six months from expiry date. For fulfillment of EO, normally a period of 18 months from the date of issue is specified, with certain exceptions of shorter or longer periods.
• There are provisions relating to accounting of inputs in the AA schemes. The AA holder is also required to maintain a true and proper account of consumption and utilization of duty free imported/domestically procured goods for a specified minimum period. The AA No./date is to be indicated on the shipping bill/ bill of export or invoice (in case of deemed exports). The imports/exports under AA and their utilization require monitoring. The AA holder is to submit relevant export documents to Regional Authority/DGFT to obtain an Export Obligation Discharge Certificate (EODC). An AA holder is required to deposit Customs duties with interest in case EO is not fulfilled. The Regional Authority informs details of payments to Customs at the port of registration or Commissioner of Central Excise having jurisdiction over the factory of AA holder, as the case may be. The EODC or redemption letter is taken into account by Customs authority at port of registration for purposes of redemption of bond/Bank Guarantee, subject to prescribed checks including intelligence based checks.

AA for export of certain items that are otherwise prohibited for export:

• Certain items that are otherwise prohibited for export may be exported under AA scheme, with conditions stricter than otherwise imposed including the export being allowed only from specified EDI enabled ports subject to pre-import condition under notified SION/prior fixation of norms by Norms Committee, export obligation period being 90 days from import clearance without extensions and import being subject to non-transfer, including for job work, and actual user condition, and the inapplicability of provisions for regularisation of default, etc.

Duty Free Import Authorisation (DFIA):

• DFIA issued under the FTP 2009-14 are similar to AA in many aspects including requirement of monitoring. However, DFIA has a minimum value addition requirement of 20% and once export obligation is completed, transferability of the authorization and / or material imported against it is permitted. Once the transferability is endorsed, the inputs can be imported/domestically sourced only on payment of additional duty of customs/ central excise duty. The DFIA is issued only where SION are notified. After the annual supplement 2013 to the FTP 2009-14, the exemption from anti-dumping duty and safeguard duty is not available when materials are imported against a DFIA made transferable. In case imported materials are transferred the importer is to pay an amount equal to the anti-dumping and safeguard duty leviable on the material, with interest. These aspects apply subject to specified conditions.
• Under the FTP 2015-20, only post-export transferable DFIA with exemption from only the basic customs duty is issued by Regional Authority. Such DFIA is not available for Gems and Jewellery sector or where SION prescribes actual user condition (for example, fuel). The admissibility of brand rate of duty drawback is as per para 4.26 of the FTP.