ADVANCE

AUTHORIZATION SCHEME

Prepared By
Hitesh K Gandhi – 014
Ashwini Gujrathi – 017
Ira Malik – 027
Akhilsingh Y Patil – 034
Mitul D Shah – 046
Priyanka Singhal – 054
 INTRODUCTION

• Principle
– Goods and Services are to be exported and not the Taxes and Levies

• Purpose
– Procure inputs and capital goods without the component of Central
Indirect Taxes & Levies

12/08/2021 SIMSR 2
 TYPES OF SCHEMES

Export Promotion
Export Promotion
Schemes
Schemes

Duty Exemption
Duty Exemption Duty Remission
Duty Remission
Schemes
Schemes Schemes
Schemes

Advance
Advance Duty
Duty Duty Drawback
Duty Drawback
Duty Free
Duty Free Import
Import
Authorization
Authorization Entitlement
Entitlement Schemes (DBK)
Schemes (DBK)
Authorization
Authorization Passbook
Passbook
(DFIA)
(DFIA) (DEPB)
(DEPB)

12/08/2021 SIMSR 3
 ADVANCE AUTHORIZATION SCHEME

• For making available duty free Inputs required to manufacture the export
product.

• Inputs allowed as per SION and with Actual User condition

• Facility available for

– Physical exports (including supplies to SEZ units & SEZ Developers)
– Deemed exports
– Intermediate supplies.

12/08/2021 SIMSR 4
 ADVANCE AUTHORIZATION
SCHEME…

• Minimum 15% V.A.

• Export Obligation
– Time period for export

• License & input material non-transferrable

• ANF4A

• ANF4F

12/08/2021 SIMSR 5
 DESCRIPTION OF ADVANCE
AUTHORIZATION

An advance authorization shall specify:-

• Names and description of items to be imported and exported
• Quantity of each item to be imported or value
• Aggregate CIF value of imports
• FOB value and quantity of exports

12/08/2021 SIMSR 6
 EXPORTS IN ANTICIPATION OF
AUTHORIZATION

• Shipping documents should be endorsed with file number or authorization

number to establish co-relation of exports with authorization issued

• If application is approved, authorization shall be issued based on input

output norms

• Exports made in anticipation of grant of an advance authorization shall be

entirely on risk and responsibility of exporter

• In case application for an advance authorization is rejected, conversion of

duty free shipping bills to drawback shipping bills may also be permitted
by custom authorities.

12/08/2021 SIMSR 7
 ADVANCE AUTHORIZATION OR DFIA FOR
INTERMEDIATE SUPPLIES

• Application for grant of advance authorization can be made on the basis of

a tie-up agreement with exporter

• It is issued when authorization is made invalid for direct import of items to

be supplied by intermediate manufacturer.

• In such cases, a copy of the invalidation letter will be given to

authorization holder and copy thereof will be sent to intermediate supplier
as well as RA of intermediate supplier

12/08/2021 SIMSR 8
ADVANCE AUTHORIZATION OR DFIA FOR
INTERMEDIATE SUPPLIES

• Authorization holder in such cases has an option either to supply

intermediate product to holder of Advance authorization or DFIA to export
directly

• Facility of advance authorization shall be available even in cases where

intermediate supplier has supplied or intend to supply material subsequent
to fulfillment of EO by exporter.

12/08/2021 SIMSR 9
 Free of Cost Supply by Foreign Buyer
• Advance Authorisation is available where some or all inputs are supplied
free of cost to exporter by foreign buyer.
• For calculation of value addition, notional value of free of cost inputs
along with value of other duty-free inputs shall be taken into consideration.
• A specific endorsement is made on exchange control copy disallowing
remittance for such material.
• All inputs imported need top be used in manufacturing except wastages.
 Provision for BIFR units
• Any firm / company registered with BIFR (Board of Industrial and
Financial Reconstruction) or any firm / company acquiring a unit, which is
under BIFR shall be allowed Export Obligation Period (EOP) extension as
per rehabilitation package prepared, subject to approval of BIFR, or 5
years if not specified, without payment of composition fee.
• Above provisions apply also to SSI units as per rehabilitation scheme of
concerned State government.
 Advance Authorisation for annual
requirement
• Advance Authorization can also be issued for annual requirement.
• Status Certificate holder and all other categories of exporters having past
ex port performance (in preceding two years) shall be entitled for Advance
Authorization for annual requirement.
• Entitlement in terms of CIF value of imports shall be up to 300% of the
FOB value of physical export and/or for value of deemed export in
preceding licensing year or Rs 1 crore, whichever is higher.
 Advance Orders (ARO) and Invalidation
Letter
• Option to source inputs from indigenous sources / State Trading
Enterprises in lieu of direct import either against Advance Release Order
(ARO) or Invalidation letter denominated in free foreign exchange / Indian
rupees.
• An application may be made to Regional Authority concerned for grant of
ARO.
• Application shall specify:
– name, description and quantity of items and
– individual value of items to be procured.
• validity shall be co-terminus with validity of Advance Authorisation
• An ARO issued for procurement of an individual item shall be
automatically valid for procurement from one or more indigenous sources.
 Admissibility of Drawback
• In case of an Advance Authorization, drawback shall be available for any
duty paid material, whether imported or indigenous, used in goods
exported, as per drawback rate fixed by DoR, Ministry of Finance
(Directorate of Drawback).
• Drawback allowed shall be mentioned in Authorization.
Advance Authorization for applicants with
multiple units
• Transfer of any duty free import against Advanced Authorisation from one
unit of a company to other for manufacturing purpose has to be doen with
prior intimation to Jurisdictional Excise.
• No claim of CENVAT benefit is allowed.
• To avail this benefit, all the unit need to be mentioned on IEC Certificate.
 LUT and BG
• Bank Guarantee ; BG
• Legal Undertaking; LUT
• Acceptance of BG/LUT

EXECUTION OF LUT/BG
• execute wherever any duty free import is allowed with the Customs Authority
before clearance of goods

• Indigenous sourcing - furnish LUT / BG to licensing authority before sourcing

• Execution of LUT in place of BG for import by importers who have signed

production Sharing Contract (PSC) with the GOI on re-export basis under
EXIM Policy

12/08/2021 SIMSR 16
 LUT and BG
• Execution of LUT/BG against Import Authorization issued by import of
Restricted Items on Re-export basis.

LUT , full export

Turnover >=5 Cr.
value

Not covered LUT, full export value

under 1.) BG for 1 lakh

Minimum time period = Time for re-export

+ 6 months

Regional Authorities redeem BG/LUT when

documents of re-export are furnished

12/08/2021 SIMSR 17
 LUT
Procedure for the execution of the legal agreement
 
• Acceptance to the standard terms and conditions of the approval
• Triplicate copies
• Legal agreement to be typed on a Rs. 50.00 stamp paper
• The legal agreement signed on all the pages.
• Common embossed seal to be affixed on all the pages.
• Witness signatures
• Importer exporter code number obtained from DGFT to be enclosed
• Board resolution copy to be enclosed
• Advance service charge of Rs. 45000.00
• Application of the Green Card
• Bank certificate for maintaining the bank account
• Photo copy of the legal agreement with original signatures
• List of import as per format
• (Des Qty Value)
• List of indigenous as per format
• (Des Qty Value)

12/08/2021 SIMSR 18
 BACK TO BACK INLAND LC

• Instead of applying for an ARO or an invalidation letter

• Advance Authorization or DFIA holder - open in favour of indigenous supplier
• Bank ensures BG/LUT executed and endorsed

• After opening inland LC, bank s make following endorsement on

 The Exchange Control copy of the Advance License for Physical Exports / Deemed
Exports / Annual Requirement
 The Customs copy of the Advance License for Physical Exports / Deemed Exports /
Annual Requirement
 On the DEEC book (Part-i)

12/08/2021 SIMSR 19
 BACK TO BACK INLAND LC

The value of this Advance License for Physical Exports / Deemed Exports / Annual
Requirement stands reduced by a sum of Rs. ________ , being the value of the inland
LC No.________ opened today by the licensee in favour of M/s ________ (name and
address of the indigenous supplier)".

 The original LC may be retained by the bank for negotiation

 Bank responsibility – Endorsement - not liable for any misrepresentation or false
statement made by the licensee.
 The inland LC in favour of the indigenous supplier shall not be cancelled for any
reason.
 The non negotiable copy with the photocopy of the Advance License along with
DEEC
 duly carrying endorsements made by the bank shall be sufficient for the indigenous
supplier to claim deemed export benefits.
12/08/2021 SIMSR 20
 ENTITLEMENT

• CIF value -- maximum 500% of FOB

• NC already ratified norms under “ Self Declared Authorization for Free of
Cost and Paid Material”
• Valid for 6 months from date of ratification
• Authorization issued by RA under “ Adhoc Norms fixed”
• Add norms within one month after 6 months from application
• Mandatory for industry to provide data for fixation of SION
• Else problem in repeat authorization.
• Authorization in excess of entitlement : furnish 100% BG to Customs
Authority. A specific endorsement made on authorization.

12/08/2021 SIMSR 21
 Port of Registration

• For Advance Authorisation

• Issued for purpose of import and export through one of sea ports, airports,

ICDs or LCS.

• Authorisation only for that port for import.

• Export may be made through any port.

12/08/2021 SIMSR 22
 Examples

• Sea Ports : Mumbai, Kolkata, Kandla, Chennai

• Air Ports : Ahmedabad, Srinagar, Coimbatore, Delhi

• ICDs : Agra, Bangalore, Vadodara, Bhatinda

• LCS : Ranaghat, Jogbani, Mahadipur

12/08/2021 SIMSR 23
 Facility of Clubbing

• Only for redemption/regularisation of cases.

• No further import/export.

• Issued under similar Customs notification

• In 2004-09 period AA with different customs notifications can be clubbed.

12/08/2021 SIMSR 24
 Procedure

• Request is considered in Form ANF 4D for clubbing more than 1 AA.

• Value addition = Avg. ( FTP , procedure laid)

• Shortfalls regularised in terms of paragraph “ Regularisation of Bonafide

Default” of Handbook of Procedures, Vol. 1.

12/08/2021 SIMSR 25
 Conditions

• Only for AA(s) where shortfall in fulfillment of EO which is sought to be

clubbed with an advance Authorisation(s) valid for imports.

• For expired Authorisations with EO shortfall and which is sought to be

clubbed with advance Authorisation(s) valid for imports, payment of

composition fee for EO period as per “ Export Obligation (EO) Period and

Its Extension”

• For exports effected beyond EO extension , no clubbing permitted.

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