The Export Advance Authorisation Scheme is one of the most important export promotion schemes introduced by the Government of India under the Foreign Trade Policy (FTP). The scheme allows exporters to import raw materials, components, and inputs without paying customs duty, provided those materials are used for manufacturing goods meant for export.
For exporters looking to reduce production costs and remain competitive in the global market, the export advance authorisation scheme plays a vital role. By offering duty exemption on imports, it improves cash flow, lowers input costs, and increases profit margins.
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What is the Export Advance Authorisation Scheme?
The Export Advance Authorisation Scheme, commonly referred to as the Advance Authorisation Scheme, is issued under Chapter 4 of the Foreign Trade Policy (FTP). It allows duty-free import of inputs that are physically incorporated in export products.
In simple terms, if you are an exporter and need raw materials to manufacture goods for export, you can import those materials without paying customs duties under the advance authorisation.
The scheme covers:
- Basic Customs Duty (BCD)
- Integrated Goods and Services Tax (IGST) (subject to policy updates)
- Compensation Cess (if applicable)
The main goal of the advance authorisation scheme is to make Indian exporters more competitive in international markets by reducing production costs.
Objectives of the Advance Authorisation Scheme
The key objectives of the export advance authorisation scheme are:
- Promote exports from India
- Reduce input cost for exporters
- Improve ease of doing business
- Encourage value addition
- Boost foreign exchange earnings
By eliminating duty burden on imported inputs, the scheme ensures that Indian products can compete globally in terms of price and quality.
Types of Advance Authorisation
The advance authorisation can be issued in different categories:
1. Advance Authorisation for Physical Exports
Issued for manufacturing export goods where inputs are physically incorporated.
2. Advance Authorisation for Annual Requirement
Given to exporters with good track records for annual import needs.
3. Advance Authorisation for Deemed Exports
Applicable where supplies are considered deemed exports under FTP.
Benefits of the Export Advance Authorisation Scheme
The export advance authorisation scheme provides multiple advantages to exporters:
1. Duty-Free Import of Inputs
Import raw materials without paying customs duty.
2. Lower Production Cost
Reduces overall manufacturing expenses.
3. Better Global Competitiveness
Lower pricing improves competitiveness in international markets.
4. Improved Cash Flow
No upfront duty payment improves working capital.
5. Supports MSMEs
Small and medium exporters benefit significantly from reduced cost burden.
6. Flexibility in Sourcing
Exporters can source quality raw materials globally without additional tax burden.
Eligibility Criteria
To apply under the advance authorisation scheme, the applicant must:
- Be an exporter or manufacturer-exporter
- Hold a valid Import Export Code (IEC)
- Manufacture export goods using imported inputs
- Fulfill export obligation within prescribed time
Both merchant exporters and manufacturer exporters can apply, subject to conditions.
Export Obligation Under Advance Authorisation
One of the most important aspects of the scheme is the export obligation under advance authorisation.
Export obligation means the exporter must export finished goods manufactured using the duty-free imported inputs within a specified time period.
Key Points About Export Obligation:
- Typically, export obligation must be fulfilled within 18 months (can vary as per policy updates).
- The exporter must achieve a specific value addition.
- Exports must be completed as per the quantity and value mentioned in the licence.
If the exporter fails to fulfill the export obligation under advance authorisation, they must pay the customs duties along with interest and possible penalties.
Therefore, exporters must plan production and exports carefully.
Read More - SCOMET Export Licence Explained: Meaning, Process & Requirements
Application Process for Advance Authorisation
The application for advance authorisation is filed online through the DGFT (Directorate General of Foreign Trade) portal.
Step-by-Step Process:
- Register on DGFT Portal
- Login using IEC credentials
- Fill ANF (Application Form) for Advance Authorisation
- Submit required documents
- Pay applicable government fees
- Await approval from DGFT
Required Documents:
- Import Export Code (IEC)
- GST Registration
- Export order copy
- Bill of materials
- Technical specifications
- Chartered Accountant certificate (if required)
Once approved, the authorisation allows duty-free imports.
Advance Authorisation Scheme Under GST
The advance authorisation scheme under GST has undergone several changes since GST implementation in 2017.
Initially, IGST exemption was withdrawn, but later the government restored IGST exemption for advance authorisation holders subject to specific notifications.
Key GST Aspects:
- IGST exemption available on imports under valid authorisation.
- Supplies to advance authorisation holders may qualify as deemed exports.
- GST compliance must be maintained properly.
- Proper documentation is mandatory for claiming exemption.
Exporters must stay updated with the latest notifications regarding the advance authorisation scheme under GST to avoid compliance issues.
Value Addition Requirement
Under the export advance authorisation scheme, exporters must achieve minimum value addition.
Value Addition =
(FOB value of export – CIF value of imported inputs) ÷ CIF value of imported inputs × 100
Minimum value addition is generally 15%, but it may vary depending on the sector.
Advance Authorisation Scheme UPSC Perspective
The advance authorisation scheme UPSC topic is important for candidates preparing for Civil Services Examination.
UPSC aspirants should understand:
- It is part of India’s Foreign Trade Policy.
- It promotes exports by providing duty exemption.
- It improves foreign exchange earnings.
- It supports the Make in India initiative.
The scheme is often asked in Prelims and Mains under Economy and Government Schemes.
Important Conditions Under the Scheme
While the advance authorisation scheme provides significant benefits, exporters must comply with certain conditions:
- Inputs must be used only for export production.
- Proper record maintenance is mandatory.
- Export obligation must be fulfilled within time.
- No diversion of imported materials.
Non-compliance can lead to cancellation and recovery of duties.
Common Mistakes to Avoid
Exporters applying under the export advance authorisation scheme should avoid:
- Incorrect calculation of value addition
- Delay in export obligation fulfillment
- Improper documentation
- Non-compliance with GST rules
- Misuse of imported inputs
Professional guidance from export consultants can help avoid penalties.
Difference Between Advance Authorisation and EPCG
Many exporters confuse the advance authorisation scheme with the EPCG scheme.
Understanding the difference helps exporters choose the right scheme.
Why Exporters Should Use the Export Advance Authorisation Scheme
The export advance authorisation scheme is especially beneficial for:
- Textile exporters
- Pharmaceutical manufacturers
- Engineering goods exporters
- Chemical manufacturers
- MSME exporters
By reducing duty burden, exporters can increase profitability and expand internationally.
Latest Updates & Compliance Tips
Exporters should:
- Regularly check DGFT notifications
- Track export obligation deadlines
- Maintain proper documentation
- Consult GST professionals for compliance
- File returns accurately
The advance authorisation scheme under GST requires careful compliance to avoid disputes.
Conclusion
The Export Advance Authorisation Scheme is a powerful export promotion tool under India’s Foreign Trade Policy. It enables exporters to import inputs duty-free, reduce costs, and compete globally.
However, exporters must carefully fulfill the export obligation under advance authorisation, maintain proper documentation, and comply with GST regulations.
Whether you are an exporter, business owner, or UPSC aspirant studying the advance authorisation scheme UPSC topic, understanding this scheme is essential for navigating India’s trade ecosystem effectively.
By using the advance authorisation scheme strategically, businesses can significantly enhance growth, improve margins, and expand into global markets successfully.
FAQs
1. What is export obligation under advance authorisation?
Export obligation under advance authorisation means the exporter must export finished goods manufactured from duty-free imported inputs within the specified time period. Failure to fulfill this obligation requires payment of customs duty with interest.
2. Is IGST exempt under advance authorisation scheme under GST?
Yes, IGST exemption is available on imports under valid advance authorisation, subject to government notifications and compliance requirements.
3. Who can apply for the export advance authorisation scheme?
Manufacturer exporters and merchant exporters holding a valid IEC can apply for the export advance authorisation scheme through the DGFT portal.
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