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Published on:

December 10, 2024

Alankar Mishra

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Basics of GST

Know About the Advance Authorisation Scheme under the GST

Those who possess an Advance Authorisation Scheme (AAS) can import specified inputs free of duty and hence also reap the advantages under GST. The scheme is implemented by DGFT and is very beneficial for the exporters as it minimizes their input sourcing expenditure and enhances their competitiveness in the international market.

What is the Advance Authorisation Scheme?

Out of the various schemes under the Indian Foreign Trade Policy, the Advance Authorisation Scheme is the most operative in enhancing export performance and developing trade practices. It facilitates the import by manufacturers and exporters of inputs on the exports under unconditional payment of such duties. Such inputs may consist of raw materials, components and consumables which are likely to reduce costs substantially.

‍Basic Customs Duty (BCD)

‍Integrated Goods and Services Tax (IGST)

‍Compensation Cess.

These exemptions are aimed at reducing production costs with a view of encouraging exports and smoother operationalisation of trade.

Key Features of the Advance Authorisation Scheme

Duty-Free Import: The import of those raw materials which incur no import duties or taxes is accepted so long as the export goods are produced from the imported goods.

Specific Export Obligations: The duty benefits can be availed but within a given period, the exporter has to meet the export obligation placed on him/her.

Applicable Sectors: The facility is available for all sectors with export potential including engineering, textiles, chemicals, electronics, etc.

Transferable Licenses: Advance Authorisation Licenses are not transferable, in order to make sure that they can only be used by the license holder.

Validity: The authorisation shall be valid for a period of one year from the date of issue and the export obligation shall be fulfilled in eighteen months.

Eligibility for Advance Authorisation Scheme

Manufacturers and Exporters: Both manufacturers as well as merchant exporters who work with supporting manufacturers qualify both.

Specific Inputs: The scheme is relevant for such raw materials and their components that are directly involved in the manufacture of exported goods.

Value Addition: There must be at least a certain minimum value addition which is usually 15% but stated otherwise.

Exclusion for Certain Goods: Advance Authorisation does not cover those products where there exists an export duty or restriction.

Benefits of the Advance Authorisation Scheme

Cost Efficiency: The elimination of import tariffs on raw materials enhances the cost of production which in turn makes the exports more attractive.

Cash Management: Non-requirement of timely payments for import tariffs aids exporters in enhancing their cash flow.

National Competitiveness: Decreased cost of production allows exporters to be able to offer competitive prices internationally.

Increases Value Addition: The scheme is beneficial as it stipulates a minimum value addition which encourages local production of higher-value goods.

Internationalization of New Exporters: OSI also helps SMEs and new entrepreneurs penetrate the international markets easily.

Conditions for Availing Advance Authorisation Scheme

Export Obligation: The obligation is for taking the goods outside the country which was also covered in and duties. It has to be done over and above the value-adding requirement.

Monitoring and Reporting: All the imports, samples and goods sent out must be properly recorded and submitted to the Directorate General of Foreign Trade (DGFT) office.

Non-Transferability: Under this scheme, the imported item must not be transferred or disposed of in the country.

Post-Export Benefits: For defaulting exporters in fulfilling their commitments, the duties which were exempted will be paid together with the interest charge.

‍Application Process for Advance Authorisation

1. Registration on DGFT Portal

Before applying for an Advance Authorisation, exporters are required to register on the DGFT e-platform.

2. Filing the Application

Please file Form ANF-4A and include the following documents as proof:

Exporting orders of agreement.

The particulars of the raw materials needed for production.

Previously made export efforts, when relevant.

3. Approval and Issuance

The application is referred to the DGFT which finally issues the Advance Authorisation License detailing what is import and what is export and the associated obligations.

4. Import of Raw Materials

Subject the license to the customs authorities to enable importing raw materials without tax.

5. Fulfillment of Export Obligation

The export obligations must be fulfilled within the time prescribed and proof of export comprising shipping bills and export invoices should be filed with DGFT.

Advance Authorisation Scheme for SEZ Units and EOUs

Advance authorizations can be obtained by the Special Economic Zones (SEZs) and EOUs for :

Primarily for the duty-free purchase of raw materials required for manufacturing goods for export.

Achieving internationally acknowledged levels of production efficiency and quality. Such integration fits well within the Government’s objective of developing SEZs as export-oriented development centres.

‍Comparison: Advance Authorisation vs EPCG Scheme

Feature	Advance Authorisation	EPCG Scheme
Duty Exemption	Duty-free import of raw materials	Duty-free import of capital goods
Export Obligation Timeline	18 months from issuance	6 years from issuance
Eligible Goods	Inputs for manufacturing	Machinery and equipment for production
Purpose	Reducing production costs	Enhancing production capacity

‍Steps to Calculate Export Obligation Under the Scheme

To determine export obligations:

The CIF Cost, Insurance, and Freight, must be established for the purchased imported inputs.

Then, the prescribed percentage of VA proportionate to the quantity is applied 15 per cent is the normal expectation.

The formula is:

Export Obligation = = FOB value = CIF value × (1 + VA percentage).

Challenges in Using the Advance Authorisation Scheme

Compliance Requirements: Exports and imports must be subtly documented by the exporters which adds up the administrative workload

Time-Bound Obligations: Not adhering to the export obligation within the time frame can result in punitive measures.

Ineligibility for Certain Goods: Favorable consequences of the scheme cannot be availed by the goods which are exported along with restrictions or duties.

Complex Application Process: The application and reporting related to exports can be very difficult for a recent exporter.

‍Tips for Exporters Using Advance Authorisation

Plan for Futures Trade: Prepare the timelines for orders that are not produced domestically and also for orders that are scheduled for delivery to work to one’s obligations.

Maintain Proper Documentation: Maintain records and documentation of inventory and its use and abide by the established restrictions.

Know How to Add Value: Compute the necessary value addition so as not to be penalized.

Get Professional Assistance: Consult with export advisors or consultants to deal with complicated procedures.

Conclusion

The Advance Authorisation Scheme makes a significant contribution to export business under GST for exportersís satisfaction by way of duty exemptions, thereby enhancing global competitiveness. This being the case, any company should make an effort to understand the scheme's features, benefits, and compliance requirements so that it can take advantage of the scheme to expand its export trade.

FAQs

1. What is the Advance Authorisation Scheme under GST?

The Advance Authorisation Scheme allows goods to be imported free of any customs duty which are in the form of raw materials for the manufacture of goods meant for export promotion and this helps cut down on production expenditures.

2. Who is eligible for the Advance Authorisation Scheme?

The manufacturers and exporters engaged in the production of exportable goods are eligible provided they fulfil the value addition and export obligation.

3. What is the validity period for Advance Authorisation?

The license remains in effect for 12 months from the date of issuance, and the export requirements are to be fulfilled within 18 months.

4. What is the minimum value addition required under the scheme?

Exporters should, unless otherwise provided by DGFT, comply with the requirement of a minimum value addition of 15 per cent.

5. What happens if the export obligation is not met?

In the event of non-fulfilment of obligations, the exporter shall have to pay the exempted duties along with interest as per the rules of DGFT.

6. Can goods imported under Advance Authorisation be sold domestically?

The answer is no, the goods imported into the country under the scheme cannot be sold on the local market as they are imported duty-free.

7. How to apply for Advance Authorisation?

Exporters may apply through the DGFT e-portal, forming the format OF ANF-4A and furnishing necessary documents such as export orders and details of the materials.