Advance Authorisation Scheme

Every Advance Authorisation carries a mandatory Export Obligation (EO): the exporter must export goods of a minimum FOB value within the prescribed period (18 months from issuance, subject to extension). The minimum EO is computed as the CIF value of duty-free imports under the licence plus 15% — this is the 15% value addition requirement. For example, if the AA permits imports of CIF value ₹1 crore, the EO is at least ₹1.15 crore in FOB export value, to be fulfilled by actual export shipments within 18 months. Exports made prior to AA issuance can also be counted toward the EO — provided they are within the 12-month period before the AA was issued and the licensing conditions are met.

Standard Input Output Norms (SIONs) are pre-approved norms published by DGFT that specify the maximum quantity of each input that may be imported duty-free per unit of export output for a given product. SIONs are organised by product category (textiles, chemicals, engineering goods, etc.) and are updated periodically by the Norms Committee. If your product has a published SION, the AA application is relatively straightforward — you declare the SION number, the import quantities follow automatically. If your product does not have a published SION, you must apply for ad-hoc norm fixation (submitted with the AA application for post-export verification) or, for certain categories, file a self-declared norm. Ad-hoc norm applications require a technical justification of the production process, input consumption per unit of output, and any waste/by-product generation.

An Advance Authorisation exempts: Basic Customs Duty (BCD), Additional Customs Duty (surrogate CENVAT, now largely subsumed into IGST), Countervailing Duty, Anti-Dumping Duty (ADD) where specifically granted, and Education Cess on customs duties. The position on IGST has been specifically addressed in successive FTPs: currently, imports under AA are also exempt from IGST (Integrated Goods and Services Tax) on inputs — this was a significant clarification introduced through the GST implementation amendments to the Customs Exemption Notifications. Safeguard Duty and Social Welfare Surcharge are not exempt under the standard AA. The exact notification reference must be verified at the time of each import — duty exemption notifications are amended periodically.

Generally, no — or only in very limited circumstances. The Advance Authorisation scheme is premised on physical incorporation of imported inputs into export products — a manufacturing process. A pure trading house that does not manufacture cannot demonstrate physical incorporation. There is a provision for 'merchant exporters' to source from domestic manufacturers — but in that case, the obligation to maintain input-output records rests with the supporting manufacturer, who must provide a Back-to-Back undertaking. In practice, the AA scheme is most cleanly available to manufacturer-exporters with their own production facilities.

If the EO is not fulfilled within the original 18-month period without an extension, the AA defaults. The duty foregone on all imports made under the licence becomes immediately recoverable — along with interest at 15% per annum from the date of each import. Additionally, DGFT can impose a penalty of 1% to 3% of the duty foregone per year of default under the provisions of the FTDR Act 1992. The Redemption Certificate is not issued, the Bank Guarantee or Bond at Customs is invoked, and the exporter is flagged in the DGFT system as a defaulter — affecting future licence applications. Before the period expires, an extension can be applied for on payment of a composition fee — PNPC initiates this 2 months before the deadline if the EO is at risk.

Yes. The FTP permits past exports to be counted toward the Export Obligation of an Advance Authorisation, subject to conditions. Exports can be counted if they are in the same product category, made within 12 months prior to the date of the AA issuance, and the required documentation (shipping bills, BRCs) is on record. This provision allows exporters who have existing export history to apply for an AA, make the duty-free imports, and treat prior exports as having partially or fully fulfilled the new EO — effectively making the AA a post-facto cost recovery for duty on inputs used in prior production.

The Registration-cum-Membership Certificate (RCMC) is issued by the Export Promotion Council (EPC) for the relevant product sector. It is a prerequisite for most FTP benefit applications including Advance Authorisation. The correct EPC depends on the export product: EEPC India for engineering goods; CHEMEXCIL for chemicals, dyes and pharmaceuticals; APEDA for agriculture; FIEO for general merchandise merchants; AEPC for apparel; TEXPROCIL for cotton textiles — among many others. RCMC must be current (valid for the year of the AA application) and must cover the specific HS codes of the export products.

On registering the Advance Authorisation at the Customs port of import, Customs requires the AA holder to execute a Bond (for any bonded warehouse procedure) or furnish a Bank Guarantee equivalent to the duty foregone on the licensed imports. The BG/Bond is the Customs collateral — it can be invoked if the EO is not fulfilled and the duty becomes payable. The BG/Bond is released only when DGFT issues the Redemption Certificate confirming the EO has been fulfilled. Until redemption, the BG/Bond is a contingent liability on the exporter's balance sheet and a limit on the bank's credit facility.

Yes. An AA can be amended after issuance through an ANF application to the issuing DGFT Regional Authority. Common amendments: addition of new inputs not originally included; change in HS code after a reclassification; revision of import quantities if the SION is revised; enhancement of the EO (to increase the licensed import value proportionally). Minor amendments may be processed online; major amendments (like changing the export product or the SION) require a formal application with supporting documentation. PNPC manages AA amendments as part of the ongoing licence management scope.

Yes. The FTP recognises certain 'deemed exports' as equivalent to physical exports for the purpose of fulfilling the Export Obligation under an AA. Supplies to EOUs, supplies to EPC projects financed with foreign exchange, supplies against International Competitive Bidding (ICB) tenders, and supplies to mega power projects are among the categories of deemed exports. An exporter supplying goods to an EOU can apply for an AA for the inputs used in manufacturing those goods, and treat the supply to the EOU as EO fulfillment. The deemed export documentation (back-to-back invoices, EOU acknowledgement, ARE-3 procedure) substitutes for the physical export shipping bill in the redemption proceedings.

AA holders who import without paying IGST (under the GST exemption linked to AA) cannot claim IGST refund under GST law on the same imports — since no IGST was paid. However, the exported goods' GST refund (ITC accumulated on domestic inputs) is a separate claim under GST and is not affected by the AA's customs duty exemption. If an AA holder inadvertently pays IGST on imports (because the exemption notification was not applied), the IGST paid on imports can be taken as input tax credit and used or refunded under the GST mechanism. The interaction between the AA customs exemption and the GST ITC chain requires careful management — particularly for partially exported vs partially domestic-supplied production runs.

The AA holder must maintain for a minimum of 5 years: the original AA licence and all amendments; all Bills of Entry for imports made under the AA; all shipping bills and supporting export documents for EO-fulfilling exports; Bank Realisation Certificates/FIRCs; input-output utilisation records (production records showing which inputs were used in which export batches); and correspondence with DGFT and Customs. These records are subject to post-redemption audit by DGFT and Customs. The Redemption Certificate does not close the audit risk permanently — DGFT has audited and raised demands years after redemption where records were inadequate.

A Customs House Agent (CHA) manages the customs filing at the port — Bills of Entry, shipping bills, duty payment coordination. They are not equipped to handle DGFT applications, SION verification, norm fixation proceedings, EO tracking, or DGFT redemption — these require familiarity with FTP, the Handbook of Procedures, DGFT portal processes, and FTDR Act proceedings. An export consultant without CA qualification handles the documentation but does not provide the statutory compliance overlay — FEMA implications of export proceeds, GST-customs interface, or director liability in FTDR proceedings. PNPC is a practising CA firm with specific FTP competence — we handle the DGFT lifecycle end-to-end, co-ordinate with the CHA for customs filings, and provide the tax and FEMA advisory layer that neither a CHA nor a general export consultant can.