Exports from India can be a costly business if import duties take a serious bite out of your margins. This is known to the government. That's why the advance authorization customs clearance scheme came about. It allows you to import raw materials duty-free, provided they're used in the manufacture of exportable goods.

This article explains its mechanism, its users, and potential pitfalls.

What is advance authorization customs clearance?

Advance authorization customs clearance is a duty-exemption program of the Directorate General of Foreign Trade (DGFT). In this scheme, exporters are allowed to import raw materials, fuel, oil, catalysts, etc., duty-free, if these are used in the exporters' goods for export.

The principle is straightforward: if you are manufacturing something for export, you shouldn't be liable to duty when you bring it in to make it.

The scheme is under the Foreign Trade Policy (FTP) in India. It seeks to make the Indian exports more competitive in the international markets by cutting down the production costs.

Duties Waived Under the Scheme

This is where the real benefit is. Under advance authorization customs clearance, you will NOT have to pay for:

• Basic Customs Duty

• Additional Customs Duty

• Integrated GST (IGST)

• Anti-dumping Duty

• Safeguard Duty

• Education Cess

• Compensation Cess

That's a huge cut—particularly for those who import large quantities. If the input is to be used in the manufacture of export items, no GST is to be paid on the input.

Who Is Eligible?

Not everyone qualifies. These are the people who can use it:

Manufacturer exporters—who produce the goods and export them.

A merchant exporter who is linked to a supporting manufacturer.

It includes any physical exports, intermediate supplies, and supplies to Special Economic Zones (SEZs). In addition, it includes deemed exports in some categories.

The one important rule: Only the person who did the authorization is allowed to use the imported inputs. This license shall not be transferable. Once the export requirement is fulfilled, the authorization can't be sold or transferred.

How Advance Authorization Customs Clearance Works: Step-by-Step

Let's see how the advance authorization customs clearance process works.

Step 1 — Apply to DGFT

First, fill out an application form for the Regional Authority of DGFT. You will need:

• Importer Exporter Code (IEC)

• Digital Signature

• Application form ANF-4A

• Landing export order/letter of credit.

• Manufacturing process details

• History of export performance (if the applicant is a repeat applicant)

Your application should include a description of the raw materials you will import, the finished product you will export, and how they relate to each other.

Step 2 — Select Your Norm Type

DGFT grants advance authorization for customs clearance in accordance with the norms. 

There are 4 routes:

Standard Input Output Norms (SION): The government has a pre-approved list, which allocates input to export products. If your product is in this list, then your application is automatically in compliance with those norms.

Self-Declaration: If the product is not in the list of products covered by SION, you can enter your own input-output estimates. The regional authority will consider and approve it if appropriate.

Norms Committee Fixation: Request for setting norms for your product by the Norms Committee under the Department of Government. Norms Committee Fixation: Can ask the Norms Committee to fix norms for your product. These "temporary" norms are valid only for one authorization.

Self-Ratification Scheme: This is only for exporters who have an Authorized Economic Operator (AEO) Certificate. As per this procedure, DGFT authorizes without needing the approval of the Norms Committee.

Step 3 — Take the Authorization

The DGFT issues a license after approval. The license specifies:

• The amount of raw materials that may be imported duty-free.

• Production wastage (allowable)

Step 4 — Import the Inputs

Once you have the license, you're able to import the inputs without having to pay customs duties. The Bill of Entry is a document to be filed upon receipt of the license. But recently, there was a change in the rules where duty exemption can be claimed even when the goods have been received prior to the Bill of Entry being filed—provided they were received before the date of the license.

Step 5 — Manufacture and Export

Create export products with the imported inputs. The input needs to be physically added to the product. They aren't sold elsewhere, and they cannot be diverted for local sale or other uses.

Imports have to be completed within 12 months from the date of the license, and export obligations within 18 months.

Step 6 — Submit Proof and close Authorization

Once the goods are shipped, you must provide evidence to DGFT. This comprises shipping bills as well as bank realization certificates. DGFT then releases an Export Obligation Discharge Certificate (EODC) to end the authorization process.

Value Addition Requirement

There's no free pass for advance authorization customs clearance. You have to provide a value-added service to the government. It is a minimum value addition of 15% (FOB value of your export sale must be 15% or more than the duty-free value of your import duty payment).

Other types of products have other limits. Tea must be added to at least 50% of its value. Whereas gems and jewelry have their thresholds.

Validity of the Authorization

The license will be valid for 12 months from the date of issuance. Validity is extended to the duration of a project for deemed exports that are related to a project or to 12 months, whichever is longer.

Export commitments will have to be fulfilled within 18 months. Extensions can be requested, but are not automatic.

Annual Advance Authorization

If you are exporting regularly and your product is covered under SION, then you can apply for an annual advance authorization. This is the total amount of imports for a year, not a single import.

Experience is required - at least two years of export experience. It is not available on a self-declaration basis.

Getting Help With Advance Authorization Customs Clearance

Self-clearing customs for advanced authorization is possible but requires attention to details in documentation and timing. It is beneficial for many exporters to use a licensed customs broker or trade consultant to assist them, particularly when first starting.

IGF Express provides end-to-end support, which includes customs clearance and export documentation assistance. From applying for advance authorization, compliance management, or export documentation, they have a team that can support you. 

Collaborating with experts decreases chances of mistakes, delays, and penalties—and allows you to concentrate on your key business.

Conclusion

In India, one of the most convenient export incentives is advance authorization for customs clearance. It directly reduces your production cost by eliminating duty on the imported inputs. This lowers your products' international cost competitiveness.

However, there are rules associated with the scheme. You must use the inputs as declared, achieve your value-added percentage, and export in 18 months. The good news is that if you remain compliant, the savings are authentic and substantial.

It is important for all manufacturers and exporters, whether or not it is their first time exporting or they are consistently exporting, to understand the process of advance authorization customs clearance. Make sure your documents are correct, submit early, and maintain a good export plan—and the scheme will be working for you.