Advance Authorisation - Inputs required to manufacture export products can be imported without payment of customs duty under Advance Authorisation. Advance Authorisation can be granted to merchant exporter or manufacturer exporter to import raw materials. Since the raw materials can be imported before exports of final products, the Authorisations issued for this purpose are called ‘advance authorisations’.

‘Manufacture’ has the meaning assigned to it in para 9.30 of EXIM Policy. This definition is very wide. Hence, import for mere processing will also be permissible.

Advance Authorisation is issued to allow duty free import of inputs with normal allowance for wastage. In addition, fuel, oil, energy, catalysts etc. required can also be allowed. Duty free import of mandatory spares upto 10% of CIF Value of Authorisation, which are required to be exported with resultant products may also be allowed. However, prohibited items of imports cannot be imported.

Advance Authorisation issued on pre-export basis (i.e. where import takes place before fulfilment of export obligation), would contain description, value and quantity of each material permitted against it and value of export obligation to be fulfilled. Advance authorisation issued on post-exportation basis (i.e. where import takes place after fulfilment of export obligation), would, in addition, contain details of exports made against the authorisation. – CBE&C circular No. 24/2002-Cus dated 6-5-2002.

Material can also be imported free of cost, which shall be re-exported after job work, after allowing for wastage.

The advance Authorisation will be for Actual User only. It is not transferable.  The material imported under advance authorisation is also not transferable even after completion of export obligation. There must be positive value addition.

Advance Authorisation can be issued for (a) Physical Exports (b) Intermediate Supplies (c) Deemed Exports.

Advance Authorisation for physical exports can be issued to manufacturer-exporter or merchant-exporter tied to supplementary manufacturer.

Advance Authorisation after exports can be issued on basis of actual proof of exports.  In such case, BG/LUT [Bank Guarantee/Letter of Undertaking] is not necessary.

Advance Authorisation is valid for 12 months for import and 18 months for export. - - Export obligation under Advance Authorisation should be fulfilled within 18 months. In case of projects, export obligation shall be fulfilled within duration of execution of project. Advance authorisation can be revalidated for 6 months if export obligation was fulfilled, on payment of composition fee of 1%. Further extension of 6 months can be obtained on payment of 5% of unfulfilled FOB Value as composition fee.

Goods exported under Advance authorisation/DFRC/DEPB may be re-imported in the same or substantially same form under ‘Duty Neutralisation Scheme’.

The imports of raw materials is on the basis of standard input - output norms (SION). The SION are finalised and quantity allowed to be imported will be based on quantity exported. The price of inputs will be as declared by applicant. However, there must be positive value addition.

Application for authorisation shall be made in form given in Appendix 10B to licensing authority of DGFT.

Advance Authorisation will indicate name and description and of items to be imported and exported/supplied, aggregate CIF value of imports, FOB/FOR value and quantity of exports/supplies. If quantity cannot be indicated, value shall be indicated.

If the goods are cleared from warehouse, the licence should be valid on date of clearance from warehouse. However, licence issued after date of shipment but before its clearance from customs or customs bonded warehouse is acceptable. - CC, Mumbai PN 19/99 dated 10-2-1999.

Goods can be exported in anticipation of advance authorisation, after submission of application to licensing authority.

Annual Advance Authorisation to status holders – Annual Advance Authorisation would be issued to status holder (export houses / trading houses / star trading houses / super star trading houses) to enable them to import their requirements of inputs on annual basis. Annual Advance Authorisation will be granted upto 200% of FOB value of exports in preceding financial year. There should be positive value addition. The authorisation is valid for 12 months for import and 18 months for export. No extension will be granted. The authorisation is subject to actual user condition.  They have to give LUT (Letter of Undertaking) only and not bank guarantee. – – MF(DR) circular No. 25/2003-Cus dated 1-4-2003 and Customs Notification No. 56/2003-Cus dated 1-4-2003

Duty Entitlement Pass Book Scheme (DEPB Scheme)- The scheme is easy to administer and more transparent. The scheme is similar to Cenvat credit scheme. The exporter gets credit when he exports the goods. The credit is on basis of rates prescribed. This credit can be utilised for payment of customs duty on imported goods.

Provisions are contained in notification No. 45/2002-Cus dated 22-4-2002.

The objective of the scheme is to neutralise incidence of customs duty on the import content of export product. The neutralisation shall be provided by way of grant of duty credit against the export product.

Exports under DEPB scheme are allowed only when DEPB rate for the concerned export product is finalised.

Under this scheme, exporters will be granted duty credit on the basis of notified entitlement rates. The entitlement rates will be notified by DGFT. The entitlement rates will be a % of FOB.  The entitlement rate will be fixed on basis of SION (Standard Input Output Norms) and deemed import content. Value addition achieved in export product will also be taken into account.

Supplies made to unit in SEZ are also entitled to DEPB. – MF(DR) Circular No. 25/2003-Cus dated 1-4-2003.

DEPB is issued only on post-exportation basis. Excise duty paid in cash on inputs will be eligible for brand rate of duty drawback. – CBE&C circular No. 24/2002-Cus dated 6-5-2002.

Non-transferable DEPB can be issued before realisation of export proceeds, but if export proceeds are not realised within 6 months, full customs duty along with SAD should be paid with 15% interest.

CIF Value of Imports affected under DEPB shall not exceed FOB Value against which DEPB has been issued.

Value of exports (i.e. export earnings) should be in freely convertible currency like dollars, Euro, British Pounds, Yen etc. Thus, the DEPB scheme is not available in case of exports to Nepal or Bhutan where we have Rupee trade or to Russia etc., if the export is not in hard currency. The credit will be granted on basis of actual amount of FOB value of export realised, as per Bank certificate.

The credit of duty in pass book will entitle the exporter to import raw materials, components, packaging materials etc. duty free. Goods which are otherwise eligible for imports can be imported under the credit. However, capital goods cannot be imported under DEPB.

The scheme is available to both manufacturer exporters as well as merchant exporters. DEPB has to be registered with customs house.

The DEPB rates fixed are inclusive of SAD (Special Additional Duty) w.e.f. 1-4-2002. Hence, goods imported under DEPB scheme are not free from special additional customs duty. [SAD].

If DEPB credit is insufficient, excess amount of duty can be paid in cash. Two separate entries in Bill of Entry should be made.

The CVD (additional duty) paid in cash on inputs can be utilised for availing Cenvat credit.

Export under this scheme will be under a blue coloured shipping bill so that customs authorities can maintain separate record. Declaration in prescribed form should be made on the shipping bill. The shipping bill should give details Serial number of export product in public notice issued by DGFT specifying the rate of entitlement and rate claimed. Exports under the scheme can be made from specified CFS (Container Freight Station) also.

Samples will be drawn for test as per guidelines issued by department.

Limit on credit based on PMV - Where DEPB rate is 10% or more, amount of credit shall not exceed 50% of PMV (Present Market Value) of the product. Customs can check PMV (Present Market Value) of export goods, if over invoicing is suspected. It is clarified that PMV will be verified only if there is specific intelligence. There will be no verification of PMV where value cap exists.

Duty Free Replenishment Scheme - Duty Free Replenishment Scheme allows import of inputs without payment of duty after goods are actually exported. Thus, it is post import remission scheme. Under the scheme, after completion of exports, the exporters will be able to obtain transferable duty-free replenishment certificate (DFRC) for importing inputs used in the export products as per the standard input-output norms (SION).

Provisions are contained in notification No. 46/2002-Cus dated 22-4-2002.

DFRC is issued to merchant-exporter or manufacturer-exporter for import of inputs without payment of basic duty and SAD. However, CVD is payable on inputs imported under DFRC, on which duty drawback / Cenvat credit can be claimed.

DFRC may be issued in respect of exports for which payments are received in non-convertible currency, if prescribed norms of value addition are achieved. DFRC can be obtained on deemed exports also.

DFRC can be issued only where SION have been fixed.  DFRC is issued for import of inputs as per SION. Validity of authorisation will be 18 months.

DFRC is subject to minimum value addition of 25%. In case of gem and jewellery, required value addition is lower.

Application for DFRC shall be filed within 6 months from date of realisation of export proceeds. However, in case of exports against irrevocable Letter of credit (LC), application can be made immediately after exports.

The authorisation or material imported under authorisation is freely transferable.

Exporter is eligible for drawback benefits in respect of duty paid on inputs not covered under SION. Basic duty and SAD is not payable, but CVD and anti-dumping duty / safeguard duty (if any) will be payable. Hence, DFRC scheme is presently not very popular.

Exporter exporting goods under DFRC scheme are eligible for Central Excise portion of All Industry rate of Drawback in respect of inputs imported and cleared on payment of duty, if he has not availed Cenvat credit. However, if he had availed Cenvat credit on inputs, he is not entitled to any drawback at all.

EPCG scheme - Under Export Promotion Capital Goods (EPCG) scheme, a licence holder can import capital goods (i.e. plant, machinery, equipment, components and spare parts of the machinery) at concessional rate of customs duty of 5% and without CVD and special duty. Computer software systems are also eligible. Import of spares of capital goods is permitted, without any limit. Jigs, fixtures, dies, moulds will be allowed to the extent of 100% of CIF value of licence. Spares for existing plant and machinery can also be imported. Second hand capital goods upto 10 year old can also be imported under EPCG scheme.

EPCG authorisation is issued with validity period of 24 months. Relevant exemption notification is 55/2003-Cus dated 1-4-2003 (earlier No. 44/2002-Cus dated 19-4-2002).

Merchant Exporters can also import capital goods under EPCG scheme, if the capital goods are installed in the factory of their supporting manufacturer. The name and address of supporting manufacturer should be endorsed on EPCG licence and bond with Bank guarantee has to be executed jointly and severally by merchant exporter and his supporting manufacturer.

The basic customs duty payable is 5%. Additional Customs Duty / CVD is exempt.

Importer has to fulfil export obligation equal to eight times duty saved on imported capital goods to be fulfilled over a period of 8 years. In respect of EPCG authorisations for Rs 100 crore or more, the export obligation shall be required to be fulfilled over a period of 12 years.  Similarly, sick companies under BIFR and units in Agri Export Zones can fulfil export obligation in 12 years. Export obligation for every block of two/four years has been specified. In first two years, there is no export obligation. Extension for fulfilling export obligation upto two years can be obtained. – MF(DR) circular No. 25/2003-Cus dated 1-4-2003.

The export obligation shall be fulfilled by export of goods capable of being manufactured or produced by the capital goods imported under the scheme. However, goods can be manufactured in other unit of authorisation holder also. - - Export obligation can also be fulfilled by export of other goods and services by enhancing export obligation. If the goods are further processed, export obligation shall stand enhanced by 50%. The export obligation will be over and above the average level of exports of previous three years.

Export shall be physical exports, but certain specified deemed exports are also permissible.

Year-wise slab rates for achieving export obligation have been specified. If the goods are not exported as per the obligation, differential customs duty plus 15% interest is payable. The importer of capital goods has to execute ‘Letter of Undertaking’ (LOU) and execute a bond.

Manufacturer-exporters having exports over Rs one crore and having clean track record and status holders (star trading houses etc.) can execute bond without bank guarantee. Others will have to execute bond with bank guarantee equal to 50% of the differential duty.

The authorisation holder can also procure such machinery from India. The Indian manufacturer will be able to import components for the machinery at concessional rate of 5%. However, the export obligation will be that of licence holder and not of Indian machinery manufacturer.