Duty-free import of inputs, which are physically incorporated in an export product, is allowed under the Advance Authorisation Scheme.
In addition to any inputs, packaging material, fuel, oil, catalyst that is consumed/utilized in the process of production of an export product, is also allowed.
The quantity of inputs allowed for a given product is based on specific norms defined for that export product, which considers the wastage generated in the manufacturing process. DGFT provides a sector-wise list of Standard Input-Output Norms (SION) under which the exporters may choose to apply. Alternatively, exporters may apply for their own ad-hoc norms in cases where the SION does not suit the exporter.
Advance Authorisation covers manufacturer exporters or merchant exporters tied to supporting manufacturer.
The Concept at ease
In any country, trading and manufacturing taxes are collected in the form of Customs Duty, GST, VAT, etc.
Logically, a tax should be paid where the goods or services are being consumed.
If goods or services are being catered outside India, then the tax should be paid in the consuming country.
If you’re exporting to some XYZ country, why should you pay any tax to your country for producing or trading it?
Here’s an example
If you’re an exporter of trousers and you plan to source its raw material, the fabric, and zips through Imports. In India, imports attract customs duty. Should you pay customs duty on fabric and zips knowing that you’re using that raw material in trouser export?
No customs duty is liable to be paid in this case, and the liability is removed after obtaining an advance license.
Products are eligible to be imported duty-free.
Advance authorization licenses the exporter to import raw materials with exempted duties. Chapter 9 of FTP, 9.44 defines raw material as an input(s) required for the manufacturing of goods.
These inputs can be considered either in a raw/natural/unrefined/unmanufactured state or in a manufactured state.
A list of items is eligible to be imported without payment of duty under the scheme. Physically incorporated inputs that have to be exported after making a normal allowance for wastage.
Fuel, oil, catalyst consumed/ utilized for acquiring the export product. Spare that are mandatory to be exported along with the export product can be up to 10% of the CIF value (Cost, Insurance, and Freight) of the Authorization.
Spices that are specified to be allowed for duty-free import are only to be utilized in activities like crushing, grinding, sterilization, manufacture of oil or oleoresin, and not for simpler activities like cleaning, grading, re-packing, etc.
Read also:- Bypolls In India
Advance and EPCG Authorisation Scheme,Advance and EPCG Authorisation Scheme
