Duty Exemption Schemes: The DES enables duty-free import of inputs required for export production.

Duty Remission Schemes: The DRS enables post export replenishment / remission of duty on input used in the export products.

A) Duty Exemption Schemes: It consists of the following

  • Advanced Authorization
  • Duty-Free Import Authorization (DFIA)

B) Duty Remission Schemes: It consists of the following

  • Duty Drawback Scheme

A.1) Advanced Authorization:

  • It is issued to allow duty-free import of input, which is physically incorporated in an export product.
  • It is issued for inputs in relation to resultant product, on the following basis
    • As per the Standard Input Output Norms (SION)
    • On the basis of Self declaration

Note: SION, in short, is standard norms which define the amount of input/inputs required to manufacture a unit of output for export purpose. SION is notified by DGFT in the Handbook and is approved by its Boards of Directors. An application for modification of existing Standard Input-Output norms may be filed by manufacturer exporter and merchant-exporter.

Advance Authorization For Spices:

  • Duty-Free import of spices shall be permitted only for activities like crushing/grinding / sterilization/manufacture of oils or oleoresins.
  • The authorization shall not be available for simply cleaning, grading, repacking etc.

Eligibility criteria for the Exporter:

  • Advance Authorization (AA) can be issued to either to a manufacturer exporter or merchant exporter tied to supporting manufacturer.
  • Advance Authorization issued for
    • Physical Export (Including export to Special Economic Zone SEZ)
    • Intermediate Supply

Advanced Authorization For Annual Requirement:

It shall be issued for items notified in Standard Input Output Norms (SION)

Eligibility Conditions to obtain Advance Authorization For Annual Requirement

  • Exporter having past export performance (in at least preceding two financial years) shall be entitled to AA for annual requirement
  • Entitlement in terms of CIF (cost, insurance & freight) value of import shall be up to 300% of the FOB (free on board) value of physical export &/or FOR value of deemed export in preceding financial year or Rs. 1 crore whichever is higher

Example: If you have imported a raw material whose CIF value is USD 100 then the price of the export product shall be at least USD 300.

On the basis of above example, we can calculate the Value Addition

Value Addition = A-B/B * 100

A= FOB Value of export
B= CIF Value of input

VA = USD 300 – USD 100 / USD 100 * 100

= USD 200 / USD 100 * 100

= 200%

Minimum Value Addition (MVA):

  • MVA required to achieve under Advanced Authorization is 15%
  • MVA for gems & jewelry sector is separately given
  • In case of Tea, MVA shall be 50%

Details of Duty Exempted:

Importers under Advanced Authorization are exempted from payment of Basic customs duty, Additional customs duty, Education cess, Anti-Dumping Duty, Safeguard Duty, wherever applicable.

Actual user condition for Advance Authorization:

  • Advance authorization & / or material imported under Advance authorization shall be subject to Actual User condition
  • It is not transferable even after completion of export obligation

Validity period of Advance Authorization for Import:

12 months from the date of issue of Authorization

Prohibited items are not allowed to import under Advance Authorization (AA) or Duty-Free Import Authorization (DFIA)

Domestic Sourcing Of Input:

  • The holder of an AA / DFIA can procure inputs from indigenous supplier / STE (State Trading Enterprises) in place of direct import.
  • Such procurement can be against Advance Release Order (ARO), Invalidation Letter.

Note: ARO is sought in cases where the domestic supplier wants a refund of the duties already paid on the input used in the export product.

What is Invalidation Letter?

It is normally used when a domestic supplier also wants to import his inputs without paying customs duties.

Export Obligation:

Under AA exporter is supposed to fulfill the export obligation within 18 months from the date of issuance.

Duty Drawback (DD):

  • Duty Drawback comes under duty remission scheme.
  • It is actually the rebate or refund of various duties by GOI to the exporter.
  • Ministry of finance (Custom Dept) publishes a Duty Drawback scheme.
  • All the product which are listed in the Duty Drawback list is entitled to Duty Drawback at a percent or rate which is mentioned in the drawback schedule.
  • All manufacturer exporter or merchant exporter are eligible for Duty Drawback benefit upon the product.
  • The exporter has to mention the product and Duty Drawback amount in the shipping bill at the time of export.
  • After the export is over, within 3 months time custom department sends the Duty Drawback amount to exporter bank account.

Duty-Free Import Authorization Scheme (DFIA):

  • It is issued to allow duty free import of inputs
  • In addition, import of oil & catalyst which is consumed / utilised in the process of production of the export product may also be allowed.
  • DFIA shall be exempted only from payment of Basic Customs Duty
  • DFIA is transferable
  • It is valid for 12 months and no further revalidation is allowed.

Eligibility criteria for DFIA:

  • DFIA shall be issued on post export basis for products for which Standard Input Output Norms (SION) have been notified.
  • Merchant exporter shall be required to mention name & address of supporting manufacturer of the export product on the export documents viz shipping bill / bill of export.
  • Minimum value addition of 20% shall be required to be achieved.

Export Obligation:

Under DFIA exporter is supposed to fulfill the export obligation within 12 months from the date of online filing of an application.