Advance Authorisation Scheme: Duty-Free Raw Material Import Guide for Exporters

Advance Authorisation (AA) is a DGFT scheme under Chapter 4 of the Foreign Trade Policy 2023 that allows exporters to import raw materials, inputs, and consumables without paying BCD, IGST, or compensation cess. The imported inputs must be used to manufacture products for export. Input quantities are governed by Standard Input-Output Norms (SION) or self-declared norms, and the export obligation must be fulfilled within 18 months from the date of authorization.

What is Advance Authorisation and how does it work?

Advance Authorisation is a pre-export duty exemption scheme. You apply before importing, get an authorization specifying what inputs you can bring in and in what quantities, import those inputs at zero duty, manufacture your export product, and then fulfill your export obligation.

The scheme exempts three duties on imported inputs: Basic Customs Duty (BCD), Integrated Goods and Services Tax (IGST), and compensation cess. For most manufacturing exporters, this adds up to a 20-40% cost reduction on raw material imports, depending on the product category.

The quantity of each input you can import is determined by Standard Input-Output Norms (SION), which DGFT publishes for over 5,000 product categories. If your product does not have a SION, you can apply under self-declaration norms or request ad-hoc norms through DGFT's Norms Committee.

The scheme has been around in various forms since the early days of Indian trade policy. It was originally called "Advance Licence" and was renamed to Advance Authorisation under FTP 2015-20. The current rules are governed by Chapter 4 of FTP 2023 and the corresponding Handbook of Procedures.

Exporters who also need to import capital goods duty-free should look at the EPCG Scheme, which covers machinery and equipment. Many exporters use both AA and EPCG together.

What inputs can be imported duty-free under Advance Authorisation?

The authorization covers these categories of inputs:

• Raw materials and components directly used in manufacturing the export product
• Consumables such as fuel, oil, and catalysts (capped at 2% of CIF value of the authorization)
• Packaging materials required for the export product
• Mandatory spares up to 10% of CIF value of the authorization
• Inputs for intermediate supplies to other exporters

What you cannot import under AA: capital goods, items not directly linked to manufacturing the export product, and general-purpose equipment. If you need capital goods, the EPCG Scheme is the right route.

The authorization specifies each input by HS code, description, and quantity. You can only import what is listed. Any excess import beyond the SION allowance attracts full customs duty.

How are Standard Input-Output Norms (SION) determined?

SION defines how much of each input you are allowed to import per unit of export output. For example, the SION for exporting 1 tonne of cotton yarn might allow duty-free import of 1.15 tonnes of raw cotton, accounting for manufacturing wastage.

DGFT's Norms Committee sets these norms based on industry-standard input consumption and wastage rates. The SION database on the DGFT website covers over 5,000 product categories across textiles, chemicals, engineering goods, food processing, and other sectors.

To look up your product's SION: go to the DGFT website, navigate to the SION section, and search by export product description or ITC-HS code. The norm will list each input, its quantity per unit of output, and the wastage allowance.

If your product does not have a published SION, you have two options:

1. Self-declaration norms: You declare your own input-output ratio with supporting documentation (production records, chartered engineer certificate). DGFT may accept these for issuing the authorization.
2. Ad-hoc norms: You apply to the Norms Committee to fix a new norm for your product. This takes longer but results in a published norm that others can also use.

One common confusion: the SION wastage allowance is the maximum permissible wastage, not a guaranteed entitlement. If your actual wastage is lower than the SION allowance, you should import only what you actually need. Importing up to the SION limit and diverting the excess to domestic use is a violation that attracts duty recovery and penalties.

How to apply for Advance Authorisation from DGFT?

The application process is online through the DGFT portal. Here are the steps:

1. Confirm your prerequisites: You need a valid IEC (Import Export Code), RCMC (Registration cum Membership Certificate) from the relevant export promotion council, and an active GSTIN.

2. Identify the SION for your export product from the DGFT SION database. If no SION exists, prepare self-declaration documents.

3. Calculate your input requirement based on the export quantity you plan to fulfill. Multiply SION norms by your expected export volume.

4. File application ANF-4A on the DGFT portal with all required details: export product description, HS codes for inputs, quantities, and value.

5. Upload supporting documents: IEC certificate, RCMC, SION reference or self-declaration, past export data (if any), and a bank certificate showing foreign exchange earnings.

6. DGFT Regional Authority reviews and issues the authorization specifying the inputs, quantities, HS codes, and CIF value allowed.

7. Import inputs within the authorization validity period (12 months for imports).

8. Manufacture and export the finished product.

9. File for EODC (Export Obligation Discharge Certificate) after fulfilling the export obligation. Submit proof of exports (shipping bills, bank realization certificates) to the DGFT RA.

The authorization is valid for 12 months for making imports and 18 months from the date of issue for fulfilling the export obligation. Extensions are possible in genuine cases, but they require a fresh application.

What is the difference between Advance Authorisation and DFIA?

Exporters often get confused between Advance Authorisation (AA), Duty Free Import Authorisation (DFIA), and Duty Drawback. All three reduce duty costs on inputs, but they work differently.

When to choose which: If you are a regular manufacturer-exporter with steady export volumes, AA gives you the widest duty exemption (BCD + IGST + cess). If you want the flexibility to sell unused authorization to another importer, DFIA is better, but note that DFIA is a post-export scheme (you export first, then get the authorisation to import inputs duty-free), and it only exempts BCD, not IGST. If you prefer a simpler process and do not mind paying duties upfront, Duty Drawback is the least compliance-heavy option.

What are common mistakes exporters make with Advance Authorisation?

The most common problem is importing beyond SION limits. The authorization specifies exact quantities. Importing more than allowed means paying full duty on the excess, plus interest.

Missing the export obligation deadline is equally damaging. If you do not export within 18 months, you owe customs duty on all imported inputs plus 15% annual interest from the date of import. DGFT can also invoke your bank guarantee and flag your record for future applications.

Poor record-keeping trips up more exporters than you would expect. Customs authorities can ask you to demonstrate that specific imported inputs were used in specific export consignments. If you cannot trace this, you risk being treated as having diverted duty-free inputs to domestic use.

Using AA inputs for domestic sales is the most serious violation. Diverting duty-free imported inputs to the domestic market triggers duty recovery, penalties, and potential criminal proceedings under the Customs Act.

Many exporters also confuse SION wastage allowance with actual wastage. SION gives you a maximum input allowance including wastage. It is not an invitation to import the maximum and use the "wastage" portion domestically. Your actual consumption records must justify the quantity imported.

Finally, do not delay filing for EODC after fulfilling your export obligation. Late EODC applications cause problems with subsequent authorizations and bank guarantee release.

Frequently asked questions

What is Advance Authorisation in Indian export-import policy?

Advance Authorisation (formerly Advance Licence) is a duty exemption scheme under Chapter 4 of FTP 2023 that allows exporters to import inputs without paying customs duty. Covered inputs include raw materials, components, consumables, packaging materials, and fuel. The imported inputs must be used in manufacturing products for export, and the export obligation must be fulfilled within 18 months.

What is SION in Advance Authorisation?

SION (Standard Input-Output Norms) defines the quantity of each input allowed per unit of export output. For example, the SION for 1 tonne of cotton yarn export might allow 1.15 tonnes of raw cotton import duty-free. DGFT publishes SION norms for over 5,000 product categories. If your product does not have a SION, you can apply under self-declaration or ad-hoc norms.

Can Advance Authorisation be used for all products?

Advance Authorisation covers physical exports, intermediate supplies, deemed exports, and supplies to multilateral agency-funded projects. It applies to manufacturing, processing, and export-linked services. It cannot be used for products under export prohibition or where the export item is the same as the imported input without substantial transformation.

Is Advance Authorisation transferable?

No. Advance Authorisation is non-transferable. The authorization holder must be the actual manufacturer-exporter or the supporting manufacturer for a merchant exporter. DFIA (Duty Free Import Authorisation) is the transferable alternative, but only after the export obligation is fulfilled, and it exempts only BCD, not IGST.

What happens if the export obligation under AA is not met?

If the export obligation is not fulfilled within 18 months (or any extended period), the exporter must pay customs duty on the imported inputs plus interest at 15% per annum from the date of import. DGFT may impose additional penalties, and the exporter's track record for future authorizations gets affected. The bank guarantee furnished at the time of authorization may be invoked.

Tracking SION norms, input-output mapping, and AA export obligation deadlines gets complicated once you are running multiple authorizations at the same time. Eximoz automates input-output tracking and sends alerts before obligation deadlines, so you are not manually chasing compliance across spreadsheets. If your team manages more than a few AA authorizations a year, it is worth a look: eximoz.com

Sources: Foreign Trade Policy 2023, Chapter 4 (https://www.dgft.gov.in/CP/?opt=ft-policy) | DGFT Handbook of Procedures, Chapter 4 (https://www.dgft.gov.in/CP/?opt=handbook-procedures) | CBIC Customs Tariff (https://www.cbic.gov.in/entities/customs-tariff)