06 Application Types/Type of Norms under Prior Approval Scheme

TYPES OF APPLICATIONS UNDER PRIOR AUTHORIZATION SCHEME/TYPE OF STANDARDS

Advance Authorization Scheme (AAS) or Advance License Scheme is a type of duty exemption scheme introduced by the Government of India under the Foreign Trade Policy 2015-2020. Under this scheme, exemption from payment of import duties is given for raw materials/inputs required for manufacture of export products viz. you can import raw materials/inputs at zero duty for manufacturing export products. The aim of this scheme is to make India's products competitive in the global market. When duties paid on raw materials are saved, it automatically lowers the cost of the final export product.

Exporters who are new to the advance authorization system or even well-established exporters face this challenge as to what type of norm to choose when opting for the AA system, also many other questions like What are Standard Input Output (SION) Norms? Does my export product fall under the SION list? Will I get AA if my product is not under SION? If yes, how and what will the procedure be?

Please understand that the main purpose of the AA scheme is to allow duty free import of raw materials only for the production of export items and at the same time the government must ensure that no extra quantities of raw materials are imported duty free and dumped into India. Because if such things happen, the domestic industry will make losses and the economy will be disrupted.

First type – SION norms

As previously mentioned, the government must ensure and keep track of the duty-free allowed quantity of raw materials against a unit of export goods.

Therefore, for a few thousand common export items, the government has fixed the standard input-output norms. Simply put, this means that the government has determined what all raw materials can be imported duty-free against an export product and also determined the corresponding quantities for each raw material. Here input means raw materials or components and output means export goods.

The picture shows some of the products under SION List. It can be seen that the input goods that can be imported duty-free and their corresponding quantities against a unit of export goods are pre-notified by DGFT and are fixed.

So before applying for new AA always check whether the export item comes under SION list or not.

What happens now if your export item is not covered by the SION list? Or even if covered by SION, do you need more input or more input quantities? In all such cases AA can also be applied under the next type ie. no standards/self-declarations.

The second type – No standards/self-declaration basis

For example, your export product is Solar Modules, for which the main raw material is solar cells.

Solar modules are currently not covered by SION, but you can still get advance license for duty-free import of solar cells under No norms/self-declaration basis.

Here, self-declaration means that you declare to the government. how many solar cells would you need to make 1 no. of solar module. DGFT will issue an AA on self-declaration basis.

However, the entire application will go to the norms committee of DGFT Delhi for ratification of Norms/Fixation of Norms. Here, the standards committee will decide whether the loss rate you requested is genuine or not? If not, they can reduce the duty-free quantities and ratify the norms accordingly. For example, if you have asked for 2% wastage in solar cells due to process loss, NC may allow full 2% or may reduce it to 0.5 or 1% and fix the ad-hoc norms accordingly.

Third type – No norms/self-ratification basis

If your export item is solar modules, for which the SION norms are not fixed. But you are an authorized economic operator (AEO) certification holder, then you can apply for AA on the basis of self-certification.

It means that DGFT will issue Prior Authorization based on the loss rate you have requested, and the application will also not go to the standards board for approval.

In a sense, this means that if you are an AEO holder, the government has trusts you and issues license according to your requirements.

However, licenses issued under self-ratification are subject to post-audit at any given time by the respective authorities.

Fourth type – no standards/repeat basis

For ease of business, if the norms for a particular export product are fixed by the norms committee, the exporter need not approach the NC again to fix norms.

The same norms can be used on a recurring basis for a period of 3 years from the date of appointment or the entire policy period, whichever is later.

Here an important thing is that an exporter can use the standards for other exporters as well.

For example, if the competitor has fixed standards for solar module, then we can use the same standards and apply for AA under no standards/repetition.

Fifth type – Before fixation of norms

For some of the export items, the government does not allow AA under any of the above categories. In such cases, the application for AA must be made according to section 4.06 of the HBP, i.e. before fixing norms.

This means that the AA will be issued only after the standards have been established for the product by the standards committee.

Sixth type – Component net to net

If you plan to import components for your export items, which will just be assembled and no wastage will occur, in such cases the application must be made under net to net.

For example, your export object is Computer, then it is fixed that for a computer you need a mouse, a keyboard, a CPU, a monitor. So in this case all inputs are components and there is no waste.

For all such products where there is no wastage of inputs, exporter can apply under net to net and no fixing of norms required by NC in such cases.

How can we help you?

We at Afleo Group are a team of DGFT and customs experts who have a rich experience of 10+ years in Exim Consultancy & International logistics [Freight Forwarding]. With our vast knowledge and experience in this field, we can represent your case for all activities related to the prior authorization system and get it completed in a hassle-free manner.

So contact us for your needs and our team will be happy to assist you.

Let us know if you have any doubts in the section below.

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