India’s export industry plays a pivotal role in the country’s economic growth and maintaining trade balance. Additionally, it also helps in generating employment and increasing foreign exchange reserves in our country. Therefore, the exporters in India should be incentivised and rewarded. The Directorate of Foreign Trade (the DGFT) has therefore launched two of the most impactful scheme for manufacturer exporters namely Advance Authorisation scheme and Export Promotion of Capital Goods Scheme (EPCG). These schemes provide a strong financial and operational support to the Indian exporters so that they can compete globally.

In this article, we explore these two flagship export incentive schemes in detail, highlight their benefits, eligibility, procedural requirements, and the strategic advantage they offer to Indian manufacturer exporters.

1. Advance Authorisation Scheme

Overview

The Advance Authorisation Scheme allows duty free import of inputs which is required to manufacture an export product. These inputs include raw materials, consumables, components and packaging material. This schemes help exporters in India to procure raw materials at international prices and maintain the cost of production low to increase their competitiveness globally.

Key Benefits of Advance Authorisation Scheme

• Duty-Free Import of inputs: The scheme allows Import of inputs including raw materials, consumables, components and packaging material without payment of Basic Customs Duty (BCD), IGST, Compensation Cess, and other applicable duties.
• Lower Working Capital: The cost advantage due to the allowance of duty free inputs reduces upfront cost of materials thereby lowering working capital requirements.
• Maintains Competitive Pricing: This helps in turn helps exporters offer better prices in international markets maintaining global competitiveness.

Eligibility for Advance Authorisation Scheme

• Any manufacturer-exporter or merchant-exporter tied with a supporting manufacturer can apply for Advance Authorisation Scheme
• The scheme is applicable to both deemed exports and physical exports.

Export Obligation for Advance Authorisation Scheme

There are basically three export obligations with Advance Authorisation Scheme:

1. Minimum Value Addition of 15%: An exporter should at least maintain a minimum value addition of 15% i.e. the FOB (free on board) value of the exported product should be at least 15% higher than the imported duty free inputs. This ensures that the exporters are not just re-exporting the inputs which are imported duty free under advance authorisation scheme. Additionally, it promotes manufacturing in India and generating economic value.
2. Time Obligation for Import: The raw materials should be imported within 12 months from the date of issue of the advance authorisation license.
3. Time Obligation for Export: An exporter should export the finished goods manufactured out of the inputs which were imported duty free, within 18 months from the date of issue of the authorisation license. Extensions may be granted under specific circumstances. f the exporter fails to abide by this timeline then he will have to pay the customs duty and taxes that were saved along with interest.

Procedure

Step 1: Based on the quantity of your exports; check SION Norms and calculate the quantity of raw materials that are allowed to be imported duty free to manufacture your export product.

Step 2: Apply for Advance Authorisation with DGFT by submitting all the required documents including IEC, RCMC, export and import product details and quantities etc.

Step 3: After obtaining the Advance License register the same at the customs port where the raw materials will be imported. A bond or bank guarantee will be required to be executed at this stage.

Step 4: Import the raw materials and put them in the manufacturing process to manufacture export products within 12 months from the license issue date

Step 5: Export these products and complete the obligation within 18 months from the license issue date.

Step 6: After completing the export obligation within the timeline; proceed for redemption of the license by submitting all the requisite documents including Bill of entries against imports, shipping bills against exports, proof of payment received etc.

Step 7: After obtaining redemption from DGFT; go for bond cancellation or releasing Bank Guarantee from the customs where the bond or bank guarantee was executed in Step 3.

Important Considerations for Advance Authorisation

The Advance Authorisation thereby obtained should be registered at the Indian Customs port of import.

The exporter needs maintain detailed documentation for verification and submit regular returns.

Export Promotion Capital Goods (EPCG) Scheme

Overview

The EPCG Scheme enables manufacturer exporters to import capital goods (used in the production of export goods) at zero customs duty, subject to the fulfillment of export obligation over a specified period. It is designed to facilitate modernization and technological upgradation of Indian manufacturing units, making them globally competitive.

Key Benefits

• Zero Customs Duty on import of capital goods including spares, fixtures, molds, and dies.
• Improved Productivity: Helps exporters invest in modern machinery and increase production capacity.
• Long Export Obligation Period: 6 years to fulfill the obligation provides operational flexibility.

Eligibility

• Manufacturer exporters with or without supporting manufacturers,
• Merchant exporters tied to supporting manufacturers
• And also, service providers.

Export Obligation

There are two export obligations attached with the benefits of EPCG Scheme:

1. Exporting the goods having an FOB value equivalent to 6 times of duties, taxes and cess saved on capital goods, to be fulfilled in 6 years from date of issue of EPCG License.
2. Maintaining Average Export Obligation i.e. the exporter has to maintain the same level of Export Performance in each financial year, which was maintained in the preceding three financial years before the EPCG license was issued. Such average would be the arithmetic mean of export performance in the preceding three licensing years for same and similar products.

Procedure

Step 1: Producing all the documents and submitting an application in Form 5A at the DGFT Regional Authority.

Step 2: After obtaining EPCG License, register the same at the customs port where the raw materials will be imported. A bond or bank guarantee will be required to be executed at this stage.

Step 3: Import the capital goods/machinery and install the same at the declared premises. An installation certificate has to be issued and submitted with the DGFT Regional Authority at this stage within 6 months from the date of import.

Step 4: Export these products and complete the obligation within 6 Years from the license issue date. Also note that the Average Export Obligation is to be maintained each year.

Step 5: After completing the export obligation within the timeline; proceed for redemption of the license by submitting all the requisite documents including Bill of entries against imports, shipping bills against exports, proof of payment received etc.

Step 6: After obtaining redemption from DGFT; go for bond cancellation or releasing Bank Guarantee from the customs where the bond or bank guarantee was executed in Step 3.

Some important points to be noted are:

• Items like spare parts and other accessories can also be imported under the EPCG scheme.
• Export Obligation under EPCG Scheme can be fulfilled through both physical and deemed exports.
• Export obligation can also be fulfilled via third party arrangements under EPCG Scheme.

Comparing Advance Authorisation and EPCG Scheme

Strategic Value to Exporters

Both Advance Authorisation and EPCG schemes offer strategic benefits to the Indian exporters that help them compete in the global markets. However, these schemes should be used carefully with utmost compliance to the foreign trade policy to avoid penalties and interest on duties.

By using these schemes effectively:

• Exporters secure a price advantage in the global markets.
• There’s reduction in the cash flow giving a significant sigh of relief to the exporters since duties are not to be paid upfront.

How can A V International help you?

We are A V International and we take pride as being one of the oldest and leading DGFT consultants in India. We offer end-to-end EPCG License and Advance Authorisation License consulting services i.e. we can help you right from taking an informed decision whether EPCG Scheme/Advance Authorisation Scheme is for you by studying your predicted export performance and how will it fulfil the export obligation. In addition to that, we help you with Documentation, Application, maintaining regular follow-ups with DGFT office, obtaining EPCG/Advance authorisation license, its redemption and bond cancellation at customs. We are working with more than 1000+ manufacturer exporters for obtaining their EPCG license and closure of the same.