What traders need to know about India's Advanced Authorization Scheme (AAS)

For any importer and exporter doing business in India, one of the most important aspects of the country's customs regime will be the Advanced Authorization Scheme, or AAS. This is a fundamental part of the government's trade strategy and is intended to make life easier for businesses looking to ship items in and out of the country, boost the nation's manufacturing sector and support a positive trade environment.

Companies using AAS can avail themselves of a range of benefits to reduce their costs and streamline the import and export process. So what should enterprises know about the scheme in order to take full advantage of the opportunities available?

AAS, which may also be referred to as the Advance License Scheme, allows for the duty-free import of a range of goods for use in physical items that are later exported back out of the country. Managed by the Directorate General of Foreign Trade, this is intended to encourage value-added exports and expand trade for economic growth and job creation.

In order to qualify for tax relief under AAS, firms are obligated under the terms of the scheme to export any items manufactured using materials brought into the country, and such items are prohibited from domestic sale or consumption beyond what is necessary in the manufacturing process.

In order to support export growth, materials imported for use in manufactured or value-added goods enjoy zero-rated duty on a number of categories, subject to certain conditions. These include:

• Basic Customs Duty
• Additional Customs Duty
• Education Cess
• Anti-dumping duties
• Safeguard Duty
• Transition Product-Specific Safeguard duties
• Integrated tax

Any items that are physically incorporated into a final product intended for export are able to be imported under the terms of the scheme. This also takes into account normal allowances for any wastage they may occur during processing.

In addition to this, there are several other categories of imports that may be eligible for customs duties relief as part of AAS. These are:

• Fuel, oil, and catalysts that are used during the production process to create the export item.
• Any essential spare parts that are necessary for the exported product. These can constitute up to ten percent of the total cost, insurance, and freight value of the authorization.
• Certain designated spices. These can be imported duty-free for specific activities, including crushing, grinding, sterilization, and the production of oil or oleoresin. However, duty-free imports do not extend to activities like cleaning, grading, or repackaging.

Customs relief only applies to items intended to be sold on the export market, and there are a number of conditions attached to this that companies must follow if they are to be eligible for tax relief.              

Primarily, businesses must ensure they achieve a certain value of exports within a given timeframe of the original import. Usually this is 18 months, although there are different periods for certain categories of goods, such as defense, military and aerospace products.

Export obligation (EO) requirements are outlined within the authorization document, and failure to meet these stipulations within the agreed timeframe can result in penalties. Upon successful completion of an EO, it is essential for firms to maintain full documentation as evidence and furnish it when necessary for auditing purposes.

There are several ways in which firms operating in India can apply for advanced authorization. However, before making any application, they must have an Import-Export Code (IEC). Once approval is granted, this authorization usually lasts for 12 months before needing to be renewed. Authorizations are available for the following categories:

• Physical exports
• Intermediate supply
• Supplies made to specified categories of deemed exports, as outlined under the Foreign Trade Policy (FTP) 2023
• Supply of ‘stores’ on board of a foreign going vessel/aircraft

MIC-CUST® for India enables the communication with the Indian customs authority system "Icegate" via direct electronic data exchange. The software module supports the import and export clearance processes in India, also covering AAS, combined with an established inventory module, license management and standard processes for the Indian market - simply communicating with Icegate.