Advance Authorisation under Foreign Trade Policy: Routes, SION Norms, and Closing Export Obligation

What Is Advance Authorisation and Why It Matters

Advance Authorisation (AA) is a non-duty payment instrument under the Foreign Trade Policy (FTP) 2023. It lets you import raw materials, components, and consumables without paying duty, provided you export finished goods within the stipulated period. For exporters, this is a critical working capital and compliance tool.

Under Chapter 3 of the FTP 2023, you must understand two routes - pre-import and post-import - and the norms that govern both. Get it wrong, and you face demand notices, penalty, and recovery of duty.

Pre-Import Route vs Post-Import Route

Pre-Import Route (Most Common)

You apply for AA before importing the raw materials. The application goes to the Regional Authority under the Directorate General of Foreign Trade (DGFT). You must submit:

• Details of the raw materials and quantities you plan to import
• Your past export history (minimum 2 years of actual exports or good track record)
• Details of finished goods you will export
• Invoice of the finished goods from the overseas buyer (in-principle commitment)
• Technical specifications and manufacturing process

Once approved, you get the AA license. You import under this license at zero duty, and you have a fixed period (usually 18-24 months) to export the finished goods.

Post-Import Route (Less Used)

You import raw materials first without AA (paying duty), then apply for refund or remission of duty after establishing the export link. This is cumbersome because:

• You pay duty upfront, straining cash flow
• The refund process is slow and bureaucratic
• You must still prove export within the stipulated period

Most experienced exporters avoid the post-import route unless they have no choice.

SION Norms: The Critical Compliance Rule

SION stands for Standard Input-Output Norm. This is the single most misunderstood part of AA.

When you apply for AA, DGFT issues a SION - a technical norm that specifies:

• How many kg of raw material X you can import to produce 1 unit of finished good Y
• The waste and loss percentage allowed in manufacturing
• The maximum quantity of finished goods you can claim export credit for

For example, if the SION says 1.05 kg of fabric input is needed to produce 1 kg of finished garment, and you import 10,500 kg, you can claim export credit for a maximum of 10,000 kg of garment.

The SION is binding. You cannot import more raw material than the SION permits without cancellation or demand. If you exceed the SION, DGFT will demand duty on the excess quantity.

If DGFT does not issue a specific SION in your AA license, the standard SION issued by DGFT for your industry applies. You can view these on the DGFT website (dgft.gov.in).

Export Obligation: What You Must Do

Your AA license specifies an export obligation - the minimum value or quantity of finished goods you must export within the license period.

For example: "Export finished goods worth USD 500,000 within 24 months."

You must fulfill this obligation by the deadline. If you don't, the entire quantity of duty-free imports becomes liable to duty demand, plus interest and penalty.

How to Close Your Export Obligation: Step-by-Step

Step 1: Track Your Exports

Maintain a record of all exports made under the AA license:

• Shipping Bills and Bills of Lading
• Invoice and Packing List
• Quantity and value of goods exported
• Date of export

Every Shipping Bill should reference the AA license number in the description of goods.

Step 2: Obtain Export Realization

You must realize the export proceeds within 180 days of export (extendable to 360 days in certain cases under the Liberalized Remittance Scheme). Get your bank to confirm realization of proceeds.

Step 3: File an Application to Close AA

Once you have exported the required quantity/value, submit an application to the Regional Authority requesting closure of the AA license. Include:

• Certified copies of all Shipping Bills
• Bank statement confirming realization of export proceeds
• Certificate from your Chartered Accountant confirming fulfillment of export obligation
• List of all raw materials imported and their consumption against exports

Step 4: Verification and Approval

The Regional Authority will verify your exports against the SION norms and the license conditions. If everything matches, they will issue an order closing the license.

Do not assume silence means approval. Follow up with the Regional Authority within 60 days if you don't hear back.

Common Pitfalls and How to Avoid Them

• Exceeding SION without prior approval: Always get a SION waiver in writing before importing beyond the permitted quantity.
• Exports before license approval: Any exports before AA approval cannot be credited. Wait for the license.
• Mixing duty-free and dutiable imports: Keep strict segregation in your books. Commingling can invite demand.
• Missing deadline: Don't extend your obligation period informally. Apply for extension before the license expires.
• No CA certification: Always have your CA review and sign off on the closure application. Self-certification invites scrutiny.

When to Involve Your CA

Advance Authorisation is not a DIY affair. The moment you decide to apply, involve your CA to:

• Draft the application and technical document
• Liaise with DGFT on SION queries
• Monitor imports against SION norms
• Ensure every Shipping Bill references the license
• Prepare and file the closure application
• Handle any notice or show-cause from DGFT

The compliance cost is a fraction of the duty savings. A single mistake can wipe out all gains.

Key Takeaway

Advance Authorisation is a powerful tool for exporters, but it demands precision. Understand the route (pre-import vs post-import), respect the SION norms, track exports scrupulously, and close the obligation on time with full documentation. DGFT does not forgive procedural slip-ups.

I'm CA Harun Raaj, Visakhapatnam. Reach out if you need help structuring your AA application or closing an existing obligation.

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