Concept of cost reduction:

For raw materials/consumables

In excise(when raw materials In customs(when imported)

Procured from indigenous market)

Procure Procure procure Procure without Procure with DEFB

Without with from payment of duty payment of
Payment payment Indigenous against Advance duty & later claim
Of duty of duty market agst. 1) Authorization scheme Drawback
Following But later ARO with (erstwhile advance
Notification claim out payment of license scheme)/
No.43/01-CE duty U/No. 44/ 2) DFIA
Dt.26.6.01 01-CE, dt. 26.6.01

Draw back Rebate under Avail cenvat

Notification no.
41/01-CE, dt.
26.6.2001

Use against Claim rebate Use against export with

Domestic sale under rule 5 payment of duty & claim
Which ever is beneficial rebate under notification
No.44/01-CE dt.26.6.01

For capital goods

In other cases When procured from indigenous When imported

Market against invalidation of
EPCG license
Pay Pay Excise duty &
Excise Claim refund of
Duty & terminal Excise duty Refund of terminal duty Procure against EPCG
Claim license
CENVAT

Concept of Export Benefits:

For RMC/inputs For Capital goods (i)

EPCG scheme

Advance DFIA DEPB Drawback Under central excise law

authorization Capital goods (ii)
scheme

New second hand up to 10 years old

Imported Indigenous Sourcing

Customs
Duty = 5% of Excise duty is to be paid. Refund of terminal
Basic customs duty Excise duty can be claimed

Benefits to Domestic supplier of capital goods to EPCG Licence Holder

Deemed export benefits Replenish the inputs

Including components
After supply of Capital
Goods to the EPCH
licence holder.

Advance licence:
Source: ( Taxaman and LAWCRUX- Lawcrux checked no significant changes material can
be adopted)
Meaning and Concept:
Inputs required to manufacture export products can be imported without payment of customs duty
under Advance Licence. Adance licence can be granted to merchant exporter or manufacturer
exporter to import raw materials. Since the raw materials can be imported before exports of final
products, the licences issued for this purpose are called ‘Advance Licences’.
An advance is issued under Duty Exemption Scheme of Duty Exemption/Remission Scheme. It
allows duty free import of
 Inputs, which are to be physically incorporated in the export product (making
nominal allowance for wastage)
 Fuel , oil, energy, catalysts etc. which are to be consumed in the course of their use
to obtain the export product.
 Mandatory spares upto 10% of CIF value of licence which are required to be
exported/supplied with final product.

Salient features:
1) It is pre-import benefit
2) It allows duty free import of inputs
 3) Physical incorporation of imported goods in exports product is mandatory.
4) Advance licence and /material imported against advance license shall not be
transferable even after fulfillment of export obligation.
5) It is issued with the condition of positive value addition.
6) It is subject to fulfillment of time bound export obligation.
7) It may be issued on provisional basis if SION is not fixed.
8) Export obligation is to be fulfilled with in a period of 24 months.
9) It can be revalidated for a period of six months from the date of expity of orignal
licence.

Benefits under the Customs Act, 1962

a) If the goods are imported against an Advance licence then following duties of Customs are
exempt:-
Basic Customs duty

CVD
Anti dumping duty
Safe guard duty
Education Cess

b) 1) If the exports are made as Deemed Exports, then only following duties are
exempted.

Basic customs duty and CVD

2) However if the Deemed exports are made to -(EOU/EHTP/STP/BTP)

Basic Customs duty
CVD
Anti dumping duty
Safe guard duty
Education Cess
Issuance of Advance licence

Advance license can be issued for

1) Physical exports
2) Intermediate supplies
3) Deemed exports.
All these are combined into one w.e.f.8-4-2005.

Limit of Advance Licences:

One or more advance licences can be issued upto Rs.50lakhs or 100% of FOR/FOR Value of
preceding year exports, whichever is more.
Status holders can claim more such licences upto 200% of FOB value of preceding year’s exports.
Advance licence for Annual requirement
Annual advance licence would be issued to exporters having past export performance to
enable them to import their requirements of inputs on annual basis. (till 8th April, 2005, the
scheme was restricted only to Star Export Houses). Annual advance license will be granted
 upto 300% FOB value of exports in preceding financial year. There should be positive value
addition.

Benefits to Advance Licence holders

1) a) Inputs may be imported duty fee against Advance lincence. Such imports are exempted
from payment of Basic Customs duty, CVD, Anti dumping duty, Safe guard duty.

b) imports against Advance licence for Deemed Export shall be exempt from Basic and
CVD only.

c) In case of supplies to EOU/SEZ/EHTP/STP/BTP under such licence Anti Dumping Duty

and Safe Guard duty shall also be exempted.

2) Goods obtained under Advance License can be sent out for job work and return.

3) An advance licence for deemed exports can also be availed by the sub contractor of main
contractor.

4) Licence for Deemed exports can also be issued for supplies made to United nations
organisatins or under the Aid programme of the United Nations or multilateral agencies if
aid for in foreign exchange.

5) The facility of Advance licence shall be available even when some inputs are supplied free
of cost to the exporter.

6) Annual advance licence would be issued to exporters having past export performance to
enable them to import their requirements of inputs on annual basis. (till 8 th April, 2005, the
scheme was restricted only to Star Export Houses). Annual advance license will be granted
upto 300% FOB value of exports in preceding financial year. There should be positive
value addition.

7) Advance licence holder can get the input from indigenous sources in liew of direct imports.
He can do so against an ARO(Advance release order) to be issued by Regional Licesing
authority (RLA). The ARO can be denominated in foreign currency / Indian rupees.
However, supplies may be obtained against the licence from EOU/EHTP/STP/SEZ units
without conversion of license into an ARO.

Alternatively, instead of applying for an ARO may avail the facility of ( the exporter can
obtain goods from indigenous sources on basis of ) back to back inland letter of Credit
(LC) from bank.

8) The Drawback shall be available in respect of any duty paid material whether imported or
indigenous used in the goods exported as per the ‘All Industry Rates of Drawback”.

9) The import of raw materials is on the basis of standard imput-output norms (SION). The
SION are finalized and quantity allowed to be imported will be based on quantity exported.
These norms are technical norms set on the bsasis of data submitted to DGFT. Advance
license may also be issued where SION are not fixed based on self declaration and an
undertaking by the applicant for final adustment as per Adhoc/SION fixed by the Advance
Licensing Committee.
Obligations:
1. Conditions for duty free imports against physical exports are prescribed in notification
Nos.43/2002-Cus dated 19-4-2002 and 93/2004-Cus dated 10-9-2004. Provisions in respect
of advance licennce for deemed exports are contained in notification No.47/2002-Cus dated
22-4-2002.

It is issued with the condition of positive value addition.

2. Export obligation: Advance license is valid for 12 months for import. This can be increased
to 18 months by Regional Lincensing Authority(RLA). Export should be within 24 months from
the date of license. This can be extended upto 12months on payment of fees as applicable for
advance license. Incase of projects within duratin of execution of project.
3. If it is not possible to fulfil export obligation in time, extension has to be obtained from
licensing authority (DGFT). If there is marginal shortfall upto 5%, it can be regularzed. If
short fall is higher (upto 50%) , extension upto oneyear can be obtained on submission of
bank guarantee of full amount of duty saved. Shorfall in exports can be regularized on
payment of duty along with interest @15%..

Model notification is as follows. There are several notifications with specific reference to
quanity based valued addition, value based advance licence, actal user condition etc. However,
the main theme and contents of all the types are as follows. So if we follow one notification,
the other types can be viewed when need arises, at that time it is easy as contents of all the
notifications more or less same.

This notification is taken from 2006-2007 CENTRAL EXCISE TARRIFF ACT (down loaded
from net)

GENERAL EXEMPTIONS - IMPORT TARIFF

v
I. EXEMPTION NOTIFICATIONS FOR IMPORT OF GOODS UNDER VARIOUS
EXPORT PROMOTION SCEHEMES.

A. ADVANCE LICENCING SCHEME/(DEEC) SCHEME :

GENERAL EXEMPTION NO. 1
Exemption to goods when imported against an Advance Licence:
[Notfn. No. 93/04-Cus. dt. 10.9.2004 as amended by 46/05, 77/05, 97/05]

In exercise of the powers conferred by sub-section (1) of section 25 of the Customs Act, 1962 (52
of 1962), the Central Government, being satisfied that it is necessary in the public interest so to do,
hereby exempts materials imported into India against an Advance Licence issued in terms of
paragraph 4.1.3 of the Foreign Trade Policy (hereinafter referred to as the said licence) from the
whole of the duty of customs leviable thereon which is specified in the First Schedule to the
Customs Tariff Act, 1975 (51 of 1975) and from the whole of the additional duty, safeguard
duty and anti-dumping duty leviable thereon, respectively, under sections 3, 8 and 9A of the said
Customs Tariff Act, subject to the following conditions, namely :-
(i) that the description, value and quantity of materials imported are covered by the said licence
and the said licence is produced before the proper officer of customs at the time of
clearance for debit;

(ii) that where import takes place after fulfilment of export obligation, the shipping bill number(s)
and date(s) and quantity and FOB value of the resultant product are endorsed on the said licence:
Provided that where import takes place before fulfilment of export obligation, the quantity or FOB
value of the resultant product to be exported are endorsed on the said licence;
(iii) that the importer at the time of clearance of the imported materials executes a bond with such
surety or security and in such form and for such sum as may be specified by the Deputy
Commissioner of Customs or Assistant Commissioner of Customs, as the case may be, binding
himself to pay on demand an amount equal to the duty leviable, but for the exemption contained
herein, on the imported materials in respect of which the conditions specified in this notification
have not been complied with, together with interest at the rate of fifteen per cent. Per annum from
the date of clearance of the said materials : Provided that bond shall not be necessary in respect of
imports made after the discharge of export obligation in full;

(iv) that the imports and exports are undertaken through seaports at Mumbai, Kolkata,
Cochin, Magdalla, Kakinada, Kandla Mangalore, Marmagoa, Chennai, Nhava Sheva, Paradeep,
Pipavav, Sikka, Tuticorin, Visakhapatnam, Dahej, Mundhra, Nagapattinam, Okha, Bedi (including
Rozi-Jamnagar), Muldwarka and Porbander or through any of the airports at Ahmedabad,
Bangalore, Bhubaneswar, Mumbai, Kolkata, Coimbatore, Delhi, Hyderabad, Jaipur, Chennai,
Srinagar, Trivandrum, Varanasi, Nagpur, Cochin, Rajasansi (Amritsar) and Lucknow (Amausi) or
through any of the Inland Container Depots at Agra, Bangalore, Coimbatore, Delhi, Faridabad,
Gauhati, Guntur, Hyderabad, Jaipur, Jallandhar, Kanpur, Ludhiana, Moradabad, Nagpur, Pimpri
(Pune), Pitampur (Indore), Surat, Tirupur, Varanasi, Nasik, Rudrapur (Nainital), Dighi (Pune),
Vadodara, Daulatabad (Wanjarwadi and Maliwada), Waluj (Aurangabad), Anaparthy (Andhra
Pradesh), Salem, Malanpur, Singanalur, Jodhpur, Kota, Udaipur, Ahmedabad, Bhiwadi, Madurai,
Bhilwara, Pondicherry, Garhi Harsaru, Bhatinda, Dappar (Dera Bassi), Chheharata (Amritsar),
Karur, Miraj, Rewari, Bhusawal, Jamshedpur, Surajpur, Dadri, Tuticorin, Kundli, Bhadohi and
Raipur or through the Land Customs Station at Ranaghat, Singhabad, Raxaul, Jogbani, Nautanva
(Sonauli), Petrapole, Mahadipur, Nepalganj Road, Dawki, Agartala, Sutarkhandi and Amritsar Rail
Cargo or Special Economic Zone as specified in the notification issued under section 76A of the
Customs Act, 1962 (52 of 1962).

Provided that the Commissioner of Customs may, by special order, or by a Public Notice, and
subject to such conditions as may be specified by him, permits import and export from any other
seaport/airport/inland container depot or through any land customs station;

(v) that the export obligation as specified in the said licence (both in value and quantity terms) is
discharged within the period specified in the said licence or within such extended period as may be
granted by the Licensing Authority by exporting resultant products, manufactured in India which
are specified in the said licence and in respect of which facility under rule 18 or sub-rule (2) of 19
of the Central Excise Rules, 2002 has not been availed : Provided that an Advance Intermediate
Licence holder shall discharge export obligation by supplying the resultant products to ultimate
exporter in terms of Paragraph 4.1.3 (b) of the Foreign Trade Policy;

satisfaction of the Deputy

(vi) that the importer produces evidence of discharge of export obligation to the
Commissioner of Customs or Assistant Commissioner of Customs, as the case may be, within a
period of 30 days of the expiry of period allowed for fulfilment of export obligation, or within such
extended period as the said Deputy Commissioner of Customs or Assistant Commissioner of
Customs, as the case may be, may allow;

(vii) that the said licence and the materials shall not be transferred or sold; Provided further that
where the Bond filed under condition (iii) against the said licence has been redeemed by the
Deputy Commissioner of Customs or Assistant Commissioner of Customs, as the case may be, the
unutilised material may be transferred to any other manufacturer for processing under actual user
condition after complying the central excise procedure relating to job work.
(viii) that in relation to the said licence issued to a merchant exporter,-

(a) the name and address of the supporting manufacturer is specified in the said licence and the
bond required to be executed by the importer in terms of condition (iii) shall be executed jointly by
the merchant exporter and the supporting manufacturer binding themselves jointly and severally to
comply with the conditions specified in this notification; and

(b) exempt materials are utilised in the factory of such supporting manufacturer for discharge of
export obligation and the same shall not be transferred or sold or used for any other purpose by the
said merchant exporter.

2. Where the materials are found defective or unfit for use, the said materials may be re-exported
back to the foreign supplier within three years from the date of payment of duty on the importation
thereof: Provided that at the time of re-export the materials are identified to the satisfaction of the
Deputy Commissioner of Customs or Assistant Commissioner of Customs, as the case may be, as
the materials which were imported.
Explanation . – For the purposes of this notification,-
(i) “Foreign Trade Policy” means the Foreign Trade Policy 2004-2009 published vide notification
of the Government of India in the Ministry of Commerce and Industry, No.1/2004 dated the 31st
August, 2004 :
(ii) “Licensing Authority” means the Director General of Foreign Trade appointed under section 6
of the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992) or an officer
authorized by him to grant a licence under the said Act;
(iii) “Materials” means - (a) raw materials, components, intermediates, consumables, catalysts and
parts which are required for manufacture of resultant product;
(b) mandatory spares within a value limit of ten per cent. of the value of the licence which are
required to be exported alongwith the resultant product; (c) fuel required for manufacture of
resultant product; and
(d) packaging materials required for packing of resultant product;
(iv) “manufacture” has the same meaning as assigned to it in paragraph 9.37 of the
Foreign Trade Policy.

GENERAL EXEMPTION NO. 2

Exemption to materials imported under Duty Exemption Entitlement certificate issued
in respect of the value, quantity, description, quality and technical characteristics
-
[Notfn. No.51/00-Cus. dt.27.4.2000, 120/00, as amended by Notfn. Nos.30./01, 122/01,
113/02, 125/02,84/03, 97/03 and 63/04]
In exercise of the powers conferred by sub-section (1) of section 25 of the Customs Act, 1962 (52
of 1962), the Central Government, being satisfied that it is necessary in the public interest so to do,
hereby exempts materials imported into India, against an Advance Licence issued in terms of
paragraph 7.2 of the Export and Import Policy 1997-2002 notified by the Government No. 1/1997-
2002, dated the 31st March, 2000 (hereinafter referred to as the said licence), from the whole of
the duty of customs leviable thereon which is specified in the First Schedule to the Customs Tariff
Act, 1975 (51 of 1975), and from the whole of the additional duty, safeguard duty and anti-
dumping duty leviable thereon respectively under section 3,8, and 9A of the said Customs Tariff
Act, subject to the following conditions, namely:- (i) that the materials imported are covered by
Duty Exemption Entitlement Certificate (hereinafter referred to as the said certificate), issued by
the Licensing Authority in the form specified in the Schedule annexed to this notification, in
respect of the value, quantity, description, quality and technical characteristics; (ii) that the
importer at the time of clearance of the imported materials executes a bond with such surety or
security and in such form and for such sum as may be specified by the Assistant Commissioner of
Customs or Deputy Commissioner of Customs binding himself to pay on demand an amount equal
to the duty leviable, but for the exemption, on the imported materials in respect of which the
conditions specified in this notification have not been complied with, together with interest at the
rate of fifteen percent per annum from the date of clearance of the said materials;

(As per Sec.120(1) of the Finance Bill, 2003 the rate of fifteen per cent is applicable w.e.f.
27.4.2000)

Provided that the bond shall not be necessary in respect of imports made after
the discharge of export obligation in full. (iii) that the said licence and the said certificate are
produced before the proper officer of customs at the time of clearance for debit; (iv) that the
imports and exports are undertaken through sea ports at Mumbai, Calcutta, Cochin, Megdalla,
Kakinada, Kandla, Mangalore, Marmagoa, Madras, Nhava Sheva, Paradeep, Pipavav, Sikka,
Tuticorin, Visakhapatnam, Dehej, Nagapattinam Okha, Mundra, Jamnagar and Muldwarka or
through any of the airports at Ahmedabad, Bangalore, Bhubaneswar, Mumbai, Calcutta,
Coimbatore, Delhi, Hyderabad, Jaipur, Madras, Srinagar, Trivandrum, Varansi, Nagpur and Cochin
or through any of the Inland Container Depots at Agra, Bangalore, Coimbatore, Delhi, Faridabad,
Gauhati, Guntur, Hyderabad, Jaipur, Jallandhar, Kanpur, Ludhiana, Moradabad, Nagpur, Pimpri
(Pune), Pitampur (Indore), Surat, Tirupur, Varanasi, Nasik, Rudrapur (Nainital), Dighi (Pune),
Vadodara, Daulatabad, (Wanjarwadi and Maliwada), Waluj (Aurangabad), Anaparthy (Andhra
Pradesh), Salem, Malanpur, Singanalur, Jodhpur, Kota, Udaipur, Ahmedabad,
Bhiwadi, Madurai, Bhilwara, Pondichery, Garhi Harsaru, Bhatinda, Dappar (Dera Bassi),
Chheharata (Amritsar), Karur, Miraj, Rewari, Bhusawal, Jamshedpur, Surajpur and Dadri or
through the land Customs Station at Ranaghat, Singhabad, Raxaul, Jogbani, Nautanva(Sonauli),
Petrapole and Mahadipur.

Provided that the Commissioner or Customs may by special order and subject to such conditions as
may be specified by him, permit import and export through any other Seaport, Airport, or Inland
Container Depot or through the Land Customs Station.

(v) that the export obligation is discharged within the period specified in the said certificate or
within such extended period as may be granted by the Licensing Authority by exporting resultant
products manufactured in India which are specified in Part 'E' of the said certificate (hereinafter
referred to as resultant products) and in respect of which facility under rule 12(1) (b) or rule 13(1)
(b) of the Central Excise Rules, 1944 has not been availed in respect of materials permitted under
the said licence;

(vi) that the importer produces evidence of discharge of export obligation to the satisfaction of the
Assistant Commissioner of Customs or Deputy Commissioner of Customs within a period of 30
days of the expiry of period allowed for fulfillment of export obligation, or within such extended
period as the said Assistant Commissioner of Customs or Deputy Commissioner of Customs may
allow;

(vii) that the said licence and the materials shall not be transferred or sold;
(viii) that in relation to an Advance Licence issued to a merchant Exporter, -

(a) the name and address of the supporting manufacturer is specified in the said licence and the
said certificate and the bond required to be executed by the importer in terms of condition (ii) shall
be executed jointly by the Merchant Exporter and the supporting manufacturer binding themselves
jointly and severally to comply with the conditions specified in this notification and

(b) exempt materials are utilised in the factory of such supporting manufacturer for discharge of
export obligation by the said merchant exporter.

2. Where the goods are found defective or unfit for use, the said goods may be re-exported back to
the foreign supplier within 3 years from the date of payment of duty on the importation thereof;
Provided at that the time of re-export the goods are identified to the satisfaction of the Assistant
Commissioner of Customs or Deputy Commissioner of Customs as the goods which were
imported Explanation, - In this notification,
(i) "Advance Licence" means an advance license issued for, -
(a) export of goods, or
(b) supply of intermediate goods for use in resultant product;
(ii) "Export Import Policy" means the Export and Import Policy 1977-2002, published vide
notification of the Government of India in the Ministry of Commerce No. (RE-99)/1977-2002
dated the 31st march, 2000;
(iii) "Licensing Authority" means the Director General of Foreign Trade appointed under section 6
of the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992) or an officer
authorised by him to grant a licence under the said
Act.
(iv) "Materials" means -
(a) raw materiels, components, intermediates, consumables, catalysts, computer software and parts
required for manufacture of resultant product and which are incorporated in the said resultant
product specified in Part E of the said certificate;
(b) mandatory spares within a value limit of 10% of the value of the licence which are required to
be exported alongwith the resultant product;
(c) fuel, oil and catalysts required for manufacture of resultant product; and
(d) packing materials required for packaging of resultant product.