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Indirect Tax Laws and Practice · Export Promotion Schemes under Foreign Trade Policy

Advance Authorisation Scheme under Foreign Trade Policy

Updated 11 October 2026 · Fact-checked

Advance Authorisation (AA) lets an exporter import inputs without paying customs duty, if the inputs are physically incorporated in an export product. You must fulfil an export obligation (EO) within the prescribed period, based on input-output norms. To solve questions: find the norm, compute permitted input, compute EO, check conditions, and state the consequence of default.

Understand Advance Authorisation Scheme

Exporters need imported raw materials, but customs duty on them raises the cost of the export product. The Advance Authorisation scheme removes this burden. The Foreign Trade Policy allows you to import inputs duty-free, before you export, on the promise that you will export the finished product.

The idea is simple: duty-free import now, export obligation later. The inputs must be physically incorporated in the export product, apart from permitted allowances such as normal wastage. The quantity of input you may import is fixed by Standard Input Output Norms (SION). If no SION exists for your product, you apply for norms fixed on your own data (a self-declared or ad-hoc norm), which the authority examines.

The authorisation is issued by the Directorate General of Foreign Trade (DGFT). It is given to a manufacturer exporter, or a merchant exporter tied to a supporting manufacturer. It is not transferable, and the inputs cannot be sold in the domestic market. The scheme works on a bond or legal undertaking given to customs, which is the security for the duty forgone.

Specific details such as the export obligation period, the minimum value addition and the exact conditions come from the Foreign Trade Policy and the Handbook of Procedures in force. Check them in your study material before the exam. The parent law is the Foreign Trade (Development and Regulation) Act, 1992. Under section 11(1), no export or import may be made except in accordance with the Act, the rules and orders made under it, and the foreign trade policy in force. So a breach of AA conditions is a contravention of the policy.

The consequences of default are legal. Section 11(2) provides a penalty of not less than ten thousand rupees and not more than five times the value of the goods, services or technology involved, whichever is more, for contravention. Section 11(3) gives the same penalty range for forged or false declarations. Customs duty with interest is recovered on shortfall in export obligation under the Customs Act and the conditions of the notification and bond.

Key rules to remember

Permitted import quantity
Input allowed = Export quantity × Input norm per unit of export product
Norm comes from SION or the norm fixed by the authority. It already includes the permitted wastage.
Export obligation (value basis)
EO = Export value fixed in the authorisation (as per norms and the policy's value-addition requirement)
Take the exact value-addition percentage and EO period from the policy text given in the question. Do not assume them.
Duty forgone on a shortfall
Duty payable = Duty exempted on the unfulfilled share of inputs + interest
Proportionate shortfall approach: Duty × (Unfulfilled EO ÷ Total EO). Follow the notification conditions in the question.
Penalty under section 11(2), FT(D&R) Act, 1992
Not less than ₹10,000 and not more than 5 × value of goods, services or technology, whichever is more
Applies to contravention of the Act, rules, orders or foreign trade policy.
Appeal under section 15
Within 45 days of service of the order, plus a further 30 days for sufficient cause
Against the Director General's order: to the Central Government. Against a subordinate officer's order: to the Director General or an officer authorised by him. For penalty or redemption charges, deposit is needed unless dispensed with for undue hardship.

How to solve Advance Authorisation Scheme questions

Use the same sequence for any AA question, whether it is a computation or a conceptual or case-based one.

  1. 1Identify the claimant: manufacturer exporter or merchant exporter with a supporting manufacturer. Check the export product is eligible.
  2. 2Find the norm. Use the SION or the norm given in the question. Compute input allowed = export quantity × norm.
  3. 3Check that the inputs are physically incorporated in the export product. Items not covered by norms cannot be imported duty-free.
  4. 4Compute the export obligation from the data given (quantity or value). Use the EO period stated in the question or the policy.
  5. 5Compare actual exports with the EO. If exports fall short, identify the unfulfilled share.
  6. 6Compute duty payable on the shortfall with interest, using the proportion of unfulfilled obligation, if the question asks.
  7. 7State legal consequences: contravention under section 11 of the FT(D&R) Act, penalty range, possible IEC suspension for unpaid penalty (section 11(7)), and appeal rights under section 15.
  8. 8Close with a clear conclusion: eligible or not, obligation met or not, and the amount payable.

Quickest way: Norm, obligation, shortfall in three lines

When to use it: For numerical MCQs and short computations where inputs, norms and exports are given.

  1. Line 1: Input allowed = export quantity × norm. Compare with what was imported to spot excess.
  2. Line 2: Shortfall % = (EO − actual export) ÷ EO.
  3. Line 3: Duty payable = duty exempted × shortfall %, plus interest if the question gives a rate and period.

Common mistakes in Advance Authorisation Scheme

  • Treating AA as a duty refund after export, like duty drawback.

    Both relate to duties on exported goods, so students blur them.

    Fix: Remember the timing. AA exempts duty at import, before export. Drawback refunds duty after export. AA needs a bond and export obligation; drawback needs neither.

  • Allowing import of inputs not physically incorporated in the export product.

    Students think any input used in the factory qualifies.

    Fix: Check the physical incorporation condition and the norm. Only inputs covered by the norm, including permitted wastage, are allowed.

  • Quoting the export obligation period or value-addition percentage from memory.

    These figures change with the policy and the Handbook of Procedures.

    Fix: Use the figures stated in the question. If none are given, state the rule in general terms and say it is as per the policy in force.

  • Selling or transferring AA inputs or the authorisation.

    Students confuse AA with scrip-based schemes, which can be traded.

    Fix: AA and its inputs are meant for the holder's export production only. Misuse is a contravention attracting penalty and duty recovery.

  • Stating the section 11(2) penalty as a flat amount or giving the wrong range.

    The two limits and the 'whichever is more' wording are easy to mix up.

    Fix: Write: not less than ₹10,000 and not more than five times the value of the goods, services or technology, whichever is more.

  • Missing the deposit condition and time limit for appeals.

    Students remember only the 45-day period.

    Fix: State 45 days from service, extendable by 30 days for sufficient cause, and the pre-deposit for penalty or redemption charges unless dispensed with for undue hardship.

Worked examples

Example 1

Sundaram Textiles Ltd., Tiruppur, holds an Advance Authorisation to export 10,000 shirts. The norm is 1.2 metres of imported fabric per shirt, including permitted wastage. It imported 13,000 metres duty-free. Compute the permitted import and the excess, if any.

Show the solution
  1. Permitted input = 10,000 × 1.2 = 12,000 metres.
  2. Imported = 13,000 metres.
  3. Excess = 13,000 − 12,000 = 1,000 metres.
  4. The excess is beyond the norm, so it is not covered by the duty exemption. Customs duty applies on it.

Answer: Permitted import is 12,000 metres. The 1,000 metres excess is not eligible for duty-free import; duty (with interest) is payable on it.

Example 2

Kaveri Auto Components Pvt. Ltd. imported inputs under an Advance Authorisation, with customs duty exempted of ₹12,00,000. The export obligation is ₹80,00,000. By the end of the period, it exported goods worth ₹60,00,000. Compute the duty payable on the shortfall, ignoring interest, using the proportionate method. Also state the legal consequence.

Show the solution
  1. Shortfall in EO = ₹80,00,000 − ₹60,00,000 = ₹20,00,000.
  2. Shortfall ratio = 20,00,000 ÷ 80,00,000 = 25%.
  3. Duty payable = ₹12,00,000 × 25% = ₹3,00,000.
  4. Interest is added as per the notification and the bond conditions.
  5. Failure to meet the obligation is a contravention of the foreign trade policy. Under section 11(2) of the FT(D&R) Act, 1992, a penalty of not less than ₹10,000 and not more than five times the value of the goods involved (whichever is more) can be imposed.
  6. If the company is aggrieved by the order, it may appeal within 45 days of service (extendable by 30 days for sufficient cause). For a penalty, a deposit is required unless dispensed with for undue hardship.

Answer: Duty payable on the shortfall is ₹3,00,000 plus interest. A penalty under section 11(2) may also arise, and the appeal route is under section 15.

Exam tips

  • Write the section 11 and 15 rules exactly as stated in the Act; examiners reward the precise wording on penalty range, 45 days and 30 days.
  • In numerical questions, show the norm calculation first. Marks are given for each step even if the final figure is wrong.
  • For AA vs drawback questions, build a short comparison on timing, bond, obligation and nature of benefit.
  • Do not quote EO period or value-addition figures unless the question gives them; say 'as per the foreign trade policy in force'.
  • End case answers with a firm conclusion, such as the duty payable or whether the exporter is in contravention.

Practice questions from Export Promotion Schemes under Foreign Trade Policy

Advance Authorisation Scheme in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Advance Authorisation Scheme: frequently asked questions

What is the difference between Advance Authorisation and duty drawback?

Advance Authorisation exempts customs duty when you import inputs, before you export. Duty drawback refunds duty after you export. AA needs a bond and an export obligation; drawback does not.

What is export obligation under Advance Authorisation?

It is the commitment to export the product, in the quantity or value fixed in the authorisation, within the period set by the foreign trade policy. It is linked to the norms and the duty exemption you enjoyed.

What happens if the export obligation is not fulfilled?

Customs duty on the unfulfilled portion becomes payable with interest. The failure is also a contravention of the foreign trade policy, so a penalty under section 11(2) of the FT(D&R) Act, 1992 can be imposed.

Can I appeal against an order under the FT(D&R) Act?

Yes. Section 15 allows an appeal within 45 days of service of the order, with a further 30 days if sufficient cause is shown. Against the Director General's order, the appeal goes to the Central Government. Against a subordinate officer's order, it goes to the Director General or an officer he authorises.