Advance License Redemption: Process, Benefits & Fixation of Norms Explained

 

For businesses involved in importing raw materials to manufacture export products, the Advance License Redemption process plays a critical role in maintaining compliance and managing costs effectively. This article breaks down what Advance License Redemption is, how it works, and how the Fixation of Norms for Advance License impacts exporters under India’s Foreign Trade Policy.

What is Advance License Redemption?

Advance License (now commonly referred to as Advance Authorization) is a key export incentive provided under India’s Foreign Trade Policy. It allows duty-free import of raw materials that are physically incorporated into export products. In simple terms, exporters can import inputs without paying customs duty, provided they commit to exporting finished goods within a stipulated time frame.

Once the export obligation is fulfilled, the exporter must apply for Advance License Redemption. This process essentially closes the advance license and confirms that the exporter has met the export obligations tied to the duty-free imports.

The Advance License Redemption Process

1. Fulfillment of Export Obligation
   Exporters must complete the export of goods as per the quantity and value specified in the license.

2. Preparation of Documents
   After fulfilling the export obligations, the exporter prepares the redemption application with supporting documents such as:

   • Shipping bills

   • Bills of entry

   • Bank Realization Certificates (BRCs)

   • Export invoices

   • Import documents

3. Submission to DGFT
   The application is submitted to the Directorate General of Foreign Trade (DGFT) through the online DGFT portal.

4. Scrutiny and Issuance of Redemption Letter
   DGFT verifies the documents and, if found satisfactory, issues a Redemption Letter or Export Obligation Discharge Certificate (EODC). This certificate confirms that the exporter has met the required conditions.

5. Closure of Bond or Bank Guarantee
   Post-redemption, any bonds or bank guarantees submitted at the time of license issuance are released.

Fixation of Norms for Advance License

The Fixation of Norms for Advance License is a crucial step that determines how much of each input can be imported duty-free against the export of finished products. Norms are essentially consumption ratios that link the quantity of imported inputs to the output.

There are two types of norms:

• Standard Input Output Norms (SION): Pre-determined norms published by DGFT for commonly exported products.

• Ad-hoc Norms: For products not covered under SION, exporters can apply for ad-hoc norms fixation by providing detailed technical data and input-output ratios.

Accurate fixation of norms ensures that the duty-free benefit is granted only for the actual consumption of inputs, preventing misuse and maintaining fair trade practices.

Why Advance License Redemption Matters

• Duty Savings: Reduces production cost by exempting customs duty on imports.

• Cash Flow Benefits: Improves liquidity by minimizing upfront tax payments.

• Regulatory Compliance: Avoids penalties by demonstrating fulfillment of export obligations.

Conclusion

Advance License Redemption and the Fixation of Norms for Advance License are essential components of India’s export promotion system. Understanding the process helps exporters optimize their benefits while staying compliant. Meticulous documentation and timely application are key to smooth redemption and hassle-free closure of obligations.