Advance Authorisation: Inputs, SION and Minimum Value Addition

Advance Authorisation explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

The scheme permits duty-free import of inputs, but the qualifying condition is narrow: the inputs must be physically incorporated in the export product. Fuel, oil and catalysts consumed in the process are the only exception — and even they must be "consumed or utilized during the production process."

Advance Authorisation "permits the duty-free import of inputs into products destined for export, provided that these inputs are physically incorporated into the final product", subject to a standard wastage allowance, with fuel, oil and catalysts consumed in production also eligible. Inputs are allowed on one of four bases: SION; applicant-specific prior fixation by the Norms Committee (Para 4.06 HBP); self-declaration (Para 4.07 HBP); or the Self-Ratification Scheme (Para 4.07A FTP). Minimum value addition is 15%, with tea at 50%, spices at 25% and DFIA at 20%.

The four objectives, and what they mean

The scheme is designed to facilitate:

• (A) "Duty-free import of inputs for export production, granting an upfront exemption";
• (B) "Tax-free domestic sourcing of inputs through the refund route";
• (C) "The replenishment of inputs utilized in export production";
• (D) "The remission of duties paid on inputs for export production."

Four different mechanics for the same objective. (A) is the classic pre-import exemption; (B) works through deemed export refunds; (C) is post-export replenishment; (D) is remission. The scheme's several components map onto these.

Its components: Advance Authorisation; AA for Spices; the Special AA Scheme for Articles of Apparel and Clothing Accessories under Chapters 61 and 62; schemes for Exporters of Gems and Jewellery; and AA for Annual Requirement.

The four norm bases

SION. "norms for thousands of products falling under different segments are pre-fixed. In this method, one can apply for advance authorisation licence under the said Sr. No. of SION and get the licence from DGFT."

Norms Committee fixation. Where the product is not in SION: "You can apply to the Norms Committee for norms to be fixed specifically for your product."

Self-declaration. "an exporter can apply… on a self-declaration basis, if the required export product is not there in the SION or he is not satisfied with import quantity allowed. Here, he will select the import items and quantity of import items as per his requirement."

Self-Ratification. "Where there is no SION/valid ad hoc norms for an export product and where SION has been notified but the exporter intends to use additional inputs in the manufacturing process, the eligible exporter can apply… on self-declaration and self-ratification basis."

Note the practical asymmetry with DFIA. "DFIA authorization can be issued only for those items having standard input output norms (SION) notified" — so a novel product can obtain an AA but not a DFIA. DFIA against AA →

Who may hold one, and for what

Eligible applicants:

• a manufacturer exporter;
• a merchant exporter tied to a supporting manufacturer;
• for pharmaceutical products manufactured through a non-infringing (NI) process, "it will be issued to the manufacturer exporter only."

Eligible exports and supplies:

• physical export (including export to SEZ);
• intermediate supply;
• deemed exports under Paragraph 7.02 (b), (c), (e), (f), (g) and (h) of FTP;
• supply of "stores" on board a foreign-going vessel or aircraft, subject to a specific SION for the item supplied.

Note which deemed export limbs are excluded — 7.02(a) and (d) do not appear — so not every deemed export supports an AA.

Value addition

The formula:

VA = × 100 / B where A = FOB value of export realized / FOR value of supply received, and B = CIF value of inputs covered by the authorisation, plus value of any other input used on which the benefit of DBK is claimed or intended to be claimed.

Note what goes into B. Not just the authorised inputs — any other input on which drawback is claimed or intended is added, which prevents an exporter from inflating apparent value addition by taking drawback separately on the remainder.

The thresholds:

Tea at 50% is the outlier, and the reason is the same one that drives the GST treatment: the processing that turns green leaf into tea is substantial, so a low value-addition threshold would let a near-trading operation take duty-free inputs.

Duties exempted

Imports under AA are exempt from:

• Basic customs duty
• Additional customs duty
• Social welfare surcharge
• Anti-dumping duty
• Countervailing duty
• Safeguard duty
• Integrated tax under the Customs Tariff Act, 1975 up to the period notified by CBIC
• Compensation cess under the Customs Tariff Act, 1975 up to the period notified by CBIC

The two conditional entries matter. IGST and compensation cess exemption on AA imports runs only "up to the period notified by CBIC" — a materially different position from DFIA, where IGST is never exempt.

The enabling notification is Customs Notification No. 21/2023-Customs dated 1 April 2023, which "exempts materials imported into India against a valid Advance Authorisation issued by the Regional Authority."

Actual user condition

"Advance authorization and / or material imported under advance authorization shall not be transferable even after completion of export obligation." But "the authorization holder will have an option to dispose of products manufactured out of duty-free input once the export obligation is completed."

Waste and scrap are freer. "Waste / scrap arising out of manufacturing process, as allowed, can be disposed off on payment of applicable duty even before fulfillment of export obligation."

And a credit-linked restriction applies afterwards. Where CENVAT or input tax credit on inputs has been availed for the exported goods, "even after completion of export obligation, the goods imported against such Advance Authorisation shall be utilized only in the manufacture of dutiable goods" — within the same factory or by a supporting manufacturer — evidenced by "a certificate from Chartered Accountant at the time of filing application for Export Obligation Discharge Certificate."

Prohibited, restricted and STE items

• No export or import of a prohibited item is allowed under AA or DFIA.
• STE-reserved imports cannot be imported against AA/DFIA — but may be procured from STEs against ARO, invalidation letter, or on high sea sale basis, or imported against an NOC from the STE.
• STE-reserved exports may be exported under AA/DFIA only after obtaining an NOC from the concerned STE.
• Restricted items are allowed under AA/DFIA with specific and prior approval of the DGFT.

Domestic sourcing, and the annual requirement variant

Domestic sourcing. The holder may procure inputs "from indigenous supplier / State Trading Enterprise / EOU / EHTP / BTP / STP in lieu of direct import", against an advance release order (ARO) or an invalidation letter. A Certificate of Supplies (COS) confirms supply from an SEZ to a domestic manufacturing unit.

AA for Annual Requirement is available only:

• for items notified in SION, not ad hoc norms;
• not where SION inputs appear in Appendix 4-J;
• to exporters with past export performance in at least the preceding two financial years.

The entitlement: "CIF value of imports shall be upto 300% of the FOB value of physical export and/or FOR value of deemed exports during the preceding financial year or ₹1 crore, whichever is higher."

Two special variants

Spices. "Duty free import of spices permitted only for crushing/grinding/sterilization/manufacture of oils or oleoresins. Authorization shall not be available simply for cleaning, grading, re-packing etc."

Apparel (Chapters 61 and 62). Duty-free import of relevant fabrics including interlining only — "no other input, packing material, fuel, oil and catalyst shall be allowed." For non-fabric inputs the exporter gets AIR duty drawback, with the value of such inputs "equal to 22% of the FOB value of export realized." The fabric is non-transferable even after EO completion, is subject to actual user and pre-import conditions, only physical exports count, and invalidation is not permitted.

And mandatory spares may be imported duty free "to the extent of 10% of CIF value of authorization" where required to be exported with the resultant product.

Key takeaways

• Inputs must be physically incorporated in the export product; fuel, oil and catalysts consumed in production also qualify.
• Norms come from SION, Norms Committee fixation, self-declaration, or self-ratification — DFIA needs notified SION, AA does not.
• VA = (A − B) × 100 / B, with B including inputs on which drawback is claimed.
• Minimum VA 15%; tea 50%, spices 25%, DFIA 20%, Diamond Imprest 10%; Appendix 4D lists sub-15% products.
• AA exempts BCD, ACD, SWS, anti-dumping, countervailing and safeguard duties, plus IGST and cess up to the period notified by CBIC.
• Customs Notification No. 21/2023-Customs is the enabling exemption.
• The authorisation and imported material are never transferable, but manufactured products may be sold after EO completion, and scrap even before.
• AA for Annual Requirement: SION items only, two years' past performance, 300% of preceding year FOB or ₹1 crore, whichever is higher.

Read next

• Advance Authorisation: Export Obligation, Clubbing and the EODC
• DFIA Against Advance Authorisation: The IGST Difference
• Deemed Exports: FTP Para 7.02 Against Notification No. 48/2017

Disclaimer: Positions stated as on 5 September 2026, based on Chapter 4 of the Foreign Trade Policy 2023 and the corresponding Handbook of Procedures, Appendices 4D and 4-J, and Customs Notification No. 21/2023-Customs dated 1 April 2023, as reproduced in the ICAI Handbook on Foreign Trade Policy – Incentives, Schemes & Related FAQs (November 2025, 2nd Edition).