As per Export & Import Policy 1st April 2002 - 31st March 2007 (Chapter - 4)  Duty Exemption / Remission Scheme
 

4.1
The Duty Exemption Scheme enables duty free import of inputs

required for export production. An Advance License is issued under Duty Exemption Scheme. The Duty Remission Scheme enables post export replenishment/ remission of duty on inputs used in the export product. Duty Remission scheme consist of (a) DFRC and (b) DEPB. DFRC permits duty free replenishment used in the export product. The DEPB scheme allows drawback of import charges on inputs used in the export product.
Advance License

4.1.1 
An Advance License is issued to allow duty free import of inputs,

which are physically incorporated in the export product (making normal allowance for wastage). In addition, fuel, oil, energy, catalysts etc. which are consumed in the course of their use to obtain the export product, may also be allowed under the scheme. Duty free import of mandatory spares upto 10% of the CIF value of the License which are required to be exported/ supplied with the resultant product may also be allowed under Advance License. Advance License can be issued for:-
a) Physical exports:-
Advance License may be issued for physical exports to a manufacturer exporter or merchant exporter tied to supporting manufacturer(s) for import of inputs required for the export product.
b) Intermediate supplies:-
Advance License may be issued for intermediate supply to a manufacturer-exporter for the import of inputs required in the manufacture of goods to be supplied to the ultimate exporter/ deemed exporter holding another Advance License.
c) Deemed exports:-
Advance License can be issued for deemed export to the main contractor for import of inputs required in the manufacture of goods to be supplied to the categories mentioned in paragraph 8.2 (b), (c), (d) (e) (f),(g) (i) and (j) of the Policy.

In addition, in respect of supply of goods to specified projects mentioned in paragraph 8.2 (d) (e) (f),(g) and (j) of the Policy, an Advance License for deemed export can also be availed by the sub-contractor of the main contractor to such project provided the name of the sub contractor(s) appears in the main contract. Such License for deemed export can also be issued for supplies made to United Nations Organisations or under the Aid Programme of the United Nations or other multilateral agencies and paid for in foreign exchange.

4.1.2
Advance License is issued for duty free import of inputs, as

defined in paragraph 4.1.1 subject to actual user condition. Such Licenses (other than Advance License for deemed exports) are exempted from payment of basic customs duty, additional customs duty, anti dumping duty and safeguard duty, if any. However, Advance License for deemed export shall be exempted from basic customs duty and additional customs duty only.

4.1.3
Advance License and/or materials imported thereunder shall not

be transferable even after completion of export obligation.

4.1.4
Advance Licenses (including Advance License for deemed exports

and intermediate supply) shall be issued with a positive value addition. However, for exports for which payments are not received in freely convertible currency, the same shall be subject to value addition as specified in Appendix-32 of Handbook (Vol.1), 2002-07.

4.1.5
Advance License shall be issued in accordance with the Policy and

procedure in force on the date of issue of License and shall be subject to the fulfillment of a time bound export obligation as may be specified.

4.1.6
The facility of Advance License shall also be available where some

of the inputs are supplied free of cost to the exporter. In such cases, for calculation of value addition, the notional value of free of cost inputs alongwith value of other duty-free inputs shall be taken into consideration.
Export Obligation
4.1.7
The period for fulfillment of the export obligation under Advance

License shall be as prescribed in the Handbook (Vol.1).
Advance Release Orders
4.1.8
An Advance License holder (except Advance License for

intermediate supply) and holder of DFRC intending to source the inputs from indigenous sources/state trading enterprises/ EOU/ EPZ/SEZ/ EHTP/STP units in lieu of direct import has the option to source them against Advance Release Orders denominated in foreign exchange/Indian rupees. The transferee of a DFRC shall also be eligible for ARO facility.
Back-to-Back Inland Letter of Cerdit
4.1.9
An Advance License holder, (except Advance License for

intermediate supply) and holder of DFRC may, instead of applying for an Advance Release Order, avail of the facility of Back-to-Back Inland Letter of Credit in accordance with the procedure specified in Handbook (Vol.1).
Prohibited Items
4.1.10
Prohibited items of imports mentioned in ITC(HS) shall not be

imported under the License issued under the scheme.
Compliance with Export Policy
4.1.11
Goods mentioned as restricted for exports in ITC(HS) may be

exported without specific export License/ certificate/ permission under Advance License for physical exports issued with prior import condition. In such cases, the License/certificate/permission holder shall not be allowed to use indigenous inputs and the export product shall be manufactured only out of imported inputs under Advance License for physical exports.
Re-import of Exported Goods under Duty Neutralisation Scheme
4.1.12
Goods exported under Advance License/ DFRC/ DEPB may be re-

imported in the same or substantially the same form subject to such conditions as may be specified by the Department of Revenue from time to time.
Admissibility of Drawback
4.1.13
In the case of an Advance License, the drawback shall be available

in respect of any of the duty paid materials, whether imported or indigenous, used in the goods exported, as per the drawback rate fixed by Ministry of Finance (Directorate of Drawback). The Drawback shall however be restricted to the duty paid materials as mentioned in the License.
Value Addition
4.1.14
The value addition for the purposes of this chapter shall be:-


V.A = A - B
------------- x 100, where
B
V.A is Value Addition
A is the FOB value of the export realised /FOR value of supply received.
B is the CIF value of the imported inputs covered by the License,
plus any other imported materials used on which the benefit of duty drawback is being claimed.
Duty Replenishment Certificate
4.2
DFRC is issued to a merchant-exporter or manufacturer-exporter

for the import of inputs used in the manufacture of goods without payment of basic customs duty, and special additional duty. However, such inputs shall be subject to the payment of additional customs duty equal to the excise duty at the time of import.

4.2.1
DFRC shall be issued on minimum value addition of 33%.
 
 
4.2.2
DFRC may be issued in respect of exports for which payments are
 
received in non-convertible currency. Such exports shall, however, be subject to value addition and conditions as specified in Appendix-32 of Handbook (Vol.1).

4.2.3
DFRC shall be issued only in respect of export products covered

under the SIONs as notified by DGFT. However, DFRC shall not be issued in respect of SIONs which are subject to "actual user" condition or where the input is allowed with prior import condition or where the norms allow import of Acetic Anhydride, Ephedrine and Pseudo Ephedrine in the Handbook (Vol-II).
However DFRC may be issued for SIONs allowing import of Acetic Anhydride, Ephedrine and Pseudo Ephedrine provided these items are specifically deleted from the list of import items.

4.2.4
DFRC shall be issued for import of inputs as per SION as indicated

in the shipping bills. The validity of such Licenses shall be 18 months. DFRC and or the material(s) imported against it shall be freely transferable.

4.2.5
The export products, which are eligible for modified VAT, shall be

eligible for CENVAT credit. However, non excisable, non dutiable or non centrally vatable products, shall be eligible for drawback at the time of exports in lieu of additional customs duty to be paid at the time of imports under the scheme.

4.2.6
The exporter shall be entitled for drawback benefits in respect of

any of the duty paid materials, whether imported or indigenous, used in the export product as per the drawback rate fixed by Directorate of Drawback (Ministry of Finance). The drawback shall however be restricted to the duty paid materials not covered under SION.
Jobbing Repairing etc. for re-export
4.2.7
Import of goods, including those mentioned as restricted in

ITC(HS) but excluding prohibited items, in terms of paragraph 4.1.1 supplied free of cost, may be permitted for the purpose of jobbing without a License/ certificate/ permission as per the terms of notification issued by Department of Revenue from time to time.