To address the misuse of Advance Authorisation, Export Oriented Units (EOU), and Special Economic Zones (SEZ) for importing items subject to mandatory Quality Control orders, the Directorate General of Foreign Trade (DGFT) has implemented significant regulatory changes through Notification No. 71/2023. This notification eliminates the blanket exemption of Bureau of Indian Standards (BIS) orders and introduces a set of new regulations.

Under these revised regulations, stringent measures have been established to govern the importation of inputs under Advance Authorisations. This includes the imposition of pre-import conditions, specific endorsements, rigorous monitoring, and the imposition of substantial penalties for failure to utilize the imported items in export products.

Currently, only Quality Control Orders (QCOs) issued by the Ministry of Steel, Department for Promotion of Industry and Internal Trade (DPIIT), and Ministry of Textiles are exempted under Advance Authorisations, subject to certain conditions. The key points are;

  1. Utilization for Export under the Same Authorization: Inputs imported under a specific Advance Authorization must be utilized for exports under the same Authorization, with allowances made for normal wastage. Even clubbing for redemption purposes will not be permitted.
  2. Endorsement of Exemptions from Quality Control Orders: Exemptions from QCO must be clearly endorsed in the Advance Authorization. Imports should adhere to mandatory QCOs if exemptions are not specified
  3. Restrictions on Transfer to Domestic Tariff Areas (DTAs): Under no Circumstances, should unutilized imported inputs (without compliance to QCOs) be transferred to DTAs.
  4. Disposal of un-utilized Inputs:  Unutilized imported inputs must either be destroyed in the presence of concerned GST/Customs authorities or re-exported. Importers are liable to pay proportionate duties, interest, and a composition fee of 10% of the proportionate CIF value of the unutilized inputs.
  5. Exemptions for physical exports Only: Exemptions from QCO will only apply to physical exports and not deemed exports.
  6. Criteria for Exemptions from QCO: Exemptions from QCO are subject to the criteria outlined in Para 2.03(c) of the FTP. The list of Ministries/Departments exempted by DGFT for goods utilized in manufacturing export products is provided in Appendix 2-Y of FTP 2023.
  7. Inapplicability of DFIA Scheme: The Duty-Free Import Authorization (DFIA) scheme is not applicable for imports of inputs without compliance to mandatory QCOs.
  8. Additionally, for EOUs & SEZs, an exemption from mandatory QCOs is provided for inputs required for export production, subject to submission of an undertaking to Customs authorities and the concerned Development Commissioner. No DTA clearance is allowed for such inputs or goods manufactured from them.

Our Opinion: The above is aimed to stop the importers who were using AA , EOU & SEZ schemes to import QCO items and then transferring them for domestic use. However, it appears to be a bit too strict, as it does not even allow clubbing of 2 authorisations for the same item. Also what would be the status of already issued AA under which entities may have imported the QCO items, but have planned to club the two AA. 

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