In the context of international trade, both Intermediate Advance License and Advance License are instruments that offer certain benefits to exporters, particularly in relation to customs duties and taxes.
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Here’s an explanation of each:
- Advance License (AL):
- Purpose: An Advance License is issued to exporters by the relevant government authority, permitting them to import raw materials, inputs, components, or machinery without payment of customs duties, excise duties, or other taxes. This allows exporters to procure necessary inputs at a lower cost, making their exported goods more competitive in the global market.
- Utilization: The imported materials under an Advance License must be used for manufacturing goods that are subsequently exported. In other words, the benefit of duty exemption is contingent upon the export of finished products made using the imported inputs.
- Export Obligation: Exporters who hold an Advance License are obligated to fulfill a certain export obligation within a specified period. This obligation typically requires the export of finished goods equivalent to a certain multiple (often 6 times) of the CIF (Cost, Insurance, and Freight) value of the imported inputs.
- Application: Exporters need to apply for an Advance License with the relevant government authority, providing details of the intended export product, the quantity of inputs required, and the export obligation they are willing to undertake.
- Intermediate Advance License (IAL):
- Purpose: An Intermediate Advance License is a variation of the Advance License, designed for exporters who require imported materials not only for the production of goods to be exported but also for the manufacture of intermediate products or components used in the production process.
- Utilization: Similar to the Advance License, an Intermediate Advance License allows duty-free import of raw materials, inputs, or machinery. However, in this case, the imported materials can be utilized not only for the production of export goods but also for the manufacture of intermediate products that are subsequently used in the production process.
- Export Obligation: As with the Advance License, exporters holding an Intermediate Advance License are required to fulfill a specified export obligation within a given period. The export obligation is based on the value of the exported goods manufactured using the imported inputs, including both finished products and intermediate goods.
- Application: Exporters interested in availing an Intermediate Advance License need to apply to the relevant government authority, providing details of the intended exports, the quantity of inputs required, and the proposed utilization of imported materials for the production process.
In summary, both Advance License and Intermediate Advance License offer duty-free import benefits to exporters, allowing them to procure necessary inputs at a lower cost. However, while Advance License is primarily for the import of materials directly used in the production of export goods, Intermediate Advance License extends this benefit to include materials used in the manufacture of intermediate products or components as well.