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the wastage generated in the manufacturing process. DGFT provides a sector-wise list of Standard Input-Output Norms (SION) under which the exporters may choose to apply. Alternatively, exporters may apply for their own ad-hoc norms in cases where the SION does not suit the exporter. Advance Authorisation covers manufacturer exporters or merchant exporters tied to supporting manufacturer(s).
The most common misuse of advance authorization is diversion of imported duty-free goods in open market. Some importers take this modus operandi a step further and while importing they import better quality, high value/quality inputs and divert the same in the domestic market. Thereafter, to meet the export obligation fraudulently, they export finished goods manufactured from low value/quality inputs.
Many persons in the business of diversion of goods imported under advance authorization are repeat offenders and survive on the business model of diversion of duty-free goods. They often operate a group of IECs to ensure
continuity of business, in case the fraud is detected in respect of one of their IECs. At times, the same advance authorization holders were found to have obtained new advance authorizations in no time in favour of new IECs and thereby they had continued to perpetrate the fraud. It was also found that the advance authorizations were obtained by declaring such supporting manufacturers, whose manufacturing facilities existed only on paper or who had shut their factories long back.
Investigations by Directorate of Revenue Intelligence indicated that in many of the cases there was a systemic failure in carrying out due diligence at the time of issuance of advance authorizations. Investigations in respect of cases booked, wherein such IECs were used have revealed that the goods were imported duty-free by mis-utilizing the advance authorizations even though the declared premises of the advance authorization holder did not have the requisite manufacturing facility and the goods imported duty-free were diverted in the domestic market immediately after imports.