TaxTMI 
TaxTMI 
TaxTMI 
AEO (Authorized Economic Operator) and the Manufacturing and Other Operations in Warehouse Scheme - Booster for Indian Manufacturing and Export Sectors.
Let's explore two important concepts: AEO (Authorized Economic Operator) and the Manufacturing and Other Operations in Warehouse Scheme under India's trade and customs policies. Both these schemes play a significant role in enhancing India's ease of doing business and facilitating smoother international trade.
1. AEO (Authorized Economic Operator)
The AEO (Authorized Economic Operator) program is an initiative by the Central Board of Indirect Taxes and Customs (CBIC), India, under the World Customs Organization (WCO) framework. It is designed to ensure the security of the supply chain and to facilitate trade. AEOs are businesses involved in the international supply chain that are approved by Customs authorities as complying with international standards for customs procedures, security, and trade facilitation.
Legal Framework:
- Customs Act, 1962
- Customs (Authorized Economic Operator) Regulations, 2016
- World Customs Organization (WCO) SAFE Framework of Standards
Key Features:
- Risk-based approach: AEO-certified businesses are treated as low-risk entities by Customs, which leads to faster customs clearance and priority processing of consignments.
- Reduced Inspection: AEO-certified entities can benefit from lower inspection rates and simplified procedures.
- Customs facilitation: AEOs enjoy benefits like faster processing of customs clearances and easier access to certain authorizations and licenses.
- International Recognition: AEO certification is internationally recognized and provides greater trade facilitation and better relationships with foreign Customs administrations.
Eligibility:
- Companies involved in the international supply chain and who meet specific criteria set by the Customs authorities, such as being financially stable, having proper compliance with customs regulations, and ensuring proper security measures for their operations.
- AEO Certification Levels: There are three levels of certification:
- AEO-T1 (Basic Certification): For entities that demonstrate compliance with Customs rules.
- AEO-T2 (Intermediate Certification): For entities with advanced compliance procedures.
- AEO-T3 (Highest Certification): For entities demonstrating complete security and safety of their supply chain.
Benefits:
- Priority Clearance: Reduced time for customs clearance and priority handling of goods.
- Reduced Costs: Less inspection and fewer delays can lead to significant cost savings.
- Increased Efficiency: Streamlined processes for businesses, which enhance their competitiveness.
- Global Recognition: The AEO status is recognized by Customs authorities of other countries, improving cross-border operations.
2. Manufacturing and Other Operations in Warehouse Scheme (MOOWR)
The Manufacturing and Other Operations in Warehouse Scheme (MOOWR) is designed to promote the manufacturing and value-added operations in warehouses. This scheme allows exporters and traders to carry out certain manufacturing activities within bonded warehouses without having to pay customs duties upfront, which supports the export of goods.
Legal Framework:
- Customs Act, 1962
- Customs (Import of Goods at Concessional Rate of Duty) Rules, 2017 (MOOWR is part of these rules)
- Customs (Bonded Warehouse) Regulations, 2016
Key Features:
- Manufacturing in Bonded Warehouses: Under MOOWR, a manufacturer or exporter can carry out manufacturing or processing activities within a bonded warehouse and export the finished goods without having to pay the duties on raw materials or components until they are exported. This deferral of customs duties ensures a smooth cash flow.
- Operations Allowed: The operations allowed under the scheme include repacking, reconditioning, labeling, reworking, and assembly. These activities help in enhancing the value of the goods before export.
- Customs Duty Deferral: Import duties on the raw materials used for manufacturing within the bonded warehouse are suspended until the final product is exported. This helps improve liquidity for manufacturers and exporters.
- Customs Control: The goods that are manufactured or processed within the warehouse remain under Customs control until they are either exported or cleared for domestic consumption.
Eligibility:
- The scheme is open to exporters, manufacturers, or traders who intend to carry out manufacturing or processing activities and export the finished products.
- The goods must be intended for export; if the goods are sold in the domestic market, the applicable duties must be paid.
- The manufacturer or trader must maintain proper records and compliance with Customs procedures.
Benefits:
- Duty Deferral: Customs duties on raw materials are suspended until the product is exported.
- Increased Flexibility: Businesses can manufacture or process goods without worrying about paying upfront customs duties.
- Enhanced Cash Flow: The deferred payment of customs duties improves working capital and cash flow for manufacturers.
- Operational Efficiency: Companies can undertake value-added activities and use bonded warehouses as a means to streamline their supply chain operations.
- Risk Mitigation: The scheme is well-regulated, ensuring that only goods intended for export benefit from these provisions.
Process:
- Setting up a Bonded Warehouse: To avail of this scheme, businesses must set up a bonded warehouse that is authorized by Customs.
- Execution of Bond: The importer/manufacturer/exporter is required to execute a bond, assuring Customs that the goods will be used for manufacturing or processing and exported in due course.
- Manufacturing Operations: Goods can undergo permitted activities within the warehouse, and the duty is deferred until the goods are exported.
- Export of Manufactured Goods: Once the goods are manufactured and ready for export, they can be exported without paying any customs duties upfront.
Comparison: AEO vs. MOOWR
Feature | AEO | MOOWR |
Purpose | To enhance trade security and expedite customs procedures for exporters and importers | To allow manufacturers and traders to carry out manufacturing and processing activities in warehouses with deferred customs duties. |
Scope | Covers businesses in the entire international supply chain, providing faster customs clearances and reduced inspections. | Allows manufacturing and processing activities in bonded warehouses for goods that will be exported. |
Key Benefit | Faster customs clearance, reduced inspection, and greater global trade facilitation. | Duty deferral on raw materials used in manufacturing until the product is exported. |
Eligibility | Businesses involved in import and export of goods who meet security and compliance standards. | Exporters or manufacturers who wish to carry out permitted operations in bonded warehouses. |
Customs Duty Impact | Customs duties are minimized via simplified clearance and risk-based treatments. | Customs duties are deferred on raw materials until the manufactured goods are exported. |
Impact on Business | Increases operational efficiency, reduces costs by speeding up clearance times, and builds stronger relationships with international Customs. | Improves cash flow, reduces upfront capital expenditure for manufacturing, and enhances export competitiveness. |
Conclusion
Both the AEO and MOOWR schemes are integral to India’s efforts to boost trade and export activities. While AEO facilitates smoother and faster international trade by recognizing trusted businesses within the supply chain, MOOWR enables businesses to reduce the financial burden of paying upfront customs duties for raw materials used in manufacturing goods for export.
- The AEO program focuses on security and efficiency across the global supply chain, providing significant customs facilitation and benefits to compliant entities.
- The MOOWR scheme is designed to help businesses that wish to undertake value-added manufacturing in bonded warehouses with customs duty deferment, giving them more flexibility and enhancing cash flow.
If you're involved in export or manufacturing, both schemes offer considerable benefits depending on the nature of your business.
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