Merchant exporter does have manufacturing unity

[Dinesh kumar]

Why does a merchant exporter obtain an advance license when he exports raw materials even though he doesn’t have a manufacturing unit? How does he use the raw materials?

[Sadanand Bulbule]

1. What is an Advance Authorization (Advance License)? 

It is a duty exemption scheme under the Foreign Trade Policy (FTP). Allows duty-free import of raw materials/input items that are physically incorporated in the export product.

Export obligation: The exporter must export the resultant product (finished goods) within a prescribed time.

2. How can a Merchant Exporter (without factory) obtain it?

Even if he doesn’t have a factory, a merchant exporter can apply for an advance license by associating with a supporting manufacturer.  In the application, he declares the supporting manufacturer’s details. The supporting manufacturer actually consumes the duty-free raw materials in production and supplies finished goods to the merchant exporter.  The merchant exporter then exports those finished goods to meet his export obligations.

3. Why does he take the license in his own name?

Merchant exporters often prefer to hold the license themselves so that:  Control remains with them – they can source raw materials, get goods manufactured on job work/contract basis. • They can negotiate better with multiple supporting manufacturers.  Export benefits (e.g., duty exemption, faster clearances) accrue to them directly, not to the manufacturer.

4. How does he “use” the raw materials if he has no unit?

 He doesn’t literally use them; instead: Imports raw materials duty-free under the license.  Sends them to a supporting manufacturer/job worker under bond, challan, or CT-3/ARE-3 procedure. The manufacturer converts raw materials into finished export products.  Finished products are returned to the merchant exporter for onward export.

Thus, the merchant exporter facilitates the flow – he owns the materials, but the manufacturer consumes them

[Shilpi Jain]

Advance license is given to a merchant exporter tied to a supporting manufacturer. So the goods exported are manufactured goods and not raw materials.

[Sadanand Bulbule]

Refer the following judgement as regards to the Customs benefits to the Merchant Exporters:

2025 (5) TMI 1695 - Supreme Court

 

AI Summary

Merchant exporters may use supporting manufacturers under advance authorization for duty-free inputs while retaining control and export obligation An advance authorization under the Foreign Trade Policy permits duty-free import of inputs physically incorporated into exported goods; the holder must fulfill an export obligation by exporting the finished product. A merchant exporter without a factory may obtain such authorization by declaring a supporting manufacturer who physically consumes the inputs and supplies finished goods to the merchant for export. Merchant exporters retain the license to control sourcing, contract manufacturing, and benefits. Duty-free inputs are sent to the supporting manufacturer under bond/challan or CT-3/ARE-3 procedures; finished goods are returned for onward export. A recent Supreme Court judgment on customs benefits was cited.