What is Advance Authorisation on Net-to-Net basis?
Advance Authorisation on Net-to-Net basis with accountability clause is a provision under the Advance Authorisation Scheme that allows certain components to be imported without referring the input-output relationship to the Norms Committee for fixation of norms. The component is accounted for without any wastage.
Under Para 4.12(vii) of the HBP 2023, where an applicant seeks import of components on a “net-to-net basis with accountability clause” and the case falls under Para 5 of the General Note for all Export Products, the case need not be referred to the Norms Committee for fixation of norms.
The expression “net-to-net” means that the permitted quantity of the component is accounted for without allowing any wastage. The component imported under this provision must correspond to the component used in the manufacture of the resultant export product. The exporter is required to maintain accountability for the imported component and indicate the relevant details in the export or supply documents.
Under the Net-to-Net provision, input components covered by the relevant General Note can be imported without a separate Norms Committee fixation. It is one of the norms routes under the Advance Authorisation Scheme.
Unsure whether your component qualifies? Send us the export product and the input component, and our team will review your case.
WhatsApp 91004 44999Key facts about the Net-to-Net basis
- Scheme: Advance Authorisation.
- Governing provision: Para 4.12(vii) of HBP 2023.
- Nature: Net-to-Net basis is a provision for allowing import of input components under an Advance Authorisation.
- Basic requirement: the case must fall under Para 5 of the General Note for all Export Products.
- Norms Committee referral: the input components need not be referred to the Norms Committee for fixation of norms.
- Net-to-Net meaning: the input component is allowed on a net-to-net basis, that is, without wastage.
- Accountability: the exporter must be able to establish that the imported input component corresponds to the component used in the resultant export product.
- Export documents: details of the input components imported on Net-to-Net basis with accountability clause must be clearly indicated in the relevant export/supply documents, such as Shipping Bills, Bills of Export or prescribed tax invoices, as applicable.
- Technical specifications: the type and technical specifications of the imported input component, including part number where applicable, should conform to those used in the manufacture of the resultant product and should be reflected in the export documentation, as applicable.
What does Net-to-Net mean?
“Net-to-Net” means that, where the relevant General Note permits import of input components on this basis, the component is allowed to be used without any wastage and subject to accountability.
For example, if one particular input component is required in the manufacture of one unit of the export product, and the input component is permitted on a Net-to-Net basis, the quantity imported must be accounted for against the quantity actually used in the resultant export product. No additional quantity can be claimed towards manufacturing wastage.
How Net-to-Net basis differs
Net-to-Net basis should be distinguished from:
Eligibility
The “Net-to-Net” provision is not automatically available for every input or every Advance Authorisation.
The first question is whether the proposed input component and the export product are covered by the relevant provision of the General Note for all Export Products. Under Para 4.12(vii), the benefit of avoiding Norms Committee referral applies where the case falls under Para 5 of that General Note. Therefore, an exporter should verify the applicable General Note provisions before applying for the Net-to-Net provision.
The imported input component should also be identifiable and accountable in the resultant export product. The type and technical specifications of the component imported should conform to those used in manufacture of the resultant product.
Six points to verify before applying
Before applying for an Advance Authorisation on Net-to-Net basis, the exporter should verify each of these points. Answer all six for a summary. It is a starting point, not advice for your specific case.
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Declaring is not proving. Merely declaring an input component as under Advance Authorisation on Net-to-Net basis does not, by itself, establish compliance. The exporter should maintain appropriate records to demonstrate the relationship between the imported input component and the resultant export product.
Ask about recordsBenefits: a procedural advantage
The principal benefit of the Net-to-Net basis is procedural. For a requirement covered by Para 4.12(vii), the input component does not have to be referred to the Norms Committee for fixation of norms.
What Net-to-Net basis gives you
- No referral of the input component to the Norms Committee for fixation of norms, for a requirement covered by Para 4.12(vii).
- A simpler process for obtaining an Advance Authorisation where the relevant component is covered by the General Note.
- The input component can be allowed on Net-to-Net basis without a separate Norms Committee fixation, subject to the applicable conditions, resulting in quick issuance of the authorisation.
What it does not provide
- An additional customs-duty exemption
- An additional quantity of input
- A wastage allowance
- Any relaxation from the accountability requirement
Net-to-Net in practice: connectors in a control panel
The example illustrates the fundamental principle: on a Net-to-Net basis no wastage is allowed, and the imported component must be accounted for against the resultant export product.
Case profile: an electrical control panel exporter
An exporter manufactures an electrical control panel. The panel requires a particular connector as a component. The applicable provision permits the connector to be imported on a Net-to-Net basis with an accountability clause.
Every connector accounted for
The exporter imports 1,000 connectors under the Advance Authorisation on Net-to-Net basis, then manufactures and exports 1,000 control panels incorporating those connectors.
The exporter should be able to establish the use of all the imported connectors in the exported control panels and should provide the required details in the relevant export documents.
More imported than accounted for
The exporter instead imports 1,100 connectors but can account for only 1,000 connectors in the exported products.
The additional 100 connectors cannot be treated as permissible wastage merely because the authorisation was obtained on Net-to-Net basis.
Bars are drawn to scale. This is the illustrative example from our brief, not an actual client case.
Required documents and records
The exact documents required will depend on the specific Advance Authorisation and the applicable DGFT/Customs requirements. However, the exporter should be prepared to maintain documents and records establishing the Net-to-Net transaction, from the time of import through production and export.
- ImportBills of Entry
- ReceiptStock records
- UseProduction and consumption records
- ExportComponent details in export/supply documents
- RedemptionEODC
The authorisation
- Advance Authorisation and the relevant input details
Import
- Import documents, including Bills of Entry
Component identity
- Technical specifications of the imported input components
- Part number or other identification details, wherever applicable
Production and stock
- Production and consumption records
- Stock records showing receipt and utilisation of the imported components
Export and supply
- Shipping Bills, Bills of Export or applicable export/supply documents containing the required details of the imported components
Particularly important: Para 4.12(vii) specifically requires the exporter to indicate the details of components imported on Net-to-Net basis with accountability clause in these documents.
How it works
Eight steps from identifying the component to redemption, grouped into four stages.
Check coverage
Before you fileIdentify the export product and componentIdentify the input component proposed to be imported and establish that it can be incorporated into the resultant export product.
Check the applicable General NoteVerify whether the case falls under Para 5 of the General Note for all Export Products. This is a key condition for applying as per Para 4.12(vii) of HBP 2023.
Apply and import
Authorisation stageApply for the Advance AuthorisationFile the online Advance Authorisation application in the prescribed manner and include the component proposed to be imported on Net-to-Net basis with accountability clause.
Import the componentImport the permitted input component on the basis of the Advance Authorisation, subject to the conditions endorsed on the authorisation and applicable Customs procedures.
Account and declare
During production and exportMaintain accountabilityMaintain appropriate records demonstrating the receipt, use and incorporation of the imported input component in the resultant export product.
Declare the component in export documentsClearly indicate the required details of the imported component in the relevant Shipping Bill, Bill of Export or prescribed tax invoice for export/supply, as applicable.
Close the authorisation
Export obligation and redemptionComplete the export obligationManufacture and export the resultant product within the applicable Export Obligation Period and comply with the other conditions of the Advance Authorisation.
Apply for redemption / EODCAfter fulfilling the applicable Export Obligation and other conditions, apply for redemption/EODC in accordance with the prescribed DGFT procedure.
How Kireeti Consultants can assist you
Are import duties and locked-up working capital shrinking your export margins? We help manufacturer-exporters and merchant-exporters avoid paying customs duty upfront on eligible inputs through the DGFT’s Advance Authorisation Scheme.
The Advance Authorisation application requires accurate input, export product and supporting information. Exporters should also ensure that the Net-to-Net component and accountability requirements are correctly addressed in the application and supporting records. For assistance with DGFT procedures, documentation and compliance, explore our DGFT Consultants services.
Review your case
If you are unsure whether an input component qualifies for import under the Net-to-Net basis, our team can review your case.
Filing and compliance
We assist with the filing and compliance process, so that the Net-to-Net component and accountability requirements are addressed in the application.
Records through redemption
We help you maintain the required usage and accountability records and handle the EODC process, keeping your documentation accurate from application through redemption of the Advance Authorisation.
Net-to-Net basis FAQs
No. Net-to-Net basis is not a method for calculating or claiming wastage. Under Para 4.12(vii) of HBP 2023, it is a provision under which input components can be imported on a Net-to-Net basis with an accountability clause, without referring the case to the Norms Committee for fixation of norms, subject to the applicable conditions.
The accountability clause requires the Advance Authorisation holder to be able to account for the imported input components used in the resultant export product.
The exporter should therefore maintain appropriate production, consumption and export records to establish that the imported input components have been used in the export product and are properly accounted for.
No, where the case is covered by Para 4.12(vii) and the applicable conditions are satisfied. The provision permits input components to be imported on Net-to-Net basis with an accountability clause without referring the input-output relationship to the Norms Committee for fixation of norms.
The exporter should maintain records to establish accountability for the imported input components.
The records should enable the exporter to demonstrate the link between the imported input components and the resultant export product.
The accountability requirement is an important condition of the Net-to-Net provision.
If the exporter is unable to establish the required accountability for the imported components, the exporter may not be able to demonstrate compliance with the conditions applicable to the Net-to-Net provisions. The matter may therefore be examined by the concerned authorities, and the applicable duty or other consequences would depend on the facts of the specific case and the relevant provisions.
Accordingly, exporters should maintain adequate records from the time of import through production and export rather than attempting to establish accountability only at the time of redemption or EODC.
The applicability of Net-to-Net basis depends on the specific input component, export product and conditions prescribed under Para 4.12(vii) and the relevant General Note.
The fact that a component undergoes some processing during manufacture does not, by itself, establish that Net-to-Net basis is either available or unavailable. The important consideration is whether the case satisfies the applicable conditions and whether the imported component can be properly accounted for in the resultant export product.
Where the manufacturing process involves substantial transformation or the imported input cannot be properly identified and accounted for in the resultant product, the applicability of Net-to-Net basis should be examined carefully before filing the application for the Advance Authorisation.
No. Net-to-Net basis is a provision concerning the treatment of input components for Advance Authorisation purposes. It does not prescribe a separate customs duty rate.
The exemption from customs duties, wherever applicable, arises from the Advance Authorisation and the relevant exemption notification and is subject to the conditions prescribed therein.
The specific provision for Net-to-Net basis with accountability clause is contained in Para 4.12(vii) of HBP 2023.
Its application is subject to the conditions specified in that provision, including the relevant provisions of the General Note for all Export Products.
Therefore, Para 4.12(vii) should be read together with the applicable General Note and other relevant provisions of the Advance Authorisation framework rather than in isolation.
Official DGFT and CBIC sources
- Handbook of Procedures (HBP) 2023, Para 4.12(vii): Net-to-Net basis with the accountability clause (dgft.gov.in).
- General Note for all products of Standard Input Output Norms.
This page gives general information on Advance Authorisation on Net-to-Net basis under the Handbook of Procedures 2023. It is not legal advice. Rules change through DGFT public notices and Customs notifications, so confirm the current position for your case with us or on the official portals before acting.
