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Authorised Economic Operator Scheme in Customs

The customs department is on overdrive to promote the authorised economic operator (AEO) scheme. Seminars and one-to-one meetings are being held to persuade entities to opt in, and in some locations there is even official pressure to make an application. It is learnt that some persons, to squirm out of this, have unauthorizedly handed in applications “on behalf of” others. So, what is this scheme that is being pushed by the government?

The concept of AEO is an international one, essentially conceptualised as a measure of security for the supply chain. In this age of terrorism and drug smuggling, the customs department has to deal with the contrary pulls of detailed checks on cargo and, on the other hand, the need for speed in getting the cargo to its destination. This can be resolved by developing a measure of trust and thereby removing some entities from the detailed checking. The certification of AEO is basically a recognition of a trusted entity, whose transactions can safely be fast-tracked

The requirements and concomitant benefits of AEO status are set out in CBEC’s circular 33/2016-Customs. Below I unravel the contents of the circular.

Categories of AEO

There are two categories of AEO

(i) those who are importers / exporters (AEO- T1, T2 or T3); and
(ii) those facilitators who play a role in customs activities related to import / export, like logistics providers, warehouse owners, terminal operators and custodians, and customs brokers (AEO-LO)

(Those who are not directly involved with customs activities, like banks and insurance companies, are not eligible to be AEOs, though they may play a crucial role in imports and exports.)

In this piece I look at the eligibility and benefits of AEO status for importers and exporters

In General

  1. An AEO must be an entity established in India. (Proof of this and of its activity and financial records based in India will be required.)
  2. The entity should have been in operation for some time: two or three years at least is preferred, but the circular leaves scope for discretion in waiving this requirement
  3. AEO status covers all locations of the entity; hence all locations must satisfy the criteria set out in the circular
  4. AEO status covers only the entity that has been given the status: the benefits do not extend to those with whom it has dealings in the course of import and export business. For example, AEO status for a transporter will not extend to the exporters and importers whose goods it carries.

Eligibility for Importers and Exporters

There are three categories (called “tiers”) of importers / exporters, viz. for the purpose of AEO status, and the benefits are graded accordingly, from T3 to T2 to T1, in descending order. The eligibility criteria for these three are as follows:

T1 and T2:

  1. Should have filed at least 25 bills of entry / shipping bills in the last financial year.
  2. Should establish financial solvency for a period of the last three financial years. This requires an undertaking backed by a certificate from the statutory auditor of the entity.
  3. Should have an accounting system consistent with GAAP / IFRS.
  4. Should have an administrative system that can handle the flow of goods, detect irregular / illegal transactions, ensure veracity of declarations to customs, and archive information.
  5. Should have secure computer systems for its documentation.
  6. Should have no show cause notice issued to them during last three financial years involving fraud, forgery, outright smuggling, clandestine removal of excisable goods or cases where service tax has been collected from customers but not deposited to the government.
  7. There should be no case wherein prosecution has been launched or is being contemplated against the applicant or its senior management.
  8. If there is a dispute of over ten per cent between the applicant and the department over duty paid / drawback, during the last three financial years, a review would be taken of the nature of cases and decision.

For T1 the above can be established based on documents. For T2 there will be a verification by a team from the customs department.

T3:

To qualify as T3, an entity should

  1. Either have been T2 for two years, or
  2. Should be a T2, and its other business partners (importers, exporters, logistics service providers, custodians / terminal operators, customs brokers, warehouse operators) should be T2 or AEO-LO (applicable to other than importers / exporters).

Benefits for Importers and Exporters

The respective benefits are, broadly, as follows.

Facilitation

  1. T1 will be given priority over entities that are not AEOs. The level of facilitation, ensuring quicker cargo release, will be higher for T2 and highest for T3. Bills of entry and shipping bills will be processed on priority for assessment / examination for T2 and T3
  2. 24/7 clearance of consignments is to be provided by customs at all sea ports and airports for T1, T2 and T3 without any merchant overtime fee
  3. Scanning of containers will be done on priority for T2 as compared to others, and not done at all for T3 unless there is specific intelligence
  4. T2 is allowed to file paperless declarations (without physical documents); T3 is not required to file any original documents, and self-certified documents are accepted
  5. Email intimation of arrival / departure of vessels bearing their consignments will be given to T1, T2 and T3
  6. T2 and T3 will be given preferential treatment by foreign customs administrations with whom India enters into a mutual arrangement to this effect
  7. A client relationship manager will be appointed in custom houses to provide T2 and T3 a single point of interaction. This officer is supposed to serve as the voice of the AEO within the customs administration for all legitimate concerns and coordinate and facilitate clearance

Entry Into Port / Discharge from Port

Depending on volumes, T1 is allowed direct port entry / direct port delivery of consignments. T2 and T3 are also allowed direct entry / delivery: for those who do not opt for this, seal verification and scrutiny of documents by customs officers is waived, and out of charge or let export order, as the case may be, is granted without any scrutiny by the officers.

Special Valuation Branch

For T2 and T3 there will be faster completion of special valuation branch proceedings in case of related person proceedings

Deferred payment of Duty

T2 and T3 are not required to pay customs duty before clearance: they are given the facility of deferred payment of duty. This is by the 17th of the month for the period 1st to 15th of the month, and the 2nd of the next month for the period 16th to the last day of the month [-notification 135/2016-Customs (NT) read with section 47(1) of the Customs Act and the Deferred Payment of Import Duty Rules 2016]

Drawback

Drawback will be disbursed to T2 and T3 within 72 hours of submission of the export general manifest

Inspection, MRP Marking

T2 and T3 will be allowed to stick MRP stickers in their own premises. T3 will be provided on-site inspection / examination on request

Facilities for Personnel

Personnel of T1, T2 and T3 are given easy entry into custom houses, CFS and ICDs based on their identity cards. Where possible, a separate area will be earmarked for the AEO in the custodian’s premises.

Bank Guarantee

Wherever a bank guarantee is required by the customs authorities, the quantum would be 50% of the prescribed amount for T1, 25% for T2, and would be totally waived for T3. (However these exemptions do not apply to bank guarantee required in connection with provisional release of seized goods.)

Post-Clearance Audit

All AEOs of T1, T2 and T3 are exempted from regular transaction-based post-clearance audit. T1 will be audited on-site once in two years. T2 and T3 will be audited on-site once in three years.

Refunds

Refund / rebate will be given to T2 within 45 days of fully documented claim, and to T3 within 30 days.

Data from ICEGATE

T2 and T3 will be given access to its consolidated export /import data through ICEGATE

Dispute Resolution

For all AEOs of T1, T2 and T3, dispute resolution at the level of adjudicating authorities is to be done with six months as far as possible, and investigations are to be completed in six to nine months. This is in respect of customs, excise as well as service tax cases. (It is hoped that this will continue in respect of GST also.)

Deferred Payment of Import Duty Rules, 2016 — Class of importers to make deferred payment of import duty notified

In exercise of the powers conferred by proviso to sub-section (1) of section 47 of the Customs Act, 1962 (52 of 1962), the Central Government permits the following class of importers to make deferred payment of import duty:

  1. Importers certified under Authorized Economic Operator programme as AEO (Tier-Two) and AEO (Tier-Three).

Explanation. – For the purpose of this notification, AEO means Authorized Economic Operator certified by the Directorate General of Performance Management under the Central Board of Excise and Customs.

[Notification No. 135/2016-Cus. (N.T.), dated 2-11-2016]

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Ms. Radha Arun
Consultants to Udyog Software (India) Ltd.
radha.arjuni@gmail.com

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