Duty Drawback and Advance Authorisation get lumped together in a lot of export-scheme explainers as if they’re interchangeable, and for a mill deciding which to use, that’s the wrong way to think about them. They solve the same underlying problem — import duty on inputs used in export production — from opposite directions. Drawback refunds duty you already paid. Advance Authorisation means you never pay it in the first place. For a mill managing working capital tightly, that difference is not a technicality.
What the scheme actually allows
Advance Authorisation, issued by DGFT, permits duty-free import of inputs that are physically incorporated into a product you’re committed to exporting — not inputs you might use, inputs tied to a specific export obligation you take on when the authorisation is issued. The exemption typically covers Basic Customs Duty, IGST, and Compensation Cess, along with anti-dumping or safeguard duty where applicable and notified. For a hospitality-linen mill, the inputs this most commonly applies to are specialty yarns or fibres not readily available domestically, certain dyes and finishing chemicals, and in some cases packaging materials specified by an export buyer — rather than the base cotton, which is usually sourced within India.
How the quantity you can import is fixed
The input quantities you’re allowed to import duty-free are set against Standard Input-Output Norms (SION) — DGFT-published ratios specifying how much of a given input is deemed necessary to produce a unit of a given export product. Where SION doesn’t exist for your specific product, there’s a self-declaration or ad-hoc route, though that comes with more documentation scrutiny than a straightforward SION-based application. Either way, the authorisation is tied to actual export performance against that ratio — this isn’t a general import licence, and goods imported under it are subject to an Actual User condition, meaning they can’t be sold or transferred before the export obligation is discharged.
The obligation side: value addition and the 18-month clock
Two things to plan around: a minimum value-addition requirement (commonly around 15%, though it varies by product category and is worth confirming against the current Foreign Trade Policy for your specific HS code), and an export obligation period of 18 months from the date of issue, which can be extended in defined circumstances. DGFT has in the past granted sector-wide automatic extensions during periods of significant supply-chain disruption — worth checking current notifications if a shipment is genuinely delayed by circumstances outside your control, rather than assuming the deadline is immovable.
Why this matters more than Drawback for cash-tight operations
Duty Drawback is simpler to administer — you pay duty on import, export the finished goods, and claim the refund afterward through the AIR schedule or Brand Rate. Advance Authorisation requires more upfront paperwork: the authorisation application, SION matching, and export obligation tracking. But for a mill importing a meaningful volume of dyed or specialty inputs, the cash-flow difference is real — you’re not fronting duty on every import cycle and waiting for a refund weeks or months later, you’re simply not paying it. For most established exporters, the two schemes aren’t a choice between one or the other; Advance Authorisation covers the input side, Drawback or RoSCTL covers what Advance Authorisation doesn’t, and EPCG sits alongside both for capital equipment. Getting all three coordinated, rather than defaulting to whichever one your customs broker mentions first, is usually where the actual margin sits.