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AEO Package for MSMEs: All you need to know

calendar14 May, 2021
timeReading Time: 4 Minutes
AEO Package for MSMEs

AEO stands for Authorized Economic Operator, is a voluntary program created by the World Customs Organization (WCO) as a secure framework for worldwide trade standards. It envisages improving the global supply chain security & simplifying the movement of lawful goods. This write-up will shed some light on the AEO package for MSMEs in India.

What is an AEO Package?

AEO is a program based on the partnership between the customs & business, wherein the economic operator is granted such status. The program determines the trustworthiness as well as reliability of the economic operator.

Following grounds are examined to determine the operator’s reliability

  • Accounting system
  • Compliance with customs legislation
  • Appropriate security standards
  • Solvency standards.

It allows the easy procedure to be followed by the firm’s security-related custom control & easing compliance with the customs legislation. It envisages improving the security aspect of global supply chains and simplify the transit of lawful goods.

It includes the following objectives:

  • To delink payment & clearance;
  • To accept web-based declaration;
  • Improves efficiency;
  • Self-certification;
  • prompt refund & drawback;
  • Request based examination etc.

AEO is a voluntary program & entails various global supply chain participants. It empowers the Indian Customs to build & streamline the cargo security via close co-operation in the presence of the principal stakeholders of the international supply chain (includes importers, exporters, custodians, etc).

Some certificates render different authorization:-

  • AEO authorization “Customs Simplifications” (AEOC)
  • AEO grant “Security” (AEOS)
  • AEO authorization “Customs Simplifications & Security” (AEOC & AEOS) (The Combined Authorization).

Read our article:What is MSME Registration and how to get it?

Foundation of AEO Package

AEO is a WCO-driven initiative that recognized as a safe framework of the standards to render international trade in 2005. After that, India’s authorities step forward to adopt the same framework of WCO, and it has ensured the simplification in the Customs[1] compliance. The CBIC (Central Board of Indirect Taxes & Customs introduced the AEO program in our country in 2011.

Benefits of AEO

Entities with AEO status can avail following advantages:-

  • Recognition as safe, secure, & compliant business partners in global trade
  • Prompt clearance
  • Delayed Payment of Duty
  • MRA recognition
  • The facility of Direct Port Entry (DPE)/ Direct Port Delivery (DPD)
  • Abandonment of whole or part of the Bank Guarantee requirements
  • Relinquishment of Merchant Overtime Fees (MOT)
  • Swift disbursal of drawback amount
  • Prompt-tracking of refunds & adjudications
  • Access to Client Relationship Manager.

Eligible Candidates for AEO Package

Any entity engaged with the international supply chain undertaking Custom based activities can file an application for AEO certification. The list below contain individuals who can apply for AEO certification.

  • Importer & Exporter
  • Warehouse operator
  • Custom bankers
  • Logistic service provider (i.e., carriers, airlines, etc.)
  • Custom house agents
  • Custodians or terminal operators
  • Port operators, Stevedores, etc.

The Eligibility Criterion related to AEO Package

Anyone who seeks AEO certification must ensure conformity with the eligibility criterion mentioned below;

  1. Individual or entity must be involved in activities related to Custom;
  2. Individual or entity must have dealt with a minimum of 25 Customs documents, either bill of entry or shipping bill; and
  3. Individual or entity must be operating actively for the three Financial Years.

The firm must be in the active phase for the last 3 Financial Years from the application date. But, in some scenario, AEO certification can be accessible to the newly established business based on the verification of internal controls by considering:

  • Its financial standing;
  • Maintenance of approved safety and security standards;
  • Commercial management system; &
  • Transport record (if necessary).

Validity & Renewal Regarding the AEO Package

AEO certificate is issued for a limited timeline, and once such period is over, renewal is the only way to activate it again.  The same is highlighted in the tabular form below:-

AEO Status Applicability Validity Renewal
AEO – T1 It is conferred to an importer or exporter only without on-site inspection of the premises. 3 year 30 days
AEO – T2 It is conferred to an importer or exporter only after on-site inspection of the premises. 3 Year 60 days
AEO – T3 It is conferred to an importer or exporter who has served under AEO T2 status for two years, preceding the application date;  an importer or an exporter have AEO T2 or AEO LO certificates, & its other partners hold the AEO T2 or AEO LO certificates or other equivalent license granted by foreign customs. 5 Year 90 days
AEO – LO It is granted to economic operators and not to the importer or an exporter only after on-site inspection of the premises. 5 Year 90 days

Relaxation Available to MSMEs under the AEO Package

MSME, i.e. Micro, Small, and Medium Enterprises, is a dynamic sector of the Indian economy. Considering the invaluable efforts made by the MSMEs to lessen the impact of Covid 19 on India’s economy, CBIC has introduced an initiative, viz ‘Liberalized MSME AEO Package’ for the MSMEs,  The ‘Liberalized MSME AEO Package’ aims to simplify the compliances and procedural requirements to streamline the procedure for trade.

Procedural Requirements AEO T-1/ T-2 MSMEs AEO T-1/ T-2
Eligibility Requirement Handling mini.25 Customs documents during the erstwhile financial year Handling mini. 10 Customs documents, subject to holding mini of 5 documents in each half-year period of the pastfinancial year
Business Activities At least three financial years prior to the application date At least 2 financial years prior to the application date
Qualifying Period for Legal and Financial Compliance The last three financial years Only the last two financial years
Time Limit for Processing of Application AEO T1 -one month, AEO T2 application- six months Fifteen working days.
Documents / Annexures AEO T1 – Annexure A, B, C, D, E.1-E.4AEO T2 – Annexure A, B, C, D, E.1-E.4, E.5.1-E.5.7 MSME AEO T1- Annexure 1 & 2 onlyMSME AEO T2- Annexure 1, 2, & 3 only

Conclusion

The AEO programme serves two-fold objectives – employing enhance security measures in the global supply chain and facilitation of Importers, logistic operators, exporters to improve the trading practices. AEO is a globally recognized framework that sought the simplification of the existing Customs clearances norms.

Read our article:How MSME Registration Can Ensure Business Growth?

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