Let us understand all about AD Code in a post of series that would be posted on our website. To know more, please visit www.arkadvisorsllp.com
In a world where the total number of online buyers globally has spiked through more than 2.5 billion, venturing into the global market and expanding business is every entrepreneur’s dream come true. But stepping into cross-border trade is no small feat. There are legal documentation processes and international compliance requirements one needs to be aware of.
To start with, an Import Export Code (IEC) is a prime requirement to get your goods shipped, whether you’re an exporter or importer. Think of it like the passport, but for your goods.
If you are an exporter in India, you might be aware of the two most important permits you need to send your goods out of the country. The first is an Import Export Code (IEC), a business identification number issued by the Directorate General of Foreign Trade (DGFT). The second is an Authorised Dealer Code (AD Code), without which you cannot complete customs clearance of your goods.
Other than the IEC code, there are four other documentation requirements that are primary for customs clearance – Shipping Bill, Bill of Lading, Export General Manifest and AD Code.
Let’s delve into what is AD code and why one needs AD code for export.
What is AD Code?
The AD code is an abbreviation for Authorised Dealer Code. It is a 14-digit code which is obtained from the bank where the dealer has its current account. It is one of the primary documents that dealers require to get through the customs clearance process after import-export registration. The code comes printed on a document with the bank’s letterhead, in a format prescribed by the DGFT. A bank must deal in or be an authorised dealer of foreign currency in order to be able to grant an AD Code. This is in line with the purpose behind an AD Code, which is to ensure that foreign currency transactions in an exporter’s current account are from legal trade.
Exporters must register their AD Code with the port or airport from where they intend to ship their goods abroad. If the shipment is to be dispatched from an inland container depot (ICD), AD Code registration is required for that facility as well as the port attached to it. For example, if you ship from ICD Khodiyar in Ahmedabad, you will need to register there as well as at Mundra port in Gujarat and/or Nhava Sheva in Maharashtra as the cargo will be routed through either of these ports.
An AD Code registration has a lifetime validity. However, if an exporter ships from more than one port, whether in the same state or in different states, they must register the AD Code for each of these ports. In such a scenario, the AD Code for each of these ports will be different.
What Is The Significance of an AD Code?
An AD code is necessary for three segments of shipping –
For Exporters:
When an Indian business or individual engages in international trade, they need an AD code for various foreign exchange transactions, including receiving payments for exports.
For Importers:
Importers may also need an AD code when making payments for imports. This code helps in ensuring that foreign exchange transactions related to imports are properly documented and authorized.
Trade Documentation:
The AD code is often a mandatory requirement in various trade documents, such as the Bill of Lading, Shipping Bill, or Letter of Credit. It helps in tracking and recording foreign exchange transactions associated with international trade.
In the export process, here’s how an AD Code helps:
- For customs clearance, a shipping bill is required. Without the AD code, the shipping bill for your cargo cannot be generated.
- e.f August 03, 2018, commercial shipments up to a value limit of INR 5,00,000 are allowed through courier mode, using CSB-V, or Courier Shipping Bill-V. CSB-V cannot be generated without AD code registration.
- The AD Code also allows government benefits such as GST, refunds, duty rebates, as well as exemptions that are credited directly to the current bank account associated with your business.