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Indirect Tax Alert: Special measures to facilitate MSME for AEO T1& T2 accreditation

23 December 2020

CBIC has decided to relax the complex compliance and security requirements for MSMEs for AEO T1 & T2 application. The relaxation has been carried-out to ensure that the MSMEs are facilitated through rationalised compliance requirements (as stated in the circular - MSME Annexure 1 & 2) and minimum but effective security requirements (as stated in the circular - MSME Annexure 3);

The procedural modifications/relaxations for AEO accreditation of MSMEs are as under:

  • The eligibility requirement of handling a minimum of 25 documents during the last financial year has been relaxed to 10 documents, subject to handling at least 5 documents in each half-year period of the preceding financial year.
  • The requirement for the applicant to have "business activities for at least three financial years preceding the date of application" has been relaxed to two financial years.
  • The qualifying period for legal and financial compliance has been reduced from 'the last three financial years' to 'the last two financial years.
  • For AEO T1 and T2 accreditation, the present annexures i.e., Annexure A, B, C, D, E. I-E.4 have been supplanted with two annexures viz. MSME Annexure 1 and 2. Similar rationalised annexures 1 and 2 are presently being utilised for AEO T1 accreditation only in accordance with the CBIC circular no:26/2018-Customs dated 10 August 2018.
  • For AEO T2 certification, the present annexures i.e., Annexure E.5.1-E.5.7 for physical verification have been rationalised to a single annexure viz. MSME Annexure 3. The rationalisation has been carried-out to ensure that the security requirements for an MSME are objective and cover the minimum verifiable security criteria.
  • The time limit for processing of MSME AEO T1 & AEO T2 application has been reduced to fifteen working days (presently one month) and three months (presently six months) respectively after the submission of complete documents for priority processing by customs zones.
  • The benefit of relaxation in furnishing of bank guarantee for AEOs has been further relaxed to 25% from 50% and 10% from 25% of that required to be furnished by an importer/exporter who is not an AEO certificate holder, for MSME AEO T1 and MSME AEO T2 entities respectively.

The aforesaid relaxations shall apply only to an applicant who has a valid MSME certificate from the line-Ministry. Further, the approved MSME must ensure their continuous MSME status during the validity of its AEO certification, if granted.

Thus, the AEO accreditation for MSMEs now requires submission of only two annexures for AEO T1 and three annexures for AEO T2 applicants respectively. The two common annexures for AEO T1 and AEO T2 are: MSME Annexure 1 (General Compliance), MSME Annexure 2 (Legal, Managing Commercial Records, and Financial Solvency Compliance).

Further, the third annexure for AEO T2 is MSME Annexure 3 (Safety and Security Requirements). These annexures have been designed to fulfil the aspirations of simpler application procedure with reduced documentation requirement for AEO accreditation of MSMEs.

[Circular no:54/2020-Customs dated 15 December 2020]

BDO Comments

Relaxation of the current accreditation process is expected to reduce the compliance burden for their AEO accreditation. It would ensure smooth export and import for the MSME units and thereby a better access to global markets.