SCOMET GAER – ONLY FOR RELATED PARTIES AND TRUSTED ENTITIES!!

[Shilpi Jain]

SCOMET stands for Special Chemicals, Organisms, Materials, Equipment, and Technologies. These are dual-use items, meaning they can be used for both civilian and military applications. For instance, a drone can be used for aerial photography (civilian) or surveillance (military). Given the sensitive nature of these items, their export is regulated by the DGFT, and exporters are required to obtain a SCOMET license in order to export these items. In case of re-export of imported SCOMET items after repair, the exporter is required to apply for an authorization as per the procedure outlined in paragraph 10.12 of the Hand Book of Procedures, 2023 (‘HBP, 2023’).

EXISTING GAER PROVISION

Paragraph 10.12(D) of HBP, 2023 provides the manner of applying for authorisation for export of the imported SCOMET items to same entity abroad under General Authorisation for Export after Repair (‘GAER’) in India. GAER is a pre-approved general license which allows the export of repaired SCOMET items only to the same entity abroad, meaning exporters need not apply for individual approval for each shipment.

For example, XYZ India has imported a drone (SCOMET item) from XYZ Germany for repair and reexported after repair under GAER. A few months later, XYZ India receives another drone from XYZ Germany for repair. Since XYZ Germany is the same entity and SCOMET item is also same, XYZ India can re-export the repaired item under GAER without applying for a new authorization.

AMENDED GAER PROVISION

Recently, paragraph 10.12(D) is amended vide Public Notice No. 50/2024-2025 dated 10.03.2025, which allows re-export of repaired products under GAER only to the related entities (direct subsidiary or foreign parent of the Indian company or another subsidiary of the foreign parent of the Indian company) and entity of repair supply chain  (which includes authorised vendors and original equipment manufacturer with whom Indian exporter has service agreement) in the foreign countries. It does not allow re-export to the original sender, if he is unrelated.

Example 1: ABC India has imported SCOMET goods from ABC Inc (related party) for repair and reexported the same to ABC Inc.	Can be exported under GAER since the goods are reexported to related entity.
Example 2: ABC India has imported SCOMET goods from XYZ Inc (unrelated party) for repair and reexported the same to XYZ Inc.	Cannot be exported under GAER since XYZ Inc is neither a related party nor an entity of repair supply chain.
Example 3: ABC India has imported SCOMET goods from XYZInc (unrelated party) for repair and reexported the same to PQR GmbH (an entity of repair supply chain)	Can be exported under GAER since the goods are reexported to an entity of repair supply chain.

Previously, GAER allowed unrestricted re-export of repaired goods to the original sender (regardless of their relationship with the Indian company). However, since SCOMET items includes defense, aerospace and dual-use goods, exporting them freely to an unrelated party could be prone to risks of misuse and other potential security risks. Therefore, such a blanket authorization for unrelated parties is removed. Now, in case of import of SCOMET items for repair, the reexport to unrelated party is allowed subject to a specific authorisation under paragraph 10.12(C) of HBP, 2023.

CONCEPT OF REPAIR SUPPLY CHAIN

Repair Supply Chain (‘RSC’) refers to a network of authorized entities involved in the servicing, maintenance and reexport, of SCOMET items. It includes authorized vendors (entities approved to conduct repairs) or Original Equipment Manufacturers (entities that originally manufactured SCOMET goods and oversee their maintenance). Some of these entities enter into a formal agreements with Indian companies to facilitate repair activities in India for goods sent by them. Once repaired, the Indian companies either return the goods to the original sender (who is part of the RSC) or forward them to another authorized entity for further repairs within the RSC. This ensures that the repaired goods are not diverted to unauthorized third party vendor and also prevents unauthorized modifications to these high-sensitive goods which compromises security.

For example, PQR USA, a manufacturer of military aircraft, has a subsidiary in India (PQR India) authorized to repair aircraft engines. PQR USA sends 10 military aircraft to PQR India for engine repairs. After completing the repairs, PQR India re-exports the aircraft to an authorized aviation repair hub in Japan (XYZ Japan), which specializes in avionics system repairs and has a Master Service Agreement (MSA) with PQR India. In this case, XYZ Japan is an authorized vendor within the RSC. Therefore, PQR India can reexport the repaired aircrafts for further repairs to XYZ Japan under GAER.

In this example, PQR India has imported from the manufacturer (who is related party also) and re-exported to authorized vendor of RSC. There could be cases where Indian entity may function as an intermediary in the RSC, importing goods for repair from one RSC entity and exporting them to another RSC entity for additional servicing.

CONDITIONS FOR REEXPORT UNDER GAER

1. SCOMET goods were imported to a designated or authorized repair facility in India under contract agreement/Master Service Agreement (MSA)/Electronic Manufacturer Agreement.
2. In case the repair facility and person re-exporting the goods are different entities, then a multiparty agreement in required between Indian exporter, repair facility in India and foreign entity which defines Statement of Work or Scope of Work, including conditions for undertaking repair in India.
3. Repaired items are to be exported only to related entities and repair supply chain in foreign country.
4. Indian exporter is required to obtain GAER only once during the validity period. Subsequent re-export is subject to reporting after the export is done but within 30 days. GAER is valid for a period of 1 year from the date of its issue.
5. While applying for GAER for the first shipment, exporter needs to provide bill of entry for imported item.
6. GAER is issued only for one party and particular SCOMET item. Subsequent exports would be allowed to the same entity and location to which license has been originally issued. For example, PQR India has taken GAER to reexport goods to XYZ Japan. This GAER should be used only for exports to XYZ Japan during its validity period. In case PQR India wishes to reexport repaired goods to another related entity or RSC, it needs to obtain another GAER.
7. There has been no change to the original characteristics or specifications of the SCOMET items after repair and no value addition has been done during repair.
8. Details of ‘End Use’ and ‘End Use Certificate’ would not be required.
9. In case of intra-company transfers (i.e., reexport to related entities), certified approved Internal Compliance Programme (‘ICP’) or demonstrating compliance to the ICP of foreign company or ICP certified by the compliance manager of that company is mandatory.
10. In case of re-exports to RSC, Authorized Economic Operator (‘AEO’) Certification along with ICP compliance shall be mandatory

INTERNAL COMPLIANCE PROGRAMME – NEW REQUIREMENT

ICP is a set of policies and procedures implemented by an organization to comply with export control regulations. These regulations govern the export or transfer of SCOMET items. It ensures that no unauthorized exports or technology transfers take place, and that proper approval and documentation are maintained. Since these SCOMET items are high-tech and sensitive goods, having an effective ICP is necessary to prevent unauthorized exports and also helps organizations to streamline export operations while maintaining security.

Earlier it was necessary for obtaining licenses like Global Authorisation for Inter-Company Transfers (GAICT), General Authorization for Export of Telecommunication-related items under SCOMET (GAET) etc., Vide this notice, the said program is made mandatory for re-export of repaired items to related entities under GAER. As per this amendment, the Indian exporter can adopt any of the following:

1. ICP certified or approved by any third-party entity.
2. In case the Indian company does not have its own certified ICP, it can demonstrate compliance with the ICP of foreign parent company. This means that the Indian exporter is required to follow same export control rules and security protocols as the foreign entity.
3. If neither of the above ICP options applies, the compliance manager of Indian exporter can officially certify that the Indian entity follows its ICP.

DOCUMENTS REQUIRED TO BE SUBMITTED FOR OBTAINING GAER

1. Export Authorisation (if any) issued by the foreign country for original import of the items to India – some foreign countries also regulate export of SCOMET items. Before shipping those SCOMET items, the exporter is needed to obtain a license from its own government. This export license of foreign entity is required to be submitted by the Indian exporter at the time of obtaining GAER.
2. If the aforesaid export authorisation is not applicable in any foreign country from where the goods are being imported, the Indian exporter needs to furnish any documentary evidence or self-declaration certifying that the item is exempt from licensing requirements.
3. Bill of Entry (first time)
4. Service Agreement/Contract with related entity or RSC or authorized repair facility in India
5. Undertaking from the Indian exporter as provided in paragraph 10.12(D) of the HBP, 2023.

POST REPORTING FOR SUBSEQUENT RE-EXPORTS

Once GAER is obtained for first shipment, the Indian exporter can make subsequent re-exports by submitting the details of re-exports after the shipment has taken place. The exporter is required to furnish the details of each transfer of export of SCOMET items under GAER to the SCMOET division of DGFT HQ either by way of mail or file the same online on DGFT portal, on quarterly basis, by the end of subsequent month of each quarter, in respect of exports made in previous quarter. For example, for SCOMET items reexported on 16 March 2025, post reporting details shall be submitted by 30^th April 2025. These details shall include submission of bill of entry, shipping bill, export license copy etc.,

FINAL COMMENTS

This recent amendment in GAER provisions introduces a stricter regulations with respect to the reexport of repaired SCOMET items, by restricting reexports only to the related entities and repair supply chains. This ensures enhanced security and prevents unauthorized use of these dual natured goods.

Exporters need to take note of the compliance requirement of

1. Applying for GAER licenses along with the linked disclosures,
2. Having a certified ICP in place, and
3. AEO status (in case of repair supply chain).

The above further strengthen the export control mechanisms from the Government’s perspective. Additionally, in case of reexport of repaired items to unrelated parties requires specific authorisation from now onwards. These updated provisions require the Indian exporters to adhere to strict compliance with licensing norms, contractual agreements and post export reporting obligations.

The views expressed are strictly personal and cannot be regarded as an opinion. For any queries or feedback please write to shilpijain@hnaindia.com and vinayj@hnaindi.com