Concept of Duty Drawback

Introduction

Duty Drawback has been one of the popular and principal methods of encouraging export. It is a relief by way of refund/ recoupment of custom and excise duties paid on inputs or raw materials and service tax paid on the input services used in the manufacture of export goods.

Duty drawback provisions are given under section 74 and 75 of the Customs Act, 1962. Section 74 allows duty drawback on re-export of duty paid goods. Whereas section 75 allows drawback on imported goods used in the manufacture of export goods. In order to facilitate the drawback procedures, the Central Government is empowered to make rules. Pursuant to such power, the Central Government has issued two rules, i.e., Re-export of Imported goods (Drawback of Custom Duties) Rules, 1995 and Customs and Central Excise Duties and Service Tax Drawback Rules, 1995.

Drawback on re-export of duty paid goods under Section-74

Section 74 of the Act grants duty drawback upto 98% of the import duty paid on goods, if the goods are re-exported by the importer. The importer is entitled to drawback subject to the fulfilment of the following conditions:

a. Goods are imported into India by making payment of customs duty;

b. Goods are identified to the satisfaction of the Assistant or Deputy Commissioner of Customs as the goods, which were originally imported;

c. Goods have entered for export either on a shipping bill through sea or air, or on a bill of export through land, or as baggage, or through post and the proper officer should have permitted clearance of the goods for export;

d. Goods are entered for export within two years from the date of payment of import duty (period can be extended on sufficient grounds being shown). It is to be noted that the time limit of two years has to be considered from the date of payment of import duty. Hence, it does not mean the date of importation.

The Central Government vide the powers conferred under section 74, has notified the Re-export of Imported goods (Drawback of Custom Duties) Rules, 1995. These rules prescribes the procedure for claiming drawback and procedure for claiming drawback on re-exports by Post and through other modes.

Rate of Drawback

As regards to the rate of drawback, the Central Government is empowered to fix the rate having regard to the duration of use, depreciation in value and other relevant circumstances prescribed by a notification. In this behalf, the Government has issued notification no.19/65 dated 6-02-1965 as amended. As per this notification, drawback is not permissible for certain specified goods, such as wearing apparel, tea chests, exposed cinematographic films passed by Film Censor Board, unexposed photographic films, paper and plates and x-ray films. Also, in respect of motor vehicles imported for personal and private use the Drawback is calculated by reducing the import duty paid according to the laid down percentage for use for each quarter or part thereof, but upto maximum of four years.

Following table enumerates the reduced rate of duty drawback having regard to the duration of use:

Drawback on imported materials used in the manufacture of export goods under Section-75

Drawback under section 75 is different from drawback under section 74. As per section 75, Central Government is empowered to allow duty drawback on export of goods, where the imported materials are used in the manufacture of such goods. Unlike drawback of a portion of the customs duty paid on imported goods, here the main principle is that the Government fixes a rate per unit of final article to be exported out of the country as the amount of drawback payable on such goods. Presently, these rates are of two types, viz., ALL INDUSTRY RATE and BRAND RATE. Further, the drawback amount depends upon the following factors:

a. Mode of manufacture,

b. Quantum of raw material required,

c. Average content of duty paid articles in the final product,

d. Standardisation of final product conforming to these norms.

It is important here to note that Drawback is also eligible when imported materials and / or excisable materials are used in the manufacture of goods to be exported. Such provisions are given under Customs, Central Excise Duties and Service Tax Drawback Rules, 1995 [Drawback Rules]. The Central Government have framed the Drawback Rules, pursuant to the powers given under Section 37 of the Central Excise Act, 1944. According to such rules, drawback is eligible for both customs duty as well as excise duty, subject to the non availment of Cenvat credits. However, duty drawback of customs component is eligible irrespective of whether exporter has availed of Cenvat or not.

Importance of shipping bill for claiming duty drawback

Shipping bill is an essential document for claiming duty drawback. In case of exports under e-Shipping bill, the Shipping bill itself is regarded as claim for duty drawback. Whereas in case of manual export, the triplicate copy of the Shipping bill is treated as the drawback claim. Further, there are certain other formalities and documents required apart from the Shipping bill.

Non applicability of Drawback scheme

Duty Drawback is not allowed in the following cases as per the Rule 3 of the Drawback Rules:

a. if the said goods, except tea chests used as packing material for export of blended tea, have been taken into use after manufacture;

b. if the said goods are produced or manufactured, using imported materials or excisable materials or taxable services in respect of which duties or taxes have not been paid; or;

c. on jute batching oil used in the manufacture of export goods, namely, jute (including Bimlipatam jute or mesta fibre), yarn, twist, twine, thread, cords and ropes;

d. if the said goods, being packing materials have been used in or in relation to the export of -

i. jute yarn (including Bimlipatam jute or mesta fibre), twist, twine, thread and ropes in which jute yarn predominates in weight;

ii. jute fabrics (including Bimlipatam jute or mesta fibre), in which jute predominates in weight;

iii. jute manufactures not elsewhere specified (including Bimlipatam jute or mesta fibre) in which jute predominates in weight.

iv. on any of the goods falling within heading 1006 or on wheat falling within heading 1001 of the First Schedule to the Customs Tariff Act, 1975.

Besides the above, duty drawback is not admissible in the following cases:

a. if the drawback entitlement is less than `.50/- [Sec-76(1)(c) of the Customs Act, 1962]

b. if the market price of export goods is less than the amount of drawback due thereon [Sec-76(1)(b) of the Customs Act, 1962]

c. if product is manufactured partly or wholly in bond under section 65 of the Customs Act, 1962 because the duty drawback is not admissible in case of goods manufactured from duty free inputs

d. if the product is manufactured and exported by a 100% EOU in terms of the relevant Import policy; However, as per para 6.11 of FTP 2009-14, in case of deemed exports, if the DTA supplier does not claim export benefits, then the EOU/EHTP/STP/BTP Unit shall be eligible to claim such benefits

e. if the product is manufactured and/ or exported by any units in the FTZ/ EPZ or SEZ for the above reason

f. if the goods are manufactured and exported in terms of Rule 18 and 19(2)of the Central Excise Rules, 2002 as these rules provide for rebate of duty, and export in bond on goods on which duty has not been paid

g. if the goods exported to Burma, Nepal, Bhutan, Tibet or Sinkiang as specified in Notification No. 208/77-Cus., dtd 1-10-1977

h. if the amount of drawback is less than 1% of FOB value (except where the amount of drawback is more than `.500/-) as laid down in Rule 8 of Drawback Rules

i. the export value of the goods in the Bill of Export or Shipping Bill is less than the value of imported materials used in the manufacture of such goods or is not more than such percentage of the value of such imported material as the Central Government may notify in this behalf [Rule 8 of the Drawback Rules]

j. where any drawback has been allowed on any goods under section 75 and the sale proceeds in respect of such goods are not received by or on behalf of the exporter in India within the time allowed under the FEMA, such drawback shallbe deemed never to have been allowed and the Central Government may, by rules made under sub-section (2), specify the procedure for the recovery or adjustment of the amount of such drawback. [Proviso to Sec 75 of the Customs Act]

Conclusion

Duty drawback is a beneficial provision given under the Customs Act, 1962 and the Drawback Rules, 1995. This financial benefit is in addition to the other benefits given under Foreign Trade Policy [FTP]. However, drawback is not allowed when the assessee opts for Advance Authorisation scheme [i.e., purchase of inputs without payment of duty]. Therefore, it is advisable to analyse all the beneficial options before choosing any particular option.

-By CA. Monalisa Khuntia