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Vishnu Agarwal (CA Final) (1649 Points)

06 August 2008

WHAT IS THE MEANING OF DUTY DRAWBACKS?

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Vishnu Agarwal (CA Final) (1649 Points)
Replied 06 August 2008

AND EXAMPLES OF IT .

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Vishnu Agarwal (CA Final) (1649 Points)
Replied 06 August 2008

REPLY AS EARLY AS POSSIBLE

Pooja Chopda (Practising Chartered Accountant) (931 Points)
Replied 06 August 2008

any subsidy given in custom duty is duty drawback.

(Guest)

Duty Drawback Scheme

Various schemes like EOU, SEZ, DEEC, manufacture under bond etc. are available to obtain inputs without payment of customs duty/excise duty or obtain refund of duty paid on inputs. In case of Central Excise, Manufacturers can avail Cenvat credit of duty paid on inputs and utilise the same for payment of duty on other goods sold in India, or they can obtain refund. Schemes like manufacture under bond are also available for customs. Manufacturers or processors who are unable to avail any of these schemes can avail ‘duty drawback’. Here, the excise duty and customs duty paid on inputs is refunded to the exporter of finished product by way of ‘duty drawback’. Section 75 of Customs Act provide for drawback on materials used in manufacture or processing of export product. Section 37 of Central Excise Act allows Central Government to frame rules for purpose of the Act. Under these powers, ‘Customs and Central Excise Duties Drawback Rules, 1995’ have been framed.

It may be noted that duty drawback under section 75 is granted when imported materials are used in the manufacture of goods which are then exported, while duty drawback under section 74 is applicable when imported goods are re-exported as it is and article is easily identifiable.

Drawback of customs and excise duty paid on inputs - Drawback means the rebate of duty chargeable on any imported materials or excisable materials used in manufacture or processing of goods which are manufactured in India and exported. Export means taking out of India. Supply of stores for use in vessel or aircraft proceeding to foreign port is also covered, since it is treated as ‘export’ as per section 89 of Customs Act.

Duty Drawback is equal to (a) customs duty paid on imported inputs including SAD plus (b) excise duty paid on indigenous inputs. Duty paid on packing material is also eligible. However, if inputs are obtained without payment of customs/excise duty, no drawback will be paid. If customs/excise duty is paid on part of inputs or rebate/refund is obtained, only that part on which duty is paid and on which rebate/refund is not obtained will be eligible for drawback. No drawback is available on other taxes like sales tax and octroi.

Duty drawback of SAD (Special Additional Duty) is allowable. – MF(DR) circular No. 58/2002-Cus dated 12-9-2002.

Processing also eligible for Drawback - Drawback is allowable if any manufacture, process or any operation is carried out in India [section 75(1) of Customs Act]. Thus, drawback is available not only on manufacture, but also on processing and job work, where goods may not change its identity and no ‘manufacture’ has taken place.

Type of Drawback Rates – All Industry Drawback rates are fixed by Directorate of Drawback, Dept. of Revenue, Ministry of Finance, Govt. of India, Jeevan Deep, Parliament Street, New Delhi - 110 001. The rates are periodically revised - normally on 1st June every year. Data from industry is collected for this purpose. The types of rates are as follows :

All Industry Rate - This rate is fixed under rule 3 of Drawback Rules by considering average quantity and value of each class of inputs imported or manufactured in India. Average amount of duties paid is considered. These rates are fixed for broad categories of products. The rates include drawback on packing materials. Normally, the rates are revised every year from 1st June, i.e. after considering the impact of budget, which is presented in February every year. All Industry drawback rate is not fixed if the rate is less than 1% of FOB Value, unless the drawback claim per shipment exceeds Rs 500.

The AIR (All Industry Rate) is usually fixed as % of FOB price of export products. However, in respect of many export products, duty drawback cap (ceiling) has been prescribed, so that even if an exporter gets high price, his duty drawback eligibility does not go above the ceiling prescribed.

The table gives allocation of the drawback allowed under two heads namely - Customs and Central Excise. The Customs portion covers basic customs duty, surcharge and SAD. Excise portion covers basic and special excise duty and CVD. Duty drawback of customs portion can be paid even if exporter has availed Cenvat credit, as Cenvat credit is only of excise duty and CVD. - MF(DR) circular No. 83/2000-Cus dated 16-10-2000.

The All Industry Rate (AIR) is fixed on the basis of weighted averages of consumption of imported / indigenous inputs of a representative cross section of exporters and average incidence of duties. Hence, individual exporter is not required to produce any evidence in respect of actual duties paid by him on inputs. – MF(DR) circular No. 24/2001-Cus dated 20.4.2001.

Brand Rate - It is possible to fix All Industry Rate only for some standard products. It cannot be fixed for special type of products. In such cases, brand rate is fixed under rule 6. The manufacturer has to submit application with all details to Commissioner, Central Excise. Such application must be made within 60 days of export. This period can be extended by Central Government by further 30 days. Further extension can be granted even upto one year in if delay was due to abnormal situations as explained in MF(DR) circular No. 82/98-Cus dated 29-10-1998.

Special Brand Rate - All Industry rate is fixed on average basis. Thus, a particular manufacturer may find that the actual duty paid on inputs is higher than All Industry Rate fixed for his product. In such case, he can apply under rule 7 of Drawback Rules for fixation of Special Brand Rate, within 30 days from export. The conditions of eligibility are (a) the all Industry rate fixed should be less than 80% of the duties paid by him (b) rate should not be less than 1% of FOB value of product except when amount of drawback per shipment is more than Rs. 500 (c) export value is not less than the value of imported material used in them - i.e. there should not be ‘negative value addition’.

Drawback Rate Fixation - Forms and procedures have been prescribed for submitting details to jurisdictional Commissioner of Central Excise, who will fix the rate of duty drawback. [Earlier, it was done by Director of Drawback, New Delhi, upto 313-2003]

Drawback claim procedure - Exporter shall endorse on the ‘shipping bill’ the descripttion, quantity and other details to decide whether goods are eligible for duty drawback. He should submit one extra copy of shipping bill for drawback purposes. Copy of Invoice should be submitted.

Declaration by Exporter - A declaration should be made rule 12(1)(a)(ii) of Duty Drawback Rules, on shipping bill or bill of export that claim of drawback is being made and that duties of customs and excise have been paid on materials, containers and packing materials and that no separate claim for rebate of duty will be made. If the exporter or his authorised agent was unable to make such declaration due to reasons beyond his control, Commissioner of Customs can grant exemption from this provision of making declaration on shipping bill or bill of export.

Further declarations are also required when brand rate or special brand rate has been fixed. These declarations have to be signed by exporter.

Triplicate copy of shipping Bill is the drawback copy and should be marked as ‘Drawback Claim Copy’. It should be submitted with pre-receipt on reverse side with revenue stamp.

Declaration for non-availment of Cenvat – (a) If the manufacturer-exporter or supporting manufacturer of merchant exporter is registered with Central Excise, fact of non-availment of Cenvat credit can be verified from ARE-1 form furnished (b) If the manufacturer-exporter or supporting manufacturer of merchant exporter is not registered with Central Excise, they have to submit self-declaration about non-availment of Cenvat in prescribed form. – MF(DR) circular No. 8/2003-Cus dated 17-2-2003. - - The drawback rate consists of two components - customs portion (consisting of basic customs duty, surcharge and SAD) and excise portion (consisting of basic excise duty, special excise duty and CVD). The Cenvat credit is only in respect of central excise. Hence, it has been clarified that even if Cenvat credit has been availed, duty drawback in respect of customs portion will be available.

Duty drawback on Re-export

Section 74 of Customs Act, 1962 provide for drawback if the goods are re-exported as such or after use. This may happen in cases like import for exhibitions, goods rejected or wrong shipment etc. The re-exported goods should be identifiable as having been imported and should be re-exported within two years from date of payment of duty when they were imported. This period (of two years) can be extended by CBE&C on sufficient cause being shown. These should be declared and inspected by Customs Officer. Original shipping bill under which the goods were imported should be produced. The goods can be exported as cargo by air or sea, or as baggage or by post. - . - . - After inspection, export and submission of application with full details, 98% of the customs duty paid while importing the goods is repaid as drawback.

Distinction between section 74 and 75 - Section 74 is applicable when imported goods are re-exported as it is and article is easily identifiable, while section 75 is applicable when imported materials are used in the manufacture of goods which are then exported - ABC India Ltd. v. UOI 1992(61) ELT 205 (Del HC). In LVT Products v. CC 1998(103) ELT 663 (CEGAT), it was held that there is no provision for refund of import duty, if imported goods are re-exported. The assessee can only claim duty drawback u/s 74.

Value at the time of export is relevant - As per section 74(4), goods are deemed to have been entered for export on the date rate of duty is to be calculated under section 16. As per section 16, value of export goods will be taken on the date on which proper officer makes an order permitting clearance of goods for export under section 51 of Customs Act. Hence, ‘Value’ for the purposes of section 76(1)(b) will be value at the time of export and not the original value of import of the goods. This was stated by Commissioner, Customs; at the meeting of Customs Advisory Committee held at Mumbai dated 28-10-93. (Ref. : W.O.B. 45/93 dated 9-11-93).

Goods can be re-exported to any party and from any port – It has been clarified that goods can be re-exported to any party (and not only to the same supplier) and re-export can take place from any port. – CBEC circular No. 72/2002-Cus dated 1-11-2002.

Drawback for used goods - If the imported goods are used before re-export, the drawback will be allowed at a reduced percentage [section 76(2) of Customs Act, 1962]. If the goods were in possession of the importer, they might be treated as used by the importer. As per the rules framed by Central Government, the table is as follows : (a) use upto 6 months ; 85% (b) 6 months to 12 months : 70% (c) 12 months to 18 months : 60% (d) 18 months to 24 months : 50% (e) 24 months to 30 months : 40% (f) 30 months to 36 months : 30% (g) over 36 months : Nil. Drawback is allowed if the use is over 24 months only with permission of Commissioner of Customs if sufficient cause is shown.

Goods for personal use - If the goods (including motor car) were imported for personal use, the reduction in import duty refundable is 4% per quarter for first year, 3% per quarter for second year, 2.5% per quarter for third year and 2% per quarter for fourth year.