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Circular No. 3/2005-Cus.
18th January, 2005

F No: 609/68/2004-DBK
Government of India
Ministry of Finance
Department of Revenue

Sub: All Industry Rates of Duty Drawback, 2004-2005 – Reg.

The Ministry has announced the revised All Industry Rates of Duty Drawback vide notification No.8/2005-Cus (NT) dated 18.1.2005.  These rates shall come into force with effect from 19.1.2005.  The notification may be downloaded from CBEC website www.cbec.gov.in and perused for details.

2. The drawback rates have been determined on the basis of certain broad parameters including, inter alia, the prevailing prices of inputs, standard input/ output norms (SION) published by DGFT, share of imports in the total consumption of inputs and the applied rates of duty.  As education cess is being collected as duties of excise/customs, the element of education cess has been factored in the drawback rates.  The production, import and price data used for calculation of drawback rates have been obtained from the various sources, such as, the field formations of Central Excise/Customs, the Export Promotion Councils and trade bodies, Government publications and other reputed journals.  The wastage norms given in the SION vary from product to product in the same Product Group.  Therefore, norms have been taken on an average basis.  The changes in drawback rates reflect the changes in applied duties and changes in prices.

3. A significant feature of the new Drawback Schedule is that the rates for most products have been expressed in terms of Metric Tonne/kg in lieu of earlier ad valorem rates.  Further, following the SION, the rates previously expressed in terms of numbers, pieces and gross have now been changed to Metric Tonne/kg.  This will meet the requirements of transparency and more importantly, will help prevent disputes and litigations arising from alleged over-invoicing of exports.

4. The existing Drawback Schedule does not provide for drawback of excise duty in respect of several entries.  To make the Schedule attractive and useful for exporters, the drawback rate for excise portion has been added at several places.  Needless to mention, the drawback can be availed of only when cenvat credit has not been taken.

5. Taking into account the suggestions of trade and industry, several new entries have been created in the Drawback Schedule.  A new Chapter (Chapter 72) has been introduced covering pig iron, iron ore pellets, ferro-alloys and steel products.  In all, 29 new entries have been created.  In the Textiles Sector (Chapters 50-63), the product coverage has been expanded by creating about 165 new entries.  The new products included are wool tops, cotton yarn, acrylic yarn, viscose yarn, various blended yarn/fabrics, fishing nets etc.  Further, the existing entries in the Drawback Schedule relating to garments have been expanded so as to create separate entries for garments made up of (i) cotton; (ii) cotton and MMF (Man Made Fibre) blend; and MMF.  Separate rates have been prescribed for these categories of garments on the basis of composition of textiles.

6. There are several products in the Drawback Schedule, where the main inputs are exempt from customs duty.  It has been decided to withdraw the All Industry Rate for these products.   The exporters of such products can, of course, avail of the brand rate of duty drawback.  As such, 46 entries have been deleted from the existing Schedule.

7. The drawback rates have undergone significant changes in sympathy with the changes in prices of inputs, duties etc.  However, on certain items the rates have not been changed because of lack of relevant data.  The Drawback Schedule may be perused for details.  The more important changes are outlined

below: –

i)   Textiles and Textile Articles (Chapters 50-63)

a)   Silk : In the case of silk, the drawback rate for higher quality silk fabrics has been increased from Rs.86/kg to Rs.126/kg.  The rate for fabrics of noil silk has also been revised upwards.

b)     Wool : In the case of wool, the new drawback rate for woollen worsted yarn grey -weaving quality is Rs.16.50/kg which is significantly higher than the existing rate of Rs.4.80/kg.  The new drawback rate for woollen worsted yarn (dyed) – weaving quality is Rs.20.50/kg.  Likewise, the new drawback rate for woollen worsted yarn (grey) – hosiery grade is Rs.11.50/kg as against the existing rate of Rs.3.20/kg.  The dyed yarn – hosiery grade carries a higher rate of Rs.15.50/kg.  The drawback rates on blended yarn and fabrics have been revised upwards accordingly.

c) Ready Made Garments : In the ready made garment sector, the new drawback rate for knitted blouses/shirts/tops of cotton is Rs.42/kg as against the existing rate of 10.6% of FOB value subject to a maximum of Rs.40/piece.  The new rate for knitted blouses/shirts/tops of man-made fibre is Rs.53.50/kg as against the existing rate of 10.6% subject to a maximum of Rs.40/piece.  For knitted blouses/shirts/tops of cotton and man made fibre blend the new drawback rate is Rs.48/kg.  The drawback rates on woven garments have been revised accordingly.  As for ready made garments made up of silk, the rate has been increased from Rs.86/kg to Rs.130/kg.  The drawback rate on dyed woollen shawls has also been revised upwards from Rs.6.10/kg to Rs.20.50/kg.

d) Carpets and Floor Coverings : The new drawback rate for woollen carpets (57.01) is Rs.35.50/kg  as against the existing rate of 7.8% of FOB value subject to a maximum of Rs.300/sq. metre.  For silk carpets (57.03), the new drawback rate is Rs.150/kg as against the existing rate of 8.2% of FOB value subject to a maximum of Rs.950/sq.metre.  In view of abolition of excise duty on cotton textiles, the drawback rate on cotton durries (57.02) has been reduced from 9% of FOB value subject to a maximum of Rs.25/kg (central excise) to Rs.8/kg [Rs.3/kg (customs) + Rs.5/kg (central excise)].

e) Made Ups: In the made up category, the drawback rate on dyed/processed handloom made-ups, of cotton has been reduced from 8% of FOB value subject to a maximum of Rs.25/kg (central excise) to Rs.8/kg [Rs.3/kg (customs) + Rs.5/kg (central excise)].  The dyed/processed handloom made ups of man made fibre/yarn carries a higher drawback rate of Rs. 19.50/kg [Rs.3/kg (customs) + Rs. 16.50/kg (central excise)].

ii) Leather and Leather Articles (Chapters 41-42 & 64)

In this sector, the drawback rates have been reduced by 20% on seven items which included leather footwear (64.01) and leather footwear uppers (64.10), industrial leather gloves (42.11), leather sandals (64.04) etc and 10% on two items, namely, leather bags (42.05) and other leather gloves (42.13).  The new drawback rate for leather footwear (64.01) is 7.9% subject to a maximum of Rs.61/pair.  On two items, viz. lining leather (41.01) and rubber canvas footwear (64.08) the drawback rates have been increased by 20% and on one item viz., leather sandal upper (64.13) the rate has been increased by 10%.  On seven items which included leather apparel (42.09), leather wallets/purses etc (42.07), finished leather (41.02), the drawback rates remain unchanged.  The description of the entries “industrial leather gloves with or without cotton” (42.11, 42.11.1 & 42.12) has been changed to “industrial leather gloves with or without cotton/synthetic fabrics” so that gloves made in combination with synthetic fabrics become eligible for drawback.

iii) Base Metals and Articles of Base Metals (Chapters 72-83)

In Chapter 73 (Articles of Iron and Steel), all the existing entries in the Drawback Schedule have been retained. However, the scope of entries which were hitherto having only customs portion of drawback has been widened by providing drawback of the central excise portion in those entries. Thus against entry nos. 73.01, 73.02, 73.04 to 73.07, 73.09, 73.17, 73.19, 73.20, and 73.22, the central excise portion of drawback has been added.  In case of most items, the drawback rates have gone up sharply, mainly due to adoption of SION and also due to increase in prices of inputs.

In Chapter 74 (Copper and Articles thereof), the drawback rates on copper cathodes, wire bars and rods have been calculated taking into account the duty incidence on copper concentrates.  As a result, the rates have registered a decline from Rs.18.10/kg / Rs. 13.30/kg (customs) to Rs. 6.50/kg (customs).  Taking into account the duty incidence and prices of inputs, the drawback rate on brass builder hardware and handicrafts of brass (74.12 and 74.15) has been marginally reduced from Rs. 26.20/kg to Rs. 24.10/kg.   The same is the case with artware of brass and electroplated nickel silver (74.14) where the drawback rate has been marginally reduced from Rs. 26.20/kg to Rs. 24.75/kg.  However, in the case of other articles of brass, other than brass artware and electroplated nickel silver (74.13) and artware of copper (74.18), the rates have been revised upwards.

In Chapter 82 (tools and implements), the earlier drawback rates on most items were for customs portion only.  In the new Drawback Schedule both customs as well as central excise portion of drawback have been provided.

iv)  Miscellaneous Edible Products (Chapters 1-21)

In respect of products falling within Chapters 3-21 of the Drawback Schedule, drawback has been allowed only in respect of packaging material i.e. Aseptic Bags, M S Drums, OTS (Open Top Sanitary) Cans, and Glass Bottles.  The drawback rate on these packing materials for food products has been determined on the basis of the current prices of input materials and incidence of duty.

v)   Chemicals, Dyes and Essential Oils (Chapters 28-33)

In respect of items falling within Chapter 28, the drawback rates have been calculated by taking into consideration the SION norms, the prices of raw material and the applied rate of customs duty on the raw material.  Applying these parameters, the drawback rate on zinc oxide IP/BP/USP grade (28.05) has been revised from Rs.10,400/MT (customs) to Rs.14,063/MT [Rs.6400/MT (customs) + Rs.7663/MT (central excise)].  Taking into account the incidence of duty and prices of inputs the drawback rates on lead oxide grey, red lead, mercuric oxide, copper oxy-chloride etc. have been revised downwards.  On nickel sulphate, the rate has been increased from Rs.2624/MT (customs) to Rs.3335/MT (customs).  The drawback rates on organic dye intermediates (29.14) and perfumed agarbattis (33.01), remain unchanged at the existing levels except for a marginal increase on the latter.

vi) Machinery & Electrical Machinery (Chapters 84 and 85)

The rates of drawback for goods falling within these Chapters have been calculated as per standard input-output norms where the same are available, e.g. motor vehicle parts (84.01, 84.02, 84.48 to 84.51), agricultural implements and appliances (84.24), cycle & cycle rickshaw tube valves (84.47) and marine cables etc.  The rates on all items have gone up due to increase in prices of inputs.  The excise portion of drawback has been allowed in all cases. In respect of dispensing pumps (84.03 to 84.07), hand pumps (84.08 & 84.09), centrifugal pumps (84.10 & 84.11), ceiling fans (84.13 to 84.15), refrigeration and heating equipment (84.18 to 84.23) and fan regulators (84.16), the existing rates are being continued.  However, on gaskets (84.52), the drawback rate has been reduced from 11.6 % (customs) to 8.85% (customs).

In Chapter 85, there are several entries/products where the major inputs are allowed to be imported duty free.  All these entries have been deleted from the Schedule.  The entries deleted are 85.03 (cast alloy permanent magnets), 85.24 (transformers), 85.36 (floppy diskettes), 85.43 to 85.48 (picture tubes) 85.50 to 85.52 (fly back transformer and deflection coil), 85.53 (TV tuner), 85.56 to 85.59 (capacitors) 85.60 to 85.62 (resistors), 85.63 to 85.67 (PCBs), 85.71 (switches), 85.81 to 85.91 (monitor tubes), 85.92 to 85.95 (semiconductor devices), 85.96 (magnet assemblies) and 85.97 (ferrite components).

vii) Motor Vehicles, Bicycles & Parts Thereof (Chapter 87)

In Chapter 87, for parts of motor vehicles falling under various headings, the rates have been calculated as per SION.  Now, the drawback rates have two components, namely, customs and central excise as against the existing allocation for customs portion only.  For certain items the inputs are only zinc and nickel.  The rates have been calculated taking into account reduction in duty on these metals and price changes.

In the case of bicycles and parts thereof, the rate of drawback for excise portion has been calculated as per standard input-output norms, where available and domestic steel price.  Speaking overall, the excise portion of drawback has been reduced by about 20%.  The customs portion of drawback has been marginally revised upwards due to addition of the element of education cess.

viii) Instruments & Appliances and Other Manufactured Products (Chapters 90-96)

In Chapter 90, the drawback rate for surgical blades (90.07) has been reduced due to decrease in duty on stainless steel from 20% to 15%.  The drawback rate on fountain pens, ball point pens etc (96.03) has been reduced from 11.6 % of FOB value subject to a maximum of Rs. 6.10 per piece to 9.5% of FOB value subject to a maximum of Rs.4.90/piece in keeping with the duty reduction on plastics and metals.

8. The notification and the new Drawback Schedule may be gone through carefully to note the changes made therein. Though all care has been taken in formulating/publishing the rates, the possibility of errors/omissions due to inadvertence cannot be ruled out.  It is requested that any error/omission noticed during the implementation of the rates may be brought to the notice of the Board immediately for suitable corrective action.

9. Suitable Public Notices for information of the Trade and Standing Orders for guidance of the staff may be issued.  Difficulties faced, if any in implementation of the changes may be brought to the notice of the Board at once.

10. Kindly acknowledge receipt of this Circular.

Yours faithfully,

P.K. Mohanty
Jt.Secretary to Government of India

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