Duty Drawback Under Customs Act, 1962

Duty Drawback scheme was introduced by the Ministry of Finance as a rebate for duty chargeable on any imported materials or excisable materials used in manufacture or processing of goods, manufactured in India and exported. The exported products are revenue natural.

The Central Government is empowered to grant Duty Drawback under section 74 and 75 of the Customs Act, 1962. Under section 74 of the Customs Act, 1962 duty drawback to the extent of 98 percent of the duty paid on imported goods can be claimed for re-export, provided the goods are re-exported within two years of payment of import duty. Section 75 of the Act, empowers duty drawback on export of manufactured articles.

Categories of Duty Drawback

Drawback allowable on Re-export of duty paid goods (Section 74):

According to section 74 of Customs Act 1962, when duty paid imported goods are re-exported in used or unused condition within two years, the importer may claim refund of import duty up to maximum 98% of the customs duty paid at the time of importation as duty drawback. The following conditions to be satisfied in this regard:

a. The goods are identified to the satisfaction of the Assistant Commissioner of Customs or Deputy Commissioner of Customs as the goods which were imported and

b. The goods are entered for export within two years from the date of payment of duty on the importation thereof.

However, in any particular case, the aforesaid period of two years may, on sufficient cause being shown, be extended by the Board by such further period, as it may deem fit.

Time limit for Section 74 Drawback: Under sub-clause (b) of section 74(1), it has been provided that such imported goods should be entered for export within 2 years from the date of payment of duty on the importation. It may be noted that the time period is related to the date of payment of duty and not date of importation.

List of goods which are not entitled to drawback at all under the Notification No. 19/65 Cus dated 6-2-1965: As per this notification, no drawback of import duty will be allowed in respect of the following goods, if they have been used after their importation in India:

i. Wearing Apparel;

ii. Tea Chests;

iii. Exposed cinematograph films passes by Board of Film Censors in India

iv. Unexposed photographic films, paper and plates, and X-ray

It implies that if these goods are not used after their importation into India and subsequently re-exported in the condition they were imported, then they would be entitled to drawback.

Amount of Drawback where imported goods are used before re- exportation: Where the imported goods are used after importation, the amount of drawback will be at the reduced rates as fixed by the Central Government having regard to the duration of use, depreciation in value and other relevant circumstances prescribed by notification. Following percentage has been fixed as the rates at which drawback of import duty shall be allowed in respect of goods which were used after their importation and which have been out of custom control.

Even if imported goods are merely tested though not used, it will be treated as “Used” after importation.

Special rate of drawback in respect of motor vehicles: Having regard to the international practice, a different percentage of import duty to be paid as drawback has been prescribed in the case of motor vehicles and goods imported by the person for his personal and private use.

i. If the car or specified goods are re-exported immediately: 98% of the duty paid is refundable

ii. If the car or specified goods are re-exported after being used: Percentage of reduction of drawback is related to use of motor vehicle per quarter as under:-

It has been specifically provided that where such cars are exported after the expiry of the period of two years, the drawback would be allowed only if The Central Board of Indirect Taxes and Customs, on sufficient cause being shown, extend the period for expiry beyond two years. It is further provided that no drawback shall be allowed if such motorcar or goods have been used for more than four years.

Drawback on Imported Materials Used in the Manufacture of Export Goods (Section 75): The drawback under section 75 is on a totally different footing. The following important aspects should be remembered in this regard:

i. The goods exported are entirely different from the inputs.

ii. The input could be either imported goods on which duty of customs has been paid or indigenous goods on which central excise duty has been paid.

iii. The existence of imported/indigenous excised duty paid goods in the final product is not capable of easy verification at the point of export.

iv. The goods, namely the inputs might have undergone changes in physical shape, property etc.

v. The quantity of inputs per piece of final product may not be uniform and may not also be verification at the time of exportation.

The underlying principle of the drawback under section 75 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. This amount is dependent upon prior verification of the mode of manufacture, the quantum of raw material required, the average content of duty paid articles in the final product and lastly, the standardization of the final product conforming to these norms.

Drawback not to be allowed in certain cases: It will be noticed that in the case of drawback under section 74 the amount of drawback was related to the actual duty paid on the goods. It did not have any correlation to valuation or rate of duty at the time of export. However in case of section 75 drawback, since the identity of the inputs which have suffered customs or excise duty as the case may be, is extinguished in the final product, there has been a necessity to correlate the grant of drawback with the value of the goods exported. It has therefore been prescribed under proviso to section 75(1) of the Customs Act that no drawback of duty shall be allowed under section 75 if:

a) The export value of the finished goods or class of the goods is less than the value of the imported materials used in the manufacture or processing of such goods or carrying out any operation on such goods or class of goods; or

b) The export value is not more than such percentage of the value of the imported materials used in the manufacture or processing of such goods or carrying out any operation on such goods or class of goods as may be notified by the Central Government; or

c) Any drawback has been allowed on any goods 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. In such case, the drawback shall be 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.

Upper limit of drawback amount or rate: The drawback amount or rate determined shall not exceed one third of the market price of the export product.

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