DRAWBACK OF DUTY CUSTOMS ACT, 1962

Meaning Drawback means refund of custom duty and excise duty that are chargeable on imported and indigenous material used in the manufacture of exported goods. Under the duty drawback scheme , exporters are provided with rebate of customs and central excise duties suffered on the inputs used in the manufacture of products exported to a foreign port . The objective is to neutralize the effect of taxes on goods exported thereby rendering Indian exports competitive in the international markets.

To claim the drawback following condition should be satisfied : Material used in manufacturing of goods must be duty paid. The product in which such material has been used must be exported. Drawback is allowed on all the items that are exported except coffee, tea and agricultural produce.

Types there are two types of duty drawbacks:- 1. DRAWBACK UNDER SECTION 74 of the customs act 1962, which allows drawback of duty paid on goods originally imported on payment of duty and subsequently re-exported. The manner and time limit for filling the claims are governed by re-export of imported goods(drawback of customs duties) rules ,1995. 2.DRAWBACK UNDERSECTION 75 allows duty drawback at specified rates, on export of goods manufactured in India . The manner and time limit for filling the claims are prescribed under the customs and central excise duties drawback rules, 1995, as amended from time to time.

Difference between rebate and drawback BASIS REBATE DRAWBACK 1. MEANING Rebate is a refund of terminal excise duty paid on excisable goods exported or excise duty paid on inputs used in manufacture of export goods. Drawback is refund of customs duty paid on imported good and excise duty paid on inputs used in the manufacture of export goods. 2. SANCTIONING DEPARTMENT Rebate is sanctioned by the excise department. Drawback is sanctioned by customs department 3. RELATED SECTIONS Rebate is granted under rule 18 of C.E. Rules , 2002. Drawback is granted under section 74 and 75 of the customs act , 1962.

Difference between Refund and Drawback BASIS REFUND DRAWBACK 1. Coverage Covered by sections 27 and 26. Covered by sections 74 to 76. 2.Definition Duty paid in excess is refunded. Duty paid is re-paid as drawback. 3. Scope Pertains to Import duty/ Export duty. Pertains to Import duty/Excise duty.

4. Incentive Not an export incentive Export incentive 5. Withdrawl Cannot be denied (section 27). Can be withdrawn (section 26). 6. Principle of unjust enrichment Principle of unjust enrichment is applicable. (section 27) / Not applicable (section 26) Principle of unjust enrichment is NOT applicable. 7.Consumer welfare fund Creditable to consumer welfare fund (exception is sections 26) Not creditable to consumer welfare fund. 8. Interest Interest is payable by government after three months. Interest is payable by government after one month.

Disallowances of drawback Section 76 of customs, 1962 provide some disallowances or cases when drawback allowed can be recovered . These are summarized below: 1.Where specific rates are provided, drawback claim per shipment is over Rs. 500. 2. If wholesales market price of goods in India is less than the amount of drawback due. 3. No drawback of sales tax, octroi or other taxes- drawback is of customs and central Excise duty only. 4. export of alcoholic liquor, cigarettes, cigar and pipe tobacco; as stores ;to foreign going vessel of less than 200 tons.

5. if drawback is less than Rs. 50. 6 5. if drawback is less than Rs.50. 6. goods manufactured under customs bond or excise bond where inputs were obtained without payment of duty. 7. If importer avails DEPB or DFRC. 8. If no customs/ excise duty is paid on the inputs or service tax is not paid on input services. 9. Goods manufactured by EOU or a unit in special economic zone. 10. if CENVAT was claimed on indigenous inputs.

Duty drawback on re-exports (section 74). Important Provisions Regarding DUTY DRAWBACK are Contained in Chapter X of Customs Act 1962. These relate to: Duty drawback on re-exports (section 74). Duty drawback on imported material used in manufacture of goods which are exported (section 75). Prohibition of drawback (section 76).

(A) Drawback Allowable on Re- export of Duty paid Goods (Section 74) Scope of Section 74 Section 74 covers two types of cases: (a) Imported goods exported as such i.e. without putting into use. (b) Imported goods exported after use.

Conditions for claiming duty drawback (1). The goods should have been previously imported . (2). Such imported goods are capable of being easily identified. (3). Import duty was paid on the imported goods. (4). The proper officer has made an order permitting clearance and loading of the goods for exportation. (5). The goods must be entered for re-export within 2 years from the date of payment of duty. However, the board may extend the said period for a sufficient cause. (6). The market value of such goods should not be less than the amount of drawback claimed . (7). The amount of drawback should be Rs. 50 or more.

B. Drawback on imported materials used in the manufacture of goods which are exported (section 75) 1. Where it appears to the central govt. that in respect of goods of any class or description or on which any operation has been carried out and being goods which have been entered for export ,a drawback should be allowed of duty of custom chargeable under this act on any imported material of any class may , by notification in the official gazette direct that drawback shall be allowed in respect of such good. 2. The central govt. may make rules for the purpose of carrying out the provision of sub-section (1) and , in particular .

Payment of interest of drawback: In case drawback duty is not paid with in two months of export of goods, the claimant will get interest at rate of 13% p.a. from the date when period of one month expires till the date of payment actually made. {amendment under finance act, 2007}

c. Prohibition and regulation of drawback in certain cases {section 76} 1. No drawback shall be allowed- a) in respect of any good the market price of which is less than the amount of drawback due thereon; b) where the drawback due in respect of any good is less than fifty rupees. 2. however, if the central govt. is of opinion that goods of any specified description in respect of which drawback may be claimed are likely to be smuggled back into India, it may be allowed in respect of such goods or may be allowed in respect of such good or may be allowed subject to such restrictions and conditions as may be specified.

DUTY DRAWBACK RATES THERE ARE TWO TYPES OF DRAWBACK RATES:- ALL-INDUSTRY RATES:- Such rates are fixed for a class of products manufactured for export s. the rates are determined by considering average quantity and value of each class of inputs exported/ manufactured in India . The all-industry rates of drawback are not applicable , where an export product has been- a). Good imported against DFRC. b)Exported by EOU or SEZ Unit. c) Manufactured and exported in terms of the central excise rules. d)Good exported without payment of duty . ect.

Procedure for claiming Drawback for ExpoRTS Under Section 74

Procedure for claiming Drawback for Exports Under Section 74 (1) The exporter shall at time of export of the goods a) State on the shipping bill or bill of export, the description, quantity and such other particulars as are necessary to decide whether the goods are entitled to drawback, and if so at what rates. The exporters is to make a declaration on the relevant shipping bill of export that (1) A claim for drawback under these rules is being made; (2) The duties of customs and central excise have been paid in respect of the containers, packing materials and materials used in the manufacture

of the export goods on which drawback is being claimed and in respect of such containers or materials no separate claim or rebate of duty under the Central Excise Rules, has been or will be made to the Central Excise authorities; [Provided that if the Commissioner of Customs is satisfied that the exporter or his authorized agent has, for reasons beyond his control, failed to comply with the provision of this clause, he may, after considering the representation, if any, made by such exporter or his authorized agent, and for reasons to be recorded, exempt such exporter or his authorized agent from the provisions of this clause]; (b) Furnish to the proper officer, a copy of shipment invoice or any other document giving particulars about the description, quantity and value of the goods to be exported.

(2) For the amount or rate of drawback determined under Rules 6 or 7, the exporter shall make an additional declaration shipping bill or bill of export that (a) There is no change in the manufacturing formula and in the quantum per unit of the imported materials or components, if any, utilized in the manufacture of export goods; and (b) The materials or components, which have been stated in the application under Rules 6 or 7 to have been imported, continue to be so imported and are not being obtained from indigenous sources. No separate application or claim for payment of drawback need be filed. The drawback shipping bill (green coloured) is automatically treated as a claim.

Drawback shipping bill should be accompanied, inter alia, by the following documents: (3) Copy of export contract or letter of credit. (4) Copy of packing list. (5) AR-4 form, wherever applicable (6) Insurance Certificate, if any (7) Copy of brand rates sanction order, if applicable.

For claiming drawback under section 74, the exporter should file the shipping bill under claim for drawback in the prescribed Form. After assessment, the goods are examined by the customs officers for purpose of physically identification. After shipment, the claim is filed in the department for the sanction of drawback. The pre-receipted drawback payment order has to be forwarded to the drawback department upon which cheque is issued. If the information submitted by the exporter is insufficient to process the claim, a deficiency memo will be issued to the exporter seeking further information or documents to process the claim. After compliance with the deficiency memo, the claim will be processed in the usual manner.

Supporting documents for processing drawback claim under section 74 : (1) Copy of the bill of the entry or any other presecribed documents against which goods were cleared for importation. (2) Import invoice. (3) Evidence of payment of duty paid at the time of importation of goods. (4) Permission from the Reserve Bank of India for re-exports of goods, wherever necessary.

(5) Export invoice and packing list. (6) Triplicate copy of the Shipping Bill bearing examination report recorded by the proper officer of the customs at the time of export. (7) Copy of the Bill of Lading or Airway bill. (8) Any other documents as may be specified in the deficiency memo.

Procedure for the claiming drawback Under Section 75 There are two system: (1) Manual system. For the purpose of claiming drawback, the exporter is required to file a drawback-shipping bill in the presecribed Format as required under Rule 13 along with the necessary declaration. The goods after assessment are examined by the officer posted in the Examination Shed as required for each individual case. The examination report will inducate the nature of goods in terms of Drawback schedule for classification and application of correct rate. Samples may have to

and application of correct rate and application of correct rate. Samples may have to be drawn for testing by lab in respect of chemicals, synthetic fabrics, etc. as specified from time to time to confirm the declarations in the export documents. The triplicate copy of the shipping bill which contains the examination report is the claim copy.

List of supporting documents For processing the drawback claim under Section 75 1.Copy of the Bank Certified invoice. 2.Triplicate of the shipping bill. 3.Sixtuplicate copy of AR-4, wherever applicable. 4.Copy of the bill of lading/Airway Bill. 5.Copy of test report, where the goods are required to be tested. .

6.Freight and insurance certificate, wherever the contract is CIF/C&F. 7. Mate receipt. 8. Copy of Brand rate letters, where the drawback claim is against the Brand rate. 9.Copy of contract or letter of Credit, as the case may be. 10. CENVAT Declaration, wherever applicable.

11. Work sheet showing the drawback amount claimed. 12 11.Work sheet showing the drawback amount claimed. 12. Any declaration required, as per footnote of the Drawback Schedule. 13. Proof of foreign agency commission paid, if any. 14. DEEC Book and licence copy, where applicable. 15. Blank acknowledgement card in duplicate. 16.Transhipment certificate, if applicable. 17. Pre-receipt for drawback amount on the reserve of Shipping Bill duly signed on the revenue stamp.

The claim settled and passed by the Appraiser, if the amount sanctioned is below RS 1,00,000. If the amount of drawback exceeds RS 1,00,000 by the Assistant Commissioner. After pre-audit, the cheques are issued to the designated banks for credit to the exporters account or handed over the authorized representative of the exporter.

{2}.EDI System. Under the EDI system there is no need for filling separate drawback claim. The shipping bill itself is treated as drawback claim. In the EDI system the exporters are required to open their accounts with the Bank nominated by the custom Houses/Asst Collector Customs. This has to be done to enable direct credit for drawback amount to their accounts, eliminates the need for issue of cheques. Computerized processing of shipping bills is prevalent in many ports in India. Processing of drawback claims under the system will be applicable for all exports in respect of the claims under section 74 of the customs Act and those4 relating to EPZ/100% EOUs.

Example 2. A has exported goods worth RS 1,00,000 (FOB value), and the rate of duty drawback on such export of goods is 1%. Will X be entitled to any duty drawback in this case. SOLUTION. As per Rule 8(1) of drawback Rules 1995, no drawback shall be admissible if the amount or rate of drawback is less than 1% of FOB value of goods RS 500 whichever is less. X would be entitled to duty drawback because. (a)The rate of drawback is 1% i.e. not less than 1% and (b)The amount of drawback @1% is RS 1,000 which is more than RS 500