Indirect Taxes

CUSTOMS DUTY DRAWBACKS

‘Drawback’ scheme is an export benefit of the duties of Customs and Central Excise, Service tax and GST, borne by either imported goods re-exported or by the inputs and input services used in manufacture of exported goods. Following types of drawbacks are available:

  1. Drawback on re-export of duty paid goods (with or without use)38
  2. Drawback on imported materials used in the manufacture or processing of exported goods39

With effect from 01.10.2017, duty drawback benefit on imported is restricted to customs duties other than IGST and GST Compensation Cess.

Section 75A of the Customs Act provides for interest if drawback is not paid within 1 month from the date of filing drawback claim.

Sections 74 to 76 and notifications issued thereunder provide for the quantification of drawback available to any exporter. Customs and Central Excise Duties Drawback Rules, 2017 provide for procedure to claim drawback.

The basic distinction of drawback in both the situations are as under:

Drawback on export of duty paid goods

Drawback on imported materials used in the manufacture or processing of exported goods

The goods must be capable of easily identified

Since the goods are used as inputs for manufacturing or processing therefore, there is no criteria of such identity

Drawback is available for both unused as well as used goods exported

No drawback is available if the goods manufactured from imported material are used in India before exports

Rate of drawback

i. For unused goods: 98% of the import duty

ii. For used goods: Notified rated depending upon the period of use

Drawback is allowed as per All Industry Rate (AIR) notified by Drawback directorate.

Exporter may also apply for Brand Rate if such All Industry Rate is no rate is notified

Exporter may also apply for Special Brand Rate if duty drawback as per AIR is less than 80% of import duty

The goods shall be re-exported within 2 years form the date of payment of duty or extended time as allowed by Board

There is no time limit for such exportation

No requirement to bring export proceeds in convertible foreign exchange

Export proceeds shall be brought in convertible foreign exchange

There is no requirement of minimum value addition

There should not be any negative value addition and minimum value addition, as specified, shall be achieved

Rates of drawback on export of duty paid goods as notified by Central Government40 :

Period of use of goods after import

Drawback = % of import duty paid

If goods exported as such (unused)

98%

Not more than 3 months

95%

More than 3 months but not more than
6 months

85%

More than 6 months but not more than
9 months

75%

More than 9 months but not more than
12 months

70%

More than 12 months but not more than 15 months

65%

More than 15 months but not more than 18 months

60%

More than 18 months

Nil

No Duty Drawback on any of the goods specified below when they are exported out of India if used after their importation into India:

  1. Wearing apparel
  2. Tea-chests
  3. Exposed cinematograph films passed by the Board of Film Censors in India
  4. Unexposed photographic films, paper and plates, and X-ray films

Further, in respect of a motor car or goods (other than the goods specified above), imported by a personal and private use, drawback of duty shall be calculated by reducing the import duty paid in respect of such motor car or goods by 4%, 3%, 2 and a half percent and 2% for use for each quarter or part thereof during the period of first year, second year, third year and fourth year respectively.

Further, where the period aforesaid is more than 2 years, drawback shall be allowed, only if the Board, on sufficient cause being shown, has in that particular case extended the period beyond 2 years.

No drawback shall be allowed if such motor car or goods has or have been used for more than 4 years.

 

  1. Inserted by the Finance Act, 2018
  2. Section 2 (23) of the Customs Act, 1962
  3. Section 2 (18) of the Customs Act, 1962
  4. Section 3 (7) of the Customs Tariff Act, 1975
  5. Section 3(9) of the Customs Tariff Act, 1975
  6. Section 6 of the Customs Tariff Act, 1975
  7. Section 8B and 8C of the Customs Tariff Act, 1975 read with Customs Tariff (Identification and Assessment of Safeguard Duty) Rules, 1997
  8. Section 9 and 9A of the Customs Tariff Act, 1975. read with Customs Tariff (Identification, Assessment and Collection of Countervailing Duty on Subsidized Articles and for Determination of Injury) Rules, 1995 and Customs Tariff (Identification, Assessment and Collection of Anti-Dumping Duty on Dumped Articles and for Determination of Injury) Rules, 1995
  9. Introduced videChapter VI of Finance Act, 2018
  10. Section 3 (1) of the Customs Tariff Act, 1975
  11. Section 3 (5) of the Customs Tariff Act, 1975
  12. Introduced videChapter VII of the Finance Act, 2018
  13. Notification No. 18/2019-Customs dated 6 July, 2019
  14. Exemption is granted to SWS leviable on IGST and GST Compensation Cess vide Notification No. 13/2018-Customs dated 2 February, 2018. In other words, SWS is not to be calculated on IGST and GST Compensation Cess but only on Basic Customs Duty
  15. Section 2 of the Customs Tariff Act
  16. “Section Notes” shall be referred for determining appropriate classification
  17. “Chapter Notes” provides specific note and are mentioned at the beginning of each chapter
  18. Section 15 of the Customs Act
  19. Section 16 of the Customs Act
  20. Section 3(8) of Customs Tariff Act, 1975
  21. Section 5 of Integrated Goods and Services tax Act, 2017 read with Section 12 of Customs Act, 1962 and Section 3 of Customs Tariff Act, 1975
  22. Section 30 of the Customs Act
  23. As defined under Section 2 (30B) of the Customs Act
  24. Amended videFinance Act, 2018
  25. Inserted videFinance Act, 2018
  26. Section 17 of the Customs Act
  27. Section 51A of the Customs Act
  28. Section 47 of the Customs Act
  29. Section 59 of the Customs Act
  30. Section 61 of the Customs Act
  31. Section 28E of the Customs Act
  32. Section 28 of the Customs Act
  33. Section 28 (7) of the Customs Act
  34. Section 27 of the Customs Act
  35. Section 112 of the Customs Act
  36. Section 114 of the Customs Act
  37. Section 127B of the Customs Act
  38. Section 74 of the Customs Act
  39. Section 75 of the Customs Act
  40. Notification No. 19/1965-Cus. Dated 6 February, 1965