What’s Duty Drawback Scheme?

The Government of India supports exports of goods from the country. In order to make exports competitive, Government provides cushion to exporters by reducing their production cost through various schemes. Duty Drawback is one of the many schemes in this direction. When exporters import materials/goods which are used as input for production of Export Goods, they need to pay custom duty, excise duty and service tax on input services. These duties increase the cost of production and can make the price of export product high which may ultimately lead to making the product uncompetitive in the international market. Therefore, under the scheme Government provides reimbursement of duties paid. The Duty Drawback facility on export of duty paid on imported goods is available in terms of Section 74 of the Customs Act, 1962. Under this scheme part of the Customs duty paid at the time of import is remitted on export of the imported goods, subject to their identification and adherence to the prescribed procedure.

 

The Duty Drawback is of two types: (i) All Industry Rate and (ii) Brand Rate. The All Industry Rate (AIR) is essentially an average rate based on the average quantity and value of inputs and duties (both Excise & Customs) borne by importer and Service Tax suffered by a particular export product. The All Industry Rates are notified by the Government in the form of a Drawback Schedule every year and the present Schedule covers about 4000 entries.

 

The Brand Rate of Duty Drawback is allowed in cases where the export product does not have any AIR of Duty Drawback or the same neutralizes less than 4/5th of the duties paid on materials used in the manufacture of export goods. This work is handled by the jurisdictional Commissioners of Customs & Central Excise.

 

The AIR of Duty Drawback are notified for a large number of export products every year by the Government after an assessment of average incidence of Customs, Central Excise duties and Service Tax suffered by the export products. The AIR are fixed after extensive discussions with all stake holders viz. Trade Associations, Export Promotion Councils and individual exporters to solicit relevant data, which includes the data on procurement prices of inputs, indigenous as well as imported, applicable duty rates, consumption ratios and FOB values of export products. The AIR of Duty Drawback is generally fixed as a percentage of FOB price of export product. Caps/Upper limits have been imposed in respect of many export products in order to avoid the possibility of misuse by dishonest exporters through over invoicing of the export value.

 

In case of goods which were earlier imported on payment of duty and are later sought to be exported within a specified period, Customs duty paid at the time of import of the goods, can be later claimed as Duty Drawback at the time of export of such goods under Section 74 of the Customs Act, 1962 read with Re-export of Imported Goods (Drawback of Customs Duty) Rules, 1995. For this purpose, the identity of export goods is cross verified with the particulars furnished at the time of import of such goods. Where the goods are not put into use after import, 98% of Duty Drawback is admissible under Section 74 of the Customs Act, 1962. In cases the goods have been put into use after import, Duty Drawback is granted on a sliding scale basis depending upon the extent of use of the goods. No Duty Drawback is available if the goods are exported 18 months after import. Application for Duty Drawback is required to be made within 3 months from the date of export of goods, which can be extended up to 12 months subject to conditions and payment of requisite fee as provided in the Drawback Rules, 1995.

 

The Duty Drawback on export goods is to be claimed at the time of export and requisite particulars filled in the prescribed format of Shipping Bill/Bill of Export under Drawback. It is not mandatory to have prior repatriation of export proceeds for grant of Duty Drawback. However, as per the rule if sale proceeds are not received within the period stipulated by the RBI, the Duty Drawback will be recovered as per procedure laid down in the Drawback Rules, 1995.