The Duty Drawback scheme has been notified for a large number of export products by the Government of India after an assessment of the average incidence of Customs, Central Excise duties, Service Tax, and Transaction Costs suffered by the export products. The duty Drawback Scheme aims to provide the refund/ recoupment of custom and excise duties paid on inputs or raw materials and service tax paid on the input services used in manufacturing export goods. This article examines the procedure for claiming Duty Drawback of export in India.
What is Duty Drawback Scheme – Customs Act, 1962
Understanding Duty Drawback Provisions
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Section 74: Quick Re-exports
· Allows claiming 98% of duty paid if imported goods are re-exported within two years from duty payment on importation.
Section 75: Exported Goods with Value Addition
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· Grants drawback on customs duties for goods manufactured from imported materials with value addition.
· Reversal or adjustment of drawback if sale proceeds aren’t received within the specified period.
· Provides for claiming drawback based on a fixed percentage relative to the exported goods’ value.
These sections within the Customs Act, 1962, outline specific scenarios and conditions under which exporters can claim duty drawbacks, ensuring various aspects of re-exporting imported goods and exporting goods produced from imported materials with added value.
What are the benefits of Duty Drawback Scheme?
The Duty Drawback scheme in exports offers several benefits to exporters, facilitating trade and supporting businesses.
Cost Reduction:
Exporters can reclaim duties paid on imported materials used in manufacturing goods for export. This results in cost savings, improving competitiveness in global markets.
Enhanced Cash Flow:
Receiving a drawback ensures a refund or credit for duties paid, improving cash flow for businesses. This liquidity can be reinvested in operations, expansion, or innovation.
Promotion of Exports:
By providing refunds on duties, this scheme encourages higher export volumes. This promotes trade activities, boosts production, and stimulates economic growth.
Competitive Edge:
Duty drawbacks enable exporters to offer competitive pricing for their products in international markets, potentially capturing larger market shares and sustaining customers demand.
Incentive for Value Addition:
For goods manufactured using imported materials with value addition, the drawback scheme encourages domestic processing, fostering local industries and skill development.
Compliance and Regulations:
It encourages adherence to regulations and compliance with import-export laws as exporters need to meet specified criteria to claim the benefits.
Support for Various Industries:
The scheme benefits diverse industries involved in exports, helping them offset costs and remain competitive globally.
Trade Promotion:
It aligns with government policies aimed at boosting exports, supporting economic growth, and fostering international trade relations.
What are the types of Duty Drawbacks?
Unused Merchandise Drawback:
When a company imports a good and then exports the same good without any changes, like importing and then exporting bicycle seats without alteration, they can apply for a refund on duties paid when exporting those seats.
Manufacturing Drawback:
If a company imports an item and then transforms it into a different item for export, like importing bicycle seats and using them to assemble complete bicycles for export, they can seek a refund for the duties initially paid for those seats.
Rejected Merchandise Drawback:
When merchandise does not meet quality standards upon arrival, such as receiving defective or non-compliant goods like flawed bicycle seats, companies can request a drawback when these items are either exported or destroyed, recovering the duties paid on these goods.
What are the documents that are needed for Duty Drawback?
Shipping Bill (Triplicate): Details exported goods for customs clearance.
Bill of Entry Copy: Records particulars of imported goods by the importer.
Import Invoice: Specifies value and details of imported goods.
Proof of Paid Import Duties: Documentation verifying duties paid on imports.
RBI Approval for Re-Exports: Required for goods re-exported.
Bill of Lading/Airway Bill Copy: Confirms shipment details.
Bank-Certified Invoices: These are authenticated invoices by a bank.
Sixtuplicate AR-4 Copy: This copy lists goods intended for export under drawback claim.
Export Invoice/Packing List: Details goods being exported.
Freight and Insurance Certificates: Validates transportation costs.
Goods Test Report Copy: This certifies the quality and specifications of goods.
MODVAT Declaration: Declares MODVAT credit usage for duty payment.
Drawback Amount Calculation Worksheet: Calculates duty drawback.
DEEC Book/License Copy: Relevant for export promotion schemes.
Transshipment Certificate: If goods move through multiple transportation modes.
Duplicate Acknowledgment Card: Confirms receipt of drawback amount.
Pre-Receipt for Drawback Amount: Acknowledges claim on Shipping Bill reverse side.
How to claim for Duty Drawback?
Electronic Shipping Bill Submission: Exporters submit the electronic shipping bill through the Electronic Data Interchange (?DI) for export purposes.
Single Claim via ?DI: The electronic shipping bill acts as the sole claim for drawback, removing the need for separate claims in most ports that utilize the ?DI system, except for specific cases related to Section 74 of the Customs Act, 1962.
Bank Account Requirement: Exporters using the ?DI system must open accounts with a bank nominated by a customs house or with core banking facilities. This enables seamless fund transfer via NEFT/RTGS directly into their accounts, avoiding the issuance of checks.
Account Information in Declaration: Exporters need to provide their account numbers in the declaration form, along with details of the bank responsible for realizing the export proceeds. This information facilitates direct crediting of drawback amounts into their specified accounts.
What are the primary components of Duty Drawback Scheme?
The Duty Drawback Scheme, administered by the Department of Revenue, has two primary components:
· All Industry Rate (AIR)
· Brand Rate
Under this scheme, one way to grant duty drawback is by referencing the rates specified in the Schedule of All Industry Rate of Drawback, usually announced on June 1 or three months after the budget.
If the product is not listed in the AIR schedule or if the exporter deems it inadequate, the exporter has the option to claim duty drawback by applying for Brand Rat fixation.
Summary
Duty Drawback stands as a vital facilitator for exporters, providing a mechanism to reclaim duties on imported materials used in manufacturing goods for export. This scheme, comprising components like All Industry Rate and Brand Rate, offers avenues for exporters to optimize financial returns and remain competitive in the global market.
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