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Duty Drawback

Duty drawback refers to the refund of import duty paid on goods under specific circumstances, primarily when the goods are re-exported or used in the production of exported goods. The core principle behind duty drawback is that if goods imported into India and consumed or used outside the India, the import duty paid on them should be refunded. Duty drawback is only applicable to import duties paid and not to goods consumed domestically.

Core Principle: Import duties should be refunded when goods are consumed outside India or used in exported products.

Types of Duty Drawback

1. Duty Drawback on Re-export of Duty-Paid Goods

Under Section 74 of the Customs Act, duty drawback is available when goods are re-exported in their original state or after use. The key features of this type of drawback include:

Refund Percentage: If goods are re-exported without use, 98% of the import duty paid is refunded. If the goods are used before re-export, the refund is granted at a notified rate depending on the duration and extent of use.

Identification of Goods: The goods must be easily identifiable to qualify for this refund.

Time Limit for Export: The goods must be re-exported within two years from the date of duty payment, with a possible extension granted by the Board.

IGST Eligibility: Integrated Goods and Services Tax (IGST) paid on imported goods is also eligible for drawback under this section.

2. Duty Drawback on Imported Materials Used in Manufacturing Exported Goods

Under Section 75 of the Customs Act, duty drawback is granted for imported materials used in the manufacture of exported goods. Key points include:

Exclusion of IGST: This type of drawback excludes IGST paid on imported goods.

Identification of Materials: Unlike Section 74, the identification of imported materials is not required because the end product is different from the original imported materials.

Conditions for Eligibility: Duty drawback is not allowed if goods are used domestically before export, except under specific exceptions.

Rates: The drawback is granted based on All Industry Rates (AIR) notified by the Drawback Directorate. If no AIR is notified for a product, exporters can apply for a Brand Rate. For cases where AIR amounts to less than 80% of the duty paid, exporters may apply for a Special Brand Rate.

Restrictions: Goods exported as baggage are not eligible for drawback under this section. Additionally, minimum value addition, if specified, must be achieved, and negative value addition is not permissible.

Interest on Drawback

Delayed Payment (Section 75A)

6% interest per annum
Payable if drawback not disbursed within 1 month of claim filing

Claim Filed

1 Month Period

Interest Accrues

Erroneous Payment

15% interest per annum
Charged from payment date to recovery date

Claimant must repay erroneous drawback with interest

Prohibition & Regulation (Section 76)

No Drawback Allowed

If market price < drawback amount
If drawback < ₹50

Government Restrictions

On goods likely to be smuggled back
Notified in Official Gazette

Restrictions may include specific conditions or descriptions of goods

Conclusion

Duty drawback serves as a vital component of India's export promotion framework, strategically designed to enhance the global competitiveness of Indian businesses. By refunding import duties on re-exported goods or materials used in export production, the scheme effectively reduces the cost burden on exporters.

The nuanced provisions under Sections 74, 75, 75A, and 76 of the Customs Act create a comprehensive system that balances export incentives with necessary safeguards against misuse. From the 98% refund for unused re-exports under Section 74 to the All Industry Rates under Section 75, the scheme offers multiple avenues for exporters to optimize their duty recovery.

For maximum benefit, exporters should develop a thorough understanding of the scheme's provisions, maintain meticulous documentation, and stay updated on notification changes. When leveraged effectively, duty drawback can significantly contribute to an exporter's profitability while supporting India's broader economic growth through enhanced export performance.

Strategic Advantage

Proper utilization of duty drawback can reduce production costs by 5-15%, providing significant competitive edge in global markets.

Compliance Focus

Maintaining detailed records and understanding notification updates is crucial for maximizing drawback claims while remaining compliant.