Duty drawback for export is an incentive scheme to promote exports from the country. Basically, offering duty drawback acts as a catalyst of country’s exports and results in earning more of foreign exchange for the country. In its earnest spirit, Duty drawback on export is there for incentivizing genuine exports. However, the scheme has been in the root of many scams and exports frauds. At times, the scheme has been misused by fraudsters to avail the benefit unduly and hence its time to understand the scheme correctly.
Scarce authentic resources and misinterpretations might get you confused. Hence, for all good reasons, this scheme for export promotion could be difficult to understand properly. Duty drawback scheme is one of the many govt. measures to promote exports of our country. But, why is there a need of ? Let’s get into the details of it.
Basically, the exports are the only way to earn foreign exchange. And, it is the stock of foreign exchange in a country that stabilizes economy. Exchange have crucial role in establishing trade balance and keeping the inflation under check. Foreign exchange is the indicator of a healthy and growing economy. Therefore, goods and services are essential to be exported, but the home grown taxes ought not be exported. Accordingly, this is where concept of duty drawback on export comes into picture.
WTO prescribes free and fair trade and is principally against giving incentive for export of any kind. However, in view of the international competitiveness it is essential to sustain the market dynamics. Accordingly, the governments ensure that the taxes are not exported and the exporters are relived of burden of taxes. Meaning, duties suffered in manufacturing of the export goods are remitted upon export of such goods.
Under Duty Drawback for Export Which Duties are Remitted
By way of Drawback, the excise duty suffered on inputs, service tax paid for input service and customs duty paid on imported raw material during manufacturing of export goods are remitted after export of such goods.
With regard to drawback the SC in Liberty India v CIT 2009 (241) ELT 326(SC), has made following observation;
“ Section 75 of the Customs Act, 1962 and Section 37 of the Central Excise Act, 1944 empower Government of India to provide for repayment of customs and excise duty paid by an assessee. The refund is of average amount of duty paid on the materials of any particular class or description of goods used in the manufacture of export product of specified class. The rules do not envisage refund of an amount arithmetically equal to customs duty or central excise duty actually paid by an individual importer-cum-manufacturer. Sub-section 2 of Section 75 requires the amount of drawback to be determined on consideration of all the circumstances prevalent in a particular trade and also based on the facts situation relevant in respect of each classes of goods imported. Basically the source of duty drawback receipt lies in Section 75 of the Customs Act and Section 37 of the Central Excise Act”
In another case of M.F. Rings & Bearing Races Ltd versus Commissioner of Customs, decided by Hon’ble High Court of Delhi in 2016 in matter of W.P reported in 2016 (337) E.L.T. 17 (Del.), it was held that drawback is an export incentive and its purpose is to neutralize impact of duties on imports used for manufacture of export goods to ensure that goods remain competitive in export market.
Entitlement of Duty Drawback for Export is Not an Inherent Right
However, the availment/entitlement of drawback is not an inherent right of an exporter, it is only an incentive and its allowance is the discretion of the Central Government. It means that the drawback cannot be claimed as a matter of right but albeit it is the creation of statute. Based on this principle, drawback is not given on all the goods but on certain items.
Activities for Which Duty Drawback for Export is Available
The drawback is given for such goods which are manufactured or processed or on which any operation is carried out on the said goods in India. Section 75(1) of Customs Act,1962 has got mention of these key words.
One of the key factor on which drawback is concomitant is “manufacturing” which compel us to understand it in a better way.
The term “manufacturing” has been defined in Rule 2(e) of the Drawback Rules, 2017
“Manufacture includes processing of or any operation carried out on goods and the term manufacture should be construed accordingly.”
This definition is very liberal and it includes every type of processing or manufacturing. It does not mean that full fledged operation is only covered under manufacturing , any simple processing amounts to manufacturing. In relation to export goods, any processing such as painting, washing/pressing , fixing of bolts and nuts etc. are regarded as manufacturing for the purpose of duty drawback.
Which Taxes are Refunded Under Duty Drawback for Exports
It can be construed that drawback is refund of duties of Customs paid on imported materials and/or of Central Excise duties paid on excisable goods or of service tax paid on taxable services rendered during the course of manufacture of goods.
In 2006, Service Tax was Included in the Scheme of Drawback which was repaid with Central Excise and Customs .
By the inclusion of Service Tax in 2006, in the net of drawback, scheme got widened.
State Taxes are not Included in Duty Drawback for Exports
However, state taxes such sales tax, octroi or any other state taxes, are excluded from ambit and scope of drawback. No relief is given under this scheme of such taxes, suffered on the basic inputs used in the manufacture of export goods.
Duty Drawback for Exports is Available U/S 74, 75 and for Deemed Export etc.
Different conditions exists for payment of drawback to the exporters. Different types of drawback are as under;
- Drawback on re-export of imported goods under Section 74 of Customs Act- Under Section 74, after importation of goods on payment of IGST, compensation cess and customs duty , the very same goods are re-exported after establishment of identity and use by the proper officer and drawback is repaid.
- Drawback of customs duty/excise duty paid on raw materials used in the manufacture of export products under Section 75 of the Customs Act– The duty paid on imported raw material and excise duty paid on inputs/ raw material are refunded by the scheme of drawback under Section 75 of the Customs Act, read with Customs, Central Excise Duties and Service Tax Drawback Rules 2017, which have been notified vide Notification no 88/2017 –Cus (N.T) dated 21.09.2017. (Customs, Central Excise Duties and Service Tax Drawback Rules 1995 is erstwhile Drawback Rules)
- Deemed Export Drawback– Deemed Export is recognized under Chapter 7 of Goods supplied from DTA by manufacturer or by main/sub-contractors when such supplies do not leave the country and payments for such supplies are either received in Indian Rupees or in free foreign exchange, these are called as deemed export.
- Reimbursement of excise duty paid on fuels by way of drawback notified by DGFT- This facility is available to EOUs, EHTPs etc.
Refund of Average Duties Under Duty Drawback Scheme
Bare reading of Liberty India case decided by SC, indicated that duties is refunded not in arithmetical precision. By All Industry Rate (AIR) of Drawback which is the most popular mode of drawback scheme, average duty borne/suffered is refunded but not in arithmetical precision.
Based on the feedback and representation of industry, average suffered duty is calculated and fixed , then same is returned in the form of drawback.
Double Benefit is Obviated in Duty Drawback for Exports
In pre GST era and also in post GST in respect of few articles, (Which are not in ambit and scope GST) the drawback rate is comprised of both Customs and Excise portion. When the portion of Excise duty is obtained as rebate or as Cenvat credit, the exporters are eligible only for customs duty component of drawback and not entitled for Central Excise portion of the drawback rate. Exporters are not permitted to take dual advantage.
In Raghav Industries Ltd. versus Union of India in the matter of W.P. No. 1226 of 2016, decided on 19-2-2016, it was held by the Hon’ble Madras High Court that while sanctioning rebate, the export goods, being one and the same, the benefits availed by the petitioners on the said goods, under different scheme, are required to be taken into account for ensuring that the sanction does not result in undue benefit to the claimant. The ‘rebate’ of duty paid on excisable goods exported and ‘duty drawback’ on export goods are governed by Rule 18 of Central Excise Rules, 2002 and Customs, Central Excise Duties and Service Tax Drawback Rules, 1995. Both the rules are intended to give relief to the exporters by offsetting the duty paid. When the petitioners had availed duty drawback of Customs, Central Excise and Service Tax on the exported goods, they are not entitled for the rebate under Rule 18 of the Central Excise Rules, 2002 as it would result in double benefit.
Drawback is Different from Rebate and Refund
(i) In pure legal sense, drawback is different from Rebate and Refund. Though commonly drawback is referred as rebate or refund.
(ii) Rebate is refund of terminal excise duty , when export product is made of duty paid excisable goods/inputs are exported and rebate is granted under Rule 18 of Central Excise Rules 2002.
(iii) Whereas Refund squarely falls under the provisions of Section 26 and 27 of Customs Act , 1962.
Scope and Extent of Duty Drawback on Export
Clearances by following modes of goods are entitle for drawback;
(a) the goods cleared under Section 51 of the Customs Act, 1962;
(b) Goods entered for export by post under Section 84 and order permitting clearance have been made;
(c) Goods cleared from DTA to SEZ;
(d) Stores or equipment for use on board a vessel/aircraft proceedings to foreign port under the provisions of Section 88.
Goods Eligible for Duty Drawback on Export
The following class of goods are eligible for duty drawback;
- Re-export of duty paid imported goods.( Section 74(1) of the Act)
- Goods exported out of India in the manufacture of which duty paid imported material has been used. (Section 75 of the Customs Act, 1962)
- Goods exported out of India in the manufacture of which Central Excise duty paid material is used. (Section 37 of Central Excise Act, 1944 read with Rule 3 of Customs, Central Excise Duties and Service Tax Drawback Rules, 1995.)
- Goods exported out of India in the manufacture of which duty paid imported material as well indigenous material has been used . (Rule 3 of Customs, Central Excise Duties and Service Tax Drawback Rules, 1995.)
- The drawback is also available to the goods cleared from DTA to SEZ and stores and equipments used on board on vessel or aircraft proceeding to a foreign port.
- Drawback is available when the goods manufactured and exported thereof by non-duty paid goods/ or even when main ingredient is non-duty paid.
- DTA units are eligible for drawback suffered on their inputs, when the goods supplied to EOU are processed by them. Usually brand rate of drawback is granted in such cases.
Circumstances When Duty Drawback for Export is Not Admissible
- When export goods after their manufacture were taken for use. It means when export goods are found to be used, the drawback cannot be allowed. To deny drawback in such case power can be traced to second proviso to Rule 3 of Drawback Rules, 2017.
- When goods are manufactured for export, using taxable indigenous or imported exempted material in respect of which taxes/duties have not been This is to obviate double benefit.
- When export value of the goods or class of goods is less than the value of imported material used in the manufacture of such export goods. The negative valued addition has not been envisaged by the policy maker. Rule 8(2) of Drawback Rules 2017.
- When the amount of drawback is less than Rs 50/- Section 76(1)(c) of the Customs Act, 1962.
- Market price of the export goods is less than the amount of drawback due thereon. Refer Section 76(1) (b) of the Customs Act, 1962.
- When the product is manufactured partly or wholly in Bond under Section 65 of the Act, then the grant of drawback is not possible, as goods are made from duty free inputs.
- Drawback in respect of sales tax, octroi, or other taxes is not
- Drawback is not admissible when duty paid goods are exported under claim of rebate of duty under Rule 18 of Central Excise Rules, 2002.
- When duty drawback exceeds one third of the market value of the goods. By the mandate of Rule 8A of Customs, Central Excise Duties and Service Tax Drawback Rules, 1995, the drawback amount cannot exceeds 1/3 of the third of the market price.
Types of Duty Drawback for Export Scheme
The scheme of drawback is governed by the provisions of Section 74 to Section 76 of the Customs Act,1962 and notification issued thereunder read with Customs, Central Excise Duties and Service Tax Drawback Rules 2017, Re-Export of Imported Goods (Drawback of Customs Duties) Rules 1995 and Section 37 of the Central Excise Act,1944.
All Industry Rate of Drawback
All Industry Rates – It is average duty incidences of Customs, Excise and Service Tax, suffered and fixed for the class of goods by the Ministry of Finance. It is dealt by the Rule 3 of Drawback Rules 2017 .
The policy of Drawback is controlled and governed by Ministry of Finance
- All decision regarding drawback is taken by MOF ;
- It is headed by JS/Drawback;
- All information regarding fixing of rate is collected by them only;
Fixation of AIR under Duty Drawback for Export
(a) AIR (All Industry Rate) is fixed on the basis of industry average of quantity or value of material from which export goods are produced .
(b) Average of duties suffered on raw material, average of duties on waste goods and average of duties paid on finished goods is required to be considered for its fixation.
(c ) Having fixed rates accordingly, rightly or wrongly, a particular manufacturer cannot be called upon to prove duties actually suffered by him on export goods .Exporter is only required to establish that his goods fall under a particular heading of All Industries Rate Schedule.
(d) This is notified generally every year by the Government in the drawback schedule based on average quantity and value of inputs and duties suffered by export products.
(e) Now this is limited to Customs duty barring few products after implementation of GST.
(f) These Rates are periodically revised under Rule 4. To fix the amount or rate of drawback, data from Industry and field formations are collected.
(g) Since 1.10.2017, majorly duty drawback is for customs portions only, as only few goods are covered in Central Excise .Salient features of the changes have been explained in Board Circular 38/2017 dated 22.09.2017
(i) This may be fixed as a percentage of FOB value of export product or as specific rates. The drawback cap is imposed wherein export goods are prone to overvaluation in order to obviate the possibility of misuse to prevent overvaluation by the exporters.
(j) The tariff item and description of goods is alligned up to four digits of Customs Tariff.
- Follows HSN classification.
- Rates is inclusive of packing material.
(m) Wastages in also reckoned for duty drawback.
- Rule 16 of DBK Rules, 2017 deals with supplementary claim.
- Where any exporter finds that the amount of drawback paid to him is less than what he is entitled to on the basis of the amount or rate of drawback determined by the Central Government or Principal Commissioner of Customs or Commissioner of Customs, as the case may be, he may prefer a supplementary claim in the form at Annexure II :
Limitation of Filing Supplementary Claim – Rule 16
Filling of supplementary claim can be done within three months .
- From the date of payment or settlement of the original drawback claim by the proper officer ;
- Where the rate of drawback is determined or revised under rule 3 or rule 4, from the date of publication of such rate in the Official Gazette; (AIR)
- Where the rate of drawback is determined or revised upward under rule 6 or rule 7, from the date of communicating the said rate to the person concerned; (Brand Rate)
Applicability of AIR in Different Conditions
- Drawback in case of artware/handicraft items and composite article– F (D.R) Circular no 03/2010-Cus dated 12/02/2010- Artware/handicraft items made of one more constituent material should be based on material which is pre-dominant by weight for the purpose of classification under Drawback Schedule. Certificates issued by Development Commissioner (Handicrafts) or Export Promotion Council for Handicrafts should be normally accepted for considering particular goods as Artware or handicraft.
- Leather Articles– Meaning and scope of – Any article wherein 60% of more of visible surface is of leather ( Excluding shoulder straps or handles or fur skin trimmings if any) notwithstanding that the such article is made of leather or if any would be considered as leather article.
- Drawback on garments- The garment to be termed as of man made fibre or wool or silk mean that respective fibre, weight of that fibre should be more than 85% . To fall under a blend , made of two constituents , one should be more than 15% and other should be less than 85%.
- Drawback for composite articles – When drawback is not provided for composite article, drawback is extended as per the constituent item weight, based on the self declaration of the exporter. In case of doubt verification can be caused.( Para 10 of Notification 89/2017 –Cus (NT) dated 21.09.2017)
- Classification of Carpets/Floor coverings for the drawback purpose– F (D.R) Circular no 02/2008-Cus dated 10/01/2008- Classification of carpets/Floor coverings is done as per textile material which pre-dominates it by weight.
- Drawback in case of goods packed in CKD/SKD– If goods are exported in CKD/SKD condition, these will be classifiable as complete and finished product, if the article has essential character of complete and finished product. MF(DR) Circular No 26/2005 –Cus dated 08.06.2005
Brand Rate in Duty Drawback for Export
AIR is announced for many commodities but that list does not include all the commodities/ items which are exported. In other words where amount or rate of drawback has not been determined, in such cases it is claimed for specific goods manufactured by particular exporter. It is dealt by Rule 6 of Drawback Rules, 2017. .
The following are salient features of Brand Rate of drawback.
- Exporter may apply for brand rate to jurisdictional Commissioner of Customs exercising jurisdiction over the place of export.
- Application to be made within three months of Let Export Order;
Period of three months is extendable for another three months by AC/DC and by another six months by Commissioner/Principal Commissioner of Customs . Thus maximum time limit is one year for making application, if permitted by competent authority.
Payment of Fee For Application of Brand Rate for Grant of Extension of Time
An application fee equivalent to 1% of the FOB value of exports or one thousand rupees whichever is less, shall be payable for applying for grant of extension of time to the Assistant Commissioner of Customs or Deputy Commissioner of Customs, as the case may be and an application fee of 2% of the FOB value or two thousand rupees whichever is less, shall be payable for applying for grant of extension of time to the Principal Commissioner of Customs or Commissioner of Customs, as the case may be.
Application for Extension of Time of Brand Rate may be Acceded or Refused
- The Assistant Commissioner of Customs or Deputy Commissioner of Customs or Principal Commissioner of Customs or Commissioner of Customs, as the case may be, may, on an application and after making such enquiry as he thinks fit, grant extension or refuse to grant extension after recording in writing the reasons for such refusal.
- Speaking order is required to be passed.
Provisional Payment of Brand Rate of Drawback
Where an exporter desires that he may be granted drawback provisionally, he may, while making an application under clause (a) of sub-rule (1) apply to the Principal Commissioner of Customs or Commissioner of Customs, as the case may be and state that a provisional amount be granted to him towards drawback on the export of such goods pending determination of the amount or rate of drawback under clause (b) of that sub-rule . Rule 6 (2)(a) of Drawback Rules 2017.
Furnishing of Bond and Surety
Request of provisional payment can be made and the same may be considered on furnishing of Bond and may on surety, as deems fit by the Commissioner/ Principal Commissioner of Customs.
Special Brand Rate- Where in respect of any goods, the exporter find that AIR determined fixed under Rule 3 or as the case be revised under Rule 4 is less than 80% of the duties paid on material/components used in the manufacture of export goods, then in such cases Special Brand Rates may be fixed. It is dealt by the Rule 7 of Drawback Rules, 1995.
All the rules regarding making application within prescribed time period or extended time period , grant/ refusal of time by competent authority , payment of fees , passing of speaking order of Brand Rate, mutatis mutandis apply to Special Brand Rate .
Validity of Brand Rate Fixation – It is either for a specific S/Bill or for no of S/Bills under which export is made over a period of time, if same goods are exported by the same exporter. Generally Brand Rate letters are valid for one year.
Controversy Regarding Special Brand Rate
Some exporter claim the AIR of DBK at the time of export and later apply for Special Brand Rate.The provisional drawback of AIR is credited into exporter’s account. Then after fixation of Special Brand Rate, differential amount is credited as per claim. However, Board vide its letter F. No 606/04/ 2011 dated 30.12.2011 addressed to Pune Commissioner, prohibited to entertain such claim of brand rate.
Board’s contention was that once the exporter has opted for AIR , then he cannot revert to Special Brand Rate. Accordingly, all such applications were rejected by Pune Commissionerate. Commissioner (Appeal), however allowed the appeal citing letter is an administrative direction and not applicable to quasi judicial authority.
Misuse of Brand Rate/Special Brand Rate
JNCH has issued a Modus Operandi Circular dated 04.05.2018, wherein it is stated that highly overvalued goods such as carpets, garments of silk, wool etc are being exported by filing S/Bill under Brand Rate of DBK and mentioning the identifier as 9801 to avoid thorough examination as immediate benefit is not availed . Since the export goods were not notified under AIR , so immediate benefit was not available as Brand Rate will be claimed later. But declared goods were having higher rate of drawback and higher cap under AIR. So once the export was effected unscrupulous exporters revert to AIR once the goods are exported to avail the higher rate of drawback and thus they avoided thorough examination.
Board Circular 23/2017- Cus dated 30.06.2017 has assigned the fixation of Brand Rate work to Customs formations after the implementation of GST. Earlier it was handled by Central Excise Authorities.
Duty Drawback Scheme in Case of Export by Post
The outer packing of export goods which must carry the address of the consignee and in bold letters the words “DRAWBACK EXPORT”;
The date of receipt of the aforesaid claim form by the proper officer of Customs from the postal authorities shall be deemed to be date of filing of drawback claim by the exporter for the purpose of section 75A and an intimation of the same shall be given by the proper officer of Customs to the exporter in such form as the Principal Commissioner of Customs or Commissioner of Customs, as the case may be, may prescribe. Rule 12 and Section 83(2) of the Customs Act.
Payment of Drawback and Interest
It is dealt by Rule 15 of DBK Rule, 2017 and Section 75A of the Customs Act, 1962. When any drawback under section 74 and 75 is not paid within a period of one month from the date of filing a claim for payment of such drawback, it shall be paid to the claimant in addition to the amount of drawback interest at rate of 6% per annum in terms of relevant Notification 75/2003-Cus (N.T) dated 12.09.2003 issued under section 27A of the Customs Act, 1962.
In case of erroneous payment of drawback/or otherwise recoverable from the exporter/claimant, claimant/exporter is required to pay within two months from date of demand, till payment at the rate of 15%/ annum. For this relevant Notification is 33/2016 –Cus (NT) dated 01.03.2016.
Re-Export under Section 74- Following are the legal provisions.
- Section 74, provides for repayment of drawback, if goods are re-exported as such or after use.
- Re-export of Imported Goods (Drawback of Customs Duties) Rules, 1995.
Following Duties u/s 74 were Refunded in Pre-GST era;
BCD , CVD and SAD
Duties Which are Refunded under Post GST regime
Similarly, in respect of the goods imported after 1st July, 2017, Basic Customs Duty, Integrated GST, Compensation Cess will be paid and Drawback of all of these would be paid on re-export of such imported goods.
Essential Ingredients of Section 74 under Dutyy Drawback for Export
- Goods are previously imported;
- Duty must be Paid on import;
- Same Goods subsequently exported;
- Capable of easily being identified by competent Customs authority (Asstt Commissioner ) at the time of export w.r.t import documents.
- Under Section 74(1)(b), imported goods requires to be entered for export within two years of payment of duty on the importation thereof. Further period is extended by the Board, if deems fit.
Factors on which Drawback u/s 74 is Dependent
- Drawback is available for use as well un-used goods;
- Maximum, 98% of drawback is provided , when the goods are not used and exported as it is;
- Drawback is dependent upon period of use;
Computation of Time Period
Period is counted from date of clearance of imported goods for H/C and date when goods are placed under customs control for export.
Goods for Personal Use
Goods for Personal Use is also entitle for Drawback under Section 74 of the Customs Act, 1962
- Applicable in case of Motor Vehicle ;
In case of re-export of imported motor vehicle ,refundable import duty is reduced by 4% per quarter for first year, 3% per quarter for second year, 2.5% quarter for 3rd year, 2% quarter for 4th year
Re-export of Imported Goods to any Port and any Supplier
Always there is a dispute as to whether goods can be allowed to be exported to any other port or to any other supplier. Circular No. 72/2002-Cus., dated 1-11-2002, prescribes that re-export u/s 74 may be permitted to any port/any supplier.
Passing of Speaking Order u/s 74
Circular No. 35/2013-Cus., dated 5-9-2013, mandates passing of speaking order regarding manner and time of claiming drawback under Drawback Rule 2017.
Examination Report u/s 74 must be Non-cryptic, Lucid and Clear
Board Circular 16/2016 –Cus dt 09.06.2016, lays down that the examination report on shipping bill must be recorded separately in a self-contained and explicit manner on each of the two aspects of identity and use. The examination report should not be made of phrases that are cryptic, generalized or sweeping in nature such as ‘as per declaration’, ‘in as such condition’, ‘found in order’, ‘found as declared’, ‘goods are same’ etc.
Drawback u/s 74 is Disallowed
No drawback is allowed on re-export of
- Wearing apparel;
- Tea chests,
- Exposed cinematographic film passed by Censor Board;
- Unexposed photographic films, X ray films, etc.
- When market Price is less than amount of drawback due thereon. Section 76(1)(b) of the Customs Act, 1962.
No Drawback in case of Availment of ITC of IGST and GST Compensation Cess
Duty Drawback u/s 74 is also not allowed if ITC of IGST and GST Compensation Cess paid at the time of imports is availed. This is done to obviate double benefit. Non-availment certificate from GST authorities must be produced for claiming refund of duties.
Re-Export of Baggage u/s 74 of the Act
Under Section 74 of the Customs Act in re-export of Baggage drawback is allowed . For drawback to be entitle , the owner of the baggage has to make declaration u/s 77 of the Customs Act of its contents. Further, Proper Officer has to make clearance for exportation for admissibility of drawback.
Recovery of Drawback, in case of non-realization of Export Proceeds/Sale Proceeds
Section 75 and Rule 18 of Drawback Rules, 2017 govern the recovery of drawback in case of non-realization of export/sale proceeds.
Stipulated Time– As per Regulation 9 of Foreign Exchange Management (Exports of Goods and Services) Regulations,2015,exports proceeds is required to be realized in 9 months or under extended period as the case may be if permitted by RBI. Each and every case of bringing of remittance into India is controlled by RBI.
Non-Realization of Exports Proceeds
Such cases are observed in case of fly by night operator, who are concerned with drawback only. As the bringing of foreign exchange is having some cost therefore to have a higher undue profit, such exporters opt for non-realization of the foreign exchange. It is usually operated on bogus IEC.
Statutory limitation has not been prescribed for recovery of drawback in case of non-realization of export proceeds, but it should be under reasonable time limit, delay and latches may set aside the proceedings of recovery.
Rule 18(5) of Drawback Rules, 2017- When there Would be Non-initiation of Recovery Proceedings
An exception has been carved by Rule 18(5) of the Drawback Rules wherein non-realization of sale proceeds is compensated by the Export Credit Guarantee Corporation of India Ltd under an insurance cover and RBI writes off the requirements of realization of sale proceeds on merit and exporter produces a letter from Foreign Mission of India regarding the non-recovery of sale proceeds from the buyer. In reality all the three conditions are often not met.
Surinder Singh v/s U.O.I- An Important Case.
An important judgment was delivered by the Hon’ble Supreme Court of India, in the case of Surinder Singh v. Union of India [2016 (340) E.L.T. 97 (S.C.). In this case matter was pertaining to non-realization of export proceeds of S/Bills of 1991-93. The S/Bills were prior to coming into operation of Drawback Rules of 1995.
The SC held that customs portion of drawback can be recovered in terms of second proviso to Section 75 of the customs act, as this has the inbuilt provision for recovery of drawback in case of non-realization, though Drawback Rules, 1995 was not in force, which is procedural in nature. Section 75 is substantive in nature and right conferred by it permits to recover duty drawback in such case even Drawback Rules were not in force . However no recovery of Central Excise portion as Section 37 of Central Excise Act,1944, does not contain any such mechanism for recovery of drawback already granted to the exporter.
Undue/Fraudulent Availment of Duty Drawback
It is observed that often export goods are overvalued in order to claim undue export benefit. It is a commonly known fact that unscrupulous elements deliberately overvalue the export goods by manipulation of documents and get undue export benefit which also includes drawback. The said mis-declaration of export value render the goods liable to confiscation under Section 113(i) and 113(ia) of the Customs Act,1962.
Section 113(ia) particularly deals with violations of conditions of export when export is entered under claim of drawback. Further, section 113(d) is also get attracted as conditions of export is violated and it renders the export goods as prohibited goods. Section 50(2) of the Customs Act,1962 also gets breached as goods founds contrary to declaration of the exporter.
Violation of Allied Act
In pursuit of malafides of an exporter to claim drawback unduly, there are violation of allied Acts too, apart from Customs Act 1962. One such instance is of violation of Foreign Trade (Regulation) Rules, 1993.
As per Rule 11 of the Foreign Trade (Regulation) Rules, 1993, on exportation out of, any Customs ports of any goods, whether liable to duty or not, the owner of such goods shall in the shipping bill or any other documents prescribed under the Customs Act 1962, state the value, quality and description of such goods to the best of his knowledge and belief and certify that the quality and specifications of the goods as stated in those documents, are in accordance with the terms of the export contract entered into with the buyer or consignee in pursuance of which the goods are being exported and shall subscribe a declaration of the truth of such statement at the foot of such shipping bill or any other documents.
Punishment for Fraudulent Availment of Duty Drawback for Export
In case of fraudulent availment of drawback , Section 135(1) (d) prescribes for arrest and imprisonment upto 7 years , when undue availment of drawback is in excess of Rs 50 lakhs.
Board Circular 27/2015-Cus dated 23.10.2015 and B.C 28/2015-Cus dated 23.10.2015 are relevant circulars for prosecution and arrest. Board Circular has set the threshold monetary limit for prosecution as Rs 1 Crore.
Post GST Scenario
Duty drawback scheme has been radically changed w. e. f. 01.07.2017 on introduction of GST.
Drawback has also been defined under Section 2(42) of CGST Act, 2017
Section 2(42) of CGST Act provides that “Drawback” in relation to any goods manufactured in India and exported, means the rebate of duty, tax or cess chargeable on any imported inputs or on any domestic inputs or input services used in the manufacture of such goods.
- Since October 2017, exporters are entitled to have duty drawback only of the Customs Portion (and not of GST portion).
- Till 1.7.17, the rebate/refund of excise duty was also available. After 1.7.17, these provisions apply only in case of few products covered under Central Excise.
After implementation of GST, the definition of drawback has been suitably amended in Drawback Rules
Definition of Drawback under Rule 1995
“Drawback in relation to any goods manufactured in India, and exported means the rebate of duty or tax as the case may be chargeable on any imported materials or excisable materials used or taxable services used as input services in the manufacture of such goods “
Definition of Drawback under Drawback Rules, 2017
“Drawback” in relation to any goods manufactured in India and exported, means the rebate of duty excluding integrated tax leviable under sub-section (7) and compensation cess leviable under sub-section (9) respectively of section 3 of the Customs Tariff Act, 1975 (51 of 1975) chargeable on any imported materials or excisable materials used in the manufacture of such goods.
Conjoint reading of both the definition of drawback under Rule 1995 and 2017 indicates that definition of drawback under Rules 2017 is exclusive of integrated tax and compensation cess. The reason is that drawback is limited to customs portion only resulting in repayment of customs duty . Further, IGST refund is dealt by GST law, hence drawback and IGST refund operates independently . In erstwhile Drawback Rules of 1995, the customs duty, excise duty, and service tax were repaid through drawback mechanism whereas after coming into force of GST law , as both the latter taxes have subsumed in GST, therefore entitlement of drawback is limited to custom duty only and excise duty, and service tax which are subsumed in GST are refunded through IGST refund mechanism.
Definition of drawback under Re-Export of Imported Goods (Drawback of Customs Duties ) Rules, 1995 inserted by M.F. (D.R.) Notification No. 36/95-Cus. (N.T.), dated 26-5-1995 has also been suitably amended and lays down as under:
“Drawback” in relation to any goods exported out of India, means the refund of duty or tax or cess as referred to in the Customs Tariff Act, 1975 (51 of 1975) and paid on importation of such goods in terms of section 74 of the Customs Act;.
Here definition includes integrated tax and cess as these are constituents of import duty for importation of goods into India and when the very same goods are re-exported, duty upto 98% of import duties are refunded, which includes integrated tax and cess along with BCD.
From perusal of definition given in Drawback Rule 2017 and definition of drawback under Re-Export of Imported Goods (Drawback of Customs Duties ) Rules, 1995, it appears that both are at variance former definition excludes IGST and Cess whereas latter includes both the taxes.
Conclusion on Duty Drawback for Exports
Drawback is given as a policy measure to relieve the exporter from burden of home grown taxes. For admissibility of drawback , goods are required to be manufactured and exported thereof. Drawback given under Chapter X of the Customs Act, 1962 ranges from Section 74, to 76.
Section 75 is the source of power wherein admissibility, determination of rate or amount of drawback lies and where from Drawback Rules emanates.
Section 74 deals with repayment of drawback in case of re-export of very same imported goods after establishment of identity and duration of use.
The fundamental difference between Section 74 and Section 75 is that in case of former, there would not be any change in identity of the imported goods whereas in case of latter, value addition is a must which results into change of identity of goods.
Section 76 talks about prohibition and regulation in respect of entitlement of drawback. Drawback Rules , 2017 contains provisions for fixation of AIR , Brand Rate, revision of drawback rate, manner and time of claiming brand rate of drawback, making application of the same and payment of prescribed fee, recovery of drawback erroneously granted to the exporter/claimant and recovery of drawback in case of non-realization of export proceeds. For re-export of imported goods under Section 74 , a separate Drawback Rules of 1965 does also exists.
After GST coming into effect, drawback has been limited to customs portions only barring few items which are out of purview of GST viz tobacco, Petroleum products etc.. Definition of manufacturing has undergone a change. While granting drawback, Department should be circumspect that double benefit is not available to the claimant/exporter. For example, manufacturing export goods from imported material which are exempted from customs duty and then claiming benefit of drawback of customs duty after export of such goods is barred. Fraudulent claim of drawback is punishable by civil as well as criminal law.
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