MODULE 11:

DUTY DRAWBACK
CLAIM
PROCEDURE
LEARNING OBJECTIVES:

• To discuss the concept and rationale of duty drawback.

• To explain duty neutralization scheme
• To explain the processing of drawback claims
• To documentary procedure briefly.
LEARNING MATERIAL:

11.1 INTRODUCTION: In compliance with global best practices of neutralizing the incidence of
taxes on exportable goods, government of India has also incorporated a dedicated chapter offering
pre-export and post export duty neutralization on exportable goods to Indian exporters. Chapter 4 of
the Foreign Trade Policy 2015-20 prescribes the detailed policy and procedure therein for
neutralization of duties & taxes in export chain so as to make Indian goods more attractive and
competitive in international markets.Chapter 4 of FTP 2015-20 is entitled as‘Duty Exemption &
Remission Schemes’ whereas duty exemption is offered at pre-export stage through two schemes
namely ‘Advance Authorization’ and ‘Duty Free Import Authorization’ and ‘Duty Remission Scheme’
offer post-export duty refunds of duties & taxes paid on exportable goods, this scheme is called as
‘duty drawback’. Another scheme entitled as duty entitlement pass book is phased-out on September
30th, 2012 due to its non-compatibility with WTO rules and increasingly complaints of member
countries against it causing ‘injury’ to their exports through ‘market price distortions’. The duty
neutralization schemes implemented in India are diagrammed as under:

Duty Exemption Advance Authorization

Figure 11.1: Scheme
DUTY (Pre-Export) Duty Free Import
NEUTRALIZATI Authorization
ON IN EXPORT Duty Remission
CHAIN Scheme) Duty Drawback
Post Export

Figure 11.1: Duty Neutralization Schemes in India

Duty drawback is the rebate given by government of India, after the exports of goods, to an exporter
for having paid the duty either on inputs imported after payment of duty. With introduction of
services, rules are changed so as to give the rebate of tax chargeable for services provided during the
course of manufactures of these exportable goods. Only final exporter can claim the drawback on
material used for the manufacture of export products sourced from several suppliers. In case of re-
import of goods, the drawback can be claimed. Drawback claims can be made only for duties & taxes
paid on custom duty paid on imported inputs which are to be used in exportable products. An exporter
cannot claim duty drawback on inputs imported or obtained without payment of customs duty. In case
of part payment of customs duty, rebate or refund can be claimed only on the paid part.

11.2 DUTY DRAWBACK DEFINED: Duty drawback is a refund of taxes and duties paid either at
the time of imports of goods meant for export in the same form or after use or as import duty paid on
inputs to be used in exportable products. Essential element for claiming the drawback is that goods
must be exported out of India and duty must have been paid on such used inputs, in case duty is not
paid for, demand for claim of duty drawback does not exist. In light of this, drawback is defined as
“rebate given by a government on duties or taxes that were paid on imported goods that were used to
create other goods or repackaged and exported again”. Duty Drawback Scheme has been designed
and developed in order to provide the relief to exporters on the Import Duties (only Basic Duty of
Customs) which they have paid on the inputs used in the manufacture of exportable product. There is
global practice of “goods are exported; taxes are not” and accordingly duty drawback scheme is
administered in India by Central Board of Indirect Taxes (CBIT), Ministry of Finance, Government of
India. A refund of taxes is made in favor of exporters into their nominated bank account after
processing of Shipping Bill/ Bill of Export under claims for Duty Drawback, a regulatory document
that acts as proof of export. Under the drawback scheme, an exporter is given the refunds of taxes
paid on inputs of exportable goods so as to compensate the burden of duty incidence of Customs duty
on basic inputs like raw materials.

Drawback under section 74 of Customs Act 1962 is processed when goods are imported and
subsequently exported to a place outside India. There are two types of drawback under this category
first when goods are exported within 3 months without putting into use and when goods are used and
subsequently exported. Figure as under lists the essential elements necessary for claiming the duty
drawback along with documentary proof for an exporter.
Table 11.2: Essential Elements along with Documentary Evidence for Claiming Drawback
under Section 74 Of Customs Act 1962
Essential Elements Documentary Evidence
Goods must have been imported into India Bill of Entry for Home Consumption, Import
General Manifest, Invoice, Packing List, Bill of
Lading
Duty must have been paid on such imported TR-6 Challan, GAR-7 Challan, Bank Transfer
goods Receipts in case of online banking / Credit card
payment
The goods should be entered for export Filing of Shipping Bill under Claim of Duty
within two years from the date of payment of Drawback must be within 2 years from date of
duty on their importation payment of import duty
Goods can be identified as goods imported Packing list as supplied by importer at the time of
import should match with packing list submitted by
exporter at the time of export
Goods are capable of being identified as Prime proof is packing list and additional proof are
goods imported Certificate of Inspection/ Certificate of Export
Conformity, Certificate of Origin, Certificate of
Insurance, Bill of Lading and Commercial Invoice
The goods must actually be re-exported to Shipping bill/ Bill of Export with ‘Let Export Order’
any place outside India is a prime proof along with Export General Manifest
/ Exit Outward Order of Customs.
The market price of such goods must not be As drawback rates slides periodically, customs
less than the amount of drawback claimed. checks the market price of goods and match hit with
Commercial Invoice, no claims is processed if the
amount of drawback claims is higher than markets
price of goods.
There must be positive foreign exchange Customs checks the CIF value of imported goods
inflow into country i.e. India from Bill of entry/ commercial invoice and match it
 with Fob value as indicated at Shipping Bill/
Commercial Invoice for export by exporter, no claim
is processed if CIF value is higher than FOB value as
it doesn’t result in positive foreign exchange inflow
into country
Amount of drawback should not be less than Drawback rules mandate that no claim will be
Rs. 500/- as per Section 76-(1)(c) of the processed if drawback per shipping bill is less than
Customs Act Rs. 500.

Under section 74 of Customs Act 1962, two types of cases are covered i.e. when goods are imported
and re-export without putting into use, the amount of drawback shall be 98% of duty paid by the
exporter i.e. 98% of actual duty paid shall be refunded by customs at the time of export which must be
within 3 months from date of duty payments.

In the second case; the imported goods are exported after having been taken for use, exporter can
claim drawback on such imported goods within 2 years from date of import clearance. Under such
cases, the percentage of duty is refunded according to the period between the date of clearance for
home consumption i.e. date of duty payment on imported goods and the date when the goods are
placed under Customs control for exports i.e. fining of Shipping Bill / Bill of Export under Claim for
Duty Drawback. The percentage of duty drawback is notified under Notification. No 19 Customs,
dated 6thFeb, 1965 as amended from time to time and the sliding rate of drawback are tabled as under:

SLIDING RATES OF DUTY DRAWBACK

SLIDING RATES OF DUTY DRAWBACK FOR FOR IMPORTED GOODS, RE-
IMPORTED GOODS, RE-EXPORTED AFTER EXPORTED AFTER HAVING BEEN
HAVING BEEN TAKEN FOR USE WITHIN 18 TAKEN FOR USE AFTER 18 MONTHS
MONTHS BUT TILL 24 MONTHS WITH
PERMISSION OF CUSTOMS

At satisfaction of Chief Commissioner Of

Drawback shall be 95% of duty paid if goods are
re-exported within three months from date of duty
payments at the times of import
Drawback shall be 85% of duty paid if goods are
re-exported within six months from date of duty
payments at the times of import
Drawback shall be 75% of duty paid if goods are
re-exported within nine months from date of duty
payments at the times of import
Drawback shall be 70% of duty paid if goods are
re-exported within twelve months from date of
duty payments at the times of import
Drawback shall be 65% of duty paid if goods are
re-exported within fifteen months from date of
duty payments at the times of import
Drawback shall be 60% of duty paid if goods are
re-exported within eighteen months from date of
duty payments at the times of import
Customs that an exporter cannot export
beacuse of reasons which are beyond hos
control (force majeure), he can extend
maximum two premission each of three
months to an exporter for re-re-export
Drawback shall be 55% of duty paid if
goods are re-exported within twenty one
months from date of duty payments at the
times of import
Drawback shall be 50% of duty paid if
goods are re-exported within twenty four
months from date of duty payments at the
times of import
No drawback shall be processed,
irrespective of reasons, after two years of
import clerance of goods imported even if
re-exported

Figure 11.3: Rates of Duty Drawback on Re-Export of Imported Goods under Section 74
Source: Central Board of Indirect Taxes, Government of India

11.3: DRAWBACK UNDER SECTION 75: POLICY AND PROCEDURE: As discussed above;
drawback under 75 is given on goods which are manufactured in India either with use of imported
material or excisable material as an input or using both imported as well as excisable material as an
input in exportable goods. With introduction of Service Tax in India, the scope of rules governing the
drawback under section 75 has been extended and now it also covers the incidence of services tax
paid on manufactured goods in India with either indigenous or imported duty paid inputs and other
intermediate including raw material. Drawback rates under this category are decided in drawback
schedule which is published by Central Board of Indirect Taxes, Department of Revenue and
Government of India usually 3 months after the budget. Drawbacks rates are of two types i.e. when an
exporter has availed the ‘Cenvat Input Credit’ the drawbacks are usually lower than the drawback
rates when exporter has not availed the ‘Cenvat Credit’. Following is an example of duty drawback
schedules i.e. All Industry Rates of duty drawback of Apparel & clothing falling under chapter 62.

These are also called as All Industry Rates and are announced for various categories of goods as
classified under Harmonized System of Trade nomenclature. All industry rates of drawback are fixed
under Rule 3 of Customs Duties (Drawback Rules), 1995 and can be amended or revised by the
government under Rule 4 of the said rules. The all industry rates are applicable to both manufacturer
as well as merchant exporters and are worked out on the basis of broad averages of consumption of
inputs, duties suffered by exporters, quantity of wastage involved in processing, production and
manufacturing of exportable products, f.o.b. prices of the export products etc. Essentially eligibility
for claiming the drawback rates is that goods must be manufactured in India. Similarly; drawback
rates are not admissible in the following cases (figure 20.) except where otherwise specifically
authorized to manufacturer exporters under section 75.
 Export of Goods under discharge of Advance Authorisation or Duty
Free Import authorisations issued under Duty Exemption Scheme of
Foreign Trade Policy 2015-20

manufactured partly or wholly in bond under Section 65 of the

Customs Act, 1962,

exported by a unit licensed under any 100% Export Oriented

Schemes (100%EOU/EHTP/STP/Agriculture/aquaculture etc)

exported by a Unit situated in a Free trade zone/ Export processing

Zones

Figure 11.4 : Cases of Inadmissibility of Duty Drawbacks under Section 75

Suggested Reading

1. International Trade Operations, Dr. Ram Singh, Excel Books (2009)

2. Export Management by P.K. Khurana, Galgotia Publications
3. www.cbic.gov.in

LEARNING APPLICATION:

1. Exercise 1: Calculate the drawback rates for following goods. You can visit the
drawback schedule at www.cbic.gov.in

HS Code Product Description Drawback Rates

4421 90 90 Value added products of Red Sanders wood such
as Chips, Powder, Extracts, Dyes, Musical
Instruments, Parts of Musical Instruments,
Furniture
9302 00 00 Muzzle loading weapons
9602 00 30 Empty Gelatin Capsules, not intended for human
consumption
5001 00 00 Pure races of Silk worms; silkworm seeds, and
silk worm cocoons

2. Read some blogs using google and study the reasons why drawback rates have been
lowered down post implementation of GST in India from 1st July 2018.

3. “Good are Exported, Taxes are not”. Discuss this along with other participants and
exporters to whom you can contact in the nearby area.

REVIEW OF LEARNING:

• Understood the concept of drawback.

• Understood the types of drawback

• Understood the processing of drawback claims.