T.

Y BAF SEM VI
TAXATION (INDIRECT
TAXES)
DUTY DRAWBACK

By CA Rashmi Gupta
 INTRODUCTION

Import duty is levied in exchange of allowing imported goods to become part of

mass of India. Such tax brings imported goods at par with domestic goods and
hence after charging basic customs duty and making imported goods part of mass
of India such goods are subjected to same taxes that equivalent to Indian goods
are charged in form of various additional customs duties discussed in ‘Types of
duties’ chapter.
But in such case, goods are exported back out of India (referred to as re-export),
the basic premises of charging import duty on such goods (i.e. such goods
becoming part of India) when they were imported losses ground. Hence, u/s 74 of
Customs Act, 1962, in case imported goods are re-exported, import duty charged
on such goods is refunded in the form of duty drawback if certain conditions are
satisfied.
Again, if such imported goods are exported out of India after processing or
manufacture using any indigenous inputs, not only the import duty on imported
goods used as inputs but also other taxes (such as excise, VAT, GST) charged on
indigenous inputs is also either refunded or given as credit as per Sec 75 and
Customs and Central Excise Duties Drawback Rules, 2017.
Here, the term export or re-export shall also cover supply of goods to SEZs, 100%
EOU etc. or even supply goods to a foreign going vessel or aircraft. It shall also
include export or re-export by post.
 SECTION 74 – DRAWBACK ALLOWABLE ON RE-EXPORT OF DUTY
PAID GOODS
Section 74(1) - When any goods capable of being easily identified which have been
imported into India and upon which 1[any duty has been paid on importation, -
(i) are entered for export and the proper officer makes an order permitting
clearance and loading of the goods for exportation under section 51; or
(ii) are to be exported as baggage and the owner of such baggage, for the
purpose of clearing it, makes a declaration of its contents to the proper officer
under section 77 (which declaration shall be deemed to be an entry for export for
the purposes of this section) and such officer makes an order permitting clearance
of the goods for exportation; or
(iii) are entered for export by post under section 82 and the proper officer
makes an order permitting clearance of the goods for exportation,
ninety-eight per cent of such duty shall, except as otherwise hereinafter provided,
be re-paid as drawback, if - ]
(a) the goods are identified to the satisfaction of the 2[Assistant Commissioner of
Customs or Deputy Commissioner of Customs] as the goods which were imported;
and
(b) the goods are entered for export within two years from the date of payment of
duty on the importation thereof :
Provided that in any particular case the aforesaid period of two years may, on
sufficient cause being shown, be extended by the Board by such further period as it
may deem fit.
 CONTINUED
Section 74(2) - Notwithstanding anything contained in sub-section (1), the
rate of drawback in the case of goods which have been used after the
importation thereof shall be such as the Central Government, having regard
to the duration of use, depreciation in value and other relevant
circumstances, may, by notification in the Official Gazette, fix.
Section 74(3) - The Central Government may make rules for the purpose of
carrying out the provisions of this section and, in particular, such rules may -
(a) provide for the manner in which the identity of goods imported in
different consignments which are ordinarily stored together in bulk, may be
established;
(b) specify the goods which shall be deemed to be not capable of being
easily identified; and
(c) provide for the manner and the time within which a claim for payment
of drawback is to be filed.
 CONTINUED
Section 74(4) - For the purposes of this section -
(a) Goods shall be deemed to have been entered
for export on the date with reference to which the
rate of duty is calculated under section 16;
(b) in the case of goods assessed to duty
provisionally under section 18, the date of payment
of the provisional duty shall be deemed to be the
date of payment of duty.
 CONTINUED
Points to be noted
1. Meaning of re-exportation – When goods imported into India are
export back out of India as such, the process is known as re-
exportation.
2. Export as such – Sec 74 allows duty drawback of import duty only
when goods are exported back out of India in same form without
any processing or manufacture.
3. Export via baggage and post also eligible for drawback – Goods
re-exported via baggage and post shall also be eligible for
drawback u/s 74.
4. Import and export by same person – Drawback shall be allowed
only if goods are imported and export back out of India by the
same person. That is the owner of the goods has not changed in
the process of import and re-export of such goods.
 CONTINUED
5. Identity of goods – Goods re-exported should be easily identifiable to the
satisfaction of Assistant/ Deputy Commissioner of Customs as the goods that were
initially imported. That is to say, the description of goods mentioned in ‘Bill of Entry’
of imported goods should match with description of goods being re-exported.
Therefore, ‘Bill of Entry’ should be attached with shipping bill or ‘Bill of export’ filed
at the time of re-exportation of such goods.

6. Type of goods covered for duty drawback – All important goods which are re-
exported are covered for duty drawback if other conditions of Sec 74 are satisfied.

7. Time limit for re-export – Goods should be re-exported within 2 years of being
imported into India. That means, the time limit between date of payment of import
duty and receiving let export order (order permitting export of goods in case of
exports by post) should be less than 2 years.

8. Drawback only for all type of duties – Drawback shall be given for all duties paid
by the importer while importing goods.

9. Rate of duty drawback – Duty drawback shall be up to 98% of import duty.

 CONTINUED
10. Rate of duty drawback for goods used for the purpose
of business – Duty drawback shall be allowed at the
following rates for re-export of used goods.
No. Length of period between the date of clearance for % of import duty to be paid
home consumption and the date when the goods as Drawback
are placed under Customs control for export
1 < 3 Months (< 1 Q) 95%
2 > 3 months but < 6 months (1 Q to 2 Q) 85%
3 > 6 months but < 9 months (2 Q to 3 Q) 75%
4 > 9 months but < 12 months (3 Q to 4 Q) 70%
5 > 12 months but < 15 months (4 Q to 5 Q) 65%
6 > 15 months but < 18 months (5 Q to 6 Q) 60%
7 > 18 months Nil
 CONTINUED
11. Special drawback rates for motor car or goods imported for personal
use – Where such goods are exported after the expiry of the period of two
years, the drawback would be allowed only of the Central Board of Excise
and Customs, on sufficient cause being shown, extends the period for expiry
beyond two years. It is further provided that no drawback shall be allowed if
such motor car or goods have been used for more than 4 years.
The rate of duty drawback on cars shall be reduced as follows:
No. Year Drawback of duty to be reduced as % per quarter
1 1st 4% per quarter or part thereof
2 2nd 3% per quarter or part thereof
3 3rd 2.5% per quarter or part thereof
4 4th 2% per quarter or part thereof
 CONTINUED
12. No drawback on some goods – No drawback of
import duty shall be allowed in respect of following
goods, if they have been used after their
importation to India.
a) Wearing Apparels
b) Tea chests
c) Exposed cinematograph films passed by Board
of Film Censors in India
d) Unexposed photographic films, paper and plates
and X-ray films.
 SECTION 75 – DRAWBACK ON IMPORTED MATERIALS USED IN THE
MANUFACTURE OF GOODS WHICH ARE EXPORTED
Section 75(1) - Where it appears to the Central Government that in respect of goods of any class or
description 4[manufactured, processed or on which any operation has been carried out in India] 5[, being goods
which have been entered for export and in respect of which an order permitting the clearance and loading
thereof for exportation has been made under section 51 by the proper officer], 6[or being goods entered for
export by post under section 82 and in respect of which an order permitting clearance for exportation has
been made by the proper officer], a drawback should be allowed of duties of customs chargeable under this
Act on any imported materials of a class or description used in the 7[manufacture or processing of such goods
or carrying out any operation on such goods], the Central Government may, by notification in the Official
Gazette, direct that drawback shall be allowed in respect of such goods in accordance with, and subject to, the
rules made under sub-section (2)
[Provided that no drawback shall be allowed under this sub-section in respect of any of the aforesaid goods
which the Central Government may, by rules made under sub-section (2), specify, if the export value of such
goods or class of goods is less than the value of the imported materials used in the 9[manufacture or
processing of such goods or carrying out any operation on such goods or class of goods], or is not more than
such percentage of the value of the imported materials used in the 9[manufacture or processing of such goods
or carrying out any operation on such goods or class of goods] as the Central Government may, by notification
in the Official Gazette, specify in this behalf :
Provided further that where any drawback has been allowed on any goods under this sub-section and the sale
proceeds in respect of such goods are not received by or on behalf of the exporter in India within the time
allowed under the 10[Foreign Exchange Management Act, 1999 (42 of 1999)], such drawback shall 11[except
under such circumstances or such conditions as the Central Government may, by rule, specify,] be deemed
never to have been allowed and the Central Government may, by rules made under sub-section (2), specify the
procedure for the recovery or adjustment of the amount of such drawback.]
[(1A) Where it appears to the Central Government that the quantity of a particular material imported into India
is more than the total quantity of like material that has been used in the goods 13[manufactured, processed or
on which any operation has been carried out in India] and exported outside India, then, the Central
Government may, by notification in the Official Gazette, declare that so much of the material as is contained in
the goods exported shall, for the purpose of sub-section (1), be deemed to be imported material.]
 CONTINUED
Section 75(1A) - Where it appears to the Central
Government that the quantity of a particular
material imported into India is more than the total
quantity of like material that has been used in the
goods 13[manufactured, processed or on which any
operation has been carried out in India] and
exported outside India, then, the Central
Government may, by notification in the Official
Gazette, declare that so much of the material as is
contained in the goods exported shall, for the
purpose of sub-section (1), be deemed to be
imported material.]
 CONTINUED
Section 75(2) - The Central Government may make rules for the purpose of carrying out the provisions
of sub-section (1) and, in particular, such rules may provide -
[(a) for the payment of drawback equal to the amount of duty actually paid on the imported materials
used in the manufacture or processing of the goods or carrying out any operation on the goods or as is
specified in the rules as the average amount of duty paid on the materials of that class or description
used in the manufacture or processing of export goods or carrying out any operation on export goods of
that class or description either by manufacturers generally or by persons processing or carrying on any
operation generally or by any particular manufacturer or particular person carrying on any process or
other operation, and interest if any payable thereon;]
[(aa) for specifying the goods in respect of which no drawback shall be allowed;]
[(ab) for specifying the procedure for recovery or adjustment of the amount of any drawback which had
been allowed under sub-section (1) 16[or interest chargeable thereon];]
(b) for the production of such certificates, documents and other evidence in support of each claim of
drawback as may be necessary;
(c) for requiring the 17[manufacturer or the person carrying out any process or other operation] to give
access to every part of his manufactory to any officer of customs specially authorised in this behalf by
the 18[Assistant Commissioner of Customs or Deputy Commissioner of Customs] to enable such
authorised officer to inspect the processes of 19[manufacture, process or any other operation carried
out] and to verify by actual check or otherwise the statements made in support of the claim for
drawback.
[(d) for the manner and the time within which the claim for payment of drawback may be filed;]
 CONTINUED
Section 75(3) - The power to make rules
conferred by sub-section (2) shall include
the power to give drawback with
retrospective effect from a date not
earlier than the date of changes in the
rates of duty on inputs used in the
export goods.]
 CONTINUED
Points to be noted
1. Duty drawback on imported goods used as inputs for
manufacturing output exported – Duty drawback and rebate of
tax, as the case may be shall be provided for duty and tax paid on
goods imported and used as inputs in manufacturing output that
is exported out of India.
2. Any processing shall amount to change of identity – Any
processing of goods which may not amount to manufacture
under other laws shall also be eligible for drawback u/s 75
provided processing of any kind was done with regards to goods
imported into India and are being exported out of India.
3. Type of goods covered for duty drawback – Only goods notified
by Central Government u/s 75(1) shall be eligible for duty
drawback when such goods are imported and used as inputs in
manufacturing output that is exported.
 CONTINUED
4. Time limit for re-export – There is no time limit within which such goods
imported into India shall be used to manufacture output to be exported out
of India.
5. Drawback as per rules – Duty Drawback u/s 75 shall be provided as per
‘Customs and Central Excise Duties Drawback Rules’, 2017. These rule are
referred to as CCE Drawback rules.
6. Drawback only for all type of duties except IGST u/s 3(7) and GST cess
u/s 3(9) – Duty Drawback shall be given for all duties except IGST u/s 3(7)
and GST cess u/s 3(9). For IGST and GST cess, either Input tax credit can be
claimed and if ITC is not possible, a refund can be claimed.
7. Rate of duty drawback – Unlike sec 74, where duty drawback is given for
re-exporting goods such as Sec 75 provides duty drawback on goods re-
exported after processing or manufacture. In such case, calculating exact
rate of duty drawback is not simple as some indigenous goods and services
may also be used along with goods imported in manufacturing the output.
 CONTINUED
8. All Industry Rates (AIR) (Rule 3) – As per this rule, Central government
shall allow duty drawback on goods mentioned u/s 75 of the Customs Act,
1962 at specified rates based on F.O.B price of export goods. Such rate shall
be determined using following items:
a) The average quantity or value of each class or description of the
materials from which a particular class of goods is ordinarily produced
or manufactured in India.
b) The average quantity or value of the imported materials or excisable
materials used in manufacture in India of a particular class of goods.
c) The average amount of duties paid on imported materials or excisable
materials used in the manufacture of semis, components and
intermediate products which are used in the manufacture of goods.
d) The average amount of duties paid on materials wasted in the process
of manufacture and catalytic agents.
e) The average amount of duties paid on imported materials or excisable
materials used for containing or packing the export goods.
f) Any other information which the central government may consider
relevant or useful for the purpose.
 CONTINUED
9. Revision of AIR (Rule 4) – The central government may revise amount or
rates determined under rule 3.
10. Upper limit on AIR (Rule 9) – The AIR or the amount shall not exceed
1/3rd of the market price of the export product. Here, market price means
price in Indian markets.
11. Determination of date from which AIR or revised AIR shall be
applicable (Rule 5) –
a) The Central government shall specify the period of validity for the
drawback.
b) Retrospective effect may be applied if mentioned in the notification.
c) The rate must be determined
i) For export by vessel, vehicle or aircraft – u/s 16 of Customs Act, 1962,
i.e. the rate prevailing on the day Let export order is received or
ii) For export by post – u/s 83(1) of Customs Act, 1962, i.e. the rate
prevailing on the date of delivery of export goods to the postal
authority.
iii) Government annual notifies AIR in the form of a Drawback schedule,
after the announcement of the union budget.
 CONTINUED
12. Brand rate (BR) for goods not covered by AIR (Rule 6) – Brand rate (BR) shall be
issued for such goods for which no AIR is announced by the central government.
a) Application for BR – Exporter shall make an application for BR to Assistant or
Deputy Commissioner of Customs within 3 months of announcement of AIR.
ACC or DCC may extend the time period for application by 3 months. Such time
period may be extended for further 6 months by Principal Commissioner or
Commissioner of Customs.
b) Fees for application for BR – Fees for application to ACC or DCC shall be 1% of
F.O.B. value of goods or Rs.1,000 whichever is lower. Fees for application to PCC
or CC shall be 2% of F.O.B. value of goods or Rs.2,000 whichever is lower.
c) Announcement of BR – On receiving any of the above applications, PCC or CC
shall fix the BR after carrying out necessary enquiries.
d) Provisional BR – On receiving application from exporter PCC or CC may fix
provisional BR which shall not exceed the amount claimed by the exporter.
e) Bond for provisional BR – Provisional BR shall be allowed only after exporter
executes a general bond equal to the amount of drawback sought under BR.
f) Revocation of BR – The central government may revoke the BR granted by PCC
or CC if it considers it necessary to do so.
 CONTINUED
13. Special brand rate (SBR) (Rule 7) – When duty drawback under AIR mentioned
in rule 3 or as revised as per rule 4 is lower than 4/5th of the duty and taxes paid,
revised rate may be applied for within 3 months from the date of announcement
of AIR.
a) Application for SBR – Exporter shall make an application for SBR to Assistant
or Deputy Commissioner of Customs within 3 months of announcement of
AIR. ACC or DCC may extend the time period for application by 3 months. Such
time period may be extended for further 6 months by Principal Commissioner
or Commissioner of Customs.
b) Fees for application for SBR – Fees for application to ACC or DCC shall be 1%
of F.O.B. value of goods or Rs.1,000 whichever is lower. Fees for application to
PCC or CC shall be 2% of F.O.B. value of goods or Rs.2,000 whichever is lower.
c) Announcement of SBR – On receiving any of the above applications, PCC or CC
shall fix the SBR after carrying out necessary enquiries.
d) Provisional SBR – On receiving application from exporter PCC or CC may fix
provisional SBR which shall not exceed the amount claimed by the exporter.
e) Bond for provisional SBR – Provisional SBR shall be allowed only after
exporter executes a general bond equal to the amount of drawback sought
under SBR.
f) Revocation of SBR – The central government may revoke the SBR granted by
PCC or CC if it considers it necessary to do so.
 SECTION 76

APPLICABLE TO BOTH, FOR GOODS EXPORTED U/S 74

AND GOODS EXPORTED AFTER PROCESSING U/S 75
a) In respect of any goods the market price of which is
less than the amount of drawback due thereon.
b) Where duty drawback in respect of any goods is
less than Rs.50.
c) If central government is of opinion that the goods
on which the drawback is being claimed are likely
to be smuggled back into India. In such cases,
drawback may not be allowed at all or may be
allowed subject to specific restrictions and
conditions
 CONTINUED
Applicable only to sec 74 – No drawback of import
duty will be allowed in respect of the following goods.
If they have been used after their importation in India:
a) Wearing Apparels
b) Tea chests
c) Exposed cinematograph films passed by Board of
Film Censors in India
d) Unexposed photographic films, paper and plates
and X-ray films.
It implies that of these goods are not after their
importation into India and subsequently re-exported in
the condition they were imported, then they would be
entitled to 98% drawback.
 CONTINUED
Applicable only for goods exported after processing u/s 75
a) No value addition i.e. value of export goods is less than
value of imported goods – The export value of goods or
class of goods being exported is less than the value of the
imported materials used in the manufacture or
processing of such goods or carrying out any operation on
such goods or class of goods.
b) Less value addition i.e. value of export goods is not
more than percentage specified by central government –
Although value of export goods is more than the
imported material used to manufacture them, but it is not
more than such percentage as the central government
may, by notification in the official gazette, specify in this
behalf.
 DUTY DRAWBACK u/s 74 vs DUTY DRAWBACK u/s 75
DDB u/s 74 DDB u/s 75
1. Type of goods covered
Re-exported goods i.e. goods exported as Goods exported after further processing or
such without any modification. manufacturing i.e. goods used as inputs for
manufacture of exported goods.
2. Identity of goods exported
The goods must be capable of being easily Identity of imported material will completely
identified. change after manufacturing process.
3. Category of goods covered
All goods are eligible for drawback subject to Drawback only on goods notified by the
their identification. Central Government.
4. Nature of goods exported
The exported goods should have been The goods exported may be manufactured
imported and Customs duty be paid on or processed from imported or local inputs
them. or by utilizing input services.
 CONTINUED
5. Form of exports
Export in all forms including export as Export in all forms allowed EXCEPT export as
baggage as well as export by post or courier. baggage which is not eligible for drawback
u/s 75.
6. Types of duty covered for drawback
All types of duty paid at time of import shall All types of duty EXCEPT IGST and GST cess
be eligible for drawback. paid at the time of import shall be eligible
for drawback.
7. Time limit for exportation of goods
The goods must be re-exported within 2 There is no time limit for exportation.
years from the date of payment of duty or
such extended time as allowed by CBIC.
8. Value addition requirements
No minimum value addition required. Export value of goods should always be more
than or equal to imported material.
 SECTION 75A – INTEREST ON DRAWBACK
Section 75A (1) - Where any drawback payable to a claimant under section
74 or section 75 is not paid within a period of one month from the date of
filing a claim for payment of such drawback, there shall be paid to that
claimant in addition to the amount of drawback, interest at the rate fixed
under section 27A from the date after the expiry of the said period of one
month till the date of payment of such drawback

Section 75A (2) - Where any drawback has been paid to the claimant
erroneously or it becomes otherwise recoverable under this Act or the
rules made thereunder, the claimant shall, within a period of two months
from the date of demand, pay in addition to the said amount of drawback,
interest at the rate fixed under section 28AA and the amount of interest
shall be calculated for the period beginning from the date of payment of
such drawback to the claimant till the date of recovery of such drawback.
 ILLUSTRATIONS
1. Mr. K, an exporter exported 4,500 pair of sports
shoes @ Rs.800 per pair. All industry rate of
drawback on average basis is 12% of F.O.B. subject
to maximum of Rs.95 per pair. Mr. K has paid actual
import duty paid on inputs was Rs.4,70,000. He has
approached you as a consultant to apply under rule
7 of the drawback rules for application under
special brand rate. Give him suitable advice. Would
your advice be different if actual import duty paid
would have been Rs.5,40,000?
 CONTINUED
2. Paresh Ltd. a manufacturer has exported following goods to
Brazil. You are required to calculate duty drawback for these
goods based on information given below:
Product FOB value of exported Market price of goods Duty Drawback
goods (Rs.) (Rs.)
P 8,70,000 7,20,000 28% of FOB
Q 12,00,000 13,00,000 3% of FOB
R 2,40,000 1,80,000 0.8% of FOB
S 6,00,000 7,00,000 1.2% of FOB

Other information:
1. Imported value of product Q is Rs.16,00,000
2. Product S is manufactured out of duty free inputs.
Working notes should form part of your answers.
 CONTINUED
3. K Ltd. of Mumbai imported machinery from Gruber Inc. Canada
on 04/02/2020 by paying Customs duty of Rs.44,50,000 at the time
of import. The printing machinery developed some faults in august
2020. Initially Gruber Inc. sent its technicians to Mumbai to fix the
machinery, but when it did not work, K Ltd. re-shipped/ returned
the machinery to Gruber Inc. on 07/02/2021. can K Ltd. claim duty
drawback at the time of returning the machinery? If yes, how
much of duty can be claimed as drawback?

4. Mr. Kailash imported a car from Japan by paying import duty of

Rs.49,60,000 on 05/09/2019. He sold the car to Mr. Yamamoto of
Japan on 31/08/2021, let export order of the car was received on
07/09/2021. Mr. Mangesh, a friend of Mr. Kailash advised him that
Mr. Kailash cannot claim any duty drawback for import duty paid
on the car as it was re-exported after 2 years of being imported. Is
Mr. Mangesh correct in his advice? If yes, why and if no, what
amount of duty Mr. Kailash can claim as duty drawback?
 CONTINUED
5. Mr. Q filed a claim for payment of duty drawback
amounting to Rs.1,00,000 on 30/07/2021. However,
the amount was received on 28/10/2021. you are
required to calculate the amount of interest payable to
Mr. Q on the amount of duty drawback claimed.

6. Mr. Y was erroneously refunded a sum of Rs.40,000

in excess of actual drawback on 20/06/2021. A demand
for recovery of the same was issued by the department
on 28/08/2021. Mr. Y returned the erroneous refund to
the department on 20/10/2020. you are required to
calculate the amount of interest chargeable from Mr. Y.
 CONTINUED
7. Mr. X exported goods to Alpha Inc. of USA.
These goods were imported from Chao Ltd. of
China. An import duty of Rs.12,50,000 was paid
at the time of imports. While the goods were
being exported to USA from India, the ship
carrying the goods sank before crossing Indian
Territorial Waters. Can Mr. X claim duty
drawback on these goods? If no, why? If yes,
what is the maximum amount that can ve
claimed as duty drawback?