A Simple Analysis of Duty Drawback

[raghunandhaanan rvi]

Exporters of goods manufactured or produced in India can save money on customs duty by availing of duty drawbacks on exported goods. Here, we discuss duty drawbacks, the conditions for recovering a drawback, and how to get a rebate on the customs duty the exporter paid on imported materials that he used to make exported goods.

Customs Act 1962

Under section 75 of the Customs Act 1962, exporters of goods manufactured in India and exported are eligible for duty drawbacks. This scheme allows for a drawback on imported materials used in the manufacturing process. In simpler terms, as an exporter, you can be reimbursed for the customs duties you paid on the imported or excisable materials used in your export product. This provision not only helps reduce your production costs but also incentivises you to export your goods, making them more competitive in the international market.

The Customs and Central Excise Duties Drawback Rules of 2017

The Central Government has issued the Customs and Central Excise Duties Drawback Rules of 2017, which serve as a comprehensive guide on how to claim duty drawbacks on your exported goods. These rules specify the restrictions and goods for which drawbacks are not allowed and explain how to recover or adjust any previously allowed reimbursements. They are a valuable resource for exporters and manufacturers, providing clear guidelines on navigating the duty drawback process.

Conditions for Receiving Drawbacks on Goods Exported

Understanding the conditions for receiving drawbacks is essential when exporting goods. Particularly, drawbacks are not allowed in certain situations, such as when exporters fail to receive export proceeds within a specific timeframe, import inputs without paying duty on export goods, or the market value of export goods is less than the drawback amount due.

Certain restrictions on packing materials apply to jute-based products. However, tea chests used for blended tea exports are exempt from these restrictions. It is important to note that exporters will not receive drawbacks if they use the goods after production or if jute-batching oil is used to produce specific export goods.

Furthermore, suppose manufacturers have not paid customs duty on their inputs or have already received other benefits related to duty paid on their inputs or input services. In that case, drawback will not be allowed to be received. This is because it is not permissible to avail of double benefits.

Situations Where Drawbacks Are Not Allowed

In certain cases, drawbacks cannot be availed. For example, suppose the exporter fails to receive export proceeds within a specified period; Goods are imported under the Advance Authorization Scheme or DFIA without paying the duty; if goods are manufactured under customs bonds using inputs obtained without paying the duty. Moreover, if the market value of exports is less than the amount of drawback due, the exporter will not be eligible for a drawback. Exports to Nepal and Bhutan made in Indian rupees, the export of alcoholic liquor, cigarettes, cigars, and pipe tobacco as stores to foreign-going vessels of less than 200 tons, and drawback amounts of less than fifty rupees are not eligible for a drawback.

Factors that Determine Drawback Rates for Product Categories

The Central Government considers several factors when determining the rate or amount of product drawback categories. These factors include the value or quantity of materials used in producing the goods, the duties paid on imported or excisable materials, the duties paid on waste materials during manufacturing, and the duties paid on materials used for packaging the export goods.

Unspecified Duty Drawback Rates for Exported Products

If the amount or rate of a drawback for your goods has not been determined, the exporter can apply for the specific determination of the amount or rate of drawback for their goods within three months of the relevant date. To do this, they must apply to the Principal Commissioner of Customs or Commissioner of Customs even if they export from multiple places. They will determine the amount or rate of drawback after conducting an inquiry. They can also apply for a provisional amount towards drawback on the export of goods, subject to certain conditions.

Double Benefits Not Permitted

It is important to note that double benefits are not allowed. If you have not paid customs duty on your inputs or already received other benefits related to duty paid on your inputs or input services, you will not be allowed to receive a drawback.

Understanding the Limitation Period for Issuing a Notice.

Exporters must provide proof of export payment within a specific period to be eligible for drawback benefits. If the exporter fails to provide proof within 30 days of receiving notice, the authorities will demand repayment of benefits. The exporter must make the repayment within 30 days of receiving the demand. Suppose the exporter fails to repay within the stipulated time, they will be liable for penalties, and the customs authorities, as per the provisions of customs law, will initiate recovery proceedings. However, if the exporter receives export proceeds after recovering the drawback, the drawback will be repaid to the exporter.

If only a portion of the sale proceeds have been realised, the drawback recovery will be proportionate to the unrealised portion of the sale proceeds. Therefore, exporters must maintain proper records of exports and submit the required documents promptly to avoid legal complications. It is important to note that the Drawback Rules do not prescribe any time limit to raise demand for recovery of the erroneous payment of duty drawback from the exporter.

Conclusion

Indian exporters and manufacturers can reduce customs duty expenses by utilising the duty drawback scheme. This system allows reimbursement of customs duty paid on imported materials used in producing exported goods. However, certain conditions apply, and the Central Government of India determines the rates based on various factors. Exporters need to understand the process to take full advantage of this scheme.