Duty Drawback - CBEC's Customs Manual (OLD) - Customs

Chapter 22 Duty Drawback 1. Drawback on re-export of imported goods 1.1 Duty Drawback on export of duty paid imported goods is in terms of Section 74 of Customs Act, 1962 read with Re-export of Imported Goods (Drawback of Customs Duty) Rules, 1995. The goods are to be entered for export within two years from date of payment of duty on importation thereof. Under certain circumstances this period may be extended by Chief Commissioner of Customs and then by the Board. 1.2 Application by exporter is required to be made within 3 months, from the date of export of goods, which may be extended up to 12 months from date of export subject to conditions and fee payment. [Refer Circular No.13/2010-Cus., dated 24-6-2010] 1.3 A portion of the Customs duty paid at the time of import is given back as duty drawback, subject to certain procedure and conditions including identification of export goods with those imported on duty payment and use criteria. Where the goods are not put into use ninety eight per cent of Duty Drawback is admissible otherwise drawback is granted based on extent of use. Used goods do not get Drawback if exported 18 months after import. [Refer Notification No.19-Cus., dated 6-2-1965] 1.4 All cases of drawback processing or denial under section 74 are to be handled byway of detailed speaking order, following the principles of natural justice, on the issue of compliance to Rule 5 of Re-export of Imported Goods (Drawback of Customs Duties) Rules, 1995 relating to manner and time of claiming drawback, identification, determination of and extent of use and other attendant aspects. Each such order gets examined by the Commissioner for its legality and propriety. [Refer Circular No.35/2013-Cus., dated 5-9-2013] 2. Duty drawback on export of manufactured goods: 2.1 Duty Drawback rebates duty or tax chargeable on any imported / excisable materials and input services used in the manufacture of export goods. The duties and tax neutralized under the scheme are (i) Customs and Union Excise Duties in respect of inputs and (ii) Service Tax in respect of input services. Duty Drawback is of two types: (i) All Industry Rate and (ii) Brand Rate. The legal framework is provided by Sections75 and 76 of the Customs Act, 1962 and the Customs and Central Excise Duties and Service Tax Drawback Rules, 1995 (Drawback Rules, 1995) issued under the CustomsAct, 1962, the Central Excise Act, 1944 and the Finance Act, 1994. 2.2 The All Industry Rates (AIR) are notified, generally every year, by the Government in the form of a Drawback Schedule based on the average quantity and value of inputs and duties (both Excise Customs), and Service Tax on input services, borne by export products. The AIR are essentially average rates based on assessment of average incidence. 2.3 AIR are fixed after extensive discussions with stake holders like Export Promotion Councils, Trade Associations, individual exporters so as to obtain relevant data, which includes procurement prices of inputs, indigenous as well as imported, applicable duty rates, consumption ratios and FOB values of export products. Data is also sought from Central Excise and Customs field formations and information received from Ministries taken into account. 2.4 The AIR may be fixed as a percentage of FOB price of export product or as specific rates. Drawback Caps are imposed in most cases to obviate the possibility of misuse. 2.5 The scrutiny, sanction and payment of Duty Drawback claims at EDI locations is carried out with the aid of the EDI system which also facilitates payment directly to the exporter's bank account once the EGM has been correctly filed by the airlines / shipping lines, if other conditions are fulfilled. [Refer Notification No.110/2014-Cus (N.T.), dated 17-11-2014 and Circular No.13/2014-Cus., dated18-11-2014] 2.6 The Brand Rate of Duty Drawback may be fixed in terms of Rules 6 and 7 of the Drawback Rules, 1995 in cases where the export product does not have the AIR of Duty Drawback or the AIR neutralizes less than 4/5th of the duties/tax paid on materials/input services used in the manufacture of export goods. Brand rate is fixed by the Commissionerate of Central Excise having jurisdiction over the manufacturing unit. 2.7 An exporter, who has opted /declared at the time of export on the shipping bill his intention to claim the Brand Rate by specifying the figure '9801' as identifier, has to file an application for fixation of the brand rate within 3 months from the date of the 'Let Export' Order which can be extended up to 12 months from LEO subject to conditions and payment of fee as provided in the Drawback Rules, 1995. This application has to be made before the Commissioner of Central Excise having jurisdiction over the manufacturing unit. [Refer Circular No.13/2010-Cus., dated 24-6-2010 and Circular No. 13/2014-Cus dated 18.11.2014 ] 2.8 The application for fixation of brand rate is to include, inter alia, details of materials/ components/ input services used in the manufacture of goods and the duties/taxes paid on such materials/components/input services. 2.9 In brand rate of drawback, the exporter is compensated the incidence actually incurred in the export product based on a verification of documents and proof of usage of actual quantity of inputs /services utilized in the manufacture of export product and duties/tax paid thereon. 2.10 Five categories of exporters can seek provisional brand rate letters based on their declaration subject to post verification. Other exporters who actually file application for fixation of Brand Rate under rule 7 of the Customs, Central Excise Duties and Service Tax Drawback Rules, 1995 may also provisionally seek drawback equivalent to AIR pending verification. A time limit is prescribed for Central Excise Commissionerates to issue such provisional brand rate letters and the final brand rate letters. [Refer Instruction F.No. 603/01/2011- DBK., dated 11-10-2013 and Circular No. 13/2014- Cus., dated 18-11-2014] 2.11 A copy of any brand rate letter issued by Central Excise is to be endorsed to the relevant Customs authority to facilitate payment of brand rate of Drawback to the exporter. 3. Procedure for claiming Duty Drawback: 3.1 Either the AIR or the Brand Rate may be claimed on the shipping bill at the time of export and requisite particulars filled in the prescribed format of Shipping Bill/Bill of Export. In case of exports under electronic Shipping Bill, the Shipping Bill itself is treated as the claim for Drawback. In case of manual export, triplicate copy of the Shipping Bill is treated as claim for Drawback. The claim is complete only when accompanied by prescribed documents described in the Drawback Rules 1995. If the requisite documents are not furnished or there is any deficiency, the claim may be returned for furnishing requisite information/documents. The export shipment, however, will not be stopped for this reason. 3.2 Duty Drawback on goods exported by post is also allowed on following the procedure prescribed under Rule 11 of the Drawback Rules, 1995. 4. Supplementary claims of Duty Drawback: 4.1 Where any exporter finds that the amount of Duty Drawback under section 75 paid to him is less than what he is entitled to on the basis of the amount or rate of Drawback determined, he may prefer a supplementary claim. This claim has to be filed within 3 months of the relevant date, which is fixed, as follows: (i) where the rate of Duty Drawback is determined or revised under Rules 3 or 4 of the Drawback Rules, 1995 from the date of publication of such rate in the Official Gazette; (ii) where the rate of Duty Drawback is determined or revised upward under Rules 6 or 7 of the Drawback Rules, 1995, from the date of communicating the said rate to the person concerned; and (iii) In all other cases, from the date of payment or settlement of the original Duty Drawback claim by the proper officer: 4.2 The period of 3 months may be extended up to 18 months subject to conditions and payment of requisite fee as provided in the Drawback Rules, 1995. [Refer Circular No.13/2010-Cus., dated 24-6-2010] 5. Limitations on admissibility of Duty Drawback: 5.1 The Customs Act, 1962 and the Drawback Rules, 1995 lay down certain limitations and conditions for grant of duty drawback. For example, no duty drawback shall be allowed where the drawback due in respect of any goods is less than ₹ 50/- or in respect of any goods the market price of which is less than the amount of drawback due thereon. No amount or rate of drawback shall be determined in respect of any goods, the amount or rate of drawback of which would be less than 1% of FOB value of export thereof except where the amount of drawback per shipment exceeds ₹ 500/-. No drawback is allowed where value of export goods is less than the value of imported material used in their manufacture. In this regard, if necessary, certain minimum value addition over the value of imported materials can also be prescribed by the Government. 5.2 The drawback amount or rate determined under Rule 3 of Drawback Rules 1995 shall not exceed one-third of the market price of the export product. 5.3 In case the Central Government forms an opinion that there is likelihood of export goods being smuggled back into India, the Government may not allow drawback or allow it subject to specified conditions or limitations. Notifications have been issued under Section 76 of the Customs Act, 1962. An example is Notification No. 208-Cus., dated 1-10-1977. 5.4 While prior repatriation of export proceeds is not a pre-requisite for grant of Duty Drawback, the law prescribes that if sale proceeds are not received within the period stipulated by the RBI, the Duty Drawback will be recovered as per procedure laid down in the Drawback Rules, 1995. An exception is where non-realization of sale proceeds is compensated by the Export Credit Guarantee Corporation of India Ltd. under an insurance cover and the Reserve Bank of India writes off the requirement of realization of sale proceeds on merits and the exporter produces a certificate from the concerned Foreign Mission of India about the fact of non-recovery of sale proceeds from the buyer. 6. Monitoring of realization of export proceeds: 6.1 Each Custom House is to have a special cell monitoring realization of export proceeds. EDI locations are also facilitated, via MIS Report of DG (Systems), to retrieve data on exports (made from 1.4.2013 onwards) under drawback scheme whose remittance is outstanding beyond due date. Notices are to be issued for recovery of drawback paid in respect of export consignments where export proceeds remain unrealized within the prescribed period and adjudication as well as further actions are to be accomplished in a methodical and time bound manner by the field formations. 6.2 For cases where any notices are returned undelivered as the recipient/address was non-existent, the Commissioners should also report names of relevant exporters to the Regional Authorities of DGFT so that action could be initiated under FT (DR) Act as well and the IE Codes got cancelled for furnishing wrong address. [Refer Circular No.5/2009-Cus., dated 2-2-2009, Instructions F.No.609/119/2010-DBK, dated 18-1-2011, F.No. 603/01/2011-DBK, dated 11-10-2013 and DG (Systems) letter No.IV(35)/46/2013-Systems dated 25/28.8.2014] 7. Certain aspects relating to Duty Drawback: 7.1 While processing Drawback claims, whether under Section 74 or Section 75, wherever any deficiency is noticed in the claim, it is to be communicated to the exporter in a clear unambiguous manner within a period of 10 days, from the date of filing of the claim. Commissioners of Customs are to undertake a periodic review and monitoring of the status of pending drawback claims. [Refer Circular No.46/2011-Cus., dated 20-10-2011] 7.2 The higher rate of AIR is applicable when Cenvat facility has not been availed on any of the inputs or input services used in the manufacture of the export product. If claim is for the higher rate at time of export, the processing at export stage should specifically ensure availability of Non-availment of Cenvat Certificate , otherwise the shipping bill needs amendment at export stage to show the claim for lower AIR. [Refer Instruction No. 609/156/2013-DBK., dated 13-3-2014] 7.3 Commissioners are also to ensure that exporters do not avail refund of service tax paid on taxable services which are used as input services in the manufacturing or processing of export goods through any other mechanism while claiming the higher AIR. [Refer Circular No.19/2006-Cus., dated 13-7-2006] 7.4 The field formations are to ensure periodic sample checks and verifications with respect to export declarations accepted for AIR drawback purposes and these are to be regarded as audit checks and their proper record maintained. These include checks on value, present market value, non-availing of Cenvat facility on inputs and input services/reversal of Cenvat credit, declarations that affect the applicability of AIR itself such as whether goods were or were not manufactured or exported in terms of rule 19(2) of Central Excise Rules or by availing rebate on material used in manufacture or processing in terms of rule 18 of Central Excise Rules, verification of actual freight payment certificates when CIF or C F values are declared, etc. Random checks with respect to debit notes raised by foreign buyers after initial realization by exporter, reduction in invoice value after proceeds are negotiated or realized, etc may also be considered by Commissioners. Detections that indicate lower FOB/realization or other information of relevance when benefits under FTP are also involved should also be intimated to Regional Authority of DGFT for necessary action. [Refer Circular No.46/2011-Cus., dated 20-10-2011 and Instruction F.No. 603/01/2011-DBK dated 11-10-2013] 7.5 Further, by way of audit, the Commissioners are also to exercise special checks, in cases of first time exporters, exporters who have taken large amounts of drawback suddenly, sensitive destinations, sensitive products etc., to ensure there is no misuse of the drawback facility. 7.6 Commissioners are to ensure that Internal Audit wings achieve desired diligence levels and a significantly improved performance. In Customs these areas include payment of re-export drawback and cases of manual processing of drawback. In Central excise, the aspects include the determination/fixation of brand rates. [Refer Instruction F.No. 603/01/2011-DBK., dated 11-10-2013] 7.7 Field formations are to monitor levels of EGM pendency to ensure trade facilitation. The mismatch of declaration made in the shipping Bill (item details vis- -vis drawback details) should be verified to avoid the excess payment of drawback. [Refer Instruction F.No. 603/01/2011-DBK., dated 31-7-2013] 7.8 A time limit is prescribed for Central Excise field formations to issue provisional brand rate letters and the final brand rate letters. The work related to fixation of brand rates should be daily monitored by the Commissioner of Central Excise, and monthly by Chief Commissioners, for ensuring concerted and sustained action for disposing brand rate work. [Refer Instruction F.No. 603/01/2011- DBK dated 11.10.2013 and Circular No. 13/2014- Cus dated 18.11.2014] 7.9 The brand rate fixation letter issued by Central Excise Commissionerates has to indicate full and comprehensive description/details of the exported goods and other details. The Customs Commissioners are to ensure a receipt and acknowledgement procedure for brand rate letters (issued by Central Excise formations) filed at the Custom Houses. [Refer Instructions No. 603/01/2011- DBK., dated 31-7-2013 and No. 11-10-2013]