GROUP PROJECT ON

DUTY DRAWBACK

COURSE NAME:
TAXATION

Submitted to: C.A. Dhaval Gandhi

Submitted by: Group No.16

Ayush Patidar 151410
Daksh Gupta 151412
Himanshu B. Patel - 151419

MBA FT I
Batch: 2015-17
DECLARATION

We Ayush Patidar (151410), Daksh Gupta (151412) and Himanshu Patel (151419) students of
Institute of Management Nirma University, declare that the Report of Group Project titled DUTY
DRAWBACK submitted to C.A. Dhaval Gandhi for the course Indirect Taxation of Term III of MBA
(FT) Programme is the outcome of our own efforts and no part of this has been copied in any
unauthorized manner and no part in it has been incorporated without due acknowledgment.

___(Signature)___
Ayush Patidar
Roll No. - 151410

___(Signature)___

____(Signature)____

Daksh Gupta

Himanshu Patel

Roll No. - 151412

Roll No. - 151419

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Table of Contents
Executive Summary:..............................................................................................................................4
Introduction............................................................................................................................................5
Duty Drawback......................................................................................................................................6
Duty Drawback under Section 74 of Customs Act, 1962......................................................................6
Elements necessary for Drawback under Section 74.........................................................................7
Procedure for Claiming Drawback when goods are exported by post:..............................................8
Supporting Documents required for processing Drawback Claim under Section 74........................9
Drawback under Section 75 of the Customs Act 1962........................................................................10
Rate of Drawback under Section 75 of Customs Act, 1962.............................................................10
Scheme for All Industry Rate(AIR) of Duty Drawback:.............................................................10
Brand Rate of Duty Drawback Scheme:......................................................................................11
Simplified Scheme of Brand Rate:...............................................................................................12
Procedure for Claiming Drawback when goods are exported by post:............................................12
ANALYSIS..........................................................................................................................................13
Examples..............................................................................................................................................14
Findings:...............................................................................................................................................15
CONCLUSION....................................................................................................................................18
REFERENCES.....................................................................................................................................19

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Executive Summary:
The Duty Drawback seeks to rebate duty or tax chargeable on any imported / excisable materials and
input services used in the manufacture of export goods. The major difference between Section 74 &
Section 75 under describes under what conditions duty drawback can be taken by exporters.
The main purpose of Duty drawback under Section 74 on the goods which are going to be reexported. The main purpose of Duty drawback under section 75 is to provide drawback as the
goods/services are used in course of export of goods. However, the Central Government has
determined time period to take benefit of it. Certain goods are exempted such as Wearing apparels,
Tea chests, X-ray films, Unexposed photographic films etc. There are such conditions under what
also the benefit cannot be taken such as when market price of goods is less than Rs.50 or where
drawback amount is less than market price of goods. So, these are the limitations also in the Duty
drawback.

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Introduction
Duty drawback has been one of the popular and principal methods of encouraging export. It is a
relief by way of refund/recoupment of custom and excise duties paid on inputs and raw materials and
service tax paid on the input services used in the manufacture of export goods.
Duty Drawback are incentives which flow from the schemes framed by the Central government.
Duty drawback provisions are given under section 74 and section 75 of the customs act,1962.
Section 74 allows duty drawback on re-export of duty paid goods. Whereas section 75 allows
drawback on imported goods used in the manufacture of export goods. In order to facilitate the
drawback procedures, the Central Government is empowered to make rules. Pursuant to such power
the Central Government has issued two rules, i.e., Re-export of imported goods (Drawback of
Custom Duties) Rules, 1995 and Customs and Central Excise Duties and Service Tax Drawback
Rules, 1995.

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Duty Drawback
There are two types of drawback. One is called drawback under Section 74 of the Customs Act,
62 which allows drawback of duty paid on goods originally imported on payment of duty and
subsequently re-exported. The manner and time limit for filing the claims are governed by "Reexport of Imported Goods (Drawback of Customs duties) Rules, 1995.
1.

The other scheme is payment of drawback under Section 75 and Rules made there under at

specified rated on export of goods manufactured in India. The manner and time limit for filing
the claims are prescribed under the Customs and Central Excise Duties Drawback Rules 1995 as
amended from time to time.
2.

The Central government notifies the Drawback rates for various products either on a

general basis (all industry rates) or for individual exporters( brand rates) as the case may be.
Drawback sanctioned under section 75 has a two tier system involving (i) fixation of rates by the
Directorate of Drawback in the Central Board of Excise and Customs and (ii) disbursement of
drawback amount by the Customs Houses and/ Central Excise Commissionerate

Duty Drawback under Section 74 of Customs Act, 1962

In case of goods which were earlier imported on payment of duty and are later sought to be reexported within a specified period, customs duty paid at the time of import of the goods with
certain cut can be claimed as duty drawback by the exporter at the time of export of such goods.
Such duty drawback is granted in terms of Section 74 of the Customs Act, 1962 read with Reexport of Imported Goods (Drawback of Customs Duty) Rules, 1995. For this purpose, at the
time of import, the identity particulars of the goods are recorded at the time of examination of
import goods; at the time of export, cross verification of the goods under export is done with the
help of related import documents to ascertain whether the goods under export are the very ones
which were imported earlier.
Where the goods are not put into use after import, 98% of duty drawback is admissible at the
maximum under Section 74 of the Customs Act, 1962. In cases where the goods are put into use
in India after import (and prior to its export), duty drawback is granted on a sliding scale basis
depending upon the extent of use of the goods. No duty drawback is available if the goods are put

6|Taxation

into use for a period exceeding 36 months after import. Application for duty drawback is required
to be made within 3 months from the date of export of goods.
In this category, two types of cases are covered viz.,
1.

Imported goods exported as such i.e. without putting into use 98% of duty is refunded and

2.

Imported goods exported after use the percentage of duty is refunded according to the

period between the date of clearance for home consumption and the date when the goods are
placed under Customs control for exports. The percentage of duty drawback is notified under
Notification. No 19 Cus, dated 6th Feb, 1965 as amended from time to time
Elements necessary for Drawback under Section 74
The elements necessary to claim drawback are;
1.

The goods on which drawback is claimed must have been previously imported;

2.

Import duty must have been paid on these goods when they were imported;

3.

The goods should be entered for export within two years from the date of payment of duty

on their importation (whether provisional or final duty). The period can be further extended to
three years by the Commissioner of Customs on sufficient cause being shown.
4.

The goods are identified as the goods imported.

5.

The goods must be capable of being identified as imported goods.

6.

The goods must actually be re-exported to any place outside India.

7.

The market price of such goods must not be less than the amount of drawback claimed.

8.

The amount of drawback should not be less than Rs. 50/- as per Section 76-(1) (c) of the

Customs Act.

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Procedure for Claiming Drawback when goods are exported by post:

Declare the intention to claim the drawback at the time of export of goods.
a) Where goods are exported by post; specify on parcel Drawback Export.
b) Deliver a claim to competent postal authority in prescribed form.
The date on which the postal department forwards the claim of drawback to the custom
department, this date shall be referred as the date of filling of the drawback claim, unless
deficiency memo is issued within 15 days. On receipt of such memo, the exporter has to provide
necessary information within 30 days and the date on which this information has been provided
shall be referred ass effective date of claim.

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Supporting Documents required for processing Drawback Claim under Section 74

a.

Triplicate copy of the Shipping Bill bearing examination report recorded by the proper

officer of the customs at the time of export.

b.

Copy of the Bill of entry or any other prescribed documents against which goods were

cleared for importation.

c.

Import invoice.

d.

Evidence of payment of duty paid at the time of importation of goods.

e.

Permission from the Reserve Bank of India for re-exports of goods, wherever necessary.

f.

Export invoice and packing list.

g.

Copy of the Bill of Lading or Airway bill.

h.

Any other documents as may be specified in the deficiency Memo.

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Drawback under Section 75 of the Customs Act 1962

This is an export promotion incentive for goods manufacture in India with duty paid inputs
whether indigenous or imported.
Under Duty Drawback Scheme, an exporter can opt for either All Industry Rate (AIR) of Duty
Drawback Scheme or brand rate of Duty Drawback Scheme. Major portion of Duty Drawback is
paid through AIR duty Duty Drawback Scheme which essentially attempts to compensate exporters
of various export commodity for average incidence of customs and Central Excise duties suffered on
the inputs used in their manufacture. Brand rate of duty drawback is granted in terms of rules 6 & 7
of Customs and Central Excise Duties Drawback Rules, 1995 in cases where the export product does
not have any AIR or duty drawback rate, or where the AIR duty drawback rate notified is considered
by the exporter insufficient to compensate for the Customs/Central Excise duties suffered on inputs
used in the manufacture of export products. For goods having an AIR the brand rate facility to
particular exporters is available only if it is established that the compensation by AIR is less than
80% of the actual duties suffered in the manufacture of the export goods.

Rate of Drawback under Section 75 of Customs Act, 1962

Scheme for All Industry Rate(AIR) of Duty Drawback:
AIR of Duty Drawback for a large number of export products are notified every year by the
Government after an assessment of average incidence of Customs and Central Excise duties suffered
on Inputs utilized in the manufacture of export products. This facility is generally availed by the 130
exporters as no proof of actual duties suffered on inputs used is required to be produced. After
announcement of Union Budget every year, new AIR of drawback are notified every year usually
with effect from 1st June, after factoring in the changes in duty rates effected by the budget. The
Directorate of Drawback requests all Export Promotion Councils/Associations, etc. to collect, collate
and furnish representative data in respect of the existing export products as also for any new product
which the Councils feel have sufficient export from the country. After the announcement of the
Budget various Export Promotion Council/Associations are also consulted by the Joint Secretary
(Drawback), and their suggestions as well as their requests and justification for suitable enhancement

10 | T a x a t i o n

of rates and also any changes sought in the scheme of the Drawback Table or the entries therein are
taken note of while finalizing and announcing new AIRs.
The AIRs are generally fixed as a percentage of FOB price of export product. Often very good export
prices are obtained for a product or class of products which have no co-relation with the actual duties
suffered on inputs used which is sought to be refunded to Exporters as drawback. In order to
safeguard Government revenue but also be fair to exporters, reasonable duty drawback caps have
been imposed in respect of many export products having rates on FOB basis. These caps essentially
reflect the average duty incidence suffered on the inputs used in the manufacture of the particular
goods exported by several exporters with different prices and they are fixed on the basis of data
supplied by the export promotion councils and collected by Directorate from other sources.
The duty drawback claim scrutiny, sanction and payment in 23 Custom Houses is now done through
the Electronic Data Interchange (EDI) System. This system facilitates credit/disbursal of drawback
within 72 hours from the date of shipment and electronic filing of Export General Manifest (EGM) in
respect of related aircraft/vessel, directly to the exporters, accounts in the specified bank branches.
Brand Rate of Duty Drawback Scheme:
In respect of export products where AIR of duty drawback is not notified or where the AIR of duty
drawback in considered by the exporter to be insufficient to fully neutralize incidence of duties
suffered on the inputs utilized in the production/manufacture of the export product, the exporters opt
for Brand Rate Duty Drawback Scheme. Under this Scheme, the exporters are compensated by
paying the amount of Customs & Central Excise Duty incidence which is actually incurred on the
inputs used in the manufacture of export products. For this purpose, the exporter has to produce
documents/proof about the actual quantity of inputs utilized in the manufacture of export product
along with evidence of payment of duties thereon.
The exporter has to make an application to the Directorate of Drawback in prescribed format along
with enclosures (in the form of 3 drawback statements called DBK-I, II & III), within 60 days from
the date of export of goods. The application has to be submitted to Directorate of Drawback with
copies to the concerned Central Excise Commissionerate which has jurisdiction over the factory of
production of export product. The Central Excise Authorities conduct verification of the
authenticity/fact of utilization of inputs/payments of duties on the inputs on the basis of records
maintained by the factory of the exporter, current production of identical goods, if being effected,
etc. A verification report has to be sent to the Directorate of Drawback. The Directorate of Drawback,
on the basis of verification report and other relevant documents submitted by the exporter, process
11 | T a x a t i o n

and issue drawback Brand Rate Letter to the exporter on the basis of which the concerned Custom
House (from where the goods were exported) makes payment of duty drawback. The Brand Rate
Letter may be valid for particular export shipment or series of shipment and may also be extended
for future shipments for one or more ports on request subject to proof of availability of related raw
materials and duty evidence, etc., when verification was carried out.
Simplified Scheme of Brand Rate:
Under Brand Rate of Duty Drawback Scheme, a Simplified Scheme is also available to limited
companies and registered partnership firms. Under this Scheme, a rate letter for duty drawback is
issued prior to receipt of verification report from the jurisdictional Central Excise Authorities on the
basis of application made by the exporter subject to certain certification etc. For this 132 purpose,
besides application in the prescribed format along with enclosures, the exporter is also required to
submit Chartered Accountant/Chartered Engineers certificate about the authenticity of consumption
pattern and duty payments as claimed. An indemnity bond undertaking to pay back the duty
drawback being claimed by him if it is found later on verification that the drawback amount paid to
him is in excess of the admissible amount, has also to be furnished. In all cases where duty drawback
is paid under Simplified Scheme, after receipt of the verification report from jurisdictional Central
Excise Authority, the veracity of the application is counter checked with the said verification report
and recovery action taken, where ever found necessary.
Procedure for Claiming Drawback when goods are exported by post:
Declare the intention to claim the drawback at the time of export of goods.
a) Where goods are exported by post; specify on outer parcel Drawback Export.
b) Furnish annexure I to the postal authorities containing all the details.
c) Date of claim will be date of filling of annexure I to customs by post authorities.

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ANALYSIS
Points
Goods
Type of Duty
Purpose of Drawback

Reason for Export

Time Limit
Rate of Drawback

Duty Drawback (Sec 74)

Available on all goods (except
negative list).
Provides drawback only in
relation to import duty.
Provides drawback as the very
purpose of import duty is not
satisfied (as the same goods are
exported).
Imported goods are re-exported
may be because they are unfit for
requirement or import is with an
intention to make subsequent
export.
Goods shall be re-exported within
2 years of time limit.
Drawback is available as certain
percentage of import duty
(General rate is 98%), this rate
decreases with the usage of
imported goods.

Duty Drawback (Sec 75)

Available only in respect of selected
goods.
Provides drawback for import duty,
excise duty as well as service tax.
Provides
drawback
as
the
goods/services are used in course of
export of goods.
Goods/services acquired from local
or foreign market and converted into
processed goods, which are later on
exported
in
capacity
of
manufacturer exporter.
No time limit or restriction.
Drawback is available as certain
percentage of export value (FOB
value). Further to claim drawback
use any of the following rate:
a) All Industry rate
b) Brand rate

Same/Processed
Product
Value Addition
Realization of Foreign
Exchange
Rules

Mode of Re-export

c) Special Brand rate

Provides drawback only if the
processed goods are exported
without use.
Satisfy requirement of value
addition.
Foreign exchange must get realized
within the time limit provided under
FEMA.
As per Re-export of imported As per Custom and Central Excise
goods (Drawback of custom duties and Service Tax Drawback
duties) rules, 1995.
rules, 1995.
Covers re-export of goods by post Covers re-export of goods only as
or baggage or as cargo.
cargo or by post.
Provides drawback when the same
product is exported, with or
without use.
There is no condition of value
addition.
There is no condition for
realization of foreign exchange.

13 | T a x a t i o n

Note: Drawback under section 74 and 75 is available irrespective of export

duty payment.

Examples
Some examples where cases has been filed on account of claims of duty drawback:
1) Income Tax Appellate Tribunal Ahmedabad
Gujarat State Fertilisers& ... vs Assessee
IN

THE

INCOME

TAX

APPELLATE

TRIBUNAL AHMEDABAD

BENCH

"B"

AHMEDABAD
Before S/Shri Mahavir Singh, JM and D.C.Agrawal, AM
Asst. Year :1990-91

Gujarat State Fertilizers &

Vs.

The Dy. Commissioner

Chemicals Ltd.,

of Income-tax Circle-1,

P.O.Fertilizernagar, 391750,

[formerly ACIT (OSD),

Dist. Baroda.

Baroda Circle-1]
Baroda

(Appellant)

..

(Respondent)

The main issue involved in the appeal is that reopening of assessment under section 147was bad in
law.The assessee challenged the notice issued under section 148 of the Income- tax Act, 1961 in
respect of assessment year 2001-02 by the Assessing Officer. As per the reasons recorded, the
assessment had been reopened on the ground that the assessee had shown long-term capital gains of
Rs. 1,09,47,296 under the head "Capital gains".

2) Chemicals And Fibers Of India Ltd. vs. Union Of India on 11 February, 1991
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Equivalent citations: 1991 SCR (1) 288, 1991 SCC (2) 10

ACT:
Central Excises &Salt Act, 1944 & Custom Act, 1962-Customand Central Excise Duties
Drawback Rules, 1971-Section37 and Sec.75-Rules 3, 4, 6 and 7-Di-methyl-terephthalate-Import
of-Whether assessee entitled to full 'drawback' of customs duty paid.
The appellant filed written petition in the Delhi High Court which was dismissed by the High
Court.
Petitioner: chemicals and fibers of India ltd. Etc.
Vs.
Respondent: Union of India
Date of judgment11/02/1991
3) Commissioner of Central Excise, Nagpur APPELLANT(S)
Vs.
M/s Indorama Synthetics (I) LTD. ...RESPONDENT(S)
The decision of the Tribunal in IFGL's case stands overruled by this Court in
Commissioner of Central Excise, Bhubaneswar II v. IFGL Refractories Ltd

4) Case Name : Assistant Commissioner of Income Tax Vs. Smt. Ranjana Johari (ITAT
Jaipur)
Appeal Number : ITA No. 763/JP/2012
Date of Judgement/Order : 15/10/2015
Related Assessment Year : 2009-10
Courts : All ITAT (493)

Brief of the case

ITAT Jaipur held in case of ACIT Vs. Smt. Ranjana Johari that if change made in the
wooden article which resulted in to a new and different article then it would amount to
15 | T a x a t i o n

manufacturing activity. The assessee, Ranjana Johari, had undertaken different activities to
shape up the purchased semi finished goods and other articles into marketable commodity as
artistic item along with different both in character and use than what was purchased. Its
amounts to manufacturing and entire sale proceeds of the undertaking is not to be treated as
profits but only difference between sale value and face value of article would be allowed as
deduction u/s 10BA of I.T Act.

16 | T a x a t i o n

Findings:
Limitations on admissibility of Duty Drawback:
1.The Customs Act, 1962 lays down certain limitations and conditions for grant of Duty Drawback.
No Duty Drawback shall be admissible where:
I. The Duty Drawback amount is less than Rs.50/-.
II. The Duty Drawback amount exceeds one third of the market price of the export product.
III. The Duty Drawback amount is less than 1% of FOB value of export (except where the amount of
Duty Drawback per shipment exceeds Rs.500/-).
IV. Where value of export goods is less than the value of imported material used in their
manufacture. If necessary, certain minimum value addition over the value of imported materials can
also be prescribed by the Government.
2. In case there is a likelihood of export goods being smuggled back, the Government can impose
certain conditions which need to be fulfilled before the Duty Drawback is granted. Notifications have
been issued under Section 76 of the Customs Act, 1962.
3. The prior repatriation of export proceeds is not a pre-requisite for grant of Duty Drawback.
However, 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.

Suggestions:
In above mentioned conditions government can deny the benefit of duty drawback to exporters.
Many a time due to that exporters are not encouraged to export and so government loses on the
foreign reserves. So, the Central Government should take care of that so that it turns out beneficiary
for both the parties. It may happen that government might wrongly consider goods as potential for
use of smuggling while actually it may not be a scenario. So, there are some areas where the laws
can be made so that it encourages the exporters.

17 | T a x a t i o n

CONCLUSION
The term drawback is applied to a certain amount of duties of Customs/ Central Excise, sometimes
the whole, sometimes only a part remitted or paid by Government on the export, exportation of the
commodities on which they were levied. To entitle goods to drawback, they must be exported to a
foreign port, the object of the relief afforded by the drawback being to enable the goods to be
disposed of in the foreign market as if they had never been taxed at all. For customs purpose
drawback means the refund of duty of customs and duty of central excise that are chargeable on
imported and indigenous material used in the manufacture of exported goods.
Drawback is a beneficial provision given under the Customs Act, 1962 and the Drawback Rules,
1995. This benefit is in addition to the other benefits given under the Foreign Trade Policy. However,
drawback is not allowed when the assessee opts for the Advance Authorisation Scheme (i.e.,
purchase of inputs without payment of duty). Therefore it is advisable to analyse all the beneficial
options before choosing any particular option.

18 | T a x a t i o n

REFERENCES
Websites:

http://customsmangalore.gov.in/duty-draw-back.htm
http://www.caclubindia.com/articles/concept-of-duty-drawback-22000.asp

Books:
Indirect Tax Law by CA Dhaval Gandhi

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