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Home > Articles > Excise > Duty Drawback - Customs Act,1962
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Duty Drawback - Customs Act,1962
CA S.SAIRAM on 16 July 2010
DUTY DRAWBACK - CUSTOMS ACT, 1962
Duty Drawback is governed by a couple of sections in the Customs Act, 1962 namely
Sec.74 and Sec.75. The common intention is apparently to refund the import duty borne by
the importer on exporting the goods. One (Sec.74) being for duty drawback on re-export
back in specie and the other (Sec.75) for duty drawback on imported Materials used in
Exported product. Importing of Raw materials and manufacturing finished Goods only to
export out of India is omnipotent and Sec.75 presents a heavy relief to these manufacturer-
exporters. Sec.74 is an occasional phenomenon
Under Sec.75 the goods that are eligible are 1) those on which manufacturing or processing
takes place and 2) those on which any operation is carried out. The words on which any
operation is carried out would mean that even those non value adding activities that are
incidental or ancillary to the main manufacturing process are also considered for e.g. a
specific packing. If it is a packing material that is being imported, there is a choice to the
exporter to avail the benefit of Sec.74 (by proving the Commissioner on the specie export
under packaged condition) or Sec.75. But then the very obvious alternative is Sec.75 which
gives 100% duty drawback rather than Sec.74 which gives only 98% of duty drawback with
onus of proofs on assessee and many other practical difficulties.
In Sec.75, the words 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...... clearly require that the order for clearance of export is required as a
prerequisite to make an application for Duty drawback. In USA the sale of Drawback rights is
made legitimate to permit companies not exporting any goods to transfer the right to an
exporter to enable him claim the drawback. This is similar to our Duty Entitlement Pass Book
Scheme. But here in India we do not have such facility. Consider the case of a last sale
preceding the export, where the manufacture procures imported materials and transfers the
stock to an overseas distributor. There is no way the manufacturer can claim duty drawback
of the import duty since the Bill of entry and hence the order permitting export clearance will
be in the name of the distributor and not the manufacturer. If there had been a facility to
transfer Duty drawback rights or some scheme like DEPB the manufacturer can probably claim
the drawback. In this context the above words assume utmost significance.
The amount of drawback available under Sec.75 is the duties of customs chargeable under
this Act on any imported materials of a class or description used in the [manufacture or
processing of such goods or carrying out any operation on such goods. Shouldthere be a
question what will happen if due to some reason there is a remission of duty from
Government? The answer is cleverly replied in the subsequent clause (2a) of the section. It
says that the Central Government shall make rules among various other aspects to allow
drawback of the amount actually paid by the manufacturer for carrying out the purposes of
the act. It is relevant to note that as per Circular No.41/2005, drawback is not to be denied
when duty is paid through DEPB scheme. The duty drawback for many industries is fixed
based on a trend of average import material consumption and incidence of duty which is
popularly called as Brand Rate fixation.
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