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What is Duty Drawback in Export in India?

Duty drawback is a trusted government-based scheme that enables exporters to get a refund of internal taxes, service tax and customs duties and transportation costs while exporting goods as a finished product or in an unused form. This effective scheme helps to alleviate tax burden, thereby promoting exports and spurring India’s economy.

This article will highlight what is duty drawback in export in India and all particularities related to claiming export duty drawbacks in India.

Team Digit

What is Duty Drawback?

Duty drawback is a waiver of customs duties paid on either unused or manufactured products meant for exportation. The Ministry of Finance implemented a duty drawback scheme under Sections 74 and 75 of the Customs Act 1962 to help exporters claim refunds and cut down on their expenses that they incur from export process.

This scheme encompasses two significant components: All Industry rate (AIR) and Brand Rate. Under this scheme, exporters can claim a rebate on the input that was required for production of exportable products.

Types of Duty Drawbacks in India

The primary objective of the Duty Drawback Scheme is to claim a refund or reimbursement for customs duty, excise charges and service tax paid for raw materials or input services that are required to manufacture export goods.

Let’s understand the various types of duty drawbacks in India and the essence of it:

1. Direct identification manufacturing

Exporters can recover or reclaim import duty when an imported good or material is further utilised to manufacture a product for it to be exported. For instance, one imports machinery and integral parts of a car which will be later exported.

In such a scenario, exporters can claim a refund for the duties paid to import goods.

2. Unused merchandise direct identification manufacturing

If the imported goods are exported directly without being used, the amount of import duty paid in that case can be claimed for a refund. However, it is necessary to track the paid import duty for exporters to claim duty drawback.

For instance, a business entity had imported precious stones to manufacture embedded stones and export them. In such a case, the import duty that is paid during the importation can be claimed for rebate under the duty drawback scheme.

3. Unused merchandises substitution manufacturing

If any unused material or goods which were commercially interchanged with goods for which import duty was paid and is further exported, manufacturers can still claim the import duty for shipping an unused product.

Eligibility Criteria for Duty Drawback on Export

Individuals must adhere to the following minimum eligibility criteria to claim duty drawbacks:

Every entity must be a legitimate owner of the goods at the moment when those are exported.
Exporters must have cleared the customs duty or immigration tax on the imported goods.
One can claim duty drawbacks on most goods for which customs duty or immigration tax was paid during the importation or for those products which have been exported.

Even the goods that are to be exported must cater to the eligibility parameters.

To export goods, those are shipped into India.
For transfer goods that were imported into the country and have been used.
To ship goods that are manufactured out of imported or foreign goods.
To export goods that are manufactured from locally sourced materials or indigenous materials.
To ship products produced from either international or indigenous resources.

Documents Required to Get Duty Drawback on Export

Here are the documents that are needed to get duty drawbacks on export:

Shipping bill copy
Import invoice
Copy of entrance payment
Bill of lading copy
Freight and insurance certificate
Approval from RBI for re-exports goods
Certificate of transhipment
Modvat Declaration
Photocopy of Bank certified invoices
Export invoice and packing list
Bill of lading copy
Photocopy of test report of goods
Worksheet reflecting drawback amount
Pre-receipt for the drawback amount
Duplicate Blank acknowledgement card

Importance of Export Duty Drawback in India

Duty Drawback Scheme proves effective in boosting the revenue of a company, enabling them to save on expenses, thereby accelerating business cash flow. Even companies can file duty drawbacks for three consecutive years if they have not claimed any drawbacks.

It also boosts global competitiveness. Also, another important provision is that the scheme enables domestic suppliers of imported products or raw materials to shift their domestic rights, allowing exporters to get a 99% refund of the paid customs duties.

How to Calculate Duty Drawback on Exports in India?

Besides knowing what duty drawback is in export in India, one must also know how it is calculated.

Here are the following factors based on which duty drawback is evaluated:

The amount of duty drawback
Minimum percentage of duty drawback
A minimum amount of the duty drawback

If the amount of the duty drawback is more or equal to that of the duty drawback minimum amount, exporters or manufacturers will use the following formula:

Drawback amount which is equivalent to or more than the export value * minimum percentage of duty drawback/100

In case the duty drawback amount is equal to or less than the minimum amount of duty drawback, then manufacturers will have to abide by the following conditions:

The amount of duty drawback which is less than export value * minimum percentage of the duty drawback/100

Procedure to Claim Duty Drawback

Exporters can claim duty drawbacks on exports of products by opting for any of the two ways:

All Industry Rates
Brand Rates

Here are the following factors to keep in mind while claiming Duty Drawback:

Exporters have to file a DBK application along with mentioning the concerned custom authority through electronic data interchange (EDI) during an export.
In case of computerised documentation, exporters do not have to file a separate application to claim a refund.
For exports where there are no electronic bills, exporters have to use a copy of the shipping bill to claim a refund under Duty Drawbacks Scheme. In this scenario, the e-shipping bills will act as a claim for drawback. Under Section 74 of the Customs Act 1962, all customs ports with EDI facilities can avail of claims under the Duty drawback scheme.
One can also claim the duty drawback by submitting the regulated drawback application and simple documents like shipping invoices to the concerned customs office. The ins and outs of the documents are mentioned in Customs Department's drawback guidelines, 1995.

What Are the Rates of Duty Drawback?

Here are the following percentages of Duty Drawback Rates that the Central Government of India fixes. The rates are set depending on the type of goods in respect of how they are used after importation and products which have been out of customs.

The import duty percentage that has to be paid as a duty drawback is also dependent on the time span between the date of clearance and the date when the products or goods are placed below the customs control for exports.

Here is the tabular representation of the time period between the clearance date for home consumption and the date the goods passes under the custom controls for export:

Duration Between the Date of Clearance for Home Consumption and the Date When Goods Undergo Customs Controls for Export	Rate of Duty Drawback
Less than three months	95%
More than three months; however, less than six months	85%
More than six months; however, less than nine months	75%
More than nine months; however, less than 12 months	70%
More than 12 months; however, less than 15 months	65%
More than 15 months; however, less than 18 months	60%
Above 18 months	Nil

Tips to Follow Before Claiming Duty Drawback

Those claiming duty drawbacks for the first time must keep the following pointers in mind before doing so.

It is essential to keep an impeccable track of records of transactions, and it will help in receiving a seamless refund and avoiding discrepancies.
As the records of the exporting company can get the drawback, exporters can countersign the drawback rights to the manufacturer in case they are operating as two separate entities.
One can opt for the assistance of a logistic professional to streamline the duty drawback process and get the refund or reimbursement without facing any hindrances.

Duty Drawback is integral to international trade law, under which exporters can enjoy refund duties, taxes and fees they must pay while importing merchandise and exporting the qualified products. A duty drawback scheme is implemented to reduce costs and incentivise exports, enabling business bodies to scale the growth curve.

The above-mentioned sections state what is duty drawbacks in export in India and the intricacies related to it, helping exporters reap the maximum benefit of the duty drawback scheme.

FAQs About Duty Drawback on Export in India

All

Is there any disadvantage of the Duty Drawback Scheme?

Individuals claiming drawback funds under the Duty Drawback scheme can find the process a bit complex, and it also requires the practice of record-tracking.

Is the duty drawback under GST?

As duty drawback is basically a reduction or rebate and not a profit, the duty drawback amount is not considered under GST.

Under which conditions can exporters not claim duty drawbacks?

Duty drawback cannot be filed if the products’ export value is less than that imported products’ value. Also, if the exporters do not receive the sale of finished products within the predefined time span, the claim will not be considered.

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