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.

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.

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.

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.

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

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.

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

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.

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.