Updated on January 10, 2025 12:22:13 PM
The Duty Drawback scheme was introduced as a rebate to exporters on the cost that is incurred during the exporting process. The scheme provides a cashback to the exporters for certain raw materials and service tax used in manufacturing export goods and there are certain goods that are eligible for duty drawbacks.
This article aims to let you know how you can use this scheme at your disposal and take benefits from the scheme.
The duty drawback scheme is made for exporters to get a refund on customs duties paid by them on imported products that are used or incorporated in other products for export, and remain unused since their import.
The provisions for this scheme are mentioned under sections 74 and 75 under the Customs Act, 1962. According to the above sections, there are some conditions that must be met to claim duty drawback:
The rate of drawback (for different types of goods) to be paid per unit of the final product at the time of export is fixed by the government. This rate is determined by the degree of verification of the manufacturing process, raw materials utilized, amount of duty paid on inputs, and standards followed in producing the finished product.
If these conditions are applied duty drawback might not be allowed, which are:
To claim the duty drawback, an exporter needs to have some documents in their possession, which are:
Filing of duty drawback on export goods can be done online as per two methods, i.e. All Industry Rate and Brand Rate. The electronic shipping bill itself can be used to claim a duty drawback for exports done with the bill. Whereas, in the case of exports without electronic bills, a copy of the bill can be used for claiming the duty drawback, but the claim must be accompanied by the documents mentioned as per the Drawback Rules 1995. The claim may be suspended if the documents are not provided. Anyway, the export shipment will not be stopped.
All Industry Rate- An average drawback rate (AIR) decided by the government, AIR is calculated as a percent of the Freight on board (FOB) value of export products. The freight on board value is the final value of export products after adding all the costs incurred during shipment, like domestic transportation costs, handling fees, brokerage fees, storage costs, service charges, etc.
Brand Rate- If some products do not have any AIR fixed by the government, then the duty drawback is decided by the brand rate method. They grant duty drawback as per Rules 6 and 7 of the Drawback Rules,1995. Once the duty drawback claim is decided, it can be done through the Electronic Data Interchange (EDI) system, which facilitates crediting the drawback directly into the bank account of exporters.
| Advantages | Disadvantages |
|---|---|
| The duty drawback scheme helps exporters claim refunds and saves costs incurred to produce the final export goods. If a company has never filed a drawback in the past three years, they can claim the whole refund together. | Claiming drawbacks are a bit complex and demand a record-keeping process. This can be simplified and exporters can claim refunds easily with the support of a service provider with expertise. |
To ensure compliance, taxpayers must be aware of key dates related to income tax:
The eligible goods enabled by the central government are:
The eligibility criteria for the duty drawback scheme are:
The following are the Duty Drawback Rates provided by the Central government. This is a thorough rate chart of the percentage drawback. Exporters should note that the period mentioned refers to the difference between the clearance date and the date of placement in customs control before export.
| Time Period | Percentage of Drawback |
|---|---|
| Less than 3 months | 95% |
| More than 3 months but less than 6 months | 85% |
| 6 to 9 months | 75% |
| 9 to 12 months | 70% |
| 12 months to 15 months | 65% |
| 15 months to 18 months | 60% |
| More than 18 months | N/A |
The following steps show how the exporter can take advantage of the duty drawback scheme:
Exporters must fill all essentials in a prescribed shipping bill format under the duty drawback scheme.
There is no need for a separate application during the digital document process.
Manual exports require a separate application in order to claim duty drawbacks.
The exporter should apply for a claim process in conformity with the policies under the Drawback Rule 1995.
As soon as the exporter files the general export manifest, the 3rd shipping bill copy becomes the principal application.
In conclusion, the duty drawback scheme provides a refund of customs and central excise duties paid on imported materials used for manufacturing export-oriented products. This scheme is developed to promote the growth of the export industry. Claiming duty drawbacks reduces the working capital costs and improves their competitiveness globally for the exporters. This scheme covers a significant number of export items and has exceptions and procedures to make sure that it is implemented effectively.
At Professional Utilities, we leverage our industry knowledge and expertise to help businesses navigate complex regulations, minimize risks, and optimize operations for maximum efficiency and profitability.
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Duty drawback provides refunds of customs duties and taxes paid during the importing of goods, which are further used for manufacturing products that are exported.
The time limit for filing the claim is three months from the date of let export order.
Under this, the goods imported earlier may be exported, and a duty drawback of up to 98% of the import duty paid can be claimed on such exports.
The scheme has three categories-
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