Learn more about the Duty Drawback system, including the documentation needed, the claim process, and the benefits and drawbacks for Indian exporters.
When items are imported into India and then utilised in the production of finished goods that are then exported, a practice known as duty drawback occurs. For instance, claiming a tax or customs duty refund for textile-related machinery imports. As sections 74 and 75 of the Customs Act of 1962, it was implemented by the Ministry of Finance.
Duty Drawback Scheme: Customs Act 1962
Under the duty drawback plan, exporters can recoup the cost of the customs charges they paid on imported goods that meet two criteria:
- They are used or incorporated into other export items
- They have been unused since importation.
The Customs Act of 1962, specifically Sections 74 and 75, detail all the provisions of this plan. By these subsections, the following requirements must be completed before duty drawback can be claimed:
- If the products were imported and the duty was paid within two years, the exporter is entitled to a refund of 98% of the duty paid.
The following considerations are necessary for a successful duty drawback claim:
- Products used in the production of the goods for export must have experienced a physical change, and the number of inputs employed in processing products abroad per item must not be consistent.
- Inputs refer to imports on which customs and duties have been paid.
At the time of exportation, the government requires a drawback payment per unit of the finished product, at a rate determined by the government (which varies depending on the type of good being exported). This percentage is determined by the verifiability of the production process, input materials, tax paid, and quality control measures utilised.
If the exporter does not receive payment for their finished goods within the allotted time, or if the value of their exports is less than the value of their imports, then the government may not grant them a duty drawback.
What are the types of Duty Drawbacks?
Direct identification manufacturing: Imported material might be used in direct identification manufacturing of exported products to recover import duty. Bicycles may require imported machinery and parts. The Duty Drawback Scheme recovers taxes on bicycle-making machinery.
Substitution manufacturing: It is claiming a duty drawback on exported items made with imported inputs of the same grade. A factory imports 1,000 motors and pays customs. It also features 500 imported-quality motors. 1,500 motors in stock. Few are used in manufacturing. The exporter can claim duty refunds on all imported motors, regardless of use.
Unused merchandise direct identification manufacturing: If imported material is exported without manufacturing, import duty can be refunded. Recording import duty allows drawbacks. One company exported imported embedded plastic bangles. They paid import duties. Even if it exports identical plastic bangles, the company can claim a duty discount.
Unused merchandise substitution manufacturing: Unused material traded for other imported duty-paid material can be exported to claim import duty overpayment. Textile manufacturers may pay import tariffs. Similar textiles are stored in the same warehouse. Remember that the two factories became one and don’t always make export products. The manufacturer might export unsold (replaced) items and yet earn a duty drawback.
Which forms of evidence are needed to claim a duty drawback?
- Shipping bill copy
- Bill of entry copy
- Import invoice
- Proof of payment of duty during importing
- Bill of lading copy
- Bank-certified invoices copy
- Invoice for export
- Shipping insurance (if any)
- Quality test report/inspection report of goods
- Letterhead showing the drawback amount claimed
How do I get a refund for my duties?
Export duty drawback can be filed online using the All Industry Rate or Brand Rate. Exports employ the electronic shipping bill for duty drawback. For export duty drawbacks, a physical shipping bill might be used. The Drawback Rules 1995 require documents with the claim. If paperwork is missing, the claim may be halted. We’ll keep exporting.
Examining Duty Drawback’s Pros and Cons
The duty drawback system aids exporters by allowing them to recoup some of the costs they initially invested in the manufacturing of their exported goods. If a business has not submitted a drawback in the previous three years, it is eligible to receive a full refund all at once.
Getting a drawback refund might be a little tricky and requires good record-keeping habits. However, with the help of a specialised firm, exporters can streamline the process of requesting a refund.
Getting a Refund Through Duty Claims
A duty drawback may save exporters money. The Amazon Global Selling e-commerce exports programme allows India to export without a local warehouse or retail presence in the target area.
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