Duty Drawback Simplified: Recover Duties & Grow Globally!

Extending your business overseas involves a significant investment of money and effort. Managing costs in international trade can be quite challenging for exporters. One powerful tool that can help streamline your export process and improve profitability is duty drawback. This program allows businesses to reclaim customs duties paid on imported goods that are subsequently used in manufacturing goods to be exported. By utilizing duty drawback, you can reduce your expenses and make your products more competitive in the global market.

In this article, we have shared everything you need to know about the duty drawback scheme, including the types of duty drawback, the registration process, the procedure to check its status, and more.

The Purpose of the Duty Drawback System in Global Trade

Duty drawback on export is designed to enable you to reclaim customs duties paid on imported goods. This scheme serves the following purposes in the global trade:

• Duty drawback reduces the overall cost of exporting. This enables businesses to price their products more competitively in the global market and increase their sales.
• Eliminating the additional expense of import duties encourages businesses to participate more actively in international trade, which contributes to economic growth.

Duty Drawback Scheme under the Customs Act 1962

The duty drawback scheme under the Customs Act of 1962 facilitates the reimbursement of customs duties paid on imported goods. The amount is then used in the production of export goods. The scheme also provides a refund on customs duties paid on goods that remain unused since their import. Introduced by the Ministry of Finance, it is an important component of India’s export promotion strategy. The scheme covers customs duties, central excise duties, and service tax paid on inputs used in the manufacture of export goods.

The Central Government can grant duty drawback under Customs Act, 1962’s sections 74 and 75. Under Section 74, 98% of the duty paid on the products that are imported can be claimed for re-export. However, the claim can be made only if the goods are re-exported within two years of receiving payment on import duty. Section 75, on the other hand, enables duty drawback on the export of manufactured goods.

Types of Duty Drawback

The duty drawback scheme includes three categories. Here is a look at these:

1. All Industry Rate

AIR of duty drawback refers to the average rate of an export product. The calculation is based on the average quantity and value of the material, as well as the typical customs duties and central excise incurred for each class of material. AIRs are reviewed each year following recommendations from the Drawback Committee. The process is fully electronic and ensures that duty drawback payments are made directly to your accounts. Moreover, you are not required to submit separate documentary proof to receive export earnings. Based on the shipping bill declaration, the system offers a straightforward way to grant duty drawbacks.

2. Brand Rate

This type of duty drawback is a special provision that allows you to receive a rebate on the duties incurred by an export product. Brand Rate is determined by the local Commissioner of Customs, who has jurisdiction over the export location. They may allow a provisional brand rate on your request. If your product lacks an AIR, you can apply for a specific Duty Drawback rate through the Brand Rate mechanism. This option is also available when the existing AIR covers less than 80% of the duties paid on the materials used in manufacturing the export goods. Like AIR, this can be disbursed electronically to your account.

3. Drawback on Re-Export of Imported Goods

Exporters can also claim duty drawback on goods that have been imported with duties paid. The main requirements under this scheme are proof of duty paid on importation and the ability to identify the exported goods as those previously imported. It allows you to claim up to 98% of the import duty paid on previously imported goods when re-exported.

List of Essential Documents Needed to Claim Duty Drawback

To successfully claim duty drawback, exporters must provide specific documents to support their application. Here’s a list of the essential documents required:

• Copy of bill of entry
• Copy of bill of lading or airway bill
• Three copies of the shipping bill
• Six copies of AR-4, if needed
• Copy of bank-certified invoices
• Letterhead mentioning the drawback amount claimed
• Proof of payment of duty while importing
• Quality test report or inspection report of goods
• Export invoice
• Import invoice
• Packing list
• Special permission for re-export of goods from the Reserve Bank of India, if required
• Copy of the Contract or Letter of credit
• Shipping insurance (if any)
• Modvat Declaration, wherever applicable
• Any declaration needed based on the footnote of the drawback schedule
• DEEC Book and license copy wherever required
• Transshipment certificate, wherever applicable
• Proof of foreign agency commission paid if applicable

Step-by-Step Process to File a Duty Drawback Claim

You need to register for duty drawback to file a claim. Here is the simple step-by-step process to help you:

• Step 1 – Make sure your goods are eligible under the Duty Drawback Scheme
• Step 2 – Collate all the documents above as they need to be submitted to file for the claim.
• Step 3 – Enter the details in the application form. You must provide information about the export products and the amount of duties.
• Step 4 – Submit the duly filled application along with the required documents.
• Step 5 – Separate applications must be submitted to claim duty drawback for manual exports. This is not required for digital document processing.

For electronic filing and processing:

• File the shipping bill electronically. The electronic shipping bill is treated as the claim for drawback.
• Claims can be processed at electronic data interchange or EDI-enabled ports, except for claims under Section 74 of the Customs Act, 1962, related to re-exporting imported goods.
• You need an account with a nominated bank or one with core banking facilities to directly credit drawbacks via NEFT/RTGS.
• You must provide account details and bank information in the declaration form.

Procedure for Claiming Drawback Under Section 75 of the Customs Act (Manual System):

• Filing the Drawback Shipping Bill: Submit the shipping bill in the prescribed format per Rule 13 with the necessary declaration.
• Goods Examination: Goods are then assessed and examined by officers in the Examination Shed.
• Examination Report: This report details the nature of the goods and determines the appropriate drawback classification and rate.
• Sample Testing: To confirm declarations, samples may be tested in a laboratory for items like chemicals or synthetic fabrics.
• Claim Copy: The triplicate copy of the drawback shipping bill, including the examination report, serves as the claim copy.

Advantages and Disadvantages of the Duty Drawback Scheme

The Duty Drawback Scheme comes with its set of advantages and disadvantages. Here is a brief look at both:

Advantages

• Exporters can claim duties paid on imported raw materials, reducing the overall production costs. This enables them to sell their goods at competitive rates in the global market.
• By refunding duties, the scheme promotes export activities. It enables businesses to explore the global market.
• Timely refunds can improve cash flow and enable companies to reinvest in their business.

Disadvantages

• The process of claiming Duty Drawbacks involves the submission of extensive documentation, which can be quite time-consuming.
• There can be delays in receiving refunds. This can affect the working capital of businesses. It can especially be challenging for small and medium sized businesses. 

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ShiprocketX’s seamless integration with various e-commerce platforms allows businesses to manage orders and shipments from a single dashboard. This minimises manual processes, reducing the chances of errors and saving time. It partners with reliable international carriers that offer services at competitive rates and ensure timely delivery.

Conclusion

The Duty Drawback Scheme is a government initiative that serves as a valuable tool for recovering duties paid on imported goods. Understanding how to check duty drawback status and learning how to carry out the procedure to claim the amount is essential for exporters. Thus, it reduces the overall cost of production for goods to be exported to different international markets. As an exporter, you must adhere to strict compliance requirements, as any errors in documentation can lead to the rejection of your claims. By understanding its eligibility criteria, required documentation, and filing process, you can ensure timely refunds and fully enjoy the benefits of this scheme.