Duty Drawback on Re-Export (Under Section 74 of the Customs Act,1962)

Duty Drawback Section 174 (Re-Export)

Section 74 of the Customs Act, 1974 provides for duty drawback if the goods are re-exported as such or after use.  This may happen in cases like Import for exhibitions, Goods rejected or a wrong shipment, Etc. The re-exported goods should be identifiable as having been Imported and Should be re-exported within two years from the date of payment of duty when they were imported.  This period of two years can be extended by CBIC on sufficient cause being shown. These should be declared and inspected by the Customs Department’s officers. Original Bill of Entry (ies) under which goods were imported should be produced.  The goods can be exported as cargo by Air and Sea as baggage, Or by post.  After inspection, export, And Submission of the application with full details, 98% of the Customs duty paid while importing the goods is repaid as a drawback.

The drawback of Section 74

Drawback about goods exported out of India means the refund of duty or tax or cess as referred to in the Customs Tariff Act, 1975, And paid on importation of such goods in terms of Section 74 of the Customs Act.  The Duty Drawback is available for Basic Customs Duty, IGST, GST Compensation Cess, Education Cess, And SAHE Cess paid at the time of Import of such Goods.

The Central Government is authorized to make Rules

The Central Government is authorized to make Rules providing for:

1. Manner of identifying goods imported in different consignments.
2. Specify goods that are not capable of easy identification as goods imported.
3. Manner and Time for the claim for payment of Duty Drawback.

There is no Duty Drawback if the market price in India is less than the Drawback Due

Duty Drawback shall not be allowed in respect of any goods, The market price of which is less than the amount of drawback due thereon.

In Om Prakash Bhatia v CC 2003 AIR SCW 3452 =155 ELT 423 (SC), It was held that the market price is as prevailing in India and not the price that the exporter expects to receive from the overseas purchaser.

Thus, If defective but irreparable goods are exported, their market value at the time of export is Nil and hence drawback is not payable. (Government of India – Revision in LML Ltd. – 19.08.1991).

In Brooks International vs. CC2002 (141) ELT 547 (CEGAT), it was held that if the market value of goods sought to be exported is less than the amount of duty drawback, the Commissioner can disallow drawback claim but cannot confiscate the goods under this Section.

Goods Should be Re-Exported As It is

The identity of goods must be established. Those Goods must be exported (HS Mehta v UOI –AIR 1968 Del HC 142).  Thus, if packing material is imported and goods are packed in India in such imported packing material, Packing gets assimilated in the overall description of goods exported.  In such cases, Drawback under section 74 is not available on the imported packing material – Widia (India) Ltd. In re 1992 (57) ELT 522 (GOI).

If the identity of goods re-exported cannot be established, Duty drawback is not allowable – Semi Conductor Complex Ltd.[In re 2011 271 ELT 466 (GOI)).

If goods were merely repacked and re-exported, A rebate under Section 74 is permissible – (Groz Beckert Asia v UOI [305 ELT 30 Del HC DB).

No Requirement That Payment of Sale Proceeds Should Be Received

There is no provision in Section 74 of the Customs Act that drawback is available only if sale proceeds are received. Drawback is available even if Non-receipt of sale proceeds. (CC v. Phonix Cement 2010 [259] ELT 372 (Bom HC DB).

Drawback for Used Goods

If the imported goods are used before re-export, The drawback will be allowed at a reduced percentage [Section 76(2) of Customs Act, 1962].  If goods had the importer, they would be treated as used by the importer.  As per the rules framed by the Central Government, the table is as follows, As per Notification No. 19/65-Cus dated 06-02-1965, as amended vide Nos. 27/2006-Cus dated 14-03-2006 and 23/2008-Cus dated -103-2008.

In Seljegat Printers In re 2002 (143) ELT 719 (GOI), It was held that even if imported goods are merely tested though not used, They will be treated as used after importation and hence depreciation as applicable will be deducted.

Drawback disallowed in some cases

No drawback is allowed on the re-export of:

1. Wearing apparel
2. Tea chests
3. Exposed cinematography films passed by the Censor Board of India
Unexposed Photographic Films, Paper and Plates, X-Ray films.

Goods for Personal Use

If the goods (including Motor Car) were imported for personal use, the reduction in import duty refundable is 4% per quarter for the first year, 3% per quarter for the second year, 2.5% per quarter for the third year and 2% per quarter for the fourth year.
No drawback if ITC was availed of IGST or Cess or Refund was Claimed

Duty Drawback under Section 74 of the Customs Act is not permissible if ITC of IGST and GST Compensation Cess (paid at the time of imports) is availed or refund of IGST or Cess paid on imported goods was claimed.  A certificate from the jurisdictional GST Officer should be obtained for this purpose. [MF (DR) Circular No. 21/2017-Cus dtd 30-06-2017].

How to Claim Duty Drawback on Re-Export

Re-Export of Imported Goods (Drawback of Customs Duty) Rules, 1995 prescribe the procedure for claiming drawback of customs duty on goods re-exported:

1. The exporter has to make a necessary declaration on the Shipping Bill at the time of Export. If failed to do so due to reasons beyond his control, the Principal Commissioner/Commissioner of Customs waived this requirement.

2. A copy of the Bill of Entry, Import Invoice, etc. in connection with Customs Duty Paid when the goods were imported must also be submitted.  These should be declared at the time of Re-export and inspected by Customs Officers.

3. Claim for duty drawback has to be filed within three months from the date on which the Let Export Order is made by the Customs Authorities.  This time limit can be extended by three months by the ACC and a further 6 months by the Principal Commissioner of Customs.
 
4. While making an application for condonation, the fee of Rs. 1000/- or 1% of the FOB Value of export (whichever is less) is payable in case of application to ACC and Rs. 2000/- or 2% of FOB value of export (whichever is less) in case of application to PCC.

5. The claim has to be filed in duplicate in the prescribed form with prescribed documents.  If the claim is not complete in all respects, It will be returned within 15 days with a deficiency memo. This should be again submitted after removing deficiencies within 30 days from the date of the deficiency memo. The claim shall be deemed to have been final for Section 75A (i.e. for payment of interest on delayed payment of drawback) only when the application for drawback complete in all respects is submitted. 

[In other words, to calculate the time limit for submission of the application for payment of drawback the date of submission of the final application i.e. complete application will only be relevant].

6. In case of Re-Export by post, The necessary declaration has to be filed with postal authorities at the time of Re-Export.

7. Supplementary Claims of Duty Drawback concerning the Re-export of imported goods are not allowed. In Re Dalmia Cement (Bharat) Ltd. 1997 (93) ELT 305 (GOI), It was held that under section 74, the supplementary claim for drawback cannot be filed for goods Re-Exported.

Conclusion

Duty drawback under Section 74 of the Customs Act, 1962, Allows you to get a refund on the customs duties you paid when importing goods, As long as those goods are re-exported. By following the right steps and submitting the necessary documents, you can lower your business costs and support exports.