Duty Drawback – Advanced Tax Laws and Practice Important Questions
Question 1.
Explain the provisions for claiming duty drawback and also ascertain whether the exporter is entitled to duty drawback in the following independent cases and if yes, state the amount of such duty drawback:
- FOB value of goods exported is ₹ 5,50,000. The rate of duty drawback on such export of goods is 1.75%.
- FOB value of 2,000 kgs. of goods exported is ₹ 2,00,000. The rate of duty drawback on such export is ₹ 30 per kg. The market price of goods is ₹ 50,000 in the wholesale market.
Answer:
(1) As per Rule 8(1) of the Customs, Central Excise Duties and Service Tax Drawback Rules, 1995, no amount of drawback shall be allowed if the rate of drawback is less than 1% of the FOB value, except where the amount of drawback per shipment exceeds ₹ 500/Further, as per section 76(l)(c) of the Customs Act, 1962 drawback is not allowed where the drawback due in respect of any goods is less than ₹ 50/-
In the given case, since the rate of duty drawback is not less than 1% the drawback due works out ₹ 9625 (1.7596 of FOB value of ₹ 5,50,000) which is more than ₹ 50. Duty drawback of ₹ 9625 shall be allowed.
(2) Section 76(l)(b) of the Customs Act, 1962 inter alia provides that no drawback shall be allowed in respect of any goods, the market price of which is less than the amount of drawback due thereon. In this case, the market price of the goods is ₹ 50,000 which is less than the amount of duty drawback, i.e. 2,000 kgs x ₹ 30 = ₹ 60,000. Hence, no drawback shall be allowed.
Question 2.
Calculate the amount of duty drawback allowable under the Customs Act, 1962 in the following independent cases:
(1) Jaggi Mehta imported a car from the U.K. for his personal use and paid ₹ 4,50,000 as import duty on the car. However, the car was being re-exported immediately without bringing it into use by Mr. Mehta.
(2) Meenakshi imported a music player from Dubai and paid ₹ 12,000 as import duty. She used it for four months and thereafter re-exported the same after four months.
Answer:
Computation of duty drawback is as follows:-
(1) Drawback at 98% [₹ 4,41,000]
As per section 74 of the customs Act, 1962 when any identifiable imported goods are re-exported, 98% of the import duty is re-paid as drawback provided-
- the goods are identified to the satisfaction of the Assistant/ Deputy Commissioner of Customs as the goods which were imported, and
- the same are entered for export within two years from the date of payment of the import duty.
Thus, Jaggi Mehta can claim a duty drawback of ₹ 4,41,000 (9896 of ₹ 4,50,000) on the presumption that aforesaid conditions are fulfilled.
(2) As per section 74 of the Customs Act, 1962, in respect of a motor car or goods imported by a person for his personal and private use, the drawback of duty = Import duty paid in respect of such motor car or goods as reduced by 496, 396, 2.596 and 296 for use for each quarter or part thereof duty the period of the first year, second year, third year and fourth year respectively.
Since goods have been used for 4 months i.e. 2 quarters, hence, Meenakshi can claim duty drawback = 100% – 4% x 2 quarters = 92% of ₹ 12,000 = ₹ 11,040. It is assumed that all other conditions are fulfilled.
Question 3.
Calculate the amount of drawback available under section 74 of the Customs Act, 1962 in the following 3 separate cases: –
- X imported computers for office use and paid ₹ 5,00,000 as import duty. The computers are re-exported after 13 months.
- Y imported goods for his personal use and paid ₹ 1,00,000 as import duty. Such goods are re-exported after 3 months 10 days.
- Z imported wearing apparel and paid ₹ 20,000 as import duty. These are re-exported after 6 months.
Answer:
As per provisions of section 74 of the Customs Act, 1962: –
1. Since the computers have been taken into use and then re-exported, duty drawback shall be allowed as per section 74(2). 65% of the import duty paid will be allowed as a drawback.
Hence, the amount of drawback = ₹ 5,00,000 X 65% = ₹ 3,25,000.
2. In respect of goods imported by a person for his personal and private use, the drawback of duty shall be equal to the import duty paid in respect of such motor car or goods as reduced by 4%, 3%, 2.5%, and 2% for use for each quarter or part thereof during the period of the first year, the second year, third year and fourth year respectively. Hence, in given case, it shall be 92% of ₹ 1,00,000 = ₹ 92,000
3. No Duty Drawback shall be allowed on wearing apparel that has been taken into use and re-exported.
Question 4.
Write a short note on prohibition or regulation of duty drawback with reference to the provisions of the Customs Act, 1962.
Answer:
Prohibition and regulation of drawback in certain cases (Section 76)
No drawback shall be allowed in respect of any goods,
- the market price of which is less than the amount of drawback due thereon;
- where the amount of drawback is less than ₹ 50. (section 76(1) overrides other provisions of the Act}
If the Central Government is of the opinion that goods of any specified description in respect of which drawback is claimed, are likely to be smuggled back into India, it may, by notification in the official gazette, direct that,
- drawback shall not be allowed in respect of such goods; or
- maybe allowed subject to such restrictions and conditions as may be prescribed.
Question 5.
Sun & Moon Ltd. sent a consignment of manufactured goods by a ship from Mumbai to London. The company has paid export duty and j GST on the components used in manufacture. A duty drawback rate has ( been fixed for these goods. The ship carrying the consignment runs into j trouble and sinks in the Indian territorial waters. The Customs Department refused to grant drawbacks for the reason that the goods did not reach their destination. Discuss whether the refusal of the Customs Department is valid in law, by referring to decided case law if any.
Answer:
As per Rule 3 of the Customs and Central Excise Duties Drawback Rules, 2017, the drawback may be allowed on the export of goods at such amount, or at such rates, as may be determined by the Central Government. Thus, the answer to the issue involved would depend upon whether any export of goods has taken place. Rule 2(c) of the said rules inter alia defines “export” to mean taking out of India to a place outside India. Whereas, section 2(27) of the Customs Act defines “India” to include the territorial waters of India.
The combined reading of the aforesaid provisions reveals that to be eligible to claim drawback, there has to be export of goods, and the word export has been defined as taking the goods from India to a place outside India. India has been defined so as to include Indian Territorial Waters. In short, the export is said to have taken place only of goods cross Indian territorial waters.
In the present case, the consignment sent by Sun and Moon Ltd. from Mumbai to London ran into trouble and sunk in Indian Territorial Waters. Thus, it is clear that export of goods have not been taken in the instant case. Accordingly, the duty drawback will not be admissible and denial thereof by the Customs Authorities is justified in law.
The present issue is covered by the judgment of the Hon’ble Supreme Court in the matter of Union of India v. Rajindra Dyeing & Printing Mills Ltd. 2005 (180) ELT 433 (SC).
Question 6.
Ratan exported 2,000 pairs of leather shoes @ ₹ 750 per pair. AH, industry rate of duty drawback is fixed on an average basis i.e. @ 11% of F.O.B. subject to a maximum of ₹ 80 per pair. The exporter found that actual duty paid on input was ₹ 1,95,000. He has approached you as a consultant to apply under Rule 7 of the drawback rules for fixation of ‘Special Brand Rate’. Advise him suitably.
Answer:
Drawback amount = ₹ 1,65,000 (i.e. 2,000 × 750 × 11%) or ₹ 1,60,000 (i.e. ₹ 80 × 2,000) whichever is less.
Therefore, the duty drawback allowed ₹ 1,60,000.
- All industry duty drawback rate = 82.05% [(1,60,000/1,95,000) × 100%]
- The exporter is not eligible to apply for the Special Brand rate.
- Therefore, exporter is eligible for claiming All Industry Duty Drawback.
Note: Special brand rate of duty is applicable only when all industry rates do not cover 80% of the duties paid by the exporter.
Duty Drawback Notes
- Drawback allowable on re-export of duty paid goods (Section 74)
a. Goods should be re-exported without Value addition.
b. For goods not taken into use, Drawback shall be 98% of import duty paid.
c. All goods are eligible for this drawback.
d. Goods must be exported within 2 years from the date of payment I of duty.
e. There is no requirement to bring the export proceeds in convert¬ible foreign exchange.
f. For business goods taken into use, the Central Government has notified the drawback rates as follows: –
| Period between date of clearance for home consumption and the date when goods are place under customs control for export | % of import duty to be paid as Drawback |
| Not more than 3 months | 95% |
| More than 3 months – but not more than 6 months | 85% |
| 6 – 9 months | 75% |
| 9-12 months | 70% |
| 12-15 months | 65% |
| 15-18 months | 60% |
| More than 18 months | Nil |
g. For goods for personal use, taken into use and then exported: Drawback of duty = Import duty paid in respect of such goods as reduced by 4%, 3%, 2.5%, and 2% for use for each quarter or part thereof duty the period of the first year, second year, third year and fourth year respectively.
h. Goods on which no duty drawback is allowed if they are re-exported after being put to use in India: Wearing Apparel, Tea Chests, Exposed cinematograph film passed by the Board of Film Censors in India, Unexposed photographic films/Papers & plates/X-rav films.
The drawback on materials used in the manufacture of exported goods (Section 75)
a. Duty drawback is available only in respect of notified goods.
b. Drawback is allowed as per All Industry Rate notified by Drawback Directorate.
c. There is no time limit for exporting the goods.
d. There should be no negative value addition i.e. FOB of Exports must be greater than FOB of imported materials. Further, minimum value addition criteria must be achieved, if specified.
e. Export proceeds are to be brought in India in convertible for¬eign exchange within the time limit specified in FEMA, then only the drawback granted shall be recovered.
f. Maximum amount of drawback shall be 1 /3rd of the market price of goods.
g. Drawback is not permissible if the market price of goods is less than the amount of drawback.
h. Drawback is not allowed if the amount of drawback is less than ? 50.
Concept of Brand Rate and Special Brand rate in relation to All industry rates of drawback.