How to Avail Duty Drawback Scheme for Exporters?
As an exporter, you must know the various export promotion schemes the Government of India offers. These schemes are aimed to promote exports and incentivize exporters to remain competitive in the international trade market. This scheme differs entirely from trade finance solutions that help you with your capital requirements.
This article focuses on the Duty Drawback Scheme, which is an incentive program that supports exports by reimbursing taxes and customs duties paid by exporters for imported materials used for export. Let’s start by looking at the main features of the Duty Drawback Scheme.
Main features of the Duty Drawback Scheme
The Minister of Finance introduced the duty drawback scheme under Sections 74 and 75 of the Customs Act of 1962. This scheme allows exporters to claim a refund of the import-related duties, which could include central excise duty, customs duty, and service tax for the raw materials they have imported to produce the goods they are exporting.
Types of Duty Drawback Scheme
1. All Industry Rate (AIR): A fixed-rate announced by the Directorate General of Foreign Trade (DGFT) for specific categories of exported goods.
2. Brand Rate: Applicable when AIR does not cover the duties paid or when the standardized rate is lower than the actual duty paid
What does Duty Drawback entail?
The scheme includes basic customs duties, additional customs duties, and, in some cases, excise duty, depending on the item. The application process includes submitting related documents, including shipping bills, export invoices, and proof of duty payment. These can be submitted through the Indian Customs EDI system.
Once the customs officials review the claim, they will approve the claim for refund while ensuring that all documents comply with export norms. The timelines for refunds is usually within a few weeks of submission and will depend on the thoroughness of the documents submitted and eligibility.
How does the Duty Drawback Scheme benefit exporters
● It helps exporters price t their products competitively in the international market and get a better market share
● It encourages exporters to add value to the imported raw materials and ensures that they can remain cost-effective
● It offers a certain level of liquidity by reimbursing the duties that exporters have to pay on imported machinery or raw material
What are the conditions for claiming Duty Drawback?
The Duty Drawback can be claimed under the following conditions:
● If the goods imported are exported within two years from the import payment date. In this case, the exporter can claim 98% of the duty they have paid
● To claim Duty Drawback, the products that are exported have to be different from the imported goods. For instance, if loose cloth is imported, it can be transformed into garments to be exported, then the Duty Drawback would be applicable
● There has to be a physical change in the goods imported before they are exported to be eligible for duty drawback
● To claim the drawback, all the applicable duties and taxes must be paid for the imported goods
● In some cases, the duties on the unused imported goods can also be considered for duty drawback
● The input units should be different from the exported units
When is Duty Drawback not applicable?
When the value of the exported goods is much less than the products imported, one may not qualify for a Duty Drawback. Similarly, in cases where the sale of finished products is not completed within the allowed time, the exporter may not qualify for the duty drawback.
● Also Read: Manual Documentation Challenges in Export
What are the categories of the Duty Drawback?
Here are some of the main categories of Duty Drawback:
1. Direct identification manufacturing: This is when the imported goods are used to manufacture another product, which is exported. Example: You import parts and machinery for motorbikes, which are exported
2. Substitution manufacturing: This is when the imported products are the same type and have specifications similar to those of the exported goods. Example: Motors of a certain kind are imported to add to the already existing stock of motors, and some of them are used for producing goods that are exported
3. Unused materials manufacturing: Exporters will be eligible for a refund even if the imported material is directly exported without modifications. The same rule applies to substitution manufacturing
What are the documents required for Duty Drawback?
Here is the list of essential documents
● Copy of the shipping bill
● Copy of the bill of entry
● Import invoice
● Payment proof for paying duty during the import process
● Copy of the bill of lading
● Copies of invoices certified by your bank
● Documents related to shipping insurance
● Inspection report for the goods
● Application for the Duty Drawback on the company letterhead
At LeRemitt, we specialize in helping streamline your operations—whether inward remittance or document management—so that you can focus on your core business. Click here to learn more about how we can support your international trade journey.