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1 Export Promotion Counc il for Handicrafts EPCH HOUSE, POCKET 6 & 7, SECTOR 'C', LOCALL SHOPPING CENTRE, VASANTT KUNJ, NEW DELHI Tel: focusregion@epch.com Fax: , web : REPORT ON AWARENESS SEMINAR ON DUTY DRAWBACK: UNDERSTANDING POLICY AND PROCEDURES, ATT NEW DELHI ON 27th JUNE, AT THE CONFERENCEE HALL, 3RD FLOOR, RAJIV GANDHI HANDICRAFTS BHAVAN, BABA KHARAK SINGH MARG, CONNAUGHT PLACE, NEW DELHI The Export Promotion Council for Handicrafts regularly conducts seminars for member exporters to educate them on new andd emergingg issues related to exports and to keep themselves updated about the latest trends and policies. On 27 th of June, the council held a seminar on Duty Drawback: Understanding Policy And Procedures, At New Delhi On 27thh June, 2015 at the Rajiv Gandhi Handicrafts Bhavan, Baba Kharakk Singh Marg, Connaught Place, New Delhi. Mr. Rajesh Rawat (Deputy Director, EPCH) introducing speaker of the day Dr. Ram Singh to the exporters

2 The seminar saw over 45 participants and the speaker for the event Dr. Ram Singh from Indian Institute of foreign Trade. Dr. Singh began with explaining what exactly Duty Drawback is. He explained that the term duty drawback means refund of Custom Duty, Additional Custom Duty (Central Excise), Service Tax etc. on the export product. Since different export products have different incidences of duties, they will naturally have different amount of duty drawback. The directorate of duty drawback announces the drawback rates Schedule of Duty Drawback of different items by a drawback notification once in a year. The announcement is done after 2-3 months of the presentation of the budget. The Schedule of Duty Drawback contains the duty drawback rates of All Industry. In this Schedule drawback rates of handicrafts are also included. For claiming the duty drawback the exporters has to mention the Custom Code No. (Drawback Code No.) of the export product and the rate of duty drawback. If the above particulars are correct then the amount of drawback is credit to the bank account of the exporters. Dr. Singh cited the various sections under which the duty drawback is admissible. Dr. Ram explained that the duty drawback can be classified Under Section 74 of Customs Act 1962 "Re- export of Imported Goods (Drawback of Customs duties) Rules, Section 75 of Customs Act 1962 Customs and Central Excise Duties Drawback Rules 1995 All Industry Rates/ Brand Rates Drawback sanctioned under section 75 has a two tier system involving (i) Fixation of rates by the Directorate of Drawback in the Central Board of Excise and Customs and (ii) Disbursement of drawback amount by the Customs houses and / Central Excise Commissionerate Procedure for claiming drawback under section 75 of the customs act under the manual system: The exporter is required to file a drawback-shipping bill in the prescribed Format as required under Rule 13 along with the necessary declaration.

3 The goods after assessment are examined by the officers posted in the Examination Shed as required for each individual case. The examination report will indicate the nature of goods in terms of drawback schedule for classification and application of correct rate. Samples may have to be drawn for testing by lab in respect of chemicals, synthetic fabrics etc as specified from time to time to confirm the declarations in the export documents The claims are settled and passed by the appraiser if the amount sanctioned is below Rs 1, 00,000. And by the Assistant Commissioner, if the amount of drawback exceeds Rs /- after pre-audit, the cheques are issued to the designated banks for credit to the exporters account or handed over to the authorized representative of the exporter. Dr. Singh further explained about the Brand Rates of Duty Drawback BRAND RATES OF DUTY DRAWBACK Brand rate Difference between Duty draw back and brand rate of drawback is falling under two categories. Firstly, the exporter s product has not been listed in the Duty draw back schedule. Secondly, the exporter considers the listed rate of drawback is insufficient to fully neutralize the duties suffered by his export product. Here in both the above circumstances, exporter opts for the brand rate of duty draw back. Under this brand rate scheme of drawback, the exporters are compensated by paying the amount of Customs, Central Excise duties and Service Tax incidence actually incurred by the export product. For this purpose, the exporter has to produce documents/proof about the actual quantity of inputs / services utilized in the manufacture of export product along with evidence of payment of duties thereon. The exporter can approach the Directorate of Drawback for fixation brand rates. Brand rates are fixed under Rule 6 for specific manufacturer exporter. The manufacturer has to submit the application to Directorate of Drawback within 30 days of their first shipment.

4 He also explained in details about the restriction on grant as detailed below. RESTRICTION ON GRANT OF DRAWBACK (a) The amount or the rate of drawback should work out 2% or more of the f.o.b. value of the product except in cases where the amount of drawback exceeds Rs5000/- per shipping Bill. (b) The f.o.b. value of the product should not be less than the value of all imported materials used in the manufacture of that product. In other words the value addition in respect of the particular product should not be negative (c) No drawback is admissible where the amount of the drawback worked out is higher than the present market value of the goods export (Section 76(1) of the Customs Act) (d) Drawback is not admissible where the total amount of drawback is less than Rs 50/-(Section 76(1)(b) of the Customs Act,1962 (e) No drawback is admissible in case of goods exported by land to any place in Burma, Tibet or Bhutan as specified in the Ministry of finance Notification 208 cus. dated 1/10/1977 He further explained that there are certain legislative references relating to drawback that should always be kept in mind while exporting Section 74 Of The Customs Act 1962 (Drawback Allowable On Re- Export Of Duty Paid Goods) Section 75 Of The Customs Act 1962 (Drawback On Imported Materials Used In The Manufacture Of Goods, Which Are Exported) Section 37 (Xvi) Of The Central Excises And Salt Act, 1944 Section 75 A Of The Customs Act (Interest On Drawback) Section 76 Of The Customs Act 1962 (Prohibition And Regulation On Drawback In Certain Cases) Re-Export Of Imported Goods (Drawback Customs Duties) Rules Customs And Central Excise Duties Drawback Rules, 1995

5 The speaker explaining the concepts to the t participants The details of Duty Exemption Scheme and Duty RemissionR n Scheme 20 are given in Chapter -4- of FTP The brief details of the scheme aree given below: DUTY EXEMPTION SCHEME Duty exemption schemes enable duty free import of inputs for production. Duty Exemption Schemes consists of: export 1. Advance Authorization Scheme and 2. Duty Free Import Authorizationn (DFIA) Scheme. The salient features of the schemes as mentioned above are given below:- SALIENT FEATURES OF ADVANCE AUTHORIZATION SCHEME ADVANCE AUTHORISATION (a) Advance Authorisation iss issued to allow duty d free import of input, which is physically incorporated in export product (making normal allowance for wastage). In addition, fuel, oil, catalyst which is consumed / utilised in the process of production of export product, may also be allowed.

6 (b) Advance Authorisation is issued product, on the followingg basis: for inputs in relation to resultant (i) As per Standardd Input Output Norms (SION) notified (available in Handbook of Procedures); or (ii) On the basis of self-declaration as per paragraph 4.07 of Handbook of Procedures.

7 Questions putt up by the audience Q1. What are Duty Exemption and Duty Remission Scheme? Ans: Duty Exemption Schemes enable duty free import of inputs required for export production. Duty Exemption Schemes consist c of (a) Advance Authorization and (b) Duty Free Import Authorization (DFIA). A Duty Remission Scheme enables post export replenishmentt / remission of duty on inputs used in export product. Duty Drawback (DBK) is a Duty Remission scheme. Q2. What is the procedure of claiming Duty Drawback? Ans: The Duty Drawback on export goods (whether AIR or Brand Rate) is to be claimed at the time of export and requisite particulars filled in the prescribed format of Shipping Bill/Bill of Export under Drawback. In case of exports under electronicc Shippingg Bill, the Shipping Bill itself is treated as the claim for Drawback. In casee of manual export, triplicate copy of the Shipping Bill is treated as claim for Drawback. The claim is to be accompanied by certain documents as laid down in the Drawback Rules If the requisite documents are not furnished orr there is i any deficiency, the claim may be returned forr furnishing requisite information/documents. The export shipment, however, will not be stopped for this reason.

8 PROCESSING OF DRAWBACK SHIPPING BILL & DUTY DRAWBACK CLAIMS PROCEDURE By; Dr. Ram Singh Associate Professor International Trade Operations and Logistics Indian Institute of Foreign Trade, New Delhi Interaction with Exporters/ Prospective Exporters at EPCH New Delhi

9 DUTY DRAWBACK DEFINED The term drawback is applied to a certain amount of duties of Customs/central excise/service tax, some times the whole, some times only a part remitted or paid by Government on the exportation of the commodities on which they were levied. To entitle goods to drawback, they must be exported to a foreign port, the object of the relief afforded by the Drawback being to enable the goods to be disposed of in the foreign market as if they had never been taxed at all. For Customs purpose drawback means the refund of duty of customs and duty of central Excise that are chargeable on imported and indigenous materials used in the manufacture of Exported goods.

10 GOODS ELIGIBLE FOR DRAWBACK This scheme applies to: export goods imported into India as such export goods imported into India after having been taken for use export goods manufactured / produced out of imported material export goods manufactured / produced out of indigenous material Export goods manufactured /produced out of imported or and indigenous materials.

11 TYPES OF DRAWBACK Under Section 74 of Customs Act "Re- export of Imported Goods (Drawback of Customs duties) Rules, Section 75 of Customs Act Customs and Central Excise Duties Drawback Rules All Industry Rates/ Brand Rates 3. Drawback sanctioned under section 75 has a two tier system involving (i) fixation of rates by the Directorate of Drawback in the Central Board of Excise and Customs and (ii) disbursement of drawback amount by the Customs Houses and/ Central Excise Commissionerate

12 DUTIES REBATED UNDER DRAWBACK SCHEME Drawback Given: 1. Basic inputs like raw materials, Components, Intermediates and packing materials used at various stages of production / manufacture. Drawback Not Given: 1. Capital goods, fuels and consumables used in relation to the manufacture of the export goods 2. no relief of Sales Tax or Octroi or any other indirect tax is given by way of drawback. 3. The finished stage of excise duties on the export product is also not reimbursed under this scheme.. 4. there are separate provisions for rebate of such finished stage duties under the Central Excises and Salt Act 1944 and the Rules framed thereunder.

13 DRAWBACK UNDER SECTION 74-IMPORTED GOODS RE-EXPORTED: SCOPE In this category, two types of cases are covered viz., 1. Imported goods exported as such i.e. without putting into use 98% of duty is refunded and 2. Imported goods exported after use the percentage of duty is refunded according to the period between the date of clearance for home consumption and the date when the goods are placed under Customs control for exports. The percentage of duty drawback is notified under Notification. No 19 Cus, dated 6th Feb, 1965 as amended from time to time

14 DRAWBACK ON RE-EXPORT OF USED GOODS SECTION 74 OF CUSTOMS ACT 1962 Not more than three months-95% More than three months but not more than six months- 85% More than six months but not more than nine months- 75% More than nine months but not more than twelve months- 70% More than twelve months but not more than fifteen months-65% More than fifteen months but not more than eighteen months60% More than eighteen months but not more than twenty-- one months55%

15 DRAWBACK ON RE-EXPORT OF USED GOODS SECTION 74 OF CUSTOMS ACT 1962 More than twenty--one months but not more than twenty- -four months 50% More than twenty--four months but not more than twenty--seven months 45% More than twenty--seven months but not more than thirty months 40% More than thirty months but not more than thirty-- three months 35% More than thirty--three months but not more than three months but not more than thirty --six months30% More than thirty--six months NIL

16 ELEMENTS NECESSARY FOR DRAWBACK UNDER SECTION 74 The elements necessary to claim drawback are; 1. The goods on which drawback is claimed must have been previously imported; 2. Import duty must have been paid on these goods when they were imported; 3. The goods should be entered for export within two years from the date of payment of duty on their importation (whether provisional or final duty). The period can be further extended to three years by the Commissioner of Customs on sufficient cause being shown. 4. The goods are identified as the goods imported. 5. The goods must be capable of being identified as imported goods. 6. The goods must actually be re-exported to any place outside India. 7. The market price of such goods must not be less than the amount of drawback claimed. 8. The amount of drawback should not be less than Rs. 500/- as per Section 76-(1) (c) of the Customs Act.

17 PROCEDURE TO CLAIM DRAWBACK UNDER SECTION 74 Drawback claims under Section 74 of the Customs Act are now being processed manually. To claim drawback under Section 74, the exporter should file the shipping bill under claim for drawback in the prescribed FORM and after assessment the goods are to be examined by the Customs officers for purposes of physical identification. After shipment, the claim is filed in the department, for sanction of drawback. The prereceipted drawback payment order has to be forwarded to the drawback department upon which cheque is issued. If the information submitted by the exporter is insufficient to process the claim, a deficiency memo will be issued to the exporter seeking further information or documents to process the claim. On compliance the claims will be processed in the usual manner.

18 SUPPORTING DOCUMENTS REQUIRED FOR PROCESSING DRAWBACK CLAIM UNDER SECTION 74 Triplicate copy of the Shipping Bill bearing examination report recorded by the proper officer of the customs at the time of export. Copy of the Bill of entry or any other prescribed documents against which goods were cleared for importation. Import invoice. Evidence of payment of duty paid at the time of importation of goods. Export invoice and packing list. Copy of the Bill of Lading or Airway bill. Any other documents as may be specified in the deficiency Memo.

19 DRAWBACK UNDER SECTION 75 OF THE CUSTOMS ACT 1962: SCOPE This is an export promotion incentive payable for goods manufacture in India with duty paid inputs whether indigenous or imported.

20 ALL INDUSTRY RATES The rates of drawback are announced by the Govt. of India, Ministry of Finance for various categories of goods. schedule appended to the Customs and Central Excise Duties Drawback Rules, The schedule of rates is normally announced on the 1st of June every year or 3 months after the budget. The rates mentioned in the schedule are called all-industry rates of drawback. The all industry rates of drawback are worked out on the basis of broad averages of consumption of inputs, duties suffered, quantity of wastage, f.o.b. prices of the export products etc.

21 NONAPPLICABILITY OFALL INDUSTRY RATES OF DRAWBACK All industry rates of drawback are not applicable where an export product has been. Exported in discharge of export obligation against an Advance Licence issued under Duty Exemption Scheme vide the relevant Import and Export Policy. Manufactured partly or wholly in bond under Section 65 of the Customs Act, 1962, exported by a unit licensed under any 100% Export Oriented Schemes (100% EOU/EHTP/STP/Agriculture/aquaculture etc) exported by a Unit situated in a Special Economic zones /Free trade zone/ Export processing Zones manufactured and exported in terms of Rule 12(1) (a) of the Central of the Central Excise Rules 2002; and manufactured and exported in terms of Rule 13(1) (a) of the Central Excises Rules, 2002; and manufactured and exported availing the facility under the Import and Export Pass Book schemes of he relevant Exim policy

22 BRAND RATES OFDUTY DRAWBACK the exporter can approach the Directorate of Drawback for fixation brand rates. Brand rates are fixed under Rule 6 for specific manufacturer exporter. the manufacturer has to submit the application to Directorate of Drawback within 30 days of their first shipment.

23 PROCEDURE FOR CLAIMING DRAWBACK UNDER SECTION 75 OF THE CUSTOMS ACT UNDER THE MANUAL SYSTEM: the exporter is required to file a drawback-shipping bill in the prescribed Format as required under Rule 13 along with the necessary declaration. The goods after assessment are examined by the officers posted in the Examination Shed as required for each individual case. The examination report will indicate the nature of goods in terms of drawback schedule for classification and application of correct rate. Samples may have to be drawn for testing by lab in respect of chemicals, synthetic fabrics etc as specified from time to time to confirm the declarations in the export documents

24 SUPPORTING DOCUMENTS REQUIRED FOR PROCESSING THE CLAIM. 1. Triplicate of the Shipping Bill 2. Copy of the Bank Certified Invoices. 3. Copy of the Bill Lading / Airway Bill 4. Sixtuplicate Copy of ARE 1/ ARE 2 wherever applicable 5. Freight and Insurance certificate wherever the contract is CIF / C&F 6. Copy of the Test report where the goods are required to be tested 7. Copy of the Brand rate letters where the drawback claim is against the Brand rate 8. Mate receipt 9. Copy of the Contract or Letter of credit as the case may be 10. Cenvat Declaration wherever applicable 11. Any declaration required as per foot note of the Drawback schedule 12. Work sheet showing the drawback amount claimed 13. DEEC Book and licence copy where applicable. 14. Transshipment certificate where applicable 15. Proof of foreign agency commission paid if any 16. Blank acknowledgement card in duplicate 17. Pre receipt for drawback amount on the reverse of Shipping Bill duly signed on the Rs1/- revenue stamp

25 THE MECHANISM.. The claims are settled and passed by the appraiser if the amount sanctioned is below Rs 1, 00,000. And by the Assistant Commissioner, if the amount of drawback exceeds Rs /- After pre-audit, the cheques are issued to the designated banks for credit to the exporters account or handed over to the authorized representative of the exporter

26 PROCESSING OF DRAWBACK CLAIMS UNDER SECTION 75 OF THE CUSTOMS ACT UNDER THE EDI SYSTEM Computerized processing of shipping bills is in vogue at over 24 ports in India. The shipping bills are processed under the Indian Customs EDI systems (ICES). Under the system, there would be no processing of paper documents except statutory declarations and endorsements until let export order stage. Processing of drawback claims under the system will be applicable for all exports except in respect of the claims under Section 74 of the Customs Act and those relating to EPZ/100% EOU. For the excluded categories the export Shipping Bills will be filed manually and processed by AC Drawback, as hitherto. Under the EDI system there is no need for filing separate drawback claims. The shipping bill itself treated as drawback claim.

27 THE PROCESSING IN EDI In the EDI system the exporters are required to open their accounts with the Bank nominated by the Custom Houses/ ACC. This has to be done to enable direct credit of drawback amount to their accounts, obviating the need for issue of cheques. For export of goods under claim for drawback, the exporters will file S.D.F declaration in Annexure B in lieu of GR 1 FORM. The declaration in Annexure C would also be filed when the export goods are presented at the Export shed for examination and Let export. All the claims sanctioned on a particular day will be enumerated in a scroll and transferred to the Nominated Bank through the system. The Bank will credit the drawback amount in their respective accounts of the exporters on the next day. Bank will send a fortnightly statement to the exporters of such credits made in their accounts. The steamer agents / Airlines will transfer the EGM electronically to the system so that the physical Export of goods is confirmed. The system will process the claims only on receipt of the EGM.

28 TIME LIMIT UNDER SECTION 75 3 Months Can be extended by Commissioner on reasonable cause.

29 @ of 15% by the government if it fails to make payments within 3 months. Exporter may have to 18% if he has received excess claim and does not refund to directorate within mentioned date. INTEREST PAYMENT

30 SUPPLEMENTARY CLAIM Can be made if exporter is not satisfied with in 30 days from the receiving of payments from directorate.

31 RESTRICTION ON GRANT OF DRAWBACK (a) The amount or the rate of drawback should work out 2% or more of the f.o.b. value of the product except in cases where the amount of drawback exceeds Rs5000/- per shipping Bill. (b) The f.o.b. value of the product should not be less than the value of all imported materials used in the manufacture of that product. In other words the value addition in respect of the particular product should not be negative

32 .RESTRICTION (c) No drawback is admissible where the amount of the drawback worked out is higher than the present market value of the goods export (Section 76(1) of the Customs Act) (d) Drawback is not admissible where the total amount of drawback is less than Rs 50/-(Section 76(1)(b) of the Customs Act,1962 (e) No drawback is admissible in case of goods exported by land to any place in Burma, Tibet or Bhutan as specified in the Ministry of finance Notification 208 cus. dated 1/10/1977

33 RECOVERY OF ERRONEOUSLY PAID DRAWBACK AMOUNT: Rule 16 of the Drawback Rules empowers the department to recover any erroneous payment of drawback without any time limit and can initiate recovery proceedings under Sec 142 of the Customs Act 1962

34 FIXATION OF BRAND RATES UNDER SIMPLIFIED SCHEME Request for extension time limit for filing an application for brand rate under Rules 6 & 7 of the Drawback Rules, Application For Fixation Of Drawback Rates Under Rule 6(1)(A) (Brand Rate) Or Rule 7(1) (Special Brand Rate) Of Customs And Central Excise Drawback Rules,1995 (Under Normal Scheme)

35 LEGISLATIVE REFERENCES RELATING TO DRAWBACK Section 74 Of The Customs Act 1962 (Drawback Allowable On Re- Export Of Duty Paid Goods) Section 75 Of The Customs Act 1962 (Drawback On Imported Materials Used In The Manufacture Of Goods, Which Are Exported) Section 37 (Xvi) Of The Central Excises And Salt Act, 1944 Section 75 A Of The Customs Act (Interest On Drawback) Section 76 Of The Customs Act 1962 (Prohibition And Regulation On Drawback In Certain Cases) Re-Export Of Imported Goods (Drawback Customs Duties) Rules Customs And Central Excise Duties Drawback Rules, 1995

36 QUESTIONS

37 Thank You धनयव द Merci Gracias Danke Schon شكرا 谢谢