Besides the aforesaid procedures, various other procedures have been prescribed. These are mainly to be followed by the person in charge of conveyance.
Boat Notes – If the vessel has to unload only a small cargo, it may not spend time in having berth in the port. If the small cargo is to be sent to shore, it may be loaded in a small boat and sent to shore. As per section 35, such small boat must be accompanied by a ‘Boat Note’. Boat Notes Regulations provide that such Boat Notes will be issued by Customs Officer. It will be maintained in duplicate and should be serially numbered. Boat Note should be in prescribed form.
In case of export, if small export cargo is to be loaded in ship through small boat, no Boat Note is required if the cargo is accompanied by the ‘Shipping Bill’, otherwise, Boat Note is required. Boat
Note is also required for transshipment of cargo, i.e. transfer from one ship to another or for re-shipment.
Transit Goods – Section 53 provide that any goods imported in any conveyance will be allowed to remain on the conveyance and to be transited without payment of customs duty, to any place out of India or any customs station. However, all these goods must be mentioned in import manifest or import report submitted by person in charge of conveyance. Such goods should not be ‘prohibited goods’ under section 11 of Customs Act. [The conveyance may be vehicle, ship or aircraft]. After transit, the goods may go to another customs station.
On arrival at customs station, the goods will be liable to customs duty as if it is first importation in India – section 55.
Transshipment of Goods – Goods imported in any customs station can be transshipped without payment of duty, u/s 54 of Customs Act. Transshipment means transfer from one conveyance to another. [The conveyance may be vehicle, ship or aircraft]. Such transshipment may be to any major port or airport in India. The goods can be transshipped to any other customs station in India if customs officer is satisfied that the goods are bonafide intended for transshipment to any customs station. The facility is available at all customs ports and Inland Container Depots (ICDs). [Notification No. 50/95- Cus(NT) dated 6-9-95].
Goods to be transshipped must be specified in Import Manifest or Import report and a ‘Bill of Transshipment’ should be submitted to Customs Officer. In case of goods being transshipped under an international treaty or bilateral agreement between Government of India and Government of a foreign country, a Declaration of Transshipment shall be submitted instead of Bill of Transshipment. [section 54(1)]. [India has such bilateral agreement with Nepal].
Such goods should not be ‘prohibited goods’ under section 11 of Customs Act. The goods should be sealed during transshipment by customs officer. A bond has to be executed for the purpose. After execution of bond, a certificate from customs officer has to be submitted within one month that goods have been properly transferred. [Goods Imported (Conditions of Transshipment) Regulations, 1995].
On arrival at customs station, they will be liable to customs duty as if it is first importation in India- section 55.
Transit And Tranship – Distinction between transit and transshipment is that in ‘transit’ goods continue to be on same vessel, while in transshipment, goods are transferred to another vessel / vehicle. Hence, procedures are also different.
Coastal Goods – Coastal goods means goods transported from one port in India to another port in India, but does not include imported goods. Thus, coastal goods means goods taken by ship from one Indian port to another. No export or import is involved, but control is necessary to ensure that coastal goods are not diverted illegally for export.
Loading Of Coastal Goods – The Consignor should submit bill of coastal goods to Customs Officer (section 93). Form of the bill has been prescribed. These will be loaded by master of vessel only after ‘bill of coastal goods’ is passed (section 93). Master of Vessel will carry an ‘Advice Book’ where entries will be made by Customs Officer. This ‘Advice Book’ has to be presented for inspection of Customs Officers, if called for. After loading, the vessel can leave only after obtaining written order from Customs Officer. As per notification No 15/98-NT dated 27.2.1998, exemption has been granted for delivery of ‘Advice Book’ at each port of call. However, the ‘Advice Book’ will have to be submitted for inspection on board of vessel, when called for.
Unloading Of Coastal Goods – Unloading of coastal goods should be done only at Customs
Port or coastal port appointed by CBEC under section 7 of Customs Act. On arrival, all bills relating to goods which are to be unloaded will be delivered to Customs Officer. Unloading can be done only after obtaining permission from Customs Officer. Customs Officer can inspect goods and ask for questions and documents relating to goods. Goods will be unloaded at approved place under supervision of Customs Officer.
Exemption from Duty
Some exemptions from duties are provided in Customs Act, while some are provided in Customs Tariff Act. Besides, Central Government can grant partial or full exemption from duty under section 25 of Customs Act. These exemptions are summarized here.
Exemptions by Notification – Section 25 (1) of Customs Act, 1962 authorizes Central Government to issue notifications granting exemptions from duty. Such exemption may be unconditional or subject to conditions. Such conditions may be required to be fulfilled before or after clearance. Government can also grant exemption by a special order in exceptional circumstances. The exemption notification should be published in gazette. The notification can be issued only in ‘public interest’.
Imports by privileged persons and organizations – Import by U N agencies, Governors, Ford Foundation, Vice President of India, specified equipment by foreign news agency, personal effects of deceased persons, gifts imported by CARE have been granted various exemptions.
Foreign Privileged Persons (Regulation of Customs Privileges) Rules, 1957 make provisions for privileges to specified foreign privileged persons i.e. Diplomats (High Commissioner, Ambassadors, Consul General etc). The imports of goods for their personal use or official use are allowed duty free. They have to produce exemption certificate in prescribed form signed by Head of Diplomatic Mission. Generally, the goods are not checked, but these can be checked if there is suspicion.
They can import cars. These can be sold to another privileged person. These can also be sold to non-privileged person after payment of customs duty, subject to certain restrictions. The car can be sold duty free after four years of import. If the car is totally damaged in accident or stolen, the amount of insurance claim will be treated a scum-duty price and duty so calculated will be payable.
Import for repairs, reconditioning etc. – Goods can be imported for repairs, reconditioning or re-engineering. These have to be re-exported within three years of imports. After imports, the repairs, reconditioning or re-engineering has to be in a bonded warehouse under customs bond. (Notification No. 134/94 – Cus dated 22-6-94) [It is not necessary that goods must have been manufactured in India]
Ad hoc exemptions – Section 25(2) of Customs Act permit Government to issue ad-hoc exemption from customs duty by issue of a special order in exceptional circumstances. The order should specify the exceptional circumstances for granting ad hoc exemption. [Similar provision in section 5A(2) of Central Excise Act]. – – It has been clarified that such exemption can be granted even after duty is paid. In such case, duty has to be refunded – MF(DR) circular No 12/97-Cus dated 12.5.1997.
Exemption of Imports for export – Various schemes have been formed to allow duty free imports of raw materials and components for exports. These include schemes like FTZ, 100% EOU, STP, EHTP, Advance Licenses etc. Import of materials for job work and return are also permitted. These are discussed in a later Chapter on ‘Export Incentives’
Project Imports – Heavy Customs duty on imported machinery for projects make the initial project cost very high and project may become unviable. Hence, concept of ‘project Import’ has been introduced to bring machinery etc. required for initial setup or substantial exemption at confessional customs duty.
The goods are classified under heading 98.01, though the machinery and its parts may actually fall under different tariff heading. This simple method is adopted, as otherwise, classifying each machinery and its parts in different heads and valuing them would have been cumbersome and would have delayed clearances, which would cause demurrages. – Chapter 5 Para 1 of CBE&C’s Customs Manual, 2001.
Duty Payable – Duty on project imports is basic 25% plus CVD of 16% plus of SAD 4%. .Basic customs duty for fertilizer projects, coal mining projects and power generation projects is 5%. [Notification No 16/2000-Cus dated 1-3-2000]. [Since now customs duty is generally 25%, ‘project import’ is relevant only in case of projects where basic duty is 5%].
Items Eligible For Project Imports – The items eligible are specified in heading 98.01 of Customs Tariff Act. These are: all items of machinery including prime movers, instruments, apparatus and appliances, control gear and transmission equipment, auxiliary equipment (including those for research and development, testing and quality control); as well as components or raw materials for manufacture of these items and their components; required for initial setting up of a unit or substantial expansion.
Projects Eligible – The projects eligible are: (1) Industrial Plant (2) Irrigation Project (3) Power Project (4) Mining Project (5) Project for oil or mineral exploration (6) Other projects as may be specified by Central Government. Under this head, Central Government has specified various projects like Mumbai Water supply, Mathura-Delhi- Ambala-Jullunder Pipeline, Nhava Sheva port Gas pipe line project, Konkan Railway project etc.
Registration Of Contract – Contract for import has to be registered with Customs. Application for registration of Contract must be made before importation and contract must be registered before order for clearance of goods is made from Customs. The contract can be amended if required.
Documents to be submitted while registering contract are specified in Chapter 5 Para 8 of CBE&C’s Customs Manual, 2001.
Finalization Of Contract – After contract is completed, importer has to submit a statement giving details of goods imported with proof of value and quantity within three months of clearance of goods. If necessary, Plant Site Verification may be carried out in case of large project contract exceeding Rs one crore. – Chapter 5 Para 12 and 13 of CBE&C’s Customs Manual, 2001.
Remission on lost/pilfered/damaged goods
Customs Act provides for remission of duty on goods lost/damaged/pilfered before clearance. These provisions have been specifically made because pilferage of goods in ports is very heavy – particularly of small and costly items.
Remission on lost/pilfered goods – Section 23(1) of Customs Act provides for remission of duty on imported goods lost (other than pilferage) or destroyed, if such loss or destruction is at any time before clearance for home consumption. Section 13 provides that if imported goods are pilfered after unloading but before order for clearance is passed by Customs Officer for clearance for home consumption or deposit in a warehouse, no duty is payable on the goods, unless the pilfered goods are restored to importer.
Normal practice is to inspect the goods in the port before payment of duty. The Duty is paid only when imported goods are found to be in order. Shortages should be informed to customs authorities and they should be involved in examination of goods, to prove shortage of goods. In All India Glass Mfgrs Federation v. CC 1991(55) ELT 5 (SC), it was held that damage to goods should be proved before goods are cleared from customs.
No Remission After Goods Are Cleared For Home Consumption – No remission for short delivery can be obtained after goods are cleared from customs. – Partap Steels v. CC 2001(135) ELT 168 (CEGAT).
Remission After Goods Are Warehoused – Remission of duty on goods warehoused is permissible u/s 23, as goods cleared for warehousing are not ‘goods cleared for home consumption’. – Winsome Yarn v. CCE 2001(134) ELT 686 (CEGAT). [In a contrary decision, in Pasupathi Overseas P Ltd. v. CC – 1996(88) ELT 795 (CEGAT), it was held that no remission can be given in respect of warehoused goods. The decision probably needs review]. – – Loss of goods due to theft (pilferage) in warehouse is not covered u/s 23 and remission is not admissible. – Himalaya Granites v. CCE 2001(135) ELT 1212 (CEGAT). [Issue is arguable].
Difference between sections 13 and 23 (1) – Differences in sections 13 and 23 (1) can be summarized as follows:
Section 13 deals with pilferage, while section 23 (1) deals with loss or destruction of goods, except pilferage.
No duty is payable at all under section 13, but liability revives of duty if goods are restored. However, duty is payable under section 23 (1), but it is remitted by Assistant Commissioner of Customs. Thus, unless remitted, duty has to be paid under section 23 (1).
Under section 13, importer does not have to prove pilferage. However, under section 23 (1), burden of proof is on importer to prove loss or destruction.
Under section 13, pilferage should be before order for clearance is made, while under section 23 (1), loss or destruction can be any time before clearance.
Under section 13, loss must be only due to pilferage. However, under section 23 (1), loss or destruction may be due to fire, accident etc. but not pilferage. e.g. loss by leakage is covered under this section. Under section 13, normally duty is not paid. However, if duty is paid before examination of goods, refund can be claimed if goods are found to be pilfered during examination but before order for clearance is made. Under section 23 (1), if duty is paid, then refund can be obtained only if remission is granted by Customs Authorities. Thus, remission under section 23 (1) is at the discretion of Custom Authorities. [Of course, the discretion has to be exercised judiciously].
Section 13 is not applicable for warehoused goods, while section 23 (1) is applicable for warehoused goods also. [as goods transferred to warehouse are not ‘cleared for home consumption’]. As per section 23(2) of Customs Act, importer cannot relinquish the title in goods after order for clearance for home consumption. However, in case of warehoused goods, the owner of warehoused goods can relinquish the title of goods any time before order for home clearance is made. He will be required to pay rent, interest, other charges and penalties that may be payable, but duty will not be payable [proviso to section 68 inserted w.e.f. 14-5-2003]. [Really, this is not permitted as per wording of section 23(2). However, since proviso to section 68 is a specific provision and added later, it will prevail].
Loss after order of clearance but before actual clearance – Section 13 provides that duty on pilfered goods is not payable if the imported goods are pilfered before order of clearance is made. This section is on basis of principle that goods are not in control of importer when they are in port and he should not be penalised if these are pilfered .As the sections 13 and 23 (1) stand today, there is no remedy if goods are pilfered after the order for clearance is made but before the goods are actually cleared.
REMISSION IF GOODS LOST AFTER ORDER OF CLEARANCE BUT BEFORE PHYSICAL CLEARANCE – In CC v. Saw Pipes 2001(137) ELT 244 (CEGAT), it was (indeed rightly) held that ‘clearance for home consumption’ cannot be equated with order of clearance for home consumption. Physical removal of goods which is the ‘clearance for home consumption’ can take place only after such an order is passed. Such clearance therefore is an event distinct and separate from the order permitting clearance. [This decision is relevant for purpose of section 23(1) and not for section 13, as wording used in section 13 is different].
Duty on pilfered goods is payable by port authorities – Once goods are unloaded from ship/aircraft, they are in custody of port trust authorities or airport authorities till the goods are cleared. They are in position of ‘bailee’. If goods are pilfered after they are unloaded but before they are cleared from the port, the customs duty is payable by port trust authorities or airport authorities under whose custody the goods were lying [section 45(3)]. Thus, though importer does not have to pay duty on pilfered goods, the same is payable by authorities who were custodians of the goods so that Government does not lose any revenue on account of pilferage.
Remission on relinquished goods – If the importer decides to abandon the goods, he shall not be liable to pay any duty [section 23 (2) of Customs Act]. Such situation normally arises if the goods are in much deteriorated condition and importer may feel that it is not worthwhile to pay duty and incur further losses. The importer may also abandon the goods if the assessment of duty is done on much higher side than expected by him. In such case, he may abandon the goods if he feels that it is cheaper to abandon the goods than to pay heavy customs duty. He should relinquish title before (a) an order for clearance of the goods for home consumption or (b) before order permitting deposit of goods for warehousing is made.
However, even if goods are warehoused, the owner of warehoused goods can relinquish the title of goods any time before order for home clearance is made. He will be required to pay rent, interest, other charges and penalties that may be payable, but duty will not be payable [proviso to section 68 inserted w.e.f. 14-5-2003]. The word ‘interest’ is not clear and is likely to lead to litigation. It has been consistently held that when duty is not payable, question of payment of duty does not arise.
Abatement of duty on damaged goods – Section 22 of Customs Act provides for reduction in duty if goods are damaged or deteriorated in any of the following cases : (a) damaged before or during unloading in India (b) damaged by accident after unloading but before examination of goods for assessment by Customs Officer – provided that the accident is not due to wilful act, negligence or default of importer, his employee or agent (c) damaged by accident in warehouse before clearance of goods – provided that the accident is not due to wilful act, negligence or default of importer, his employee or agent. The customs duty chargeable will be in proportion to the value of damaged good to value of goods before damage or deterioration e.g. if value of goods is Rs. 10,000 and after damage, the value is Rs. 2,000, then 20% of the normal customs duty is payable. The value of damaged goods may be decided by Assistant Commissioner of Customs, or if the owner agrees, the damaged goods may be sold by auction and gross sale proceeds of the auction will be deemed to be the value of goods.
Demand of Customs Duty
If it is found that duty is not levied or short levied or erroneously refunded, Customs officer can raise a show cause notice for demanding the duty [section 28].
Period for issue of Show cause Notice for demand – The notice must be issued within six months from relevant date. However, in case of import by an individual for his personal use or by Government or by any charitable, research or charitable Institution or Hospital, the demand can be raised within one year of relevant date. This period can be extended to five years in case the short levy or non-levy or refund was due to collusion, wilful mis-statement, suppression of facts or fraud by importer, exporter, agent or employee of importer/exporter. While counting this period, if Court had granted a stay against issue of notice, that period will not be considered [section 28 (1) of Customs Act].
Relevant date for issue of SCN – Relevant date for calculating the limit of six months, one year or five years is (a) if duty or interest was not levied, date of order of clearance of goods (b) if the duty was provisionally assessed, then date when it was adjusted after final assessment (c) if duty or interest was erroneously refunded – date of refund (d) if duty was paid or interest levied – date of payment of duty or interest [section 28 (3) of Customs Act].
NO TIME LIMIT FOR ASSESSMENT – Section 17 does not prescribe any time limit for assessment. Thus, if ship was allowed to leave without assessment on execution of guarantee, assessment can be done without any time limit and time limit u/s 28 does not apply. – Southern India Corpn v. ACCE 2000(123) ELT 251 (Cal HC).
Demand in respect of correction of clerical error – Section 154 of Customs Act provides for correction of – (a) clerical or arithmetical mistakes or (b) errors due to any accidental slip or omission – in any decision or order passed by Central Government, CBE&C or any officer of Customs can be corrected by the said authority.
Notice can be issued in respect of goods already cleared – Goods are cleared from customs after an order of Assistant Commissioner is issued under section 47 of Customs Act. As per section 128 (2) of Customs Act, if the department is not satisfied with the order, it can file appeal against the order of Assistant Commissioner with Commissioner (Appeals). A question was raised whether, once goods are cleared after issue of order under section 47, a demand can be raised under section 28 or only a review application has to be made under section 128 (2). There were divergent opinions. Finally, Supreme Court, in UOI v. Jain Shudh Vanaspati Ltd. – 1996(86) ELT 460 (SC) = AIR 1996 SC 2696, has held that action can be taken under section 28 of Customs Act, even after goods are released from Customs, by issuing a show cause notice etc. It is not necessary that appeal must be filed by department u/s 128(2) with Commissioner (Appeals) against order of clearance. Similar decision in Seshan Printers v. CC – (1996) 84 ELT 72 (CEGAT) Component Corporation v. CC 1997(93) ELT 225 (CEGAT).
Interest on delayed payment of duty – Demand, once confirmed, must be paid within three months. Interest is payable from the next month from which duty ought to have been paid [section 28AB of Customs Act as amended w.e.f. 11.5.2001]. The provisions are identical with provisions in Central Excise and hence are not elaborated here.
Other provisions similar to Central Excise – Legal provisions regarding show cause notice, hearing, appealable order etc. are similar to excise. Provisions in respect of Settlement Commission and Advance Ruling are also same as excise. Principle of provisional assessment is also same, though provisions are not identical. Hence, these provisions are not elaborated here. Section 28 of Customs Act is pari materia with section 11A of Central Excise Act, except that the words ‘with intent to evade payment of duty’ appearing in section 11A do not appear in section 28 of Customs Act.
Recovery of sums due to Government
Section 142 of Customs Act provides that if any duty is demanded or drawback paid is recoverable from a person, it can be (a) deducted from any amount payable by any customs officer to such person (b) detaining and selling goods belonging to such person, which are under control of Customs authorities (c) issuing a certificate to District Collector in whose district any property of the person is situated or where he carries on business. The District Collector can recover the amount as arrears of land revenue. (d) Destraining and detaining any property belonging to the person and selling the same (d) enforcing a bond executed under the Act.
Detention and sale of any property – If the amount due is not paid, Assistant Commissioner of Customs can, on authorization by a Commissioner of Customs, distain any movable or immovable property belonging to or in control of such person (from whom any sum is recoverable]. The property can be detained until the amount is paid along with cost of the distress or keeping the property. If amount is not paid, the property can be attached and sold by customs authorities. [section 142 (1)©(ii) of Customs Act].
This section has been made applicable to Central Excise also. Since these provisions are discussed under Central Excise, these are not repeated here.
Refund of Duty
Refund may be obtainable if customs duty was paid in excess while clearing the goods.
Time limit for filing refund claim – Refund claim should be lodged within six months. This period is one year in case of imports made by individual for personal use or by Government or by any educational, research or charitable institution. If duty was paid under protest, time limit of 6 months / one year is not applicable. [provison to section 27(1)]. If duty was paid on provisional basis, period of 6 months / one year will be calculated form the date of adjustment of duty after final assessment [Explanation II to section 27 (1) of Customs Act ].
Refund claim can be of customs duty and interest paid on such duty. [Note that as per section 47 (2) of Customs Act, 1962, if duty is not paid within two days of return of return of bill of entry to make payment of duty, interest is payable. If excess duty is refunded, pro rata interest should also be refunded.]
Refund to Importer/Buyer – Provisions regarding person to whom refund can be granted are as follows:
WHO CAN FILE REFUND CLAIM – Refund claim will be normally filed by importer. However, if the goods were sold and if buyer has paid customs duty, he also can file refund claim, if he has not passed on its incidence to another person. Refund claim should be lodged with Assistant Commissioner. Refund, once sanctioned, will be normally paid to Consumer Welfare Fund, unless the importer/buyer proves that he has not passed on the burden to another person [section 27(2) of Customs Act].
Refund claim cannot be filed by Custom House Agent in his own name, without power of attorney – VV Dabke v. CC – 1983 (12) ELT 583 (CEGAT) – followed in Jaswant B Shah v. CC – (1996) 81 ELT 669 (CEGAT).
Refund to buyer/Importer/exporter if no ‘Unjust Enrichment’ – Under proviso to section 27 (2) of Customs Act, refund of customs duty and interest paid on such duty can be made to importer/buyer only in following cases:
- If Importer/exporter/buyer has not passed on incidence of the duty to another person
- If Imports are made by individual for his personal use
- In case of Refund of export duty, if any
- In case of Duty drawback payable to exporter
- If borne by any other such class of applicants, as may be specified by Central Government, by notification, if the incidence of duty has not been passed on to any other person. Such notification has to be placed before Parliament and got approved. (so far, not a single notification has been issued under this provision).
- These provisions are overriding provisions and are applicable irrespective of any contrary judgment of Appellate Tribunal or any Court or any other provisions of Customs Act and Rules. Thus, refund provision in any other rule will be always subject to the aforesaid provisions of section 27 (2) of Customs Act.
Application for refund of Customs Duty – Application for refund must be made in prescribed form in duplicate. The form has been prescribed in Customs Refund Application (Form) regulations, 1995.
Duty incidence deemed to have been passed to buyer – Refund is available to importer/buyer only if he has borne the incidence. Section 28D of Customs Act that every person who had paid duty shall be deemed to have passed on the incidence to buyer of the goods. (i.e. he is deemed to have recovered the same from buyer). The importer/buyer claiming refund will have to prove that he has not passed on incidence of tax to any other person. [In legal terminology, this means that burden of proof is on importer/buyer claiming the refund that he has not passed on the incidence. Customs department does not have to prove otherwise i.e. that incidence has been passed on to consumer.]
Unjust Enrichment – Provisions in respect of ‘Unjust Enrichment’ are similar to those in respect of Central Excise.
Refund beyond six months/one year – Discussions under Central Excise Law on this topic are fully applicable in customs also. These can be granted only under writ powers of High Courts or SLP with Supreme Court. However, such refunds, even if sanctioned, will be subject to provisions of ‘unjust enrichment’
Refund of Export duty – Export duty is charged on very few items but section 26 of Customs Act makes provisions for refund of export duty. Export duty is refundable if (a) Goods are re-imported within one year (b) the goods returned are not ‘re-sale’ and (c) refund claim is lodged within six months from date of clearance by customs officer for re-importation. This refund is not subject to provisions of unjust enrichment.
Various schemes like EOU, SEZ, DEEC, manufacture under bond etc. are available to obtain inputs without payment of customs duty/excise duty or obtain refund of duty paid on inputs. In case of Central Excise, Manufacturers can avail Cenvat credit of duty paid on inputs and utilize the same for payment of duty on other goods sold in India, or they can obtain refund. Schemes like manufacture under bond are also available for customs. Manufacturers or processors who are unable to avail any of these schemes can avail ‘duty drawback’. Here, the excise duty and customs duty paid on inputs is refunded to the exporter of finished product by way of ‘duty drawback’. Section 75 of Customs Act provide for drawback on materials used in manufacture or processing of export product. Section 37 of Central Excise Act allows Central Government to frame rules for purpose of the Act. Under these powers, ‘Customs and Central Excise Duties Drawback Rules, 1995’ have been framed.
It may be noted that duty drawback under section 75 is granted when imported materials are used in the manufacture of goods which are then exported, while duty drawback under section 74 is applicable when imported goods are re-exported as it is and article is easily identifiable.
Drawback Of Customs And Excise Duty Paid On Inputs
Drawback means the rebate of duty chargeable on any imported materials or excisable materials used in manufacture or processing of goods which are manufactured in India and exported. Export means taking out of India. Supply of stores for use in vessel or aircraft proceeding to foreign port is also covered, since it is treated as ‘export’ as per section 89 of Customs Act.
Duty Drawback is equal to (a) customs duty paid on imported inputs including SAD plus (b) excise duty paid on indigenous inputs. Duty paid on packing material is also eligible. However, if inputs are obtained without payment of customs/excise duty, no drawback will be paid. If customs/excise duty is paid on part of inputs or rebate/refund is obtained, only that part on which duty is paid and on which rebate/refund is not obtained will be eligible for drawback. No drawback is available on other taxes like sales tax and octroi.
Duty drawback of SAD (Special Additional Duty) is allowable. – MF(DR) circular No. 58/2002-Cus dated 12-9-2002.
Processing also eligible for Drawback – Drawback is allowable if any manufacture, process or any operation is carried out in India [section 75(1) of Customs Act]. Thus, drawback is available not only on manufacture, but also on processing and job work, where goods may not change its identity and no ‘manufacture’ has taken place.
Type of Drawback Rates – All Industry Drawback rates are fixed by Directorate of Drawback, Dept. of Revenue, Ministry of Finance, Govt. of India, Jeevan Deep, Parliament Street, New Delhi-110001. The rates are periodically revised – normally on 1st June every year. Data from industry is collected for this purpose. The types of rates are as follows:
All Industry Rate – This rate is fixed under rule 3 of Drawback Rules by considering average quantity and value of each class of inputs imported or manufactured in India. Average amount of duties paid is considered. These rates are fixed for broad categories of products. The rates include drawback on packing materials. Normally, the rates are revised every year from 1st June, i.e. after considering the impact of budget, which is presented in February every year. All Industry drawback rate is not fixed if the rate is less than 1% of FOB Value, unless the drawback claim per shipment exceeds Rs 500.
The AIR (All Industry Rate) is usually fixed as % of FOB price of export products. However, in respect of many export products, duty drawback cap (ceiling) has been prescribed, so that even if an exporter gets high price, his duty drawback eligibility does not go above the ceiling prescribed.
The table gives allocation of the drawback allowed under two heads namely – Customs and Central Excise. The Customs portion covers basic customs duty, surcharge and SAD. Excise portion covers basic and special excise duty and CVD. Duty drawback of customs portion can be paid even if exporter has availed Cenvat credit, as Cenvat credit is only of excise duty and CVD. -MF(DR) circular No. 83/2000-Cus dated 16-10-2000.
The All Industry Rate (AIR) is fixed on the basis of weighted averages of consumption of imported/ indigenous inputs of a representative cross section of exporters and average incidence of duties. Hence, individual exporter is not required to produce any evidence in respect of actual duties paid by him on inputs. – MF (DR) circular No. 24/2001-Cus dated 20.4.2001.
Brand Rate – It is possible to fix All Industry Rate only for some standard products. It cannot be fixed for special type of products. In such cases, brand rate is fixed under rule 6. The manufacturer has to submit application with all details to Commissioner, Central Excise. Such application must be made within 60 days of export. This period can be extended by Central Government by further 30 days. Further extension can be granted even up to one year in if delay was due to abnormal situations as explained in MF(DR) circular No. 82/98-Cus dated 29-10-1998.
Special Brand Rate – All Industry rate is fixed on average basis. Thus, a particular manufacturer may find that the actual duty paid on inputs is higher than All Industry Rate fixed for his product. In such case, he can apply under rule 7 of Drawback Rules for fixation of Special Brand Rate, within 30 days from export. The conditions of eligibility are (a) the all Industry rate fixed should be less than 80% of the duties paid by him (b) rate should not be less than 1% of FOB value of product except when amount of drawback per shipment is more than Rs. 500 (c) export value is not less than the value of imported material used in them – i.e. there should not be ‘negative value addition’.
Drawback Rate Fixation – Forms and procedures have been prescribed for submitting details to jurisdictional Commissioner of Central Excise, who will fix the rate of duty drawback. [Earlier, it was done by Director of Drawback, New Delhi, upto 313-2003]
Drawback claim procedure – Exporter shall endorse on the ‘shipping bill’ the description, quantity and other details to decide whether goods are eligible for duty drawback. He should submit one extra copy of shipping bill for drawback purposes. Copy of Invoice should be submitted.
DECLARATION BY EXPORTER – A declaration should be made rule 12(1)(a)(ii) of Duty Drawback Rules, on shipping bill or bill of export that claim of drawback is being made and that duties of customs and excise have been paid on materials, containers and packing materials and that no separate claim for rebate of duty will be made. If the exporter or his authorized agent was unable to make such declaration due to reasons beyond his control, Commissioner of Customs can grant exemption from this provision of making declaration on shipping bill or bill of export.
Further declarations are also required when brand rate or special brand rate has been fixed. These declarations have to be signed by exporter.
Triplicate copy of shipping Bill is the drawback copy and should be marked as ‘Drawback Claim Copy’. It should be submitted with pre-receipt on reverse side with revenue stamp.
DECLARATION FOR NON-AVAILMENT OF CENVAT – (a) If the manufacturer-exporter or supporting manufacturer of merchant exporter is registered with Central Excise, fact of non-availment of Cenvat credit can be verified from ARE-1 form furnished (b) If the manufacturer-exporter or supporting manufacturer of merchant exporter is not registered with Central Excise, they have to submit self-declaration about non-availment of Cenvat in prescribed form. – MF (DR) circular No. 8/2003-Cus dated 17-2-2003. – – The drawback rate consists of two components – customs portion (consisting of basic customs duty, surcharge and SAD) and excise portion (consisting of basic excise duty, special excise duty and CVD). The Cenvat credit is only in respect of central excise. Hence, it has been clarified that even if Cenvat credit has been availed, duty drawback in respect of customs portion will be available.
Duty drawback on Re-export
Section 74 of Customs Act, 1962 provide for drawback if the goods are re-exported as such or after use. This may happen in cases like import for exhibitions, goods rejected or wrong shipment etc. The re-exported goods should be identifiable as having been imported and should be re-exported within two years from date of payment of duty when they were imported. This period (of two years) can be extended by CBE&C on sufficient cause being shown. These should be declared and inspected by Customs Officer. Original shipping bill under which the goods were imported should be produced. The goods can be exported as cargo by air or sea, or as baggage or by post. – . – . – After inspection, export and submission of application with full details, 98% of the customs duty paid while importing the goods is repaid as drawback.
Distinction Between Section 74 And 75 – Section 74 is applicable when imported goods are re-exported as it is an article is easily identifiable, while section 75 is applicable when imported materials are used in the manufacture of goods which are then exported – ABC India Ltd. v. UOI 1992(61) ELT 205 (Del HC). In LVT Products v. CC 1998(103) ELT 663 (CEGAT), it was held that there is no provision for refund of import duty, if imported goods are re-exported. The assessee can only claim duty drawback u/s 74.
Value At The Time Of Export Is Relevant – As per section 74(4), goods are deemed to have been entered for export on the date rate of duty is to be calculated under section 16. As per section 16, value of export goods will be taken on the date on which proper officer makes an order permitting clearance of goods for export under section 51 of Customs Act. Hence, ‘Value’ for the purposes of section 76(1)(b) will be value at the time of export and not the original value of import of the goods. This was stated by Commissioner, Customs; at the meeting of Customs Advisory Committee held at Mumbai dated 28-10-93. (Ref. : W.O.B. 45/93 dated 9-11-93).
Goods Can Be Re-Exported To Any Party And From Any Port – It has been clarified that goods can be re-exported to any party (and not only to the same supplier) and re export can take place from any port. – CBEC circular No. 72/2002-Cus dated 1-11-2002.
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 the goods were in possession of the importer, they might be treated as used by the importer. As per the rules framed by Central Government, the table is as follows : (a) use upto 6 months ; 85% (b) 6 months to 12 months : 70% (c) 12 months to 18 months : 60% (d) 18 months to 24 months : 50% (e) 24 months to 30 months : 40% (f) 30 months to 36 months : 30% (g) over 36 months : Nil. Drawback is allowed if the use is over 24 months only with permission of Commissioner of Customs if sufficient cause is shown.
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 first year, 3% per quarter for second year, 2.5% per quarter for third year and 2% per quarter for fourth year.
