Customs & Central Excise Duties Drawback Rules, 2017: A Comprehensive Guide

This official notification from the Ministry of Finance outlines the Customs and Central Excise Duties Drawback Rules, 2017, which dictate the rebate of duties on imported or excisable materials used in the manufacture of goods exported from India. The document details the conditions for eligibility, methods for determining drawback amounts, and procedures for claiming and recovering these rebates, including specific instructions for exports by post and other means. It establishes processes for exporters to apply for drawback determination, provisional payments, and supplementary claims, while also granting the Central Government powers to revise rates and recover erroneous payments, particularly when export proceeds are not realized. These rules supersede earlier regulations from 1995, with provisions for handling pending applications under the old rules.Top of Form

Comprehensive overview of the Customs and Central Excise Duties Drawback Rules, 2017, as outlined in Notification No. 88/2017-CUSTOMS (N.T.) published on September 21, 2017. These rules, effective from October 1, 2017, define and regulate the process of claiming drawback (rebate) on duties paid on imported or excisable materials used in the manufacture of goods subsequently exported from India.

1. Purpose and Scope of the Rules

The “Customs and Central Excise Duties Drawback Rules, 2017” aim to provide a rebate of duties on materials used in the production of exported goods. This mechanism is designed to prevent the cascading effect of taxes on exports, thereby making Indian goods more competitive in international markets.

• Definition of Drawback: “drawback” in relation to any goods manufactured in India and exported, means the rebate of duty excluding integrated tax leviable under sub-section (7) and compensation cess leviable under sub-section (9) respectively of section 3 of the Customs Tariff Act, 1975 (51 of 1975) chargeable on any imported materials or excisable materials used in the manufacture of such goods.” (Rule 2(a))
• Extent: These rules “extend to the whole of India.” (Rule 1(2))
• Commencement: The rules came into force on “the 1st day of October, 2017.” (Rule 1(3))

2. Key Definitions

The rules establish clear definitions for terms central to their application:

• Excisable material: “any material produced or manufactured in India subject to a duty of excise under the Central Excise Act, 1944 (1 of 1944).” (Rule 2(b))
• Export: “taking out of India to a place outside India or taking out from a place in Domestic Tariff Area (DTA) to a special economic zone and includes loading of provisions or store or equipment for use on board a vessel or aircraft proceeding to a foreign port.” (Rule 2(c))
• Imported material: “any material imported into India and on which duty is chargeable under the Customs Act, 1962 (52 of 1962).” (Rule 2(d))
• Manufacture: “includes processing of or any other operation carried out on goods, and the term manufacturer shall be construed accordingly.” (Rule 2(e))
• Tax Invoice: “the tax invoice referred to in section 31 of the Central Goods and Services Tax Act, 2017 (12 of 2017).” (Rule 2(f))

3. Conditions and Restrictions for Drawback

Drawback is allowed subject to several provisions and specific restrictions:

• General Conditions: Drawback is permissible “Subject to the provisions of… the Customs Act, 1962… the Central Excise Act, 1944… and these rules.” (Rule 3(1))
• Reduction of Drawback: If duties on materials have been partially paid, rebated, refunded, or given as credit, the admissible drawback will be “reduced taking into account the lesser duty paid or the rebate, refund or credit obtained.” (Rule 3(1) Proviso)
• Inadmissibility of Drawback (Key Exclusions):Goods “taken into use after manufacture” (except tea chests for blended tea). (Rule 3(1)(i))
• Goods manufactured using imported or excisable materials “in respect of which duties have not been paid.” (Rule 3(1)(ii))
• Jute batching oil used in specific jute product manufacturing. (Rule 3(1)(iii))
• Packing materials used for certain jute yarns, fabrics, and manufactures where jute predominates in weight. (Rule 3(1)(iv))
• Upper Limit of Drawback: The “drawback amount or rate determined under rule 3 shall not exceed one third of the market price of the export product.” (Rule 9)

4. Determination and Revision of Drawback Rates

The Central Government holds the authority to determine and revise drawback rates, considering various factors:

• Factors for Determination: The Central Government considers:
• Average quantity/value of materials used. (Rule 3(2)(a), (b))
• Average duties paid on materials, components, and intermediate products. (Rule 3(2)(c))
• Average duties paid on wasted materials and catalytic agents (with deduction for re-used or sold waste/catalytic agent). (Rule 3(2)(d))
• Average duties paid on packing materials. (Rule 3(2)(e))
• Any other relevant information. (Rule 3(2)(f))
• Revision of Rates: The Central Government “may revise amount or rates determined under rule 3.” (Rule 4)
• Effective Date: The Central Government specifies the period for which rates are in force and may allow retrospective effect, but not earlier than the “date of changes in the rates of duty on inputs used in the export goods.” (Rule 5)

5. Application Process for Drawback Determination (Rules 6 & 7)

5.1. Cases Where No Amount/Rate Determined (Rule 6): Exporters can apply for drawback determination if no rate has been established.

• Application Period: Within three months from the relevant date for applicability, extendable by Assistant/Deputy Commissioner (three months) and Principal/Commissioner (six months). (Rule 6(1)(a))
• Application Fee for Extension: 1% of FOB value or ₹1,000 (whichever is less) for Assistant/Deputy Commissioner; 2% of FOB value or ₹2,000 (whichever is less) for Principal/Commissioner. (Rule 6(1)(a)(iv))
• Provisional Drawback: Exporters can request provisional payment, subject to a bond for refund if not admissible or if an excess is paid. (Rule 6(2)) The bond may require surety or security. (Rule 6(2)(c))
• Government Intervention: The Central Government can revoke or direct withdrawal of rates determined by Customs officials. (Rule 6(3))

5.2. Cases Where Determined Amount/Rate is Low (Rule 7): Exporters can apply for re-determination if the existing rate is less than 80% of duties paid on materials.

• Application Period & Extension: Similar to Rule 6, within three months, with potential extensions and associated fees. (Rule 7(1))
• Provisional Further Drawback: Exporters can apply for additional provisional drawback if the initially determined amount is low, subject to conditions similar to Rule 6. The bond in this case is for the difference between the determined and provisional drawback. (Rule 7(3))
• Government Intervention: Similar to Rule 6, the Central Government can revoke or direct withdrawal of rates determined. (Rule 7(4))

5.3. Cases Where No Determination (Rule 8): No drawback rate will be determined under Rule 6 or 7 if “the export value… is less than the value of the imported materials used… or is not more than such percentage… as the Central Government may… specify.” (Rule 8)

6. Information, Access, and Claim Procedures

• Power to Require Information/Documents: Central Government officers can demand information, books of account, and other documents for various purposes, including determining material usage, verifying information, or validating claims. (Rule 10)
• Access to Manufactory: Manufacturers must grant authorized officers access to manufacturing premises to verify processes, materials, and entitlement to drawback. (Rule 11)
• Claiming Drawback on Goods Exported by Post (Rule 12):Outer packing must be marked “DRAWBACK EXPORT.” (Rule 12(1)(a))
• Exporter must submit a quadruplicate claim form (Annexure I) to the Postal Authority. (Rule 12(1)(b))
• Deficiencies in the claim must be notified within 15 days, and the claim is deemed not received until rectified. (Rule 12(3))
• Claiming Drawback on Exports Other Than by Post (Rules 13 & 14):Declaration at Export: Exporters must declare on the shipping bill/bill of export:
• Description, quantity, and particulars for drawback assessment.
• That a drawback claim is being made.
• That no separate claim for rebate under Central Excise Rules or other laws has been/will be made. (Rule 13(1)(a))
• Additional Declaration for Rules 6/7 Rates: If rates are determined under Rule 6 or 7, an additional declaration is required confirming no change in manufacturing formula or imported material quantum, and that imported materials continue to be sourced imported. (Rule 13(2))
• Submission of Documents: Electronic or triplicate shipping bill is deemed the drawback claim. Must be accompanied by export contract/LC, ARE-1 (if applicable), insurance certificate (if necessary), and communication regarding the determined drawback rate (for Rule 6/7 claims). (Rule 14(1), (2))
• Deficiency Memo: Incomplete claims are returned within 10 days, deemed not filed until resubmitted correctly. (Rule 14(3))
• Time for Payment: Time taken for testing (up to one month) is excluded from the one-month payment period prescribed under Section 75A. (Rule 14(4))

7. Payment, Supplementary Claims, and Recovery

• Payment of Drawback and Interest: Paid by the proper Customs officer to the exporter or authorized agent. Multiple claims can be combined for consolidated payment. (Rule 15)
• Supplementary Claim (Rule 16): Exporters can make supplementary claims if the paid drawback is less than the entitled amount.
• Time Limit: Within three months from publication of rate, communication of rate (for Rules 6/7), or payment of original claim. (Rule 16(1) Proviso)
• Extensions: Extendable by Assistant/Deputy Commissioner (nine months) and Principal/Commissioner (six months), with associated fees. (Rule 16(1) Second Proviso)
• Repayment of Erroneous/Excess Payments: Claimants must repay erroneous or excess drawback/interest on demand, otherwise, it will be recovered as per the Customs Act. (Rule 17)
• Recovery for Non-Realization of Export Proceeds (Rule 18):If export proceeds are not realized within the period allowed by FEMA, drawback (except for DTA to SEZ exports) will be recovered.
• Exporters are issued notice to produce evidence of realization within 30 days. Failure to do so leads to a recovery order. (Rule 18(2))
• Partial Realization: Drawback recovered will be proportional to the unrealized proceeds. (Rule 18(2) Proviso)
• Repayment upon Later Realization: If proceeds are realized after recovery, the recovered amount will be repaid to the claimant within three months (extendable) from realization, provided it’s within RBI’s permitted period. (Rule 18(4))
• Exemption from Recovery: No recovery if non-realization is compensated by Export Credit Guarantee Corporation of India Ltd. and RBI writes off the requirement, with a certificate from the concerned Foreign Mission of India. (Rule 18(5))

8. Power to Relax and Repeal

• Power to Relax: The Central Government can exempt exporters from rules and allow drawback if non-compliance was due to reasons beyond their control, provided representation is made and reasons are recorded. (Rule 19)
• Repeal and Saving: The Customs, Central Excise Duties and Service Tax Drawback Rules, 1995 are repealed. However, pending applications and claims made before the 2017 rules’ commencement will be disposed of under the 1995 rules. Existing rates under the 1995 rules cease for goods exported on or after October 1, 2017. (Rule 20)

This briefing provides a concise overview of the key provisions of the Customs and Central Excise Duties Drawback Rules, 2017, highlighting the definitions, conditions, procedures, and recovery mechanisms governing drawback claims in India.

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• What is “drawback” in the context of these rules?
• “Drawback” refers to a rebate of duty on imported or excisable materials that are used in the manufacture of goods produced in India and subsequently exported. This rebate specifically excludes integrated tax and compensation cess leviable under sections 3(7) and 3(9) of the Customs Tariff Act, 1975. The purpose is to refund duties paid on inputs when the final product is exported, effectively making the exported goods duty-free at the input stage.
• When do these rules come into effect and what previous regulations do they replace?
• These rules, officially called the Customs and Central Excise Duties Drawback Rules, 2017, came into force on October 1, 2017. They replace and supersede the Customs, Central Excise Duties and Service Tax Drawback Rules, 1995. However, applications and claims pertaining to goods exported before October 1, 2017, will still be processed under the provisions of the 1995 rules.
• Under what circumstances is drawback not allowed?
• Drawback is not allowed in several specific scenarios:
• If the manufactured goods (excluding tea chests for blended tea) have been put into use after manufacturing.
• If the goods are produced using imported or excisable materials on which duties have not been paid.
• On jute batching oil used in the manufacture of certain jute products (yarn, twist, twine, thread, cords, and ropes).
• If packing materials have been used for the export of specific jute products (yarn, fabrics, and other jute manufactures where jute predominates in weight).
• If the export value of the goods is less than the value of imported materials used in their manufacture, or falls below a certain percentage of the value of imported materials as specified by the Central Government.
• What factors does the Central Government consider when determining drawback rates?
• The Central Government considers various factors to determine the appropriate drawback amount or rate. These include:
• The average quantity or value of materials typically used to produce a specific class of goods in India.
• The average quantity or value of imported or excisable materials specifically used for the production of a particular class of goods in India.
• The average amount of duties paid on imported or excisable materials used in the manufacture of intermediate products (semis, components).
• The average amount of duties paid on materials wasted during manufacturing and on catalytic agents (with deductions if they are reused or sold).
• The average amount of duties paid on materials used for containing or packing the export goods.
• Any other information deemed relevant or useful by the Central Government.
• What can an exporter do if no drawback rate has been determined for their goods?
• If no drawback rate has been determined, an exporter can apply to the Principal Commissioner or Commissioner of Customs within three months from the relevant date for drawback applicability. This application must include all relevant facts, such as the proportion of materials used and duties paid. Extensions to this three-month period can be granted, subject to an application fee. Exporters can also apply for provisional drawback payment while awaiting a final determination, which may require entering into a bond to guarantee repayment if the provisional amount is incorrect.
• What options are available if an exporter believes the determined drawback rate is too low?
• If the determined drawback rate (under rule 3 or 4) is less than 80% of the duties paid on the materials used, the exporter can apply to the Principal Commissioner or Commissioner of Customs within three months for a redetermination. Similar to cases where no rate is determined, extensions are possible with associated fees. If the application is approved, the appropriate drawback amount or rate will be determined, and a provisional further drawback may be granted, requiring a bond for the difference between the initially determined rate and the provisional amount.
• How does an exporter claim drawback for goods exported by post and by other means?
• For goods exported by post, the outer packaging must be marked “DRAWBACK EXPORT.” The exporter must submit a quadruplicate claim form (Annexure I) to the Postal Authority along with the parcel. The date of receipt of this form by Customs is considered the filing date. For exports by means other than post, the exporter must state specific details on the shipping bill or bill of export, declare that a drawback claim is being made, and confirm no separate rebate claims for the same duties will be made to Central Excise authorities. A copy of the shipment invoice must also be furnished.
• What happens if export proceeds are not realized after drawback has been paid?
• If an exporter receives drawback but does not realize the sale proceeds of the exported goods within the period allowed under the Foreign Exchange Management Act, 1999, the drawback amount becomes recoverable. The Assistant/Deputy Commissioner of Customs will issue a notice to the exporter, requiring evidence of realization within 30 days. If evidence isn’t provided, the drawback paid will be recovered. If only a portion of the sale proceeds is realized, only the proportional drawback amount will be recovered. However, if the non-realization is compensated by the Export Credit Guarantee Corporation of India and written off by the Reserve Bank of India, with a certificate from the concerned Indian Foreign Mission, the drawback will not be recovered. If recovered drawback is later repaid due to subsequent realization, an application fee may apply for extension periods.

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Drawback Rules, 2017

This study guide is designed to review your understanding of the Customs and Central Excise Duties Drawback Rules, 2017.

Quiz: Short-Answer Questions

Answer each question in 2-3 sentences.

1. What is the primary purpose of the Customs and Central Excise Duties Drawback Rules, 2017?
2. Define “drawback” as per the rules, specifying what duties are excluded from the rebate.
3. What is the effective date of commencement for these rules?
4. Under what conditions will no drawback be allowed if goods have been taken into use after manufacture?
5. List three factors the Central Government considers when determining the amount or rate of drawback.
6. Explain the process an exporter should follow if no amount or rate of drawback has been determined for their goods.
7. What is the specific condition under which an exporter can apply for a revised drawback amount if the initially determined rate is too low?
8. What information and documents can a Central Government officer require from a manufacturer or exporter for drawback purposes?
9. Describe the key declarations an exporter must make on the shipping bill or bill of export when claiming drawback for exports other than by post.
10. Under what circumstances can the amount of drawback paid be recovered from an exporter, particularly concerning the realization of export proceeds?

Answer Key: Short-Answer Questions

1. The primary purpose of the Customs and Central Excise Duties Drawback Rules, 2017, is to provide for the rebate of duty chargeable on imported and excisable materials used in the manufacture of goods exported from India. This mechanism aims to make Indian exports more competitive by neutralizing the impact of domestic taxes on inputs.
2. “Drawback” refers to the rebate of duty chargeable on imported materials or excisable materials used in the manufacture of goods in India that are subsequently exported. It specifically excludes integrated tax leviable under sub-section (7) and compensation cess leviable under sub-section (9) of section 3 of the Customs Tariff Act, 1975.
3. The Customs and Central Excise Duties Drawback Rules, 2017, came into force on the 1st day of October, 2017. This effective date marks the commencement of their applicability for all relevant transactions.
4. No drawback will be allowed if the goods, except for tea chests used as packing material for export of blended tea, have been taken into use after manufacture. This condition ensures that the drawback is intended for newly manufactured goods intended for export, not those that have entered domestic consumption.
5. The Central Government considers various factors, including the average quantity or value of materials used in manufacture, the average amount of duties paid on imported or excisable materials, and the average amount of duties paid on materials wasted during manufacture. They also consider duties paid on materials used for packing export goods.
6. If no drawback rate has been determined, an exporter can apply to the Principal Commissioner or Commissioner of Customs within three months from the relevant date, stating all facts, including material proportions and duties paid. This period can be extended by the Assistant/Deputy Commissioner or Principal/Commissioner of Customs for specified durations, subject to application fees.
7. An exporter can apply for a revised drawback amount if the amount or rate of drawback determined under Rule 3 or revised under Rule 4 is less than eighty percent of the duties paid on the materials or components used in the production or manufacture of the goods. This application must be made within three months from the date relevant for the applicability of the drawback rate.
8. For determining material class, duty amounts, verifying information, or any other relevant purpose, an authorized Central Government officer can require a manufacturer or exporter to furnish information and produce books of account and other necessary documents. This ensures transparency and accuracy in drawback claims.
9. When exporting goods other than by post, exporters must state the description, quantity, and other necessary particulars on the shipping bill or bill of export for drawback determination. They must also declare that a drawback claim is being made and that no separate rebate claim for Customs and Central Excise duties on containers, packing materials, and manufacturing materials has been or will be made.
10. Drawback paid to an exporter can be recovered if the sale proceeds for the exported goods are not realized within the period allowed under the Foreign Exchange Management Act, 1999, including any extensions. The Assistant or Deputy Commissioner of Customs will issue a notice requiring evidence of realization, and failure to provide it within 30 days leads to a recovery order.

Essay Format Questions

1. Discuss the key differences in the application process and requirements for obtaining a drawback when a rate has not been determined (Rule 6) versus when the determined rate is considered low (Rule 7). Include details on provisional payments and conditions for extension.
2. Analyze the Central Government’s powers and considerations in determining and revising drawback rates. How do these powers ensure fairness and efficiency in the drawback system, and what factors might lead to a revision of rates?
3. Compare and contrast the procedures for claiming drawback on goods exported by post (Rule 12) and goods exported by other means (Rule 13 & 14). Highlight the required documentation, declarations, and deadlines for each method.
4. Examine the provisions related to the recovery of drawback, particularly concerning the non-realization of export proceeds (Rule 18). Discuss the circumstances under which recovery is initiated, the process involved, and any exceptions or conditions that prevent recovery.
5. Evaluate the mechanisms put in place by the Customs and Central Excise Duties Drawback Rules, 2017, to prevent fraudulent or erroneous drawback claims. Refer to specific rules that address verification, repayment, and other safeguards.

Glossary of Key Terms

• Central Excise Act, 1944 (1 of 1944): An Indian law governing the levy and collection of duties of excise on goods manufactured or produced in India.
• Central Government: The executive authority of the Union of India, responsible for implementing laws and policies.
• Compensation Cess: A levy imposed under the Goods and Services Tax (Compensation to States) Act, 2017, on certain goods and services to compensate states for revenue loss due to GST implementation.
• Customs Act, 1962 (52 of 1962): An Indian law consolidating and amending the law relating to customs. It governs the import and export of goods.
• Customs Tariff Act, 1975 (51 of 1975): An Indian law providing for the levy of customs duties and other related matters.
• Drawback: A rebate of duty (excluding integrated tax and compensation cess) chargeable on imported materials or excisable materials used in the manufacture of goods in India that are subsequently exported.
• Domestic Tariff Area (DTA): Any area in India that is not a Special Economic Zone (SEZ).
• Excisable Material: Any material produced or manufactured in India that is subject to a duty of excise under the Central Excise Act, 1944.
• Export: Taking goods out of India to a place outside India, or from a Domestic Tariff Area (DTA) to a Special Economic Zone (SEZ), including loading provisions or equipment for use on board a vessel or aircraft proceeding to a foreign port.
• Foreign Exchange Management Act, 1999 (42 of 1999): An Indian law facilitating external trade and payments and promoting the orderly development and maintenance of the foreign exchange market in India.
• FOB Value (Free On Board Value): The value of goods including all costs up to and including their loading onto a vessel at the port of export.
• Imported Material: Any material imported into India on which duty is chargeable under the Customs Act, 1962.
• Integrated Tax (IGST): A tax levied under the Goods and Services Tax (GST) regime on inter-state supplies of goods and services, and on imports into India.
• Manufacture: Includes the processing of goods or any other operation carried out on them. The term “manufacturer” is construed accordingly.
• Principal Commissioner of Customs or Commissioner of Customs: Senior officers in the Indian Customs administration responsible for overseeing customs operations and implementing related laws and rules.
• Proper Officer of Customs: An officer of customs designated to perform specific duties under the Customs Act and related rules.
• Shipping Bill/Bill of Export: A document filed by an exporter with the customs authorities, providing details of the goods to be exported.
• Special Economic Zone (SEZ): A specifically delineated duty-free enclave treated as foreign territory for trade operations, duties, and tariffs.
• Supplementary Claim: An additional claim for drawback made by an exporter if the initial drawback paid was less than the entitled amount.
• Tax Invoice: The invoice referred to in section 31 of the Central Goods and Services Tax Act, 2017, which serves as a record of a supply of goods or services under the GST regime.