Duty Drawback – CA Final IDT Study Material

Duty Drawback – CA Final IDT Study Material is designed strictly as per the latest syllabus and exam pattern.

Duty Drawback – CA Final IDT Study Material

Question 1.
With reference to drawback on re-export of duty paid imported goods, under Sec. 74 of the Customs Act, 1962, answer in brief the following questions:
(i) What is the time limit for re-exportation of goods as such?
(ii) What is the rate of duty drawback, if the goods are exported without use?
(iii) Is duty drawback allowed on re-export of wearing apparel without use? [Nov. 2013, 3 Marks]
Answer:
(i) Time limit for re-exportation of goods

Sec. 74 of the Customs Act, 1962
The goods must be entered for export within 2 years from the date of payment of duty on the importation thereof. However, extension can be granted by the Board on sufficient cause been shown. In the case of goods assessed to duty provisionally u/s 18, the date of payment of the provisional duty shall be deemed to be the date of payment of duty.

(ii) Rate of duty draw back, if the goods are exported without use

98% of the import duty paid is allowed as drawback in case the goods are exported out of India without being put to use. In case the goods are taken into use and then exported, duty drawback shall be allowed at notified rates u/s 74(2) having regard to the duration of use, the depreciation in value and other relevant circumstances.

(iii) duty drawback allowed on re-export of wearing apparel without use

Yes, duty drawback is allowed when wearing apparels are re-exported without being used. However, Notification No. 19/65-Cus., dated 6.2.1965 as amended provides that if wearing apparels have been used after their importation into India, drawback of import duty paid thereon shall not be allowed when they are exported out of India.

Question 2.
M/s. PQR has imported used wearing apparel from USA in April, 2019. After receipt, POR is doubtful that the apparel may not be saleable In India and want to re-export back to USA, without use, which the supplier has accepted. Will PQR be eligible to take Drawback of duty paid on imports? Also list out the conditions for duty drawback. [Nov. 2019, 5 Marks]
Answer:
Solution.

Provision
As per section 74 of Customs Act, 2017
No Drawback in certain cases of “used” goods: In case following goods have been used after their import into India, drawback of import duty paid thereon shall not be allowed when they are exported out of India –

1. Wearing apparel;
2. Tea-chests;
3. Exposed cinematograph films passed by the Board of Film Censors in India;
4. Unexposed photographic films, paper and plates, and X-ray films.

In the given case

• M/s. PQR has imported used wearing apparel from USA and want to re-export back to USA, without use.
• It means wearing apparel have not been used after importation & re-export without use.
• As per above discussion, M/s. PQR is eligible to take drawback of duty paid on Import (Subject to following conditions). And maximum duty drawback in this case will be 98%.

Conditions for a availing duty drawback.

Easily Identifiable – The Goods should be easily identified (without any testing)
Market Price – Market Price of Goods exported should not be less than amount of Duty Drawback.
Minimum Draw back – Amount of Duty Drawback amount should be atleast ₹ 50.
Time period for re-export – The goods are entered for export –

• Within 2 Years
• From the date of payment of duty on the importation thereof.

However, in any particular case, aforesaid period of two years may, on sufficient cause being shown, be extended by the Board by such further period as it may deem fit.

Question 3.
State briefly any live illustrative cases under the Customs Central Excise Duties and Drawback Rules, 2017, where the All Industry Drawback Rates will not apply. [May 2008, 5 Marks]
Answer:
Illustrative cases for Non-applicability of All Industry Drawback Rates:

1. Any commodity exported, after manufacturing in customs bonded warehouse, by following Sec. 65 of the Customs Act, 1962.
2. Any commodity exported in discharge of export obligation against “Advance Licence” or any other beneficial scheme under Foreign Trade Policy.
3. Any commodity exported by 100% export-oriented undertaking,
4. Any commodity exported by a SEZ unit.
5. Any commodity exported by manufacturer or trader who has claimed rebate.

Question 4.
What are the cases in which no drawback is allowed under Sec. 75 of the Customs Act, 1962 and Customs and Central Excise Duties Drawback Rules, 2017. Also explain the maximum rate of duty drawback. [Nov. 2008, 2 Marks]
Answer:
(I) No Drawback to be Allowed

(а) In Case of Negative Value Addition:
If the export value of such goods or class of goods is less than the value of the imported materials used in the manufacturing, processing of such goods or carrying out any operation on them, then, no drawback shall be allowed.

(b) Minimum Value Addition:
If the export value of such goods is not more than such percentage of the value of the imported materials used in their manufacture etc., as specified by the Central Government, no drawback shall be allowed.

(II) Maximum rate of duty drawback [Rule 9]
The upper limit of drawback money or rate determined under rule 3 should not exceed one third of the market price of the export product.

Question 5.
State briefly the provisions under the Customs Act, 1962 relating to duty drawback on re-export of goods. [May 2016, 3 Marks]
Answer:
Duty Drawback will be allowed on re-export of duty paid goods if following conditions are satisfied:

1. Only imported goods on which duty has been paid on importation are eligible for drawback.

2. The goods so imported must have been entered for exportation either –
a. Under Section 51; or
b. Under Section 77 as baggage; or
c. Under Section 84(a) by Post;
and the proper officer must have made an order for permitting clearance of goods for exportation.

3. Such goods are identified to the satisfaction of the Assistant or Deputy Commissioner as the goods which were imported.

4. 98% of the import duty paid is allowed as drawback in case the goods are exported out of India without being put to use.

5. If goods are exported as baggage, the owner of the baggage makes a declaration of its contents to the proper officer which will be considered as entry for export and such officer permits clearance of the goods for exportation.

6. If exported through post, the Proper Officer makes an order for clearance for export.

Question 6.
Define these terms as per Customs and Central Excise Duties Drawback Rules, 2017. [Nov. 2016, 2 Marks] [Modified]
Answer:
(i) Drawback [Rule 2(a)]: Drawback in relation to any goods manufactured in India and exported, means the rebate of duty excluding IGST leviable under Section 3(7) and the compensation cess leviable under Section 3(9) of the Customs Tariff Act, 1975 chargeable on any imported materials or excisable materials used in the manufacture of such goods. [Amended by Notification No. 88/2017-Cus. (NT), dated 21-09-2017 w.e.f. 01-10-2017]

(ii) Export [Rule 2(c)]: “Export”, means 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.

Question 7.
Calculate the amount of duty drawback (if any) allowable under the Customs Act, 1962 and the rules made thereunder in the following independent cases:
(i) Hema Ltd. has exported goods worth ₹ 80,000 (FOB value). Rate of duty drawback on such export of goods is 0.8%.
(ii) High Value Ltd. exported 1,000 kgs. of goods of FOB value of ₹ 1,50,000. Rate of duty drawback on such export is ₹ 50 per kg. Market price of goods is ₹ 48,000 (in wholesale market). [ Nov. 2014, 4 Marks]
Answer:
Amount of duty drawback:

1. Drawback admissible: In this case the amount of drawback will be 80,000 × 0.8% ie. 640.
2. Drawback Inadmissible: As per Section 76 of Customs Act, 1962 : No drawback shall be allowed,
3. In respect of any goods, the market price of which is less than the amount of drawback due thereon,
4. Where the amount of drawback in respect of any goods is less than fifty rupees.

Since the market price of the exported goods i.e. ₹ 48,000 is less than the amount of drawback i.e. 1000 kg × 50 i.e. ₹ 50,000. So, there will be no drawback in this case due to prohibition of Section 76.

Question 8.
CBZ Ltd. has exported following goods to Germany. Write brief note with reasons whether and duty drawback is admissible under Section 75 of the Customs Act, 1962 in each of the following cases:

Product	FOB value of Exported Goods Amount in ₹	Market Price of Goods Amount in ₹	Duty drawback rate
A	4,30,000	3,50,000	30% of FOB
B	6,00,000	7,00,000	3.50% of FOB
C	1,20,000	60,000	1.75% of FOB
D	3,00,000	3,50,000	1.50% of FOB

Notes:

1. Imported value of Product B is ₹ 8,00,000.
2. Product D is manufactured out of duty-free inputs.
3. Working notes should form part of the answer. [May 2017, 4 Marks]

Answer:
(i) Product A : Drawback is admissible, assuming that all conditions are satisfied, but the amount of drawback will be restricted to 1/3rd of market price. Therefore the amount of drawback will be lower of these two:
(a) 30% of FOB (4,30,000 × 30%) i.e. ₹ 1,29,000; or
(b) 1/3rd of market price (3,50,000 × 1/3) ie. ₹ 1,16,667.
So, the amount of drawback shall be limited to ₹ 1,16,667.

(ii) Product B: Drawback is not admissible, because the value of export goods is not more than the value of imported materials. In this case, imported value of product B is ₹ 8,00,000, while the FOB is just ₹ 6,00,000.

(iii) Product C: Drawback is admissible, assuming that all conditions are satisfied. Drawback amount will be 1.75% of ₹ 1,20,000 i.e. ₹ 2,100.

(iv) Product D: Drawback is not admissible, because “Product D” is manufactured out of duty-free inputs.

Question 9.
Infinity Corporation has imported goods and the following particulars are available for claiming duty drawback under sections 74 & 75 of Customs Act, 1962:

(a) Custom duty has been paid on goods imported for use and have been out of customs control for 14 months – ₹ 14,00,000
(b) Raghuveer exports manufactured goods having FOB value of – ₹ 86,000
Rate of duty drawback on FOB value of – 40%
exports Market value of the export product – ₹ 96,000
Determine duty drawback with explanations in the above cases. [May 2018(Old), 4 Marks]
Answer:
(a) As per section 74(2) of Customs Act, 1962 read with Notification No. 19/65 Cus. dated 06.02.1995 as amended, 65% of import duty is to be paid as duty drawback if goods are used after importation and have been out of customs control for export for a period of more than 12 months but not more than 15 months.
Therefore, amount of duty drawback = ₹ 14,00,000 × 65% = ₹ 9,10,000

(b) As per rule 9 of Customs & Central Excise Duties Drawback Rules, 2017: –
The drawback amount should not exceed one third of the market price of the export product
Amount of duty drawback = ₹ 86,000 × 40% = ₹ 34,400
Thus, upper limit of drawback amount = ₹ 96,000/3 = ₹ 32,000
Thus, the amount of duty drawback in the present case will be restricted to ₹ 32,000

Question 10.
With reference to the Customs & Central Excise Duties Drawback Rules, 2017, briefly state whether an exporter who has already filed a duty drawback claim under All Industry Rates, can file an application for fixation on special brand rate. [RTP, Nov. 19]
Answer:
As per rule 7 of the Customs and Central Excise Duties Drawback Rules, 2017: Application for Special Brand Rate cannot be made where a claim for drawback under rule 3 or rule 4 has been made.

In other words, where the exporter has already filed a duty drawback claim under All Industry Rates (AIR) Schedule, he cannot request for fixation of Special Brand Rate of drawback. Thus, the exporter should determine prior to export of goods, whether to claim drawback under AIR or Special Brand Rate.

Question 11.
Answer the following with reference to the provisions of the Customs Act, 1962 and rules made thereunder:
(1) Mr. A filed a claim for payment of duty drawback amounting to ₹ 50,000 on 30-07-2019. But the amount was received on 28-10-2019. You are required to calculate the amount of interest payable to Mr. A on the amount of duty drawback claimed. [CA-Final, May 2015, 2 Marks]
(2) Mr. X was erroneously refunded a sum of ₹ 20,000 in excess of actual drawback on 2006-2019. The same was returned to the department on 20-10-2019. You are required to calculate the amount of interest chargeable from Mr. X.
Provide brief reasons for your answer. [May 2015, 2 Marks]
Answer:
1. As per Sec. 75A(1) of the Customs Act, 1962, if drawback is not paid to claimant within one month from the date of filing of drawback claim, then interest will be paid to him @ 6% per annum. Interest shall be calculated from the date after expiry of the said period , of 1 month till the date of payment of such drawback. So, the amount of interest payable to Mr. A, will be computed as:

Amount of duty drawback claimed [A]	50,000
No. of days delayed [31.08.2019 to 28.10.2019]	59 days
Rate of Interest [C]	6%
Amount of interest [A × B × C] [Rounded off]	485

2. As per Sec. 75A(2) of the Customs Act, 1962, if drawback has been erroneously paid to claimant, then claimant shall return such amount within 2 months from the date of demand otherwise he will pay an interest @15% per annum. Interest shall be calculated from the date of payment of such drawback to the claimant till the date of recovery of such drawback.

Amount of duty drawback claimed [A]	20,000
No. of days delayed [21.06.2019 to 20.10.2019] [B]	122 days
Rate of Interest [C]	15%
Amount of interest [A × B × C] [Rounded off]	1,003

Question 12.
Abdul Overseas Pvt. Ltd. was erroneously refunded a sum of ₹ 30,000 in excess of actual drawback on 16-06-2017. A demand for recovery of the same was issued by the Department on 24-08-2017. Abdul Overseas Private Limited returned the erroneous refund to the Department on 16-10-2017. You are required to calculate the amount of interest chargeable from Abdul Overseas Pvt. Ltd.
Provide brief reasons for your answer. [Nov. 2018 (Old), 4 Marks]
Answer:
As per Sec. 75A(2) of the Customs Act, 1962, if drawback has been erroneously paid to claimant, then claimant shall return such amount within 2 months from the date of demand otherwise he will pay an interest @15% per annum. Interest shall be calculated from the date of payment of such drawback to the claimant till the date of recovery of such drawback.

Computation of interest chargeable from Abdul Overseas Pvt. Ltd.

Particulars	Amount (₹)
Duty drawback erroneously refunded	₹ 30,000
No. of days of delay [17.06.2019 to 16.10.2019] (Refer Note)	122 days
Rate of interest (Refer Note)	15%
Quantum of interest (rounded off) [₹ 30,000 × 122/365 × 15/100]	1,504

Examiner’s Comment
Some examinees wrongly computed the number of days for which interest is chargeable from Abdul Overseas Pvt. Ltd. As 123 days since they included the date of cause of action while calculating the number of days of delay.