WHAT: The duty drawback scheme has been designed to refund to exporters duties levied by Customs & Central Excise or tariffs paid by them on both imported and locally produced materials or inputs that go into the production of goods for export. These would include raw materials, components, intermediates and packing materials used at various stages of production. To be eligible for the refund, the goods should have been exported to a foreign port. The duty drawback scheme applies to export goods manufactured or produced out of imported or indigenous material, and such export goods imported into India.
‘Drawback’ is of two types. One, in which the Customs & Central Excise Department refunds duty paid on goods that have been originally imported after paying duty, and then exported. Two, in which the Department gives refunds at specific rates on goods manufactured in the country, and then exported. In order for drawback to be claimed, the market price of the goods must not be less than the drawback amount, and goods imported for use in production must be exported within two years of the date of payment of duty on imports.
WHY: Many countries have this scheme to ensure competitiveness of exports. Lack of competitiveness could be due to the quality of infrastructure, cost of funds, value of currency, high Customs duties, or excise duties/tariffs on inputs or intermediates that go into production of goods for exports, etc. Schemes like this, and the Cash Compensatory Scheme, were formulated to boost earnings, economic growth, and self-reliance, and to finance the deficit in the country’s balance of payments.
HOW: Normally, on June 1 (or three months after the union Budget), the Finance Ministry announces ‘All Industry Rates of Drawback’ for many categories of goods, whose numbers run into hundreds. These rates, fixed by the Directorate of Duty Drawback (under the Central Board of Excise and Customs in the Finance Ministry), are based on broad averages of consumption of inputs, duties imposed, quantity of wastage, etc. Disbursements are done by Central Excise Commissionerates or Customs Houses. For goods for which All Industry Rates are not available, a brand rate is fixed on the basis of reports of Central Excise or Customs Commissionerates after checking the data provided by the exporter.
PROBLEMS: Misuse of the scheme is reflected in the latest case of alleged inflated export bills. There have been concerns over delays in refunds, and complaints over interpretation and the time involved. Exporters think average industry rates for reimbursement are low.