“NEW ALL INDUSTRY RATE (AIR) OF DUTY DRAWBACK w.e.f. 15th NOVEMBER 2016”

– by P. Jitendra Kumar, B.com, BL (Hons)

Duty Drawback, shortly known as DBK is one of the simplest method of refund next to TDS refunds.DBK rates are notified as All Industry Rates (AIR) which attempts to compensate the duties, Customs/Central Excise/Service Tax, paid on input goods or services used in the manufacture of export goods notionally. The provisions for Duty Drawback has been enshrined under Sec.74 and 75 of the Customs Act, 1962 wherein Central Government is empowered to make rules and allow for Duty Drawback on such goods through a notification in the official gazette.

DBK is granted automatically once shipping bill is filed, the Customs processes DBK based on the AIR Rates and credits to the Bank account without any submission of documents nor any follow up.

This DBK is allowed based on AIR as aligned against tariff number and description of goods in the First Schedule of Customs Tariff Act, 1975. However, where AIR is not present for any goods, in such cases, the importer shall apply for fixation of Brand Rate. The Customs, Central Excise Duties and Service Tax Drawback Rules, 1995 deal with procedure for claiming Duty Drawback.

Changes to Drawback Rate

The Central Government vide Notification No.131/2016 dated 31st October 2016 has notified New All Industry Rate (AIR) to be effective from 15th November 2016. The following are the changes brought in by New Notification on All Industry Rate (AIR):

  • The present notification has aligned AIR against the tariff and descriptions of goods in the first schedule at four for majority of the products and few with six digit.This expands the eligibility of DBK for more products.
  • The residuary rate which is provided to various items has been reduced from 1.9% to 1.5% and from 1.4% to 1.1%.

    The Residuary rate is the rate at which Duty Drawback is provided on goods for which no AIR rate is specified in the schedule.

    The reduction in residuary rate is justified by amending AIR at four digit level from six or eight.

  • The Rubber parts for automobile or other machinery and certain goods under Chapter 49 is provided with composite rate of AIR.

    To claim composite rate of Drawback, the Certificate for Non availment of CENVAT is mandatory at the export stage itself.

    It provides that in case a composite article is exported for which no specific rate is prescribed in such cases, rate of drawback is applicable to various constituent materials is extended to the composite article on self-declaration by the exporter.

    However, the above provision is silent with reference to the procedure to claim such rate of drawback. At present, the Duty drawback is credited automatically based on the matching of tariff number, but in case of a composite article, unless proper mechanism is specified for claiming such duty drawback, it is going to hinder the refund process

    The possible way to remove above flaw is that like in export against AA, a checklist can be prepared for list of material used and after verification AO can approve online.

  • In case, if the AIR is nil or is not specified or is not sufficiently compensating the duty element to the exporters, then the exporters can approach for brand rate fixation under Rule 6 & 7 of The Customs, Central Excise Duties and Service Tax Drawback Rules, 1995.

    The Duty Drawback are the beneficial provision provided under Customs Act, 1962 which are over and above the financial benefits provided under Foreign Trade Policy.There is no major change has been brought in by this new notification except that of reduction in residuary rate and introduction of composite rate of Drawback. There is no change to the procedure in claiming duty drawback. The automobile industry utilising rubber parts are going to be impacted due to bringing this within the ambit of composite rate.

    In pursuant to the above changes in AIR, the SEZ division of ministry of commerce has amended the procedure with regard to claiming of Reimbursement of Duty in lieu of DBK for supply of Goods to SEZ. Where disclaimer certificate was required from DTA supplier that No CENVAT has been availed is now replaced. Now,

  • If DBK is availed when CENVAT is not availed, then disclaimer certificate is mandatory
  • If DBK is availed when CENVAT is availed, then disclaimer certificate is not required.

    It is also to be noted that for the facilitation of trade, the tenure of Drawback committee constituted by central government has been extended to look into issues which may arise due to the changes made therewith. With respect to certain items, the descriptions are elaborated to avoid discrepancies and bring in simplification. The present rates are beneficial or not would be construed based on the situations and circumstances of each industry.


(Author is an
Associate at SAPAA)

References:

Notification no.131/2016 – CUSTOMS (NT) dated 31st October 2016.

Notification no.131/2016 – CUSTOMS (NT) dated 31st October 2016.

Circular no.50/2016 – Customs dated 31st October 2016.

Instruction No.86 – SEZ Division dated 31st October 2016

Author:

jitendraP.Jitendra Kumar, B.com, BL(Hons)

Advocate – Associate SAPAA

 

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