Customs Act, 1962 Section 75 — Drawback on imported materials used in the manufacture of goods which are exported
Customs Act, 1962 · Drawback on imported materials used in the manufacture of goods which are exported
Plain-English Explanation
Overview
Section 75 of the Customs Act, 1962, allows a drawback of customs duties paid on imported materials that are used in the manufacture of goods which are subsequently exported. This provision aims to promote exports by reducing the cost burden on manufacturers who rely on imported inputs.
Who Does This Apply To?
This section primarily applies to manufacturers and exporters in India who use imported materials to produce goods that are then exported. It also affects Customs officers responsible for administering and processing drawback claims.
How It Works
Here’s a step-by-step breakdown of how Section 75 functions:
- Notification by Central Government: The Central Government, through a notification in the Official Gazette, specifies the classes of goods eligible for drawback. This notification is crucial as it defines the scope of the drawback benefit.
- Imported Materials: The drawback is available on customs duties paid on imported materials used in the manufacture, processing, or any operation carried out on the exported goods.
- Exportation: The goods must be entered for export and a proper officer must have issued an order permitting clearance and loading for exportation under Section 51 of the Customs Act. Goods exported by post under Section 84(a) and cleared for export by the proper officer are also covered.
- Claiming the Drawback: The exporter files a claim for drawback, supported by relevant certificates, documents, and evidence. The rules framed under subsection (2) prescribe the necessary documentation and procedures.
- Verification: Customs officers may inspect the manufacturer's premises to verify the processes and statements made in the drawback claim.
- Drawback Amount: The drawback can be equal to the duty actually paid on the imported materials or an average amount of duty, as specified in the rules. Interest, if any, payable on such duty, may also be included.
- Recovery/Adjustment: If the sale proceeds for the exported goods are not received within the time allowed under the Foreign Exchange Management Act, 1999, the drawback is deemed never to have been allowed. Rules specify the procedure for recovering or adjusting the drawback amount.
- Excess Imported Material: If more of a particular imported material is imported than used in exported goods, the government can declare a portion of the imported material to be deemed imported material for drawback purposes.
Important Conditions & Exceptions
- Condition 1: No drawback is allowed if the export value of the goods is less than the value of the imported materials used in their manufacture, or is not more than a specified percentage of the value of the imported materials. The specific percentage is set by notification.
- Condition 2: Drawback claims must be filed within the manner and the time within which the claim for payment of drawback may be filed.
- Exception: The Central Government can specify circumstances and conditions under which the drawback will be allowed even if the sale proceeds are not received within the stipulated time under FEMA.
Practical Example
A company in India imports raw materials worth ₹10,00,000 and pays a customs duty of ₹1,00,000. It uses these materials to manufacture finished goods which are then exported for ₹15,00,000. If the Central Government has notified that these goods are eligible for drawback and all other conditions are met, the company can claim a drawback of ₹1,00,000 (the customs duty paid on the imported materials). However, if the export value was only ₹9,00,000 (less than the value of imported raw material), then as per proviso to section 75(1), drawback may not be allowed.
Key Amendments
No major amendments since enactment.
No case laws found for this provision yet.
Browse all case laws →Frequently Asked Questions
What is drawback under Section 75 of the Customs Act, 1962?
Section 75 of the Customs Act, 1962, allows for a refund (drawback) of customs duties paid on imported materials that are used in the manufacture of goods which are subsequently exported. This provision aims to reduce the cost burden on exporters and make Indian goods more competitive in the international market by essentially refunding the import duties embedded in the exported product. The Central Government issues notifications specifying the goods eligible for drawback and the applicable rates, as detailed in subsection (1).
What conditions must be met to claim drawback under Section 75 of the Customs Act, 1962?
To claim drawback under Section 75, the goods must be manufactured, processed, or have had an operation carried out on them in India using imported materials, and then be exported. A crucial condition is that the export order permitting clearance and loading must be issued by the proper officer under Section 51. Further, the sale proceeds for the exported goods must be received within the time allowed under the Foreign Exchange Management Act, 1999; failure to do so can result in the drawback being deemed never to have been allowed.
Can the Central Government deny drawback under Section 75? If so, under what circumstances?
Yes, the Central Government can deny drawback under Section 75. Drawback can be denied if the export value of the goods is less than the value of the imported materials used in their manufacture, or if the export value is not more than a specified percentage of the imported materials' value. These conditions are detailed in the proviso to subsection (1) and are specified through notifications issued by the Central Government.
How is the amount of drawback determined under Section 75 of the Customs Act, 1962?
The amount of drawback is determined by the Central Government and is typically equal to the duty actually paid on the imported materials. Alternatively, rules may specify an average amount of duty paid on materials of that class or description, either for manufacturers generally or for a particular manufacturer. The Central Government establishes these rules under subsection (2)(a), providing flexibility in calculating the drawback amount.
What happens if export proceeds are not realized after claiming drawback under Section 75?
If the sale proceeds for exported goods are not received within the time frame allowed under the Foreign Exchange Management Act, 1999, any drawback already granted may be deemed never to have been allowed. In such cases, the Central Government can specify procedures for the recovery or adjustment of the drawback amount, as detailed in the second proviso to subsection (1), potentially leading to a demand for repayment of the drawback claimed.
If excess imported materials are used beyond what is exported, how does Section 75 apply?
Subsection (1A) of Section 75 addresses situations where the quantity of imported material exceeds the quantity used in exported goods. The Central Government can declare that the material contained in the exported goods is deemed to be imported material for the purposes of calculating the drawback, ensuring that drawback is limited to the imported material actually incorporated into the exported products.
Where can I find the specific rules and notifications regarding drawback under Section 75?
The specific rules and notifications regarding drawback under Section 75 are issued by the Central Government and published in the Official Gazette. These notifications will detail eligible goods, drawback rates, procedures for claiming drawback, and any conditions or restrictions on drawback claims, as authorized by subsections (1) and (2) of Section 75.
Key Conditions & Requirements
| Condition | Details |
|---|---|
| Goods must be manufactured/processed in India | Drawback applies to goods manufactured, processed, or on which any operation has been carried out in India using imported materials. The goal is to incentivize value addition within the country before export. |
| Goods must be entered for export | The goods must be entered for export, and a proper officer must have issued an order permitting clearance and loading for exportation under Section 51 or Section 84(a). |
| Drawback amount related to duty paid | The drawback amount is related to the duties of customs paid on the imported materials used in the manufacture or processing of the exported goods, but the Central Government determines the specific amount or method of calculation. |
| Export value threshold limits drawback | No drawback is allowed if the export value is less than the value of imported materials or is not more than a specified percentage of the imported material's value, as determined by the Central Government. |
| Sale proceeds must be received | Drawback is deemed never to have been allowed if sale proceeds are not received within the time allowed under the Foreign Exchange Management Act, 1999, subject to exceptions specified by the Central Government by rule. |
| Recovery/adjustment if proceeds not received | The Central Government specifies procedures for recovering or adjusting the drawback amount if the sale proceeds are not received within the permissible time frame. |
| Rules may specify goods ineligible for drawback | The Central Government can make rules specifying goods for which no drawback will be allowed under this section, essentially creating a negative list. |
| Access to factory for verification | Manufacturers must provide customs officers access to their factories to inspect manufacturing processes and verify statements made in support of drawback claims to prevent fraud. |
Amendment History
Substituted by the Finance Act, 1995 (22 of 1995), section 61(a)(i), for "manufactured in India" (w.e.f. 26.05.1995).
Substituted by the Finance Act, 1983 (11 of 1983), section 52, for "and exported to any place outside India" (w.e.f. 13.05.1983).
Inserted by the Customs (Amendment) Act, 1985 (80 of 1985), section 7, (w.e.f. 13.05.1985).
Substituted by section 86 (w.e.f. 29.03.2018), by Finance Act, 2018 (13 of 2018), for "section 82".
Substituted by the Finance Act, 1995 (22 of 1995), section 61(a)(ii), for "manufacture of such goods" (w.e.f. 26.05.1995).
Inserted by the Finance (No.2) Act, 1991 (49 of 1991), section 120(1)(a) (w.e.f. 27.9.1991).
Substituted by the Finance Act, 1995 (22 of 1995), section 61(a)(ii), for "manufacture of such goods" (w.e.f. 26.05.1995).
Substituted by the Finance Act, 2002 (20 of 2002), section 125, for "Foreign Exchange Regulation Act, 1973 (46 of 1973)" (w.e.f. 11.05.2002).
Inserted (w.e.f. 8-4-2011) by s. 46 of the Finance Act, 2011 (8 of 2011)
Inserted by the Customs, Central Excises and Salt and Central Boards of Revenue (Amendment) Act, 1978 (25 of 1978), section 10(a) (w.e.f. 01.07.1978).
Substituted by the Finance Act, 1995 (22 of 1995), section 61(b), for "manufactured in India" (w.e.f. 26.05.1995).
Substituted by the Finance Act, 1995 (22 of 1995), section 61(c)(i), for clause (a) (w.e.f. 26.05.1995). Earlier clause (a) was amended by Act 25 of 1978, section 10(b) (w.e.f. 01.07.1978).
Inserted by the Finance (No.2) Act, 1991 (49 of 1991), section 120(1)(b) (w.e.f. 27.12.1991).
Inserted by the Finance Act, 1995 (22 of 1995), section 61(c)(ii), (w.e.f. 26.05.1995).
Substituted by the Finance Act, 1995 (22 of 1995), section 61(c)(iii)(a), for "manufacture" (w.e.f. 26.05.1995).
Substituted by the Finance Act, 1999 (27 of 1999), section 100, for "Assistant Commissioner of Customs" (w.e.f. 11.05.1999). Earlier the words "Assistant Commissioner of Customs" were substituted by Act 22 of 1995, section 50, for the words "Assistant Collector of Customs" (w.e.f. 26.05.1995).
Substituted by the the Finance Act, 1995 (22 of 1995), section 61(c)(iii)(a), for "manufacture" (w.e.f. 26.05.1995).
Inserted by the Finance Act, 1995 (22 of 1995), section 61(iv), (w.e.f. 26.05.1995).
Inserted by the Finance Act, 1995 (22 of 1995), section 61(d), (w.e.f. 26.05.1995).