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Extending your business overseas involves a significant investment of money and effort. Managing costs in international trade can be quite challenging for exporters. One powerful tool that can help streamline your export process and improve profitability is duty drawback. This program allows businesses to reclaim customs duties paid on imported goods that are subsequently used in manufacturing goods to be exported. By utilizing duty drawback, you can reduce your expenses and make your products more competitive in the global market.
In this article, we have shared everything you need to know about the duty drawback scheme, including the types of duty drawback, the registration process, the procedure to check its status, and more.
Duty drawback on export is designed to enable you to reclaim customs duties paid on imported goods. This scheme serves the following purposes in the global trade:
The duty drawback scheme under the Customs Act of 1962 facilitates the reimbursement of customs duties paid on imported goods. The amount is then used in the production of export goods. The scheme also provides a refund on customs duties paid on goods that remain unused since their import. Introduced by the Ministry of Finance, it is an important component of India’s export promotion strategy. The scheme covers customs duties, central excise duties, and service tax paid on inputs used in the manufacture of export goods.
The Central Government can grant duty drawback under Customs Act, 1962’s sections 74 and 75. Under Section 74, 98% of the duty paid on the products that are imported can be claimed for re-export. However, the claim can be made only if the goods are re-exported within two years of receiving payment on import duty. Section 75, on the other hand, enables duty drawback on the export of manufactured goods.
The duty drawback scheme includes three categories. Here is a look at these:
AIR of duty drawback refers to the average rate of an export product. The calculation is based on the average quantity and value of the material, as well as the typical customs duties and central excise incurred for each class of material. AIRs are reviewed each year following recommendations from the Drawback Committee. The process is fully electronic and ensures that duty drawback payments are made directly to your accounts. Moreover, you are not required to submit separate documentary proof to receive export earnings. Based on the shipping bill declaration, the system offers a straightforward way to grant duty drawbacks.
This type of duty drawback is a special provision that allows you to receive a rebate on the duties incurred by an export product. Brand Rate is determined by the local Commissioner of Customs, who has jurisdiction over the export location. They may allow a provisional brand rate on your request. If your product lacks an AIR, you can apply for a specific Duty Drawback rate through the Brand Rate mechanism. This option is also available when the existing AIR covers less than 80% of the duties paid on the materials used in manufacturing the export goods. Like AIR, this can be disbursed electronically to your account.
Exporters can also claim duty drawback on goods that have been imported with duties paid. The main requirements under this scheme are proof of duty paid on importation and the ability to identify the exported goods as those previously imported. It allows you to claim up to 98% of the import duty paid on previously imported goods when re-exported.
To successfully claim duty drawback, exporters must provide specific documents to support their application. Here’s a list of the essential documents required:
You need to register for duty drawback to file a claim. Here is the simple step-by-step process to help you:
The Duty Drawback Scheme comes with its set of advantages and disadvantages. Here is a brief look at both:
ShiprocketX provides an efficient solution for businesses that aim to expand in the global market. It helps streamline the complexities of cross-border shipping. How? It does so largely by offering a comprehensive platform that allows you to manage various steps involved in the e-commerce export process efficiently. Moreover, they guide you in handling everything from logistics to customs clearance.
ShiprocketX’s seamless integration with various e-commerce platforms allows businesses to manage orders and shipments from a single dashboard. This minimises manual processes, reducing the chances of errors and saving time. It partners with reliable international carriers that offer services at competitive rates and ensure timely delivery.
The Duty Drawback Scheme is a government initiative that serves as a valuable tool for recovering duties paid on imported goods. Understanding how to check duty drawback status and learning how to carry out the procedure to claim the amount is essential for exporters. Thus, it reduces the overall cost of production for goods to be exported to different international markets. As an exporter, you must adhere to strict compliance requirements, as any errors in documentation can lead to the rejection of your claims. By understanding its eligibility criteria, required documentation, and filing process, you can ensure timely refunds and fully enjoy the benefits of this scheme.
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