Duty Exemption & Duty Drawback Schemes for Raw Materials

Duty Exemption Scheme

The Duty Exemption Scheme enables duty free import of inputs required for export production. Under the scheme government can issue an Advance Authorisation or DFIA to import \ procure domestically the inputs duty free.

Imports under Advance Authorisation for physical exports are exempted from payment of Basic Customs Duty, whole of the integrated tax and Compensation Cess leviable under sub-section (7) and sub-section (9) respectively, of section 3 of the Customs Tariff Act, 1975 (51 of 1975), Additional Customs Duty, Education Cess, Anti-dumping Duty, Countervailing Duty, Safeguard Duty, Transition Product Specific Safeguard Duty, wherever applicable and such imports shall be subject to pre-import condition. For Imports against deemed export supplies have different rules.


Input – Output norms (SION)

The government has published the standard input-output norms (SION) for more than 6000 products. These are available in the Handbook of Procedures (Vol-II) of Exim Policy. While applying for advance Authorisation the Input-Output norms are to be followed for duty exempted inputs. If however no norms are available, Authorisation can still be applied on self- declaration basis.


Advance Authorisation (License)

  • An Advance Authorization is issued to allow duty free import of inputs, which are physically incorporated in the export product (making normal allowance for wastage) subject to actual user condition. Such Authorizations are exempted from payment of basic customs duty, additional customs duty, anti dumping duty and safeguard duty, if any.
  • Advance Authorization can also be issued for supplies with in India that are categorized as Deemed Exports. Purposes like supplies to Mega Power Projects, Projects funded by IBRD/IDA/ADB UN Agencies etc, EOUs etc.
  • Advance Authorizations are issued with an obligation to export the quantity and value of goods mentioned therein in a fixed period of 18 months. Before imports customs ask for a bond or a bank guarantee towards security for duty saved, till export obligation is fulfilled.
  • Advance Authorizations or materials imported against it cannot be transferred even after completion of Export Obligation.
  • Advance Authorisations are also available for Annual requirement under SION.

Duty Free Import Authorisation (DFIA)

DFIA is issued to a merchant-exporter or manufacturer-exporter for duty free import of inputs used in the manufacture of goods without payment of basic customs duty. DFIA is issued on minimum value addition of 20%, and only for export of products covered under the SION. DFIA or the material(s) imported against it are freely transferable after completion of Export Obligation.


Duty Entitlement Passbook Scheme (Scheme ended on 30.09.2011)

The objective of DEPB is to neutralize the incidence of Customs duty deemed to have been suffered on the import content of the export product. The neutralization is provided by way of grant of duty credit against the export product. The duty credit is given as a specified percentage of FOB value of exports, made in freely convertible currency.

This duty credit can be utilized for import of any goods/capital goods which are not prohibited.

The DEPB and/or the items imported against it are freely transferable.


Indigenous Sourcing

The holder of advance Authorisation and DFIA may also source their inputs from indigenous sources. In such cases, the GST paid by the indigenous supplier can be taken credit of or refunded.  In addition the indigenous supplier can import his own raw material duty free or can even get a drawback.


DUTY DRAWBACK

Duty Drawback under section 75 of Customs Act scheme provides refund of duties (Customs & Central Excise) paid on Raw Material & Inputs that have gone in production of goods for exports. Deemed Exports provision under FTP also provides drawback for deemed export purposes. They are given on the following basis:


All Industry Rate

Government has published drawback rates for several products which are regularly exported through a drawback schedule. Exporters of these products can get the drawback at the prescribed rates for the customs of port of export.


Brand Rate

In case the export product is not covered under the schedule, the exporter can file for drawback under brand rate of fixation to recover the duties limited to the refund of basic custom duty actually suffered in the process.


Special Brand Rates

Can be fixed in case the All Industry rates are available but is less than 4/5th of the actual duties suffered.

Duty Drawback upon 98% of duty paid is available on goods re-exported within a specified time, under Section 74. Duty Drawback at a specified percentage is available for partly used capital goods and re-exported.

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