Duty Drawback explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Duty drawback refunds the customs duty suffered on inputs used to make exported goods, under Sections 74 and 75 of the Customs Act 1962 and the Customs and Central Excise Duties Drawback Rules 2017. Exporters claim either the notified All Industry Rate or an exporter-specific brand rate, embedded directly in the Shipping Bill on ICEGATE.
Overview
The principle behind drawback is that taxes should not be exported — an exporter should be able to recover duties embedded in inputs so that Indian goods are competitive abroad. Drawback is one of the oldest and most widely used export incentives, and after GST it primarily neutralises the residual customs duty on imported inputs (the GST portion being separately refunded).
Legal Basis
Section 74 of the Customs Act 1962 covers drawback on re-export of duty-paid imported goods; Section 75 covers drawback on exported manufactured goods. The mechanics are in the Customs and Central Excise Duties Drawback Rules 2017. Rates are notified annually as the Drawback Schedule (aligned to HS at the Tariff Item level).
Section 74 vs Section 75
| Feature | Section 74 | Section 75 |
|---|---|---|
| Nature | Re-export of imported goods | Export of manufactured goods |
| Refund | Up to 98% if re-exported as-is; reduced if used | Rate on inputs (AIR or brand rate) |
| Condition | Identity of goods established; within time limit | Inputs used in export manufacture |
All Industry Rate vs Brand Rate
- All Industry Rate (AIR): A ready rate for the tariff item, usually a percentage of FOB with a per-unit cap. No need to prove actual duty incidence.
- Brand Rate — Rule 6: Where the export product has no AIR, the exporter applies for a rate based on actual duty-paid inputs, verified by the department.
- Brand Rate — Rule 7 (special brand rate): Where the AIR is less than 80% of the actual duties suffered, the exporter can seek a higher, individually-fixed rate.
Step-by-Step Claim Process
- Ensure IEC, AD Code and bank account are registered and validated on ICEGATE.
- File the Shipping Bill with the correct drawback tariff item and serial number (the claim is built into the SB).
- Obtain the Let Export Order under Section 51 and ensure the EGM is filed by the carrier.
- The drawback amount is auto-computed and credited to the exporter's bank account through the drawback scroll.
- For a brand rate, file the Rule 6/7 application (typically within three months of LEO) with the DBK-I/II/III statements of actual input consumption and duty.
Worked Example
An exporter ships engineering goods with FOB value ₹15,00,000. The Drawback Schedule shows an AIR of 1.5% with a cap of ₹40 per kg; the consignment weighs 5,000 kg.
- Rate-based drawback: 1.5% × ₹15,00,000 = ₹22,500
- Cap check: ₹40 × 5,000 kg = ₹2,00,000 (cap not breached)
- Drawback credited = ₹22,500 (verify the current AIR and cap for the exact tariff item).
Common Pitfalls
- Choosing a "with brand rate" scheme code on the SB but not filing the Rule 6/7 application in time.
- Claiming AIR where the higher rate (with drawback of customs) needs a specific declaration and no availment of certain benefits.
- Invalid or unregistered AD Code stalling the drawback scroll credit.
- Under-supported DBK statements causing brand-rate rejection.