Rule 3 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.
Rule 3 is the operating rule of the Drawback Rules. It says drawback may be allowed on the export of goods at the amount or rate the Central Government determines, reduces it where less duty was paid, bars it in four cases, and lists what the Government must consider when fixing a rate. Our compliance advisory team can check a claim against it.
This article is written as amended up to Notification No. 03/2026-Customs (N.T.) (in force 15 January 2026), on the CBIC text of Notification No. 88/2017-Customs (N.T.) dated 21 September 2017; rule 3 was not changed by it. No official consolidated text exists. Later notifications should be checked. Rates are notified separately and none is stated here.
Subject to the Customs Act, the Central Excise Act and the Rules, drawback may be allowed on exported goods at an amount or rates determined by the Central Government. It is reduced where only part of the duty was paid or where duty was rebated, refunded or credited. It is never allowed on used goods (with one tea chest exception), on goods made from materials on which duty was not paid, on jute batching oil, and on certain jute packing materials.
Rule 3(1): the basic rule
Subject to (a) the Customs Act, 1962 and its rules, (b) the Central Excise Act, 1944 and its rules, and (c) the Drawback Rules, "a drawback may be allowed on the export of goods at such amount, or at such rates, as may be determined by the Central Government". The word "may" matters: drawback is available only to the extent the Government has determined an amount or rate. Our guide to section 75 of the Customs Act explains the parent power.
First proviso: reduction for lesser duty
Where goods are produced from imported or excisable materials and:
- duty was paid on some materials but not the rest; or
- only part of the duty chargeable was paid; or
- the duty paid was rebated or refunded in whole or part, or given as credit, under the Customs Act or Central Excise Act and rules,
"the drawback admissible on the said goods shall be reduced taking into account the lesser duty paid or the rebate, refund or credit obtained".
Second proviso: where no drawback is allowed
No drawback shall be allowed:
| Clause | Case |
|---|---|
| (i) | If the goods, except tea chests used as packing material for export of blended tea, have been taken into use after manufacture |
| (ii) | If the goods are produced using imported or excisable materials on which duties have not been paid |
| (iii) | On jute batching oil used in the manufacture of export goods, namely jute (including Bimlipatam jute or mesta fibre) yarn, twist, twine, thread, cords and ropes |
| (iv) | If the goods, being packing materials, have been used in or in relation to the export of (A) jute yarn, twist, twine, thread and ropes in which jute yarn predominates in weight; (B) jute fabrics in which jute predominates in weight; or (C) jute manufactures not elsewhere specified in which jute predominates in weight (each including Bimlipatam jute or mesta fibre) |
Example: Siddhi Textiles exports garments made from fabric on which the duty was never paid because the fabric came in under an arrangement that waived it. Clause (ii) bars drawback on those garments. If a different exporter exports a machine after using it in its own factory, clause (i) bars drawback because the goods were taken into use after manufacture.
Drawback can also interact with other benefits; see our guide to drawback versus RoDTEP.
Rule 3(2): what the Government considers when fixing a rate
In determining the amount or rate, the Central Government has regard to:
- (a) the average quantity or value of each class or description of material from which a class of goods is ordinarily produced in India;
- (b) the average quantity or value of imported or excisable materials used for production of a particular class of goods in India;
- (c) the average amount of duties paid on imported or excisable materials used in making semis, components and intermediate products used in the goods;
- (d) the average amount of duties paid on materials wasted in the process and on catalytic agents, with a proviso that if the waste or catalyst is re-used in manufacture or sold, the average duty on it is also deducted;
- (e) the average amount of duties paid on imported or excisable materials used for containing or packing the export goods; and
- (f) any other information the Central Government considers relevant or useful.
These are factors for Government in setting an All Industry Rate, not figures you compute yourself. The rule prints no rate or percentage. For the working of rates and the brand rate, see our guide to duty drawback rates, claim process and brand rate.
Reading rule 3 with the other rules
- Where no rate has been determined for your goods, rule 6 allows a brand rate application; see our article on rule 6.
- Rule 9 caps the amount or rate determined under rule 3 at one third of the market price of the export product; see our article on rules 4, 5, 8 and 9.
- Section 76 of the Act separately prohibits or regulates drawback in certain cases; see our guide to section 76.
- The definitions are in our article on rules 1, 2, 19 and 20.
Practical checklist
- Confirm that a rate or amount has been determined for your goods; if not, consider rule 6.
- Check whether duty was paid on all imported and excisable inputs, or whether any was rebated, refunded or credited.
- Confirm the goods were not used after manufacture before export, except tea chests for blended tea.
- If you export jute products, check clauses (iii) and (iv).
- Keep input duty records, since a reduction under the first proviso depends on them.
Reviewing the input duty position before you claim avoids a later reduction.
Need help with a drawback claim?
If your claim has been reduced or rejected because of duty paid, credit availed or use of the goods, we can check it against rule 3. Speak to our compliance advisory team.
Key takeaways
- Drawback is allowed only at the amount or rate determined by the Central Government.
- Lesser duty paid, or rebate, refund or credit, reduces drawback.
- Four cases bar drawback entirely, including goods used after manufacture and goods made with unpaid-duty materials.
- Rule 3(2) lists factors for Government, not an exporter's formula.
- Rule 3 prints no rate.
Read next
- Rules 1, 2, 19 and 20: commencement, definitions and the 1995 Rules
- Rules 4, 5, 8 and 9: revision, date and upper limit
- Section 76 of the Customs Act, 1962: when drawback is prohibited or restricted
- Duty drawback versus RoDTEP
Disclaimer: Based on the customs rules named above as published on the CBIC Tax Information Portal and, for sets amended since 2023, the amending notifications (read through a TaxClue consolidated reading text; no official consolidated text exists), as consulted on 3 October 2026. Later notifications, rates and the Customs Act, 1962 provisions referred to should be checked. This article is general information, not legal advice; check the official text before acting.