The finance ministry has notified (notification no. 68/2011-cus (NT) dated 22.09.2001) the new Duty Drawback All Industry Rate Schedule that will help exporters cope with the abolition of Duty Entitlement Passbook (DEPB) Scheme with effect from October 1, 2011. The Central Board of Excise and Customs (CBEC) has issued a useful Circular (no. 42/2011-Cus dated 22.09.2011) explaining some of the changes. The CBEC has also put up on its website a list of all the DEPB items falling under a particular product code and serial number with the corresponding drawback tariff item.
As usual, the drawback rates have been determined on the basis of certain broad parameters, including the prevailing prices of inputs, Standard Input Output Norms, share of imports in the total consumption of inputs, free on board (FOB) value of export goods and the applied rates of duty. The incidence of duty on HSD/Furnace Oil and the incidence of service tax paid on taxable services which are used as input services in the manufacturing or processing of export goods have been factored in the drawback calculations.
The new drawback rate schedule covers about 4,000 items. The tariff items and descriptions of goods in the schedule are aligned with the tariff items and descriptions of goods in the Customs tariff at the four-digit level only but not at the six-eight digit levels. The general rule for interpretation of tariff will apply.
Most of the items already covered under the earlier drawback schedule will suffer a minor reduction in the drawback rates, mainly due to a reduction in duties on crude petroleum and diesel. Most items in the engineering, chemicals, pharmaceutical and textiles sectors will suffer a modest reduction from their DEPB rates, ranging from one to three per cent. Exporters of two-wheelers, three-wheelers, commercial vehicles, tractors, items that attract drawback of three per cent or less and items where price variations can be wide will get drawback without any value cap. About 340 items from select sectors will be spared the 5.5 per cent cap on the drawback rate applied for most other items.
The process of disbursement of drawback at all industry rates is quite simple as the shipping bill itself is treated as a claim and once the export is permitted, the drawback amount is credited to the bank account of the exporter. Exporters need not produce evidence of actual duties suffered on imported or indigenous inputs used, as the all industry rates have no relation to the actual input consumption pattern and actual incidence suffered on inputs of a particular exporter or consignment. The new dispensation will remove the regional offices of the Director General of Foreign Trade from the process of getting the duty remission. Thus, exporters will save on documentation hassles and transaction costs.
Exporters whose actual duty incidence on inputs is more than what the all industry rates give will have the option of applying for special brand rates. The drawback rules, however, allow that option only if the all industry rates reimburse less than 80 per cent of the actual duty incidence. The finance ministry should review this restriction and also find a more automatic way to fix the special brand rates. One way is to issue a provisional special brand rate letter based on the application received and seek adjustment based on finalisation done later, after scrutiny of the documents.