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Drawback rates factor in FBT, service tax
July, 17th 2006

The finance ministry has notified revised All Industry Rates of Duty Drawback with effect from July 15, 2006. The new rates take into consideration the incidence of service tax and fringe benefit tax, although the extent to which these have been factored in is not precisely known. 
 
For the first time, a drawback rate of Rs 1050/MT (all Customs) has been provided in respect of furnace oil and high-speed diesel supplied by domestic oil companies to units in SEZs. 
 
Usually, the drawback rates are announced one month after the revision of excise and Customs duty rates in the Budget. But this year, the government has waited for over three months after the Budget. The director-general of foreign trade has also waited for over three months before revising the rates under the duty entitlement passbook (DEPB) scheme in the first week of this month. 
 
It was expected that the duty drawback scheme would emerge as a rival to the DEPB scheme. However, only 84 new items have been included in the new drawback rate schedule. This means the DEPB will continue as the favourite scheme for many exporters although the government has announced that it will be phased out. 
 
More often than not, the drawback rates respond to changes in the Customs duty rates in the Budget. But of late, the finance ministry has been adopting different criteria in some cases. For example, the drawback rates on bicycles and bicycle parts were revised last year following a study of the manufacturing process. This year, taking into account the incidence of duty and prices of inputs, the drawback rates on 24 dyestuffs, 20 dye intermediates and 5 polymers have been revised upwards. The drawback rate for zinc oxide, however, is down from 9.6 per cent to 5.5 per cent. 
 
This year, the peak rate of basic Customs duty was brought down from 15 per cent to 12.5 per cent. The duty rates were brought down on certain metals to 7.5 per cent and on certain concentrates to 2 per cent. Consequently, the drawback rates on items like copper cathodes, wire bars and rods have come down from 5 per cent to 2.2 per cent. The new drawback rates for semi-finished steel, HR coils, CR sheets, GP sheets, and bars & rods are in the range of 2.7 per cent to 3.7 per cent(all Customs), with drawback caps varying from Rs 625/MT to Rs 1,000/MT. The drawback rates for machinery (1.5 per cent to 3 per cent), gaskets (6.5 per cent) and electrical machinery and equipment and electronic products have all been reduced. 
 
In the textile sector, the drawback rates have gone up for higher quality silk fabrics, woolen worsted yarn, grey cotton yarn, denim fabrics, woolen and silk carpets, cotton durries, knitted blouses/shirts/tops of cotton/manmade fibre and various types of lines and curtains. Similarly, export of select leather and leather products, writing instruments etc will earn a higher drawback. 
 
The element of education cess has also been factored in the drawback rates. The incidence of duty on HSD/furnace oil has also been factored in. 
 
Overall, the setting up of a committee of representatives from commerce and textile ministries to determine the drawback rates seems to have led to a more sympathetic view of exporters needs. 

T N C Rajagopalan

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