Duty Drawback — Law of Taxation Notes

Duty Drawback

An exporter imports fabric, pays customs duty, stitches it into shirts, and exports the shirts. Should he bear Indian customs duty on inputs that leave the country as exports? The policy answer is no — “export the goods, not the taxes” — and duty drawback is the mechanism that refunds that duty. It is what keeps Indian exports competitive.

The two kinds of drawback

Drawback is a refund (rebate) of customs duty paid on imported goods, given when those goods (or products made from them) are exported. The Act provides two routes:

A. Section 74 — re-export of duty-paid goods. Where goods imported and on which duty was paid are re-exported (as such, without being consumed), the importer gets back a percentage of the duty as drawback:

If re-exported without use, up to 98% of the duty is refunded.
If used after import, the drawback is reduced on a sliding scale according to the length of use (the longer the use, the less the refund).
Conditions: the goods must be identifiable as the ones imported, and re-exported within the prescribed time.

B. Section 75 — drawback on imported materials used in export goods. Where imported materials are used in the manufacture of goods that are then exported, drawback is allowed on the duty paid on those inputs. The rates are fixed by the All Industry Rates (a schedule) or a Brand Rate (for a specific manufacturer). This is the drawback that most exporters use.

⚠️ DON’T CONFUSE — Section 74 vs Section 75 drawback

Section 74 = re-export of the same duty-paid goods (imported, then sent back out, identifiable) — refund up to 98%, reduced if used. Section 75 = imported inputs used to manufacture export goods — refund of the duty on the inputs (All Industry / Brand Rate). One sends the same article back; the other sends out a new article made from imported materials.

🧩 WORKED EXAMPLE — Which drawback section?

Facts. (a) A machine imported on duty is found unsuitable and re-exported unused. (b) An exporter imports zip fasteners on duty and uses them in bags that he exports.

Rule. Re-export of the same duty-paid goods → s.74 (up to 98% if unused). Imported inputs consumed in manufacturing export goods → s.75 (drawback at All Industry/Brand Rate).

Apply. (a) The machine is the same imported article re-exported unused → s.74, ~98% refund. (b) The zips are inputs used to make exported bags → s.75, drawback on the input duty.

Conclusion. (a) falls under s.74; (b) under s.75 — the distinction (same goods vs inputs in a new product) is the whole point of the question.

In Simple Terms: Duty drawback refunds customs duty when goods are exported, so India exports goods not taxes. Section 74 refunds duty when the same imported goods are re-exported (up to 98% if unused). Section 75 refunds the duty on imported materials used to manufacture goods that are then exported.

flowchart TD
    ROOT["Duty Drawback — refund of customs duty on export"]:::root
    ROOT --> A["s.74: re-export of the SAME duty-paid goods<br/>up to 98% (less if used)"]:::leaf
    ROOT --> B["s.75: imported INPUTS used in export goods<br/>All Industry / Brand Rate"]:::leaf
    classDef root fill:#FFF8DC,stroke:#000,stroke-width:1px,color:#000;
    classDef leaf fill:#E6F3FF,stroke:#1E3A8A,color:#000;
    linkStyle default stroke:#888,stroke-width:1px;

Case Laws

Union of India v Rajindra Dyeing & Printing Mills (2005) — drawback is a statutory incentive; entitlement is governed strictly by the conditions in ss.74/75 and the rules.

📄 Full notes + Question Bank (₹199) — every topic in depth, model answers to all past KSLU questions, in one printable PDF. Get the bundle · 10 Solved Problems · All Law of Taxation topics