Drawback- AIR- admissible even if some of the inputs are not duty paid
As per the first proviso to the rule 3 of Drawback Rules, 1995,
where any goods are produced or manufactured from imported materials or excisable materials on some of which only, duty chargeable thereon has been paid and not on the rest, or only a part of the duty chargeable has been paid; or the duty paid has been rebated or refunded in whole or in part or given as credit, under any of the provisions of the Customs Act, 1962 (52 of 1962), and the rules made thereunder, or of the Central Excises and Salt Act, 1944 (1 of 1944) and the rules made thereunder, the drawback admissible on the said goods shall be reduced taking into account the lesser duty paid or the rebate, refund or credit obtained.
Based on this proviso, Show Cause Notices have been issued to several exporters to deny drawback if some materials were non duty paid. The Board had in Circular No. 24/2001-Cus dated 20.4.2001 clarified that
All Industry Rates of drawback are based on the concept of averages, where the drawback rate itself as well as its customs and excise portions are based on weighted averages of consumption of imported / indigenous inputs of a representative cross-section of exporters and the average incidence of duties suffered on such inputs. These rates have no relation to the actual input consumption pattern or the actual duty incidence suffered on inputs of a particular exporter or individual consignments exported by any exporter under drawback claim. It was categorically stated in the said Circular that the first proviso to rule 3 of Drawback Rules, 1995 is meant for the Ministry and that it essentially provides a guideline as to how the duty drawback rates are to be determined in certain situations and is not intended for the field formations to use this rule for arbitrarily altering All Industry Rates of duty drawback in the case of individual exporters for individual consignments.
It was represented to the Board that the field officers seem to be taking away by the left hand what has been given by the right hand.
So Board now clarifies that
It is not open to the field officers to question as to how the rate has been determined in the case of individual export goods and to probe whether certain exempted inputs have been used in the manufacture of the same. Accordingly, it is clarified that All Industry Rate of duty drawback is to be allowed in the cases referred to above.
It is heartening to note that the Board has given a clarification to benefit the exporters and in emphatic terms. The field officers had no business to question the All Industry Rates fixed by the Government and they should have shown a little more respect for the wisdom of the Board which would have considered the use of non duty paid goods while fixing the rates.
The Board clarification should hopefully settle the issue but as Board itself notes several Show Cause Notices have been issued and they are at several stages of adjudication. The Board should have directed pending Show Cause Notices to be withdrawn so that unnecessary litigation is not continued. DDT understands that there is at least one case pending in CESTAT. The Government should immediately concede the point in CESTAT and get the case closed as otherwise impossible situations are likely to arise.
CIRCULAR NO. , Dated : March 21, 2005