Drawback, in law in commerce, paying back a duty previously paid on exporting excisable articles or on re-exporting foreign goods. The object of a drawback is to let commodities which are subject to taxation be exported and sold in a foreign country on the same terms as goods from countries where they are untaxed. It differs from a bounty in that a bounty lets commodities be sold abroad at less than their cost price; it may occur, however, under certain conditions that giving a drawback has an effect equivalent to that of a bounty, as in the case of the so-called sugar bounties in Germany (see sugar). The earlier tariffs contained elaborate tables of the drawbacks allowed on exporting or re-exporting commodities, but so far as the United Kingdom is concerned (as of 1911) the system of bonded warehouses practically abolished drawbacks, as commodities can be warehoused (placed in bond) until needed for exportation.
Duty Drawback is the rebate of duty chargeable on imported material or excisable material used in the manufacturing of goods in and is exported. The exporter may claim drawback or refund of excise and customs duties being paid by his suppliers. The final exporter can claim the drawback on material used for the manufacture of export products. In case of re-import of goods the drawback can be claimed.
The following are Drawbacks:
- Customs paid on imported inputs plus excise duty paid on indigenous input.
- Duty paid on packing material.
Drawback is not allowed on inputs obtained without payment of customs or excise duty. In part payment of customs and excise duty, rebate or refund can be claimed only on the paid part.
In case of re-export of goods, it should be done within 2 years from the date of payment of duty when they were imported. 98% of the duty is allowable as drawback, only after inspection. If the goods imported are used before its re-export, the drawback will be allowed as at reduced percent.
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In the United States, drawback is a U.S. law that allows exporters to recover duty paid for importations provided that the product is subsequently exported. It is considered a Customs privileged program. It is a cumbersome, time consuming process that requires proof of exportation, and an impeccable audit trail to the original importation. Further, a Foreign-Trade Zone may be used to either expedite or avoid the drawback process. A Foreign-Trade Zone Admission in Zone Restricted status is considered the legal equivalent to an exportation in the eyes of the U.S. Customs & Border Protection.
Under Indian Customs Act, various schemes like EOU, SEZ, Advance Authorisation, manufacture under bond etc., are available to obtain inputs without payment of customs duty/excise duty or obtain refund of duty paid on inputs. In case of Central Excise, manufacturers can avail Cenvat credit of duty paid on inputs and service tax paid on input services. They can utilize the same for payment of duty on other goods sold in India or service tax on services provided in India, or can obtain refund. Schemes like manufacture under bond are also available for customs. Manufacturers or processors who are unable to avail any of these schemes can avail ‘duty drawback’. Here, the excise duty and customs duty paid on inputs and service tax paid on input services is given back to the exporter of finished product by way of ‘duty drawback’.