Drawback on the material on which Cenvat Credit has been taken

[VINOD KUMAR]

Dear experts, as per Rule 2 and 3 of Drawback rules,

"drawback" in relation to any goods manufactured in India and exported, means the rebate of duty or tax, as the case may be, chargeable on any imported materials or excisable materials used or taxable services used as input services in the manufacture of such goods; and

the amount of drawback is reduced by taking into account the amount of Cenvat Credit availed.

Why a manufacturer who has availed the Cenvat of all the taxes/duties (i.e. excise duty+sales tax+CST+Service Tax (on domestic material) and CVD+SAD+Service Tax on imported materia) is given drawback of customs portion.

Please do reply.

Thank You sir.

[YAGAY and SUN]

Dear Karan,

First of all, there is no Input Tax Credit available on tax paid under CST Act, 1956. Secondly, duty drawback is not available on VAT/CST/Sales Tax portion.

You can avail Duty Drawback in three ways, namely:-

• All Industry Duty Drawback.
• Brand rate fixation.
• Duty Drawback under Section 74 of the Customs Act, 1962.
• Duty Drawback under Section 75 of the Customs Act, 1962.

Basic Customs Duty, becomes the integral part of cost of goods on which there is no CENVAT credit allowed. When imported goods are used in manufacturing of finished goods and subsequently exported, then, duty drawback either under Section 75 of the Customs Act or under All Industry Brand Rate Duty Drawback is provided on the part of customs duty which formed the part of cost of goods sold. Further, if goods suffered any service tax components while importing and no CENVAT credit availed as Input Services then either you may get refund from excise department or duty drawback from customs department, as the case may be. But if CENVAT credit is availed then no duty drawback would be allowed on such portion. In All Industry Duty Drawback you get a fixed/predetermined component of duty drawback even if you availed the CENVAT credit or not.

As per the FTP of India, it is clarified that India has to export its goods and services but the taxes.

Regards,

YAGAY and SUN

(Management and Indirect Tax Consultants)

[YAGAY and SUN]

Dear Karan,

Please read the last line of our reply as:-

As per the FTP of India, it is clarified that India has to export its goods and services but not the taxes.

Regards,

YAGAY and SUN

(Management and Indirect Tax Consultants)

[VINOD KUMAR]

Thank You Very Much Sir for sharing your valuable knowledge.

Sir,

(1) Can a manufacturer who has never imported any inputs/capital goods and availed Cenvat credit of excise duty + service tax claim the drawback of Customs portion.

(2) Is the payment in convertible foreign exchange is a prerequisite to claim drawback. If so, please quote relevant provisions of FTP.

[YAGAY and SUN]

Dear Karan,

1. Yes, you can claim Duty Drawback under All Industry Rate scheme plus service tax refund depending the classification under which your goods which are intended for exports duly fall. The amount is predetermined and depends on whether you had availed the CENVAT credit or not.
2. Getting foreign remittance is the pre-condition of export for availing export benefits under various export promotion schemes. Bank Realization Certificate would be available online on the DGFT's website which is uploaded by you Authorized Dealers i.e. your bank through whom you send the export documents or receive import documents.

Regards

YAGAY and SUN

(Management and Indirect Tax Consultants)

AI Summary

Duty drawback and Cenvat credit: drawback excludes portions where Cenvat was availed, but all-industry rates may apply.
Duty drawback rebates taxes or duties on inputs used in exported goods but is reduced by any Cenvat credit availed; VAT/CST portions are excluded. Basic Customs Duty paid on imported inputs forms part of cost and is eligible for drawback when such inputs are exported in finished goods, except where Cenvat credit has been claimed on that duty. All Industry Duty Drawback provides a predetermined rate that may apply irrespective of Cenvat uptake. Service tax on imports may be claimed via refund or drawback only when Cenvat has not been availed. Bank Realisation Certificate and foreign exchange realisation are required for export benefits.