Fixation of brand rate of duty drawback by the Central Excise field formations under Rules 6 and 7 of the Customs and Central Excise Duties Drawback Rules, 1995 - Removal of difficulties

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Customs Circular No. 108/2003 dated 17.12.2003
Sub: Fixation of brand rate of duty drawback by the Central Excise field formations under Rules 6 and 7 of the Customs and Central Excise Duties Drawback Rules, 1995 - Removal of difficulties – regarding.

Attention is invited to the Customs Circular Nos. 14/2003 dated 6.3.2003, 83/2003 dated 18.9.2003, 89/2003 dated 25.9.2003 and 97/2003 dated 14.11.2003 whereby detailed instructions had been given for determining duty drawback by the Central Excise field formations under rule 6 and rule 7 of the Customs and Central Excise Duties Drawback Rules, 1995.

2. Duty drawback is a rebate of the duties of Customs and Central Excise suffered on the inputs used in the manufacture of the export product. During manufacture of the goods certain quantum of raw materials gets wasted. The percentage of wastage may vary from product to product and also depends upon the type of machinery and technology used by the exporters. Such waste generated during the process of manufacture may be either recoverable or irrecoverable. In case of recoverable waste, the manufacture exporter may fetch some price in the local market and this waste may be cleared for local sale on payment of appropriate duty.

3. Doubts have been expressed by some Central Excise field formations that while computing the duty drawback amount, the duty incidence on the original import value or local value, as the case may be, should be deducted from the total drawback amount in terms of Rule 3(2)(d) of the Customs and Central Excise Duties Drawback Rules, 1995.

4. It is clarified that Rule 3(2)(d) inter- alia provides for the incorporation of average amount of duties paid, on materials wasted in the process of manufacture. In terms of proviso to this Rule, if any waste is sold, the average amount of duties on the waste so sold shall be deducted.

A plain reading of the aforesaid provisions means that while fixing the drawback rate, the exporter has to be given drawback on that quantum of material which is normally wasted in the process of manufacture. It is for this reason that for the manufacture of a particular quantity of export product, the exporter in fact is using more quantity ( including wastage) and paying more value as well as duty on these raw materials. But it should be appreciated that the recovered waste shall obviously be having different value compared to the original value of prime goods.

5. It is, therefore, clarified that for determining drawback, first the duty incidence amount should be computed on all the raw materials including the reasonable quantum of waste and, if any such waste is sold then the average amount of duties on such waste so sold shall be deducted.

Illustration for computation of drawback where recoverable waste is involved:

For example, an exporter may use imported raw material ‘GA Coil’ for the manufacture of Hood for Car. Let us assume that the exporter has imported in total 1,48,510 Kgs. of GA Coil invoiced @ Rs. 29.50 per kg.

The item is chargeable to Customs duties @ 25% Basic Customs duty plus 16% Countervailing duty (CVD) and 4% Special Additional duty(SAD). The cumulative Customs duty rate would be 50.80%, out of which 20% is on account of the countervailing duty element. Let us also assume that the countervailing duty paid has been availed of as Cenvat credit. In such an event, the effective rate of Customs duty would be 50.80% minus 20% , i.e., 30.8%.

Further for the manufacture of one car 6.776 Kgs. of GA Coil is used and the recoverable wastage of GA coil per car amounts to 3.626 Kgs. The recoverable wastage has sale value of Rs. 10.50 per kg. , i.e., total value of wastage per car would be Rs.10.50 x 3.626 = Rs. 38.07.

The net incidence of duty on account of GA Coil consumed in the manufacture of one car, which merits to be factored into the brand rate of drawback shall be computed as detailed below:-

1.	Quantity of imported ‘GA Coil’.	1,48,510 Kgs.
2.	C.I.F. value of such Imported ‘GA Coil’.	Rs. 43, 81, 045
3.	Basic Customs Duty @ 25% on the total import	Rs.10,95,261.25
4.	Countervailing duty @16% on the total import	Rs.8,76,209
5.	Special Additional Duty @ 4% on the total import	Rs.2,54, 100.60
6.	Total Customs Duty @ 50.8% .	Rs.22,25,570.85
7.	Total Customs Duty excluding CVD @ 30.8% of CIF value of imports( because CVD is @ 16% and the same is being claimed as Cenvat)).	Rs.13,49,361.85
8.	Customs Duty incidence excluding CVD, on account of 6.776 kgs. Of GA Coil consumed in the manufacture of one Car (by dividing the figure against S.No.7 with total quantity appearing at S.No.1 and multiplying the same with 6.776).	Rs.61.57
9.	Recoverable waste quantity of GA Coil.	3.626 kgs.
10.	Sale value of recoverable waste quantity of GA Coil @ Rs.10.50 per kg.	Rs.38.07
11.	Customs Duty incidence on sale value of recoverable waste quantity of GA Coil @ 30.8% (i.e. percentage of total Customs duty excluding CVD ) on the sale value of Rs.38.07	Rs.11.73
12.	Effective Customs duty incidence (i.e. drawback) excluding the element of CVD, on account of GA Coil in fixation of brand rate of drawback on one car will be the difference of figures appearing at S.No.8 and S.No.11.	Rs.49.84

6. Suitable public notice for information of the trade and standing order for guidance of the staff may be issued accordingly.

7. The receipt of this Circular may kindly be acknowledged.

                                                                       Yours faithfully,
                                                                                      (S.S. Renjhen)
Joint Secretary to the Government of India
                                                                                                       TelefaxNo.23341079

F.No.603/32 /2003-DBK
Government of India
Ministry of Finance
Department of Revenue
Central Board of Excise & Customs