Remission, Abatement and Duty Drawback of Duty (Customs) for CA Final

Understand Remission, Abatement and Duty Drawback of Duty

Key rules to remember

Duty after abatement for damaged goods (Sec 22), ad valorem working shortcut

Duty payable = Duty on goods in undamaged state × (Value of damaged goods ÷ Value of undamaged goods)

Under Sec 22(1)(a), for ad valorem goods the duty is computed on the assessed value of the damaged goods. This proportion is only a working shortcut for that result. It applies to damage or deterioration before or during unloading, or after unloading but before clearance for home consumption. For goods not chargeable ad valorem, such as specific duty goods, Sec 22(1)(b) reduces the duty in the same proportion as the value of the goods is reduced by the damage, as assessed by the proper officer.

Remission for lost or destroyed goods (Sec 23(1))

Duty payable on the lost or destroyed goods = Nil

Applies if the goods were lost or destroyed before clearance for home consumption, otherwise than by pilferage, and the proper officer is satisfied. The duties levied on those goods (BCD, IGST and compensation cess or surcharge, as applicable) are remitted. No remission for loss after clearance. Relinquishment under Sec 23(2) must be made before the clearance order and is not allowed where an offence has been committed.

Drawback under AIR (Sec 75)

Drawback = AIR rate × FOB value of export goods, limited to the value cap per unit of quantity × quantity exported

Sec 75 drawback covers imported and excisable materials used in manufacture (and processing or other operations) and is governed by the Customs, Central Excise Duties and Service Tax Drawback Rules, 1995. AIR is fixed under Rule 3. The AIR schedule fixes the rate (often a percentage of FOB value) and a value cap per unit of quantity. Compute per unit, compare with the cap, take the lower, then multiply by quantity. Brand Rate is fixed under Rule 6, and the special brand rate under Rule 7.

Drawback on re-export of duty-paid goods (Sec 74)

Drawback (goods not used) = 98% of duty paid on import. Drawback (goods used) = 98% of duty paid, less the deduction for the period of use under the Re-export of Imported Goods (Drawback of Customs Duties) Rules, 1995

The goods must be identified as the imported goods and re-exported within two years from the date of the order permitting clearance for home consumption, extendable by the Board. The 98% applies where the goods are not used. For used goods, the deduction for the period of use comes from the Re-export of Imported Goods (Drawback of Customs Duties) Rules, 1995. Use the percentage given in the question.

How to solve Remission, Abatement and Duty Drawback of Duty questions

1. 1Find out whether the goods are imported or exported. This tells you whether the relief is on the import side or the export side.
2. 2Fix the stage. If goods have not been cleared for home consumption, think remission (Sec 23) or abatement (Sec 22). If the goods have been exported, think drawback (Sec 74 or 75).
3. 3Name the event: lost or destroyed (remission), damaged or deteriorated (abatement), relinquished (Sec 23(2)), or exported (drawback). Note whether it happened before or after clearance.
4. 4Check the conditions: loss not by pilferage, satisfaction of the proper officer, and no offence in case of relinquishment.
5. 5Compute the amount. For damage to ad valorem goods, compute duty on the assessed damaged value (the ratio of damaged value to undamaged value gives the same result). For goods not chargeable ad valorem, reduce the duty in the same proportion as the value is reduced by the damage under Sec 22(1)(b). For remission, use the total duty on the lost goods. For AIR drawback, work out per unit, apply the per-unit cap, then multiply by quantity.
6. 6State the provision, apply it to the facts, then give the conclusion with the amount in rupees.
7. 7Close with any exclusion, for example no remission for pilferage or for loss after clearance.

Quickest way: Three-question shortcut

Common mistakes in Remission, Abatement and Duty Drawback of Duty

• Treating remission and drawback as the same relief.

  Both give the importer or exporter relief from duty, so they feel alike.

  Fix: Remember the stage. Remission is on import before clearance, for loss or destruction. Drawback is a refund linked to export.

• Allowing remission for goods lost after clearance for home consumption, or lost by pilferage.

  Students focus on the word loss and ignore the timing and pilferage conditions.

  Fix: Write the conditions first: loss or destruction before clearance, otherwise than by pilferage.

• Giving full remission for goods that are only damaged.

  Students mix lost goods and damaged goods.

  Fix: Damage falls under Sec 22 abatement. For ad valorem duty, charge duty on the damaged-state value; the proportion method gives the answer. For goods not chargeable ad valorem, reduce the duty in the same proportion as the value is reduced by the damage under Sec 22(1)(b).

• Ignoring the AIR cap, or applying it to the whole consignment.

  Students multiply FOB value by the rate and stop, or assume one cap per shipment.

  Fix: The AIR schedule gives a value cap per unit of quantity. Compute drawback per unit, take the lower of rate-based amount and cap, then multiply by quantity.

• Mixing up Sec 74 and Sec 75, or ignoring the choice between AIR and Brand Rate.

  Students assume every export gets the same method.

  Fix: Sec 74 is re-export of duty-paid imported goods (98% of duty paid where the goods are not used, with deductions for use under the Re-export of Imported Goods (Drawback of Customs Duties) Rules, 1995, and with the goods identified and re-exported within two years of the clearance order unless extended). Sec 75 is imported or excisable materials used in exported goods, under the Drawback Rules, 1995, by AIR (Rule 3), Brand Rate (Rule 6) or special brand rate (Rule 7).

Worked examples