Indirect Tax Laws and Practice · Duty Drawback

Duty Drawback: Meaning, Scope and Types

Q: What is duty drawback under the Customs Act, 1962?

It is a refund of customs duty when imported goods are re-exported, or when imported materials are used in goods that are exported. Sections 74 and 75 are the two statutory routes.

Q: What is the difference between Section 74 and Section 75 drawback?

Section 74 covers re-export of the same identifiable goods on which duty was paid on importation. Section 75 covers imported materials used in manufacture, processing or an operation on goods that are exported.

Q: What are the types of duty drawback in India?

For exams, group them as drawback on re-export under Section 74 and drawback on materials used in exported goods under Section 75. Under Section 75, rates are commonly fixed as All Industry Rate or Brand Rate.

Q: How much drawback is given on re-export under Section 74?

For goods that qualify, 98% of the duty paid is repaid. For goods used after importation, the Central Government notifies the rate, having regard to duration of use and depreciation.

Updated 11 October 2026 · Fact-checked

Duty drawback is a refund of customs duty paid on imported goods or materials when they leave India again. Section 74 covers re-export of identifiable duty-paid goods, with 98% of duty repaid. Section 75 covers imported materials used in goods manufactured here and exported, with rates fixed by the Central Government.

Understand Duty Drawback: Meaning, Scope and Types

Duty drawback is a refund of customs duty. India taxes imports, but it does not want to tax goods that go abroad. Drawback removes the duty burden when the goods, or the materials in them, are exported.

The Customs Act, 1962 provides two statutory routes. Section 74 applies when imported goods, capable of being easily identified, on which duty was paid on importation, are re-exported. Section 75 applies when imported materials are used in manufacturing, processing or carrying out an operation on goods that are then exported.

The two sections differ in what is exported. Under Section 74 it is the same imported goods, unchanged. Under Section 75 it is a new product made in India with imported inputs. Section 74 repays 98% of the duty paid on importation for unused goods, and a rate notified by the Central Government for goods used after importation. Section 75 works through notified rates, either on average duty paid on materials of that class or on actual duty paid.

In practice, Section 75 drawback is claimed in two forms. All Industry Rate (AIR) is a rate fixed for a class of goods, based on the average duty paid on materials by manufacturers generally. Brand Rate is fixed for a particular manufacturer when the AIR does not cover the actual duty suffered by that manufacturer. The Act's Section 75(2)(a) speaks of an average amount of duty paid either by manufacturers generally or by any particular manufacturer. This is the legal base for the AIR and Brand Rate split. The names AIR and Brand Rate themselves come from the drawback rules, not from the Act's text.

The Act also protects the system. If sale proceeds of exported goods are not received in India within the time allowed under FEMA, the Section 75 drawback is deemed never to have been allowed, except in circumstances or on conditions the Central Government specifies by rule.

Key rules to remember

Section 74 drawback rate: Drawback = 98% × duty paid on importation; Applies to easily identifiable goods, subject to the Act's other provisions. Used goods get a different rate under Section 74(2).
Section 74 conditions: Goods identified to the officer's satisfaction + entered for export within 2 years from date of payment of duty; The Board may extend the 2 years on sufficient cause shown.
Used goods under Section 74(2): Rate = as notified by the Central Government; Fixed having regard to duration of use, depreciation in value and other relevant circumstances.
Section 75 base: Drawback of customs duty on imported materials used in manufacture, processing or operation on exported goods; Allowed only where the Central Government notifies it and subject to the drawback rules.
Section 75 first proviso: No drawback if export value < value of imported materials used, or not more than a notified % of that value; Applies to goods the rules specify.
Section 75 second proviso: Sale proceeds not received within FEMA time → drawback deemed never allowed; Exceptions apply as the Central Government specifies by rule.
Date of entry for export: Date used to calculate rate of duty under Section 16; Section 74(4)(a). For provisional assessment under Section 18, the date of payment of provisional duty is treated as the date of payment of duty.

How to solve Duty Drawback: Meaning, Scope and Types questions

Use this order for any question asking you to identify, classify or compute drawback.

1Find what is being exported: the same imported goods, or a product made with imported materials.
2If it is the same imported goods, with duty paid on import, apply Section 74. If it is manufactured or processed goods, apply Section 75.
3Under Section 74, check the three tests: duty paid, goods identified to the officer's satisfaction, and entry for export within two years of payment of duty.
4Check whether the goods were used after import. If yes, the rate is the one notified under Section 74(2), not the flat 98%.
5Under Section 75, check that the Central Government has notified drawback for the goods, then decide whether AIR or Brand Rate fits.
6Compute the amount: 98% of duty for unused Section 74 goods, or the notified or fixed rate for the others.
7Check FEMA realisation of sale proceeds and the minimum export value test for Section 75.
8State a clear conclusion with the section number and the reason.

Quickest way: Same goods or new goods

When to use it: For MCQs and short classification questions where you must choose the section or type.

Ask: same goods out, or new goods out?
Same goods and duty paid: Section 74.
New goods made with imported inputs: Section 75.
For Section 74, remember 98% and the two-year limit.
Standard rate for a whole class of goods: AIR. Rate for one manufacturer: Brand Rate.

Common mistakes in Duty Drawback: Meaning, Scope and Types

Applying Section 74 to goods that were manufactured in India using imported inputs.
Both sections speak of imported items and duty refund, so they blur.
Fix: Section 74 needs the imported goods themselves to be exported and identified. Manufactured goods go under Section 75.
Allowing 98% drawback on used goods.
Students remember 98% and forget Section 74(2).
Fix: For goods used after import, the rate is what the Central Government notifies, considering duration of use and depreciation.
Counting the two-year period from the date of import or arrival.
The date of import feels natural as the starting point.
Fix: The period runs from the date of payment of duty on the importation. Under provisional assessment, the date of provisional payment counts.
Saying AIR and Brand Rate are separate sections of the Act.
They are taught as headings next to Sections 74 and 75.
Fix: Both are forms of Section 75 drawback. Name the section and explain that the Act allows averages for manufacturers generally or for a particular manufacturer.
Ignoring the FEMA realisation condition for Section 75 drawback.
Students focus on computing the rate and forget the clawback.
Fix: If sale proceeds are not received in India within the FEMA time, the drawback is deemed never allowed, except as the Central Government specifies by rule.

Worked examples

Example 1

Mehta Traders imported 10 identifiable machines and paid customs duty of ₹5,00,000 on the whole lot on 10 March. All machines are unused. They entered the machines for export, and the proper officer permitted clearance, within two years of paying the duty. The goods are identified to the officer's satisfaction. Compute the drawback under Section 74.

Show the solution

The same imported goods are being re-exported, with duty paid on importation. So Section 74 applies.
Conditions: goods identified to the officer's satisfaction, and entered for export within two years of payment of duty. Both are met.
The goods are unused, so Section 74(2) does not apply. The flat rate of 98% of duty applies.
Drawback = 98% × ₹5,00,000 = ₹4,90,000.

Answer: Drawback of ₹4,90,000 is repayable under Section 74(1).

Example 2

Surya Textiles, Surat, imports dyes, pays customs duty, uses them to manufacture fabric and exports the fabric. A student says the claim falls under Section 74. Examine, and explain the types of drawback rate available.

Show the solution

The exported goods are fabric made in India with imported dyes. They are not the identifiable imported goods themselves.
So Section 74 does not apply. Section 75 applies, where the Central Government notifies drawback on imported materials used in manufacture of exported goods.
Under Section 75(2)(a), the rules may provide for drawback equal to duty actually paid on the materials, or the average duty paid on materials of that class by manufacturers generally or by a particular manufacturer.
Where a rate is fixed for the class of goods generally, it is the All Industry Rate. Where the AIR does not cover the manufacturer's actual duty and a rate is fixed for that manufacturer, it is the Brand Rate.
Conditions to watch: the first proviso on export value against value of imported materials, and the FEMA realisation of sale proceeds.

Answer: Section 74 does not apply. The claim lies under Section 75, through the All Industry Rate, or a Brand Rate for that manufacturer if the AIR is inadequate, subject to the provisos.

Exam tips

Open any classification answer with one line: same goods or manufactured goods. Then name the section.
Memorise three Section 74 numbers: 98%, two years, and the Board's power to extend.
In MCQs, watch for the word used. It points to Section 74(2) and a notified rate.
For a theory question on types, write Section 74, Section 75, then AIR and Brand Rate as forms under Section 75.
Mention the FEMA realisation condition. It earns marks in Section 75 case answers.

Practice questions from Duty Drawback