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CA Final · Indirect Tax Laws · Classification of Imported and Export Goods

Mehta Traders imported a machine and paid customs duty of Rs 5,00,000 on 10 March 2024. The machine is easily identifiable and has not been used. It was entered for export on 20 January 2026 and the proper officer permitted clearance and loading. Identity is established to the satisfaction of the proper officer. Under Section 74 of the Customs Act, 1962 as given, what drawback is allowable?

Drawback is Rs 4,90,000. Section 74 repays ninety-eight per cent of the duty paid on identifiable, unused imported goods entered for export within two years of paying duty. Here export entry was within two years, so 98% of Rs 5,00,000 is repayable.

  1. ARs 4,90,000, being 98% of the duty paidCorrect
  2. BRs 5,00,000, being 100% of the duty paid
  3. CRs 2,50,000, being 50% of the duty paid
  4. DNil, because the goods were not entered for export within one year

Explanation

Section 74(1) allows 98% of the duty where the goods are identified and entered for export within two years from the date of payment of duty. Payment was on 10 March 2024 and entry on 20 January 2026, within two years. Drawback is 98% x 5,00,000 = Rs 4,90,000. The 100% option ignores the 98% cap.

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