Import of goods into India is chargeable to duties under the Customs Act, 1962 and the Customs Tariff Act, 1975. However, when such imported goods are re-exported, the duties paid at the time of import are reimbursed to the importer in the form of ‘duty drawback’.  Such duty drawback is governed by, and is subject to terms and conditions prescribed under Section 74 of the Customs Act and Re-export of Imported Goods (Drawback of Customs Duties) Rules, 1995.

The disputes on duty drawback have been diverse, evolving, and at times ingenious, ranging from scope of ‘duty’ eligible for drawback to the implication of availing credit under the CENVAT Credit Rules, 2004/ Goods and Services Tax Law on eligibility to duty drawback. And time and again, the Courts have stepped in to settle such disputes.

One such dispute came up for consideration before the Gujarat High Court in the case of Schott Glass India Pvt. Ltd. v. Union of India [2025 (6) TMI 1288] (Company). In the said case, the company had challenged the order of the Revisionary Authority which had partially disallowed drawback of Basic Customs Duty (BCD) claimed by the company in respect of capital goods imported and re-exported in 2009.

The capital goods were imported by the company on payment of BCD, additional customs duties and cess and were re-exported after nearly two to six months. At the time of re-export, the company claimed drawback of 85% of the BCD paid by it on the goods, based on the period of usage of the capital goods. The company also availed credit of the additional customs duties and cess paid by it in terms of Rule 3 of the CENVAT Credit Rules, 2004.

However, the Customs Department entertained a view that the duty drawback under Section 74 has to be determined only after factoring all the duties paid by the company on import, viz., BCD, additional customs duties, cess, etc., and the CENVAT credit, if any, availed by the company. This view was purportedly on the premise that claiming drawback of BCD and availing credit of additional customs duties and cess would amount to ‘unjust benefit’ in the hands of the company. The Customs Department also re-determined the percentage of duty drawback from 85% to 75%, based on the period of usage of the goods.

Accordingly, the quantum of duty drawback was re-determined by the Department in the following fashion:

a) 75% of all the duties paid on import, viz., BCD, additional customs duties and cesses (instead of BCD alone) was calculated.

b) From the aforesaid amount, the amount of the CENVAT credit availed by the company in respect of the additional customs duties and cesses were deducted.

c) The balance amount was sanctioned as eligible amount of duty drawback to the company.

The above re-determination was also upheld by the Revisionary Authority, which was challenged before the Gujarat High Court.

The Gujarat High Court, after examining the issue, held as follows:

a. The term ‘duty’ is defined under Section 2(15) of the Customs Act as the ‘duty of customs leviable under the Customs Act, 1962’.

b. Therefore, the term ‘any duty paid at the time of importation’ in Section 74 has to be understood to refer to only BCD and not to the additional customs duties levied under Section 3 of the Customs Tariff Act, 1975.  Hence, additional duties and cesses paid at the time of importation cannot be considered while computing the eligible amount of duty drawback.

c. However, the reduction of percentage of drawback based on the period of usage is upheld.

Accordingly, the Court held that drawback under Section 74 can only be in respect of BCD.

The decision of the Court that BCD alone will have to be considered for computing the eligible amount of duty drawback was apt and rendered in the face of compelling reasons in the said case.

Other finer aspects of the drawback scheme are discussed below keeping in mind the objection raised in the aforesaid case.

It appears that the provisions levying additional customs duties and cesses were not considered by the Court. While additional customs duties are levied under Section 3 of the Customs Tariff Act, 1975, various cesses were levied under respective Finance Acts. All these enactments, inter alia, borrow the machinery provisions of the Customs Act, including the provisions relating to duty drawback. For instance, Section 3(8) of the Customs Tariff Act (as it stood in 2009) made the provisions relating to duty drawback, under the Customs Act, 1962, applicable to additional customs duties chargeable under Section 3 of the Customs Tariff Act.

What follows from the above is that even though the term ‘duty’ under Section 74 of the Customs Act would cover only BCD in view of Section 2(15) ibid, even additional duties of customs would be eligible to drawback in view of borrowing provisions, viz. Section 3(8) of the Customs Tariff Act, 1975.

However, the Court did not appear to have considered the above provisions while granting relief to the company. Perhaps, in the wisdom of the Court, it was not necessary to do so in the facts and circumstances of the said case. Yet, the finding that the duties of customs, other than BCD, cannot be considered as part of ‘duty’ for the purpose of Section 74, has serious and unintended implications on how claims for duty drawback are considered under the GST regime.

Before delving into the implications, it is necessary to understand how the provisions pertaining to erstwhile additional duties of customs considered in Schott Glass case, are similar to IGST. Like in the case of additional duties of customs considered in Schott Glass case, IGST is levied on import of goods into India, under Section 3 of the Customs Tariff Act, 1975. Section 3(12) of the Customs Tariff Act like Section 3(8) discussed above ibid., makes the provisions of the Customs Act, including those relating to drawback, applicable for IGST levied under Section 3(7) also. This legal position has also been affirmed by CBIC.

Thus, the legal position which existed in 2009, vis-à-vis additional duties of customs considered in Schott Glass case, would continue to apply to IGST levied on import of goods at present. Consequently, the decision on availability of duty drawback in Schott Glass case would equally apply to availability of duty drawback of IGST as well.

Now the implications!

Firstly, the decision would pose challenges to exporters in claiming duty drawback of IGST in cases where Input Tax Credit of IGST is not permissible, e.g., due to restrictions under Section 17 of the CGST Act, 2017. In such cases, the decision in Schott Glass would prevent exporters from claiming drawback of IGST under Section 74 of the Customs Act, even though it is legally permissible.

Secondly, in many cases, exporters avail ITC of IGST paid and claim drawback of only BCD which is permissible under the law. It must be noted that each duty of customs levied at the time of import of goods is distinct and the exporter has the option to claim drawback of only one or all the duty components. It is seen that if the ITC availed is more than the IGST amount that would be available as drawback, the Customs Department has the practice of deducting the differential IGST credit (ITC) while computing the drawback of BCD. Like in the case of Schott Glass, the above practice of the Department is based on purported intent to prevent ‘unjust benefit’ to the exporters, though such intent has no legal basis.

Ironically, the exporters in second scenario above would stand to gain from the ratio of Schott Glass case that duties of customs, other than BCD, should not be considered for the purpose of duty drawback under Section 74 of the Customs Act.

While the decision in Schott Glass case has granted relief to the exporter therein, it has left many questions open, especially on the interplay between the statutory provisions relating to drawback.  For ease of doing business, it would be helpful if the open questions are addressed either judicially or administratively.

About the authors: DSanthana Gopalan is an Associate Partner and S Ganesh Aravindh is a Principal Associate at Lakshmikumaran & Sridharan attorneys.

Disclaimer: The opinions expressed in this article are those of the author(s). The opinions presented do not necessarily reflect the views of Bar & Bench.

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