PROCEDURE FOR DISPUTE SETTLEMENT IN WTO

In 1994, the WTO members agreed on the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU). Dispute settlement is regarded by the WTO as the central pillar of the multilateral trading system, and as a “unique contribution to the stability of the global economy”. WTO members have agreed that, if they believe fellow-members are violating trade rules, they will use the multilateral system of settling disputes instead of taking action unilaterally.

Although the dispute settlement system is intended to uphold the rights of aggrieved Members and to clarify the scope of the rights and obligations, which gradually achieves higher levels of security and predictability, the primary objective of the system is not to make rulings or to develop jurisprudence. Rather, like other judicial systems, the priority is to settle disputes, preferably through a mutually agreed solution that is consistent with the WTO Agreement.

The WTO dispute settlement system has been in operation since 1995 and has, during this time, been the most productive of all international dispute settlement systems. During its first ten years, more disputes had been brought to the WTO for settlement than to its predecessor GATT, during its forty-seven years of existence from 1948 to 1995. The operation of the WTO dispute settlement process involves the DSB panels, the Appellate Body, the WTO Secretariat, arbitrators, independent experts and several specialized institutions. The WTO’s dispute settlement procedure underscores the rule of law, and it makes the trading system more secure and predictable. It is clearly structured, with strict timetables set for completing a case. First rulings are made by a Panel. Appeals based on points of law are possible. All final rulings or decisions are made by the WTO’s full membership.

DISPUTE SETTLEMENT:

When the WTO dispute settlement system has only been used since the first of January 1995, it was not a novel system. The system is based on almost fifty years of experience in trade dispute resolution from the GATT 1947. Disputes of today as well as disputes of past times can be solved in many different ways. Essentially there are two methods to reach a peaceful resolution of international disputes:

a)      Through diplomatic negotiations between the concerned parties, with varying interference and assistance by third parties; or

b)      Through adjudication by an independent entity, also called arbitration and judicial settlement.

A dispute arises when one member country adopts a trade policy measure or takes some action that one or more fellow members considers to a breach of WTO agreements or to be a failure to live up to obligations. By joining the WTO, member countries have agreed that if they believe fellow members are in violation of trade rules, they will use the multilateral system of settling disputes instead of taking action unilaterally — this entails abiding by agreed procedures (Dispute Settlement Understanding) and respecting judgments, primarily of the Dispute Settlement Body (DSB), the WTO organ responsible for adjudication of disputes^[1]. A former WTO Director-General characterized the WTO dispute settlement system as "the most active international adjudicative mechanism in the world today."

The General Council discharges its responsibilities under the DSU through the DSB^[2]. Like the General Council, the DSB is composed of representatives of all WTO Members. The DSB is responsible for administering the DSU, i.e. for overseeing the entire dispute settlement process. It also has the authority to establish panels, adopt panel and Appellate Body reports, maintain surveillance of implementation of rulings and recommendations, and authorize the suspension of obligations under the covered agreements^[3]. The DSB meets as often as necessary to adhere to the timeframes provided in the DSU^[4].

PROCEDURE FOR DISPUTE SETTLEMENT IN WTO:

According to Article III.3 WTO agreement, dispute settlement is one of the key functions of the WTO. The rules for settlement are laid down in the Dispute Settlement Understanding (DSU). The procedure for the dispute settlement consists various stages or steps to reach the final implementation of judgment. In this project, the various stages or steps of WTO Dispute Settlement are described below in detail as:

1.      DISPUTE INITIATION STAGE:

The initiation stage of WTO dispute settlement is governed by national law. Although it is not part of the DSU, the question of dispute initiation is useful for the overall positioning and understanding of the procedure in a larger trade policy context. One feature of WTO dispute settlement is that only government has access to WTO dispute settlement in terms of dispute initiation. Private economic actors such as exporters, importers and consumers do not have the right to bring complaints. The initiation of a dispute under the DSU therefore still requires a government decision.[5]

2.      CONSULTATION STAGE:

Once the government of the complainant country has decided to bring a trade dispute to the WTO, the provisions of the Dispute Settlement Understanding (DSU; Annex 2 to the WTO Agreement) govern the proceedings. The first stage of any dispute settlement procedure consists of mandatory consultations between the complainant and the defendant. Complainant, who alleges that Defendant has violated WTO provisions, thereby nullifying or impairing complainants’ benefits under the agreements, has the right to ask defendant to enter into consultations in order to find a mutually acceptable solution to the problem.[6] Such consultation requests shall be made in writing. They shall contain the reasons for the request, and identify the measures and the legal basis for the complaint.[7] Consultation requests shall be notified to the Dispute Settlement Body.

Defendant is normally obliged to answer within 10 days after receipt of the consultation requests, and it shall enter into such consultations within 30 days.[8] The consultations are confidential. However, a third party which considers that it has a ‘substantial trade interest’ in the consultations may notify the consulting Members and the DSB of its interest. It shall be joined in the consultations if the other parties agree to the claim of substantial interest. If the third party is not allowed to join the consultations, it may request its own consultations.[9] Good offices, conciliation and mediation are procedures that are undertaken voluntarily if the parties to the dispute so agree.[10]

If a mutually acceptable solution for the dispute has been found, it shall be notified to the DSB.[11] The DSU has a clear preference for mutually acceptable solutions over the solution of disputes through panel procedures.[12] It prescribes, however, that such mutually agreed solutions shall be consistent with the multilateral trade agreements, and that they shall not nullify or impair the benefits accruing to any member under these agreements.[13] If Defendant refuses to enter into consultations, or if no mutually acceptable solution can be found within 60 days, Complainant has the right to ask the DSB to establish a panel.[14]

3.      PANEL STAGE:

 ·          Establishment of Panels:

If consultations fail to resolve the dispute within 60 days, complaining party may ask the DSB to establish a panel. If a developing country member is involved, 60 day period could be extended. In practice consultations continue even beyond 60 days and even during panel process. Panels do encourage the members to find a mutually agreed solution.[15]

Panel requests must be formulated in writing. They must contain details on whether consultations have been held, which measures are the subject of the complaint and which rules of the multilateral trade regime are concerned.[16] Following a request a panel is usually established at the second meeting of the DSB where the panel request appears on the DSB’s agenda, unless the DSB decides by consensus not to establish the panel.[17] In other words, the time between the first and the second DSB meeting with the request on the agenda may be used for further consultations. By the time of the second meeting, agenda control shifts to the complainant as the latter would have to consent not to establish a panel. The reverse consensus rule for the establishment of panels is a new feature of dispute settlement in the WTO, as has been pointed out in the preceding chapter.[18]

                                   ·          Composition of Panels:

Panels typically consist of three panelists, unless the parties agree to a panel composed of five panelists.[19] Panelists are usually governmental or non-governmental trade experts, including officials, diplomats or academics. They are appointed ad hoc, although the WTO maintains a roster from which panelists can be chosen.[20] Citizens of member countries whose governments are involved in a specific dispute shall not serve on that panel.[21] The secretariat shall propose nominations for the panel which shall be accepted by the parties. Such nominations shall not be opposed by Members, except for ‘compelling reasons’. If the parties cannot agree on the panelists, the Director General of the WTO is called upon to determine the composition of the panel.[22] When acting on a panel, panelists shall serve in their individual capacities and independent from instructions of their governments. Further rules for observance by panelists are contained in specific rules of conduct. In disputes involving developing countries, at least one panelist from a developing country shall be included if the developing country members so request.[23]

                                   ·          Terms of Reference of Panels:

Panels shall have the following terms of reference unless the parties to the dispute agree otherwise within 20 days from the establishment of the panel. The Appellate Body in case of Brazil — Desiccated Coconut[24] explained the importance of the terms of reference. “A panel’s terms of reference are important for two reasons. First, terms of reference fulfill an important due process objective — they give the parties and third parties sufficient information concerning the claims at issue in the dispute in order to allow them an opportunity to respond to the complainant’s case. Second, they establish the jurisdiction of the panel by defining the precise claims at issue in the dispute.”

In case of Australia — Apples,[25] the Panel observed that according to established jurisprudence, it is the panel’s terms of reference that “define the scope of a dispute”. The Panel also emphasized that a panel’s mandate or terms of reference are determined by the request for the establishment of the panel.

                                   ·          Functions of Panel:

The panel’s task is to assist the DSB in making rulings and recommendations under the covered agreements. In practice, this usually means the establishment of a report on whether or not a trade measure constitutes a violation of multilateral trade rules. To this purpose, a panel shall make an objective assessment of the matter before it, including an objective assessment of the facts of the case and the applicability of and conformity with the relevant covered agreements.

                                   ·          Panel Procedures:

Panel procedures include written submissions of the parties to the disputes and panel hearings. Two so-called ‘substantive meetings’ normally take place before the interim report is issued, and another meeting takes place after the interim report is issued. If necessary, more meetings can be arranged. The panel enjoys a right to information and technical advice from anyone it deems appropriate. Panels may also request advisory reports from expert review groups. Parties’ submissions to the panel shall be treated as confidential but shall be made available to the parties to the dispute. Disputing parties have a right to disclose statements of their own to the public. Members may also ask disputing parties to provide a non-confidential summary of the information contained in written submissions which may be disclosed to the public. However, there is no time frame for the fulfillment of this obligation.

Even during the panel stage, both parties are encouraged to continue their search for a mutually acceptable solution. To this end, panels should also consult regularly with the parties to the dispute and give them adequate opportunity to develop a mutually satisfactory solution. Moreover, the panel has the authority to suspend its procedures for a maximum of months upon the complainant’s request in order to allow for further bilateral negotiations. If the work of a panel has been suspended for more than 12 months, its authority lapsed.

                                   ·          Panel Reports:

As during consultations, third party enjoys specific rights during the panel stage. Having notified their substantial interest in a matter to the DSB, they shall be heard by panel and their submissions shall be reflected in the panel report. They also receive the submissions of the disputing parties to the first meeting of the panel and they may request their own panel under the DSU. Specific rules apply for cases involving multiple complainants.

If no mutually acceptable solution can be agreed upon during the panel stage, the panel shall issue its final report within six or, under exceptional circumstances, within nine months. The deliberations of the panel are confidential, and the reports are drafted without the presence of the parties. Opinions expressed by individual panelists in the report are anonymous. Before the final report, the panel issues an interim report which is circulated to the parties to the dispute. If this interim report is not commented by the parties, it constitutes at the same time the final report to the DSB.

Where the panel has found a trade measure to be in violation of WTO law, it recommends that the party concerned bring its trade regime into conformity with its WTO obligations. The panel may also suggest possible ways of implementation. This, however, is rarely done. Panel findings and recommendations may not add to the rights and obligations of members. Where no party notifies its intention to appeal findings of the panel report, the DSB adopts the panel report, unless it decides by consensus i.e. with the vote of the prevailing party – not to adopt the report.

4.      APPELLATE REVIEW STAGE:

Both the complainant and the defendant have the right to appeal a panel report. Third parties do not have the right to appeal a report but they may make written submissions to and be heard by the Appellate Body in the course of an appeal if they had previously notified the DSB of their substantial interest during the panel stage.

The responsibility for the appeal lies with a permanent organ, the Appellate Body. It consists of seven persons, three of whom (i.e. a division) work on any case. Appellate Body members shall have demonstrated expertise in law, international trade and the subject matter of the multilateral trade agreements.[26] They are appointed for a four-year term which is renewable once. They shall be unaffiliated with any government. In contrast to the panel stage, there is nothing in the DSU which would prevent an Appellate Body member from serving on a case involving his home country. Further rules for observance by Appellate Body members are contained in the rules of conduct.

An appeal is limited to issues of law and legal interpretations in the panel report.[27] This stage of dispute settlement does not include another fact-finding process, nor does the DSU currently grant the Appellate Body the authority to remand an issue to the panel for further fact- finding. But if the findings involve application of a legal rule to facts then it has been ruled to be finding of law.[28]

Article 17.13 of DSU said that Appellate Body may uphold, modify or reverse the legal findings and conclusions of the panel.[29] In case of US - Wheat Gluten[30], Appellate Body stated that though panel found several deficiencies in the USITC report yet panel found that the report provided an adequate, reasoned and reasonable explanation with respect to ‘profits and losses’, but Appellate Body ruled that Panel did not make objective assessment of facts as required by Art.11 of DSU and reverse their finding.

When a case is reached to Appellate Body, he has two options; either to leave the dispute unresolved or go on a complete legal analysis. In Australia­­ - Salmon[31] and in few other cases, the Appellate Body has completed the ‘legal analysis’ to avoid a situation where the dispute between the parties remains unresolved.

In order to appeal a panel report, a country notifies its intention to appeal to the DSB before adoption of the panel report and submits a notice of appeal. It shall include, inter alia, a brief statement on the nature of the appeal including the alleged errors in the issues of law covered in the panel report and the legal interpretations adopted by the panel.[32] Within 10 days after filing the notice of appeal, the appellant has to file its appellant’s submission with more specific information.[33] Within 25 days after the notice of appeal has been filed, the appellee may present its submission.[34] Thirty days after the filing of the notice of appeal, an oral hearing shall take place.[35] Parties’ submissions to the Appellate Body shall be treated as confidential but shall be made available to the parties to the dispute. Disputing parties have a right to disclose statements of their own to the public. Members may also ask a disputing party to provide a non-confidential summary of the information contained in its written submission which may be disclosed to the public. However, there is no time-frame for the fulfillment of this obligation.[36] Further rules for appellate review are included in the Working Procedures for Appellate Review.

The Appellate Body has 60 days (following the appellant’s notification of its decision to appeal a panel report) to finish its report for the DSB.[37] In its report, the Appellate Body can uphold, modify or reverse the panel’s findings.[38] As is the case with panel reports, the deliberations of the Appellate Body shall be confidential and the reports shall be drafted without the presence of the parties.[39] Opinions expressed in the Appellate Body report shall be anonymous.[40] Appellate Body decisions shall be taken by consensus wherever possible; otherwise, decisions shall be made by majority votes.[41] Collegiality plays a vital role in the work of the Appellate Body.[42]

Once the report has been finished and circulated to the members, it shall be adopted by the DSB and unconditionally accepted by the parties within 30 days from the date of circulation unless the DSB decides by consensus (i.e. with the agreement of the prevailing party) not to adopt it.[43] Like panel reports, Appellate Body reports may not add to or diminish the rights and obligations of members.[44]

Overall, the total duration from the date of the establishment of the panel until the date when the Appellate Body report is considered for adoption shall not exceed nine months in cases where no appeal is made, or 12 months in cases with appeal.[45]

5.      IMPLEMENTATION STAGE:

Where a panel and/or the Appellate Body have reached the conclusion that a trade measure of a country is not compatible with its obligations under any of the multilateral trade agreements, it recommends that the member state shall bring its measure into conformity with the WTO agreement. Although the panel or Appellate Body is free to make suggestions on how this conformity can be reached[46], they have used this authority only rarely as they obviously do not wish to interfere in member governments’ policies.

The member whose trade measure has been found to be in violation of WTO obligations shall communicate to the DSB how it plans to implement the DSB recommendations. As a general rule, the recommendations and rulings should be implemented immediately, or within a ‘reasonable period of time’. If the parties to the dispute cannot agree on a reasonable period of time, it will be determined by binding arbitration within 90 days after the adoption of the recommendations and rulings. It should not exceed 15 months, but it can be adjusted upwards or downwards in exceptional circumstances.[47] The DSU requires that the DSB keeps the implementation of adopted recommendations under surveillance and that the implementation of rulings is placed on the DSB agenda after 6 months following the determination of the reasonable period of time, unless the DSB decides otherwise. The dispute remains on the agenda until it is resolved. During this time, the defendant party is required to submit written status reports to the DSB 10 days prior to each meeting with information on the progress in the implementation of the recommendations and rulings.[48]

6.      COMPENSATION AND SUSPENSION OF CONCESSIONS:

Where no implementation occurs, the DSU provides for compensation or for the suspension of concessions or other obligations as of temporary relief in case of non-compliance. However, neither compensation nor the suspension of concessions or other obligations is preferred to full implementation.[49] Upon request from the complainant, the defendant shall enter into negotiations with a view to developing mutually acceptable compensation. Where no satisfactory compensation has been agreed within 20 days after the date of expiry of the reasonable period of time, the complainant may request authorization from the DSB for the suspension of concessions or other obligations vis-à-vis the defendant.[50]

According to the rules on ‘cross-retaliation’ as laid down in Article 22.3 DSU, the general principle is that such suspension should occur in the same sector as that where the violation has occurred. If this is not deemed practicable or effective by the complainant, the complainant may seek redress in other sectors of the same agreement, or even under other agreements, provided that the circumstances are serious enough.

In case of EC - Banana III[51], US sought DSB authorization to suspend concessions in trade in goods. EC objected contending that authorization should have been requested to suspended concessions in the service sector alone as the Appellate Body ruling related to that. But Arbitrators rejected EC’s argument stated that US has the right to seek suspension of concessions in either or both, goods and services, sectors up to the overall level of nullification or impairment suffered.

The level of the suspension of concessions or other obligations shall be equivalent to the level of nullification or impairment suffered by the complainant. If the defendant objects to the level of suspension proposed, or if it claims that the rules on cross- retaliation have not been followed, the matter shall be referred to binding arbitration. This arbitration shall be completed within 60 days after the reasonable period of time has lapsed. Where available, the original panel shall act as arbitrator. Concessions may not be suspended while the arbitration is in course.

Findings of non-compliance with regard to implementation cannot be made unilaterally by the complainant. They must be made using the multilateral rules and procedures, as Article 23 DSU stresses. The objective of this provision is to avoid unilateral determinations of non- compliance which lead to unilateral trade measures by individual member countries and which would seriously undermine the credibility of the multilateral trade regime and its ‘monopoly of power’ with regard to determinations of compliance and non-compliance under the covered agreements.

7.      ARBITRATION STAGE:

If the member objects to the level of suspension proposed or claims that the principles and procedures set forth in Art. 22.3 have not been followed where a complaining party seeks authorization to suspend concessions or other obligations under Art. 22.3 (b) or (c), the matter is referred to arbitration by the original panel. Arbitrator does not examine the nature of the concessions or other obligations proposed to be suspended by the member. They fall outside the arbitrators’ jurisdiction. What they do have to determine is whether the overall proposed level of suspension is equivalent to the level of nullification and impairment.[52] The decision of the arbitrator is final and binding on the parties.

US - Gambling Case[53]: Antigua and Barbuda, a small independent commonwealth country, with few natural resources, relies on tourists and gambling revenues. But US passed law banning internet gambling.  Here panel and appellate body ruled in favor of Antigua and Barbuda that the US measures was inconsistent with its obligations under GATS. On 2007, Antigua sought to suspend concessions or related obligations under TRIPs Agreement amounting to an annual value of US$ 3.44 billion which it considers to “match the level of nullification or impairment of benefits.” But arbitrator determined the annual level of nullification or impairment of benefits accruing to Antigua to be US$ 21 million and allowed it to seek authorization from DSB, to suspend the obligations under TRIPs Agreement of the value of US$ 21 million annually.

CONCLUSION

This Project has set forth the steps regarding the procedure of the Dispute Settlement Body in solving the dispute. Having reviewed the dispute settlement procedure as it is laid down in the Dispute Settlement Understanding, it becomes clear that the dispute settlement rules of today combine both political and legal elements and that they constitute something of a ‘middle ground’ between political/diplomatic negotiations and third party adjudication also. The DSU thus combines both the rule-oriented and the diplomatic, negotiation-oriented traditions of its evolution. The scope of panel and Appellate Body recommendations has been clearly limited as they may not add to or diminish the rights and obligations of Members.

Besides the procedures laid down in Section 3.3, the DSU provides rules for alternative means of dispute settlement. These are good offices, conciliation and mediation (Article 5 DSU), or arbitration (Article 25 DSU). As they have neither been frequently used in DSU practice nor been among the central topics of the DSU review, we will abstain from offering a detailed account on these procedures.

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DUTY DRAWBACK UNDER CUSTOMS ACT, 1962

Sustained export growth is crucial for maintaining and accelerating the GDP growth momentum, increasing employment and alleviating poverty. In order to encourage the export of the country the government provides duty drawbacks to exporters to make their products competitive in overseas. In case of goods which were earlier imported on payment of duty and are later sought to be exported within a specified period Customs duty paid at the time of import of the goods with certain cuts can be claimed as Duty Drawback at the time of export of such goods. The return of such duty is called duty drawback. Drawback scheme provides for rebate of the duty chargeable on the imported or excisable materials, components, packing materials etc. used in the manufacture of the export product.

Duty Drawback is the refund of duty on that part of the imported raw material used in the production of the goods and manufactured goods are exported. The drawback refers to the rebate of duty chargeable on any imported or excisable material used in the manufacture of goods exported from India. In order to encourage the export of the country the government provides duty drawbacks to exporters to make their products competitive overseas. In case of goods which were earlier imported on payment of duty and are later sought to be exported within a specified period customs duty paid at the time of import of the goods with certain cuts can be claimed as duty drawback at the time of export of such goods. The return of such duty is called duty drawback. In India duty drawback is governed by the Customs Act, 1962 and Customs, Central Excise Duties and Service Tax Drawback (Amendment) Rules, 2006

 MEANING & DEFINITION OF DUTY DRAWBACK:

Duty Drawback is defined as the refund of duty on that part of the imported raw material used in the production of the goods and manufactured goods are exported.[1]

‘Drawback’[2] in relation to any goods manufactured in India and exported, means the rebate of duty or tax, as the case may be, chargeable on any imported materials[3] or excisable materials[4] used or taxable services used as input services in the manufacture[5] of such goods;

According to Gruen, “Duty Drawbacks can be used to specify a flexible liberalization path and speed up the opening of protected economics.”

CONCEPT OF DUTY DRAWBACK:

Duty drawback scheme was introduced by the Ministry of Finance as a rebate for duty chargeable on any imported materials or excisable materials used in manufacture or processing of goods, manufactured in India and exported. The scheme promotes exports and to ensure that exported products are revenue neutral.

The Central Government is empowered to grant duty drawback under section 74 and 75 of the Customs Act, 1962. Under section 74 of the Customs Act, duty drawback to the extent of 98 percent of the duty paid on imported goods can be claimed for re-export, provided the goods are re-exported within 2 years of payment of import duty. Section 75 of the Act, empowers drawback on export of manufactured articles.

The principal method of encouraging the export of goods has been the drawback of customs and the central excise duties on goods manufactured out of customs duty paid and/or central excise duty paid on inputs or raw materials. Such Duty Drawback is granted in terms of Section 74 of the Customs Act, 1962 read with Central Excise Duties and Service Tax Drawback (Amendment) Rules, 2006. For this purpose, the identity of export goods is cross verified with the particulars furnished at the time of import of such goods.

According to Rule 3 (1) of the Customs, Central Excise Duties and Service Tax Drawback (Amendment) Rules, 2006 ‘Drawback’ is subject to the provision of Customs Act, 1962 and the rules made thereunder. According to Rule 3 (1), a drawback may be allowed on the export of goods at such amount, or at such rates, as may be determined by the Central Government. But where any goods are produced or manufactured from imported materials or excisable materials or by using any taxable services as input services, on some of which only the duty or tax chargeable thereon has been paid and not on the rest, or only a part of the duty or tax chargeable has been paid the drawback admissible on the said goods shall be reduced taking into account the lesser duty or tax paid or the rebate, refund or credit obtained.

CATEGORIES OF DUTY DRAWBACK:

Drawback is basically divided into two categories as per provisions of Section 74 and 75 of the Customs Act, 1962.

1.    Drawback allowable on re-export of duty-paid goods: Section 74 of Customs Act allows drawback on re-export of duty paid imported goods. Where any goods have been imported into India and those same goods entered for re-export or to be exported as a baggage or entered for export by post under section 82, the 98% of such duty shall be re-paid as drawback. But such goods must be identifiable as original imported goods and the goods must be entered for export within two years from the date of payment of duty on the importation.

2.   Drawback on imported materials used in the manufacture of goods which are exported: Section 75 of customs Act allows drawback on physical exports (other than re-exports) of finished products wherein duty has been paid, a drawback should be allowed on any imported materials of a class or description used in the manufacture or processing of such goods on which any operation has been carried out in India which have been entered for export and in respect of which an order permitting the clearance and loading thereof for exportation has been made under section 51 by the proper officer.

GOODS ELIGIBLE FOR DRAWBACK:

This scheme applies[6]:

·   To export goods imported into India

·   To export goods imported into India after having been taken for use.

·   To export goods manufactured/produced out of imported materials.

·   To export goods manufactured/produced out of indigenous materials.

·   To export goods manufactured/produced out of imported or indigenous materials.

NECESSARY ELEMENTS FOR DRAWBACK:

The necessary elements to claim drawback are:

1. The goods on which drawback is claimed must have been previously imported;
2. Import duty must have been paid on these goods when they were imported;
3. The goods should be entered for export within two years from the date of payment of duty on their importation. The period can be further extended to three years by the Commissioner of Customs on sufficient cause being shown.
4. The goods must be capable of being identified as imported goods.
5. The goods must actually be re-exported to any place outside India.

Here export is defined as taking out to a place outside India to a place of India. And India includes Indian territorial waters. In case of Union of India v. Rajindra Dyeing & Printing Mills[7], it was held that export is complete when goods leave territorial waters of India. Drawback is available once ‘export’ is complete i.e. the goods cross the territorial waters even if they do not reach the destination or they are destroyed. However, if the goods are destroyed in territorial waters of India, drawback will not be available as the export is not complete.

In case of Custom Collector, Calcutta v. Sun Industries[8] the Supreme Court held that the expression “taking out to a place outside India” would also mean a place in high seas, if that place is beyond territorial waters of India. Therefore, the goods taken out to the high seas outside territorial waters of India would come within the ambit of expression “taking out to a place outside India”.

6. The market price of such goods must not be less than the amount of drawback claimed.
7. The amount of drawback should not be less than Rs. 50/- as per section 76 (1)(c) of the Customs Act.

DRAWBACK CLAIM PROCEDURE:

At the time of the export, exporter shall endorse the ‘shipping bill’ with description, quantity and other details to proper officer of Customs to decide whether goods are eligible for duty drawback. Customs officer makes an order permitting clearance and loading of goods for exportation under section 51 of Customs Act and said claim for drawback shall be retained by the proper officer making such order.[9] If the shipping bill under drawback is submitted electronically, that itself will be treated as claim for drawback[10].

SUPPLEMENTARY CLAIM OF DUTY DRAWBACK:

An exporter can file supplementary claim for drawback, if he is entitled to get additional amount. Such claim should be filed within three months. This period can be further extended by nine months by Assistant/Deputy Commissioner of Customs for sufficient cause[11].

PAYMENT OF DUTY DRAWBACK:

The drawback under these rules shall be paid by the proper officer of Customs to the exporter or to the agent specially authorized by the exporter to receive the said amount of drawback and interest.[12] The officer of Customs may combine one or more claims for the purpose of payment of drawback and interest, if any, as well as adjustment of any amount of drawback and interest already paid and may issue a consolidated order for payment.[13]

RECOVERY OF DUTY DRAWBACK:

Where an amount of drawback and interest has been paid erroneously or the amount so paid is in excess of what the claimant is entitled to, the claimant shall, on demand by a proper officer of Customs repay the amount so paid erroneously or in excess and where the claimant fails to repay the amount it shall be recovered by the Customs Officer.[14] Where an amount of drawback has been paid to an exporter but the sale proceeds in respect of such export goods have not been realized by the exporter in India within the period allowed under the Foreign Exchange Management Act, 1999, such drawback shall be recovered.[15]

RATE OF DUTY DRAWBACK:

In determining the amount or rate of drawback under this rule, the Central Government shall have regard to:

           ·      the average quantity or value of each class or description of the materials from which a particular class of goods is ordinarily produced or manufactured in India;

          ·      the average quantity or value of the imported materials or excisable materials used for production or manufacture in India of a particular class of goods;

      ·         the average amount of duties paid on imported materials or excisable materials used in the manufacture of semis, components and intermediate products which are used in the manufacture of goods;

           ·          the average amount of duties paid on materials wasted in the process of manufacture and catalytic agents:

           ·          the average amount of duties paid on imported materials or excisable materials used for containing or, packing the export goods;

          ·          any other information which the Central Government may consider relevant or useful for the purpose.

Under Duty Drawback Scheme, an exporter can opt for either All Industry Rate (AIR) of Duty Drawback Scheme or Brand Rate of Duty Drawback. The Duty Drawback Rate shall not exceed 33% of market price of export goods in any case.[16] The Central Government may revise amount or rates determined under rule 3.[17]

ALL INDUSTRY DRAWBACK RATE:

All Industry Drawback Rate are fixed by Directorate of Drawback, Dept. of Revenue, Ministry of Finance, Govt. of India. The rates are periodically revised – normally on 1^st June every year. Data from industry is collected for this purpose. The All Industry Drawback Rate is fixed under Rule 3 of Drawback Rules by considering average quantity and the value of each class of inputs imported or manufactured in India.

BRAND RATE OF DRAWBACK:

It is not possible to fix All Industry Rate for all the products. It cannot be fixed for special type of products. In such cases, Brand Rate is fixed.[18] The manufacturer has to submit application with all details to Commissioner, Central Excise. Such application must be made within 60 days of export.

SPECIAL BRAND RATE OF DRAWBACK:

All Industry Rate is fixed on average basis. Thus, a particular manufacture or exporter may find that the actual custom duty paid is higher than All Industry Rate fixed for his product. In such case, he can apply under Rule 7 of Drawback Rules for fixation of Special Brand Rate, within 30 days from export.

The conditions for eligibility are:

             ·          The All Industry Rate should be less than 80% of the duties paid by him.

             ·          Rate should not be less than 1% of FOB value of product except when amount of drawback per shipment is more than Rs. 500.

             ·          Export value is not less than the value of imported material used in them i.e. there should not be ‘negative value addition’.

The provisions of section 16, or sub-section (2) of section 83, of the Customs Act, 1962 shall determine the amount or rate of drawback applicable to any goods exported under these rules.[19] Where the amount or rate of drawback is allowed with retrospective effect, such amount or rate shall be allowed from such date as may be specified by the Central Government by notification in the Official Gazette which shall not be earlier than the date of changes in the rates of duty on inputs or tax on input services used in the export goods.[20]

Where no amount or rate of drawback has been determined in respect of any goods, any manufacturer or exporter of such goods may, within sixty days from the date relevant for the applicability of the amount or rate of drawback in terms of sub-rule (3) of rule (5), apply in writing to the Commissioner of Central Excise or the Commissioner of Customs and Central Excise for determination of the amount or rate of drawback.[21] On receipt of such application the Commissioner of Central Excise or the Commissioner of Customs and Central Excise determine the amount or rate of drawback in respect of such goods.[22]

Where the manufacturer or exporter finds that the amount or rate of drawback determined for the class of goods is less than four-fifth of the duties or taxes paid on the materials, he may within sixty days from the date relevant for the applicability of the amount or rate of drawback, make an application in writing to the Commissioner of Customs and Central Excise for determination of the amount or rate of drawback stating all relevant facts.[23]

INTEREST ON DUTY DRAWBACK:

Duty drawback must be paid within one month. If not so paid, interest is payable to the claimant at the rate fixed under section 27A from the date after the expiry of such period.[24]The interest rate will be between 10% to 30% as may be fixed by Board from time to time.[25] If the drawback claim is deficient, the interest will commence only after all required papers are submitted.

Where any drawback has been paid to the claimant erroneously or it becomes otherwise recoverable under this Act, the claimant shall, within a period of two months from the date of demand, pay in addition to the said amount of drawback, interest at the rate fixed under section 28AA and the amount of interest shall be calculated for the period beginning from the date of payment of such drawback to the claimant till the date of recovery of such drawback.[26]

PROHIBITION OF DUTY DRAWBACK IN CERTAIN CASES:

As per Section 76 no drawback shall be allowed in respect of any goods the market-price of the goods is less than the amount of drawback; or where the drawback due in respect of any goods is less than fifty rupees.

In case of Om Prakash Bhatia v. Commissioner of Customs, Delhi[27] the Division Bench of the Court observed that for the purpose of getting drawback, the relevant consideration is the market price of the goods. But here market price is a price prevailing in the country and not the price of the goods which the exporter expects to receive from the overseas purchaser.

No amount or rate of drawback shall be determined in respect of any of the goods falling within Chapter 72 or heading 1006 or 2523 of the First Schedule to the Customs Tariff Act, 1975.[28] No amount or rate of drawback shall be determined in respect of any goods under rule 6 or rule 7, if the export value of each of such goods in the bill of export or shipping bill is less than the value of the imported materials used in the manufacture of such goods.[29]

In case of Commissioner of Central Excise & Customs, A.P. v. Suresh Jhunjhunwala & Others[30], Court opined that the exporters were obliged to declare the value of the goods. In a detailed judgment, the Court not only took into consideration the provisions of the Customs Act, but also Section 15 of the Foreign Exchange Regulation Act and the rules framed thereunder, as also the notifications issued by the Central  Government from time to time. The Court opined that for determining the export value of the goods, it is necessary to refer to the meaning of the word "value" as defined in section 2 (41) of the Act, and the same must be determined in accordance with the provision of sub-section (1) of section 14. Section 14 specifically provides that in case of assessing the value for the purpose of export, value is to be determined at the price at which such or like goods are ordinarily sold or offered for sale at the place of exportation in the course of international trade, where the seller and the buyer have no interest in the business of each other and the price is the sole consideration for sale.

No drawback shall be allowed[31]:

           ·          if the said goods except tea chests used as packing material for export of blended tea, have been taken into use after manufacture.

           ·          if the said goods are produced or manufactured, using imported materials or excisable materials or taxable services in respect of which duties or taxes have not been paid;

In Rubfila International Ltd. v. CCus. Cochin[32], there was no duty incidence on 97% of the inputs of the export product except the duty incidence on remaining 3% of the inputs, which was insignificant. All Industry Rates fixed for particular export products are applicable to all exporters who export the same. Where there is clear evidence that the inputs of such export products have not suffered any duty, no drawback can be claimed.

           ·          on jute batching oil used in the manufacture of export goods, namely, jute, yarn, twist, twine, thread, cords and ropes;

           ·          if the said goods being packing materials have been used in or in relation to the export of jute yarn, jute fabrics, jute manufactures not elsewhere specified.

CONCLUSION

Duty Drawback enables exporting companies to obtain a refund of customs duty paid on imported goods where those goods will be treated, processed or incorporated into other goods for export. The duty drawback scheme is made because there is no need to levy custom duty on import if the goods are imported for re-export or imported materials are used in the manufacture of goods which are then exported. Neutralizing the tax element in export products is an internationally accepted methodology to encourage exports. However, there are multiple schemes apart from Drawback such as DEPB, Advance Licence/DEEC, DFRS, EPCG and EOU/SEZ.

Duty Drawback can only be claimed by the exporter of any product when he had already been paid the duty on the imported goods. And such goods are re-exported to any other country as the identifiable goods or any final product is exported which are made by using the imported goods on which duty has already been paid. This duty drawback scheme is helpful to maintain and accelerate the GDP growth. It helps to encourage the export and to make the foreign exchange though export.

There are some loopholes in this scheme also. Sometimes, the exporters show the fraudulent invoice or shipment details to earn profit by using this scheme by showing the transaction value more than the original. Many times exporter succeeded to defraud the custom officer. Then those issues are challenged in the Tribunal and Court by the authority.

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