The Central Board of Indirect Taxes and Customs (CBIC) has clarified that goods that are cleared into the domestic tariff area (DTA) from special economic zones and are then re-exported would be treated as imports for duty drawback.

  The new circular from CBIC is expected to provide clarity to its field officers as well as exporters on the treatment of such goods for the disbursement of drawback. "…it has been observed by the Audit that divergent practices are being followed in the processing of duty drawback claims filed by DTA units under Section 74 of the Customs Act, 1962. It has been stated that some field formations have not treated clearance from SEZ to DTA as import and have denied the disbursement of drawback under Section 74 of the Customs Act, 1962,” the CBIC said.

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  The CBIC noted that, as per Section 74 of the Customs Act, drawback is admissible on the re-export of duty-paid goods, provided the goods are capable of being easily identified and were previously imported into India. It further pointed out that for trade operations and duties, an SEZ is treated as foreign territory within India, and hence, movement of goods from an SEZ into the DTA may be construed as an import. Based on this, the conditions laid down under Section 74 of the Customs Act, 1962 appear to be satisfied.

  “It is hereby clarified that in cases where goods are cleared into DTA from SEZ unit on payment of applicable duties and are re-exported thereafter are to be treated as imported goods for disbursement of drawback under Section 74 of the Customs Act, 1962,” the CBIC said.

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  Experts said that CBIC's latest instruction brings welcome clarity on SEZ to DTA clearances. Ikesh Nagpal, Lead-Indirect Tax, AKM Global, noted that in practice, drawback claims on re-export of such goods were being handled differently across formations, with some allowing the benefit and others denying it on the grounds that these were not imports.

  “By way of this instruction, the Board has legally settled the position by instructing that since SEZ is treated as foreign territory for customs purposes, movement of goods from SEZ to DTA must be regarded as import, and consequently, eligible for drawback under Section 74 when re-exported,” he said, adding that this should help bring consistency in assessments, reduce avoidable disputes, and ease cash flow issues for businesses dealing in re-export transactions.