The Central Board of Indirect Taxes and Customs (CBIC) has clarified that goods cleared from Special Economic Zones (SEZs) into the Domestic Tariff Area (DTA) on payment of applicable duties, and subsequently re-exported, would be treated as imported goods for the purpose of claiming duty drawback under Section 74 of the Customs Act, 1962.
The clarification comes through an instruction aimed at addressing audit objections and divergent practices across field formations, where some customs authorities had denied drawback claims by not recognising SEZ-to-DTA clearances as imports.
CBIC said a combined reading of the provisions of the Special Economic Zones Act, particularly Sections 2(o) and 30, makes it clear that goods moving from an SEZ into DTA amount to imports, as SEZs are treated as foreign territory for trade operations and duties.
Under Section 74 of the Customs Act, drawback is available on re-export of duty-paid imported goods, subject to the goods being easily identifiable and meeting other prescribed conditions. The clarification is expected to bring uniformity in the treatment of such claims and resolve disputes that had arisen due to varying interpretations by customs formations.
Tax experts said the move will provide certainty to exporters and ease liquidity concerns.
Ikesh Nagpal, lead, Indirect Tax at AKM Global, said the instruction settles a long-pending ambiguity over the treatment of SEZ-to-DTA clearances for drawback purposes.
“The Board has legally settled the position by clarifying that since an 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,” Nagpal said.
He added that the clarification should help bring consistency in assessments, reduce avoidable litigation and improve cash flows for businesses engaged in re-export transactions.
Industry observers said the instruction could particularly benefit traders and manufacturers operating through SEZs that routinely move goods into the domestic tariff area before re-exporting them, by ensuring access to drawback benefits that had previously been contested.
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