How do I claim duty drawback on exported goods, and when is drawback refused?

What does the law say?

Drawback is a repayment of customs duty already paid, made because the goods, or goods made from them, have left Pakistan. The Customs Act, 1969 provides two main routes.

Re-export of the same goods (section 35). When goods that are “capable of being easily identified” were imported, duty was paid, and they are then exported, “seven-eight of such duties shall be repaid as drawback”. Two conditions apply:

1. an officer of customs not below the rank of Assistant Collector must be satisfied the goods are the same as those imported; and
2. the goods must be entered for export within two years of import. The Board or the Collector can extend this for sufficient cause, but the Collector cannot extend it beyond three years of importation.

Goods count as entered for export on the date the goods declaration is delivered to the appropriate officer.

Imported inputs used in exported goods (section 37). Where goods manufactured in Pakistan are exported, the Board may, by notification in the official Gazette, direct that drawback be allowed on imported goods used in making them, “to such extent and subject to such condition as may be provided in the rules”. Section 21(c) separately lets the Board authorise repayment of duties paid on imported goods used in producing, manufacturing, processing, repairing or refitting goods meant for export.

When is drawback refused?

Section 39 says no drawback shall be allowed:

• (a) on goods that should be in the export manifest but are not;
• (b) where the claim for a single shipment amounts to “less than or equal to hundred rupees”; or
• (c) “unless the claim for drawback has been made and established at the time of export.”

Other limits sit in nearby sections. Section 38(1) lets the Board declare goods not capable of being easily identified, which takes them outside section 35. Section 38(2) lets the Federal Government prohibit drawback on exports to a specified port or territory. Section 40 says no drawback is paid until the vessel has put out to sea or the conveyance has left Pakistan. Section 41 requires the claimant to declare that the goods were actually exported, have not been relanded and are not intended to be relanded in Pakistan.

For goods taken into use between import and export, section 36 leaves the repayment to the rules. Rule 218 of the Customs Rules sets a sliding table for motor vehicles, from 75% of the duty if re-exported within 4 months down to nil after 36 months. Rule 219 refuses drawback, where the goods were taken into use, on chests imported as containers for tea or rubber, exposed cinematography films and articles of wearing apparel.

How is a claim made in practice?

Under the computerised system, there is no separate claim form. Rule 455 says “Every goods declaration for export filed under rule 444 shall also be considered as an application for duty drawback.” The process in rules 456 and 457 runs like this:

1. When the exporter enters a PCT code on the export goods declaration, the system shows the relevant SROs and drawback rates. The exporter selects the most relevant description and rate.
2. When the export proceeds are repatriated and the Form-E is settled, the commercial bank updates the system.
3. The system calculates the drawback on the proceeds actually repatriated and generates a duty drawback order, subject to risk management.
4. Claims picked by the risk system for a compliance check are decided by the Collector or a designated officer within seven working days, on a first in, first out basis.
5. The State Bank credits the exporter’s account through the commercial bank on a first in, first out basis.

Rule 458 gives authorized economic operators priority processing. Rule 222, in the older drawback sub-chapter, likewise requires complete claims to be paid in order of filing.

Worked example (illustrative figures)

A Lahore firm imports a testing machine and pays Rs. 800,000 in customs duty. The figures are invented. Eighteen months later it sells the machine to a buyer abroad and exports it.

1. The machine is identifiable and is entered for export within two years, so section 35 applies.
2. Drawback = Rs. 800,000 x 7/8.
3. Rs. 800,000 / 8 = Rs. 100,000; Rs. 100,000 x 7 = Rs. 700,000.
4. The firm gets Rs. 700,000 back, and Rs. 100,000 of the duty is not repaid.

If the same machine had been exported 40 months after import, the Collector could not extend time beyond three years, so section 35 would not apply. Drawback on inputs under section 37 depends on the rates in the Board’s notifications, which are not in this corpus.

Common mistakes

• Expecting the full duty back under section 35. The section repays seven-eighths, not all of it.
• Claiming after the goods have left. Section 39(c) requires the claim to be made and established at the time of export, which is why the export declaration itself is the claim.
• Assuming drawback is final once paid. Rule 459 allows re-assessment for five years, and rule 457(7) sends 10% of paid cases for post-release verification.
• Selecting the wrong rate. Under rule 457(1) the exporter chooses the SRO and rate, and any excess found later is recovered.

What to check in the official text

Read sections 35 to 41 of the Customs Act for the conditions. The actual drawback rates under section 37 are set by Board notifications (SROs) that this corpus does not hold. The Customs Rules edition here is current to 30 June 2023. If you use the Export Facilitation Scheme, its own rules limit drawback on duty-paid inputs until your obligations under that scheme are discharged.