CBIC settles SEZ-to-DTA drawback dispute, treats re-exported goods as ‘imports’ under law – CNBC TV18
CBIC clarifies SEZ to DTA goods re exported qualify as imports for duty drawback under Section 74, ending divergent practices and easing cash flow for exportersIn a significant clarification aimed at resolving long-standing disputes and easing exporter concerns, the Central Board of Indirect Taxes and Customs (CBIC) has ruled that goods cleared from Special Economic Zones (SEZs) into the Domestic Tariff Area (DTA) on payment of duty — and subsequently re-exported — will be treated as imported goods for the purpose of granting duty drawback under Section 74 of the Customs Act, 1962.
The move addresses persistent audit objections and inconsistent field-level practices, where some customs formations had denied drawback claims on the grounds that such clearances did not qualify as imports, creating uncertainty for businesses engaged in re-export transactions.
Audit flags, divergent practices
The issue had been under scrutiny following audit observations highlighting that officers across jurisdictions were adopting differing interpretations. While some allowed drawback benefits on re-export of such goods, others rejected claims, arguing that movement from SEZ to DTA did not amount to "import" into India.
This lack of uniformity not only led to litigation but also resulted in working capital blockages for exporters, particularly those operating in sectors reliant on quick turnaround and re-export cycles.
Legal position clarified
In its instruction, the CBIC has drawn from the framework of the Special Economic Zones Act, 2005, specifically Sections 2(o) and 30, which define "import" in relation to SEZs and govern the mechanism of clearances into the DTA.
The Board underscored that a "comprehensive reading" of these provisions leaves little room for ambiguity, noting that there appears to be "no lacuna" in the law governing such transactions.
Crucially, the clarification reiterates a foundational principle of SEZ operations: for trade and customs purposes, an SEZ is treated as a foreign territory within India. As a result, any movement of goods from an SEZ into the DTA must be regarded as an import.
Drawback eligibility: conditions reiterated
Building on this interpretation, the CBIC has clarified that goods cleared into the DTA from an SEZ unit on payment of applicable duties, when re-exported, will qualify for drawback under Section 74 — subject to standard conditions:
The goods must be previously imported into India
They must be capable of being easily identified at the time of re-export
By explicitly recognising SEZ-to-DTA clearances as imports, the instruction removes the legal basis on which drawback claims were being denied in certain cases.
Industry relief, consistency expected
Tax experts say the clarification is a welcome step toward harmonising practices across customs formations and reducing avoidable disputes.
Ikesh Nagpal, Lead – Indirect Tax at AKM Global, said the instruction brings much-needed certainty to an area that had seen inconsistent interpretations.
"The CBIC's latest instruction brings welcome clarity on SEZ to DTA clearances. 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 ground that these were not imports," he noted.
"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.
This should help bring consistency in assessments, reduce avoidable disputes, and ease cash flow issues for businesses dealing in re-export transactions," Nagpal added.
Cash flow boost for exporters
The clarification is expected to have an immediate impact on businesses involved in trading, repackaging, and value-added re-export activities — such as electronics, machinery, and gems and jewellery — where duty drawback forms a critical component of cost structures.
Earlier, denial or delay in drawback claims often led to capital being locked up, affecting pricing competitiveness in global markets. With the CBIC now settling the legal position, exporters are likely to see faster refunds and improved liquidity.
Broader signal
Beyond the immediate issue, the instruction reflects a broader push by tax authorities to address interpretational ambiguities that have operational consequences. As India continues to position itself as a global manufacturing and export hub, clarity and consistency in customs administration remain key to improving ease of doing business.
By aligning field practices with the statutory framework, the CBIC's latest move not only resolves a niche but impactful issue — it also reinforces confidence among exporters navigating complex cross-border supply chains.
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