CBIC Mandates Re-Credit Route for Drawback and Refund Where Import Duty Was Paid Through Duty Credit Scrips

Background and Context

The Central Board of Indirect Taxes and Customs (CBIC) has stepped in to resolve a longstanding inconsistency in the way field formations were handling drawback and refund claims arising out of imports where duty was discharged through Duty Credit Scrips. Through Circular No. 30/2026-Customs dated 3rd July, 2026, the Board has laid down a uniform directive applicable across all customs jurisdictions in India.

The circular originates from repeated representations made by trade and industry stakeholders who encountered difficulties in processing claims under Section 74 or Section 27 of the Customs Act, 1962 — particularly in situations where the original import duty had been paid, either wholly or in part, through duty credit scrips instead of cash.

The Core Problem: Divergent Field Practices

One of the primary triggers for this circular was the lack of uniformity observed across different customs field formations. While certain field offices were appropriately re-crediting the admissible drawback or refund amount back into the scrips (or issuing re-credit certificates in their place), other formations were incorrectly disbursing the same amounts in cash.

This discrepancy was not merely an administrative anomaly — it had significant fiscal implications. The Comptroller and Auditor General of India had already flagged this issue formally. Specifically, Para 5.3 of C&AG's Report No. 33/2025 on the Duty Drawback Scheme pointed out that in several cases where the importer had originally paid Basic Customs Duty (BCD) using Duty Credit Scrips, the drawback granted under Section 74 of the Customs Act, 1962 was incorrectly paid out in cash — a practice that was neither legally sound nor fiscally appropriate.

Key Issue: When an importer uses a scrip to pay import duty, the government's actual cash outflow is nil. Granting a cash refund or drawback in such scenarios results in an unwarranted financial benefit to the importer at the exchequer's expense.

CBIC's Clarification: The Governing Principle

After examining the matter at the Board level, CBIC has issued a categorical clarification:

Wherever import duty has been discharged through Duty Credit Scrips — whether fully or partially — any admissible drawback under Section 74 or refund under Section 27 of the Customs Act, 1962 shall be granted exclusively through re-credit, and not in cash.

This principle applies uniformly regardless of the scheme under which the scrip was originally issued. The mode of granting the benefit must mirror the mode in which the duty was originally paid. The rationale is straightforward — since no cash was paid into the government account at the time of import (to the extent covered by the scrip), no cash should flow out as drawback or refund for that portion.