Goods moved from SEZs to domestic markets treated as imports; duty drawback applicable on re-exports

The Central Board of Indirect Taxes and Customs (CBIC) issued a clarification on April 28, 2026, confirming that goods supplied from Special Economic Zone (S...

What Happened

The Central Board of Indirect Taxes and Customs (CBIC) issued a clarification on April 28, 2026, confirming that goods supplied from Special Economic Zone (SEZ) units to the Domestic Tariff Area (DTA) — after payment of applicable customs duties — shall be treated as imported goods for the purpose of duty drawback disbursement.
This means that if such goods are subsequently re-exported, importers/exporters are eligible to claim duty drawback under Section 74 of the Customs Act, 1962.
The clarification was prompted by observations that field formations (customs offices) across India were following divergent practices — some denying drawback claims by not recognising SEZ-to-DTA movement as "import."
The move brings uniformity to customs administration, removes ambiguity, reduces litigation, and supports exporters' cash flow by ensuring already-paid duties are refundable upon re-export.

Static Topic Bridges

Special Economic Zones (SEZs) — Foreign Territory Status and the DTA Interface

Under the Special Economic Zones Act, 2005, an SEZ is deemed to be territory outside the customs territory of India for the purpose of undertaking authorised operations. The area outside SEZ boundaries — constituting mainland India — is called the Domestic Tariff Area (DTA). The SEZ Act created this legal fiction of "foreign territory within India" to extend export-equivalent incentives (duty-free import of inputs, exemption from indirect taxes) to SEZ units. When goods move from SEZ to DTA, they cross this notional customs frontier and are treated as imports into India, making them liable to customs duty as per the Customs Tariff Act.

SEZ Act, 2005: passed by Parliament in May 2005, Presidential assent June 23, 2005.
DTA definition under SEZ Act: the whole of India (including territorial waters and continental shelf) excluding SEZ areas.
SEZ units import raw materials duty-free; their sales to DTA attract duties equivalent to imports.
As of 2024, India has 423 notified SEZs; approximately 285 are operational.
SEZ exports constitute roughly 28–30% of India's total merchandise exports.

Connection to this news: The CBIC clarification flows directly from this "foreign territory" principle — if SEZ-to-DTA supply is legally an import, then re-exporting those goods qualifies for import-related duty refunds (drawback) under the Customs Act.

Duty Drawback — Section 74 of the Customs Act, 1962

Duty Drawback is a refund of customs duties paid on imported goods when those goods (or goods manufactured from them) are subsequently exported. Under Section 74 of the Customs Act, 1962, a drawback of 98% of the customs duty paid is available on re-export of imported goods that have been used after import. Under Section 75, drawback is available on goods manufactured in India using imported inputs. Duty drawback is a key instrument for maintaining export competitiveness by preventing cascading of import duties into export prices.

Section 74 drawback: 98% of customs duty refunded if goods re-exported within 2 years of import.
Section 75 drawback: covers manufacturing drawback; rates fixed by the Drawback Committee under the Finance Ministry.
Drawback rates are notified annually by the Ministry of Finance.
The exporter must establish identity of imported goods with re-exported goods through the original Bill of Entry.
CBIC is the apex body for customs administration; it operates under the Ministry of Finance.

Connection to this news: The CBIC clarification is specifically about Section 74 — once SEZ-to-DTA supply is recognised as "import," re-export of those goods triggers Section 74 eligibility, restoring cash flow for traders who had already paid full customs duty on the DTA clearance.

Special Economic Zones — Policy Evolution, DESH Bill, and Export Performance

India's SEZ framework replaced the earlier Export Processing Zones (EPZs). The policy has gone through significant stress: the 2008 global financial crisis, minimum alternate tax (MAT) imposition on SEZs in 2011, and the sunset of tax benefits for new SEZ units from 2020 under the Income Tax Act led to decline in SEZ attractiveness. The Development of Enterprise and Service Hubs (DESH) Bill — proposed to replace the SEZ Act — was circulated in draft form to modernise the framework by allowing domestic sales without duty equivalent burdens, expanding permissible activities, and enabling hybrid manufacturing-services zones.

SEZ units had income tax holiday: 100% for first 5 years, 50% for next 5 years, 50% of reinvested profits for next 5 years (now discontinued for new units from April 1, 2020).
MAT @ 15% was extended to SEZ developers and units from 2011, eroding tax advantage.
SEZ merchandise exports: approximately ₹8.76 lakh crore in 2023–24.
DESH Bill (draft): aims to permit domestic sales without treating them as imports, simplify compliance, and revive SEZ attractiveness.

Connection to this news: The CBIC's April 2026 clarification is a practical administrative fix within the existing SEZ Act framework — it corrects a field-level anomaly without awaiting the broader structural reform contemplated in DESH. It demonstrates that incremental policy corrections can meaningfully improve the export ecosystem.

Customs Administration and CBIC — India's Indirect Tax Architecture

The Central Board of Indirect Taxes and Customs (CBIC) is the apex body under the Department of Revenue, Ministry of Finance, responsible for administering customs, GST, central excise, and narcotics laws. It issues tariff classifications, valuation instructions, policy circulars, and binding rulings through its network of Principal Commissioners and Customs Zones. Field formations — Custom Houses and Inland Container Depots — implement CBIC instructions. Divergent practices at field formations are a persistent challenge in Indian customs administration, addressed through CBIC circulars and instructions.

CBIC was formed in 1964 (as CBEC); renamed CBIC in 2018 after GST subsumed most central excise functions.
CBIC administers customs at 12 major seaports, 6 major airports, land customs stations, and ICDs.
Audit observations (cited in the clarification) are conducted by the Comptroller and Auditor General (CAG) and CBIC's own internal audit — triggering this policy correction.
Duty drawback disbursements are a significant cash flow support mechanism: India disburses approximately ₹65,000–70,000 crore annually in export incentives including drawback.

Connection to this news: The CBIC's clarification was directly triggered by audit findings of "divergent practices" — illustrating how systematic customs administration audits translate into policy refinements that benefit exporters uniformly across the country.

Key Facts & Data

Legal basis for the clarification: Section 74, Customs Act, 1962; SEZ Act, 2005.
Drawback under Section 74: 98% of customs duty paid, available if goods re-exported within 2 years of import.
India's notified SEZs: 423; operational: approximately 285.
SEZ share of India's merchandise exports: approximately 28–30%.
SEZ merchandise exports 2023–24: approximately ₹8.76 lakh crore.
Annual export incentive disbursements (including drawback): approximately ₹65,000–70,000 crore.
Clarification issued by CBIC (Department of Revenue, Ministry of Finance) on April 28, 2026.