Customs

Customs Refunds, Duty Drawback and the Export Facilitation Scheme in Pakistan: Time Limits, Evidence and Why Claims Fail

Money paid at the port is not always money lost. The Customs Act, 1969 and the Customs Rules, 2001 allow an importer to recover duty paid in error, allow an exporter to recover or avoid duty on imported inputs, and allow goods to be brought in temporarily without payment of duty. Each route carries strict time limits and an evidential burden that sits with the claimant. For an exporter or importer looking for the best customs lawyer in Karachi to recover duty, the decisive questions are usually whether the claim was filed within one year and whether the business can prove that it, and not its customers, bore the duty. This guide explains refunds, drawback, the Export Facilitation Scheme and temporary importation as the law stands after the Finance Act, 2025, with the rules as amended up to June 2026.

Refund of customs duty under section 33

Section 33 is headed "Refund to be claimed within one year". It deals with customs duty or charges paid or overpaid through inadvertence, error or misconstruction. The one-year period runs from different starting points depending on how the overpayment arose:

• ordinary payment: one year from the date of payment;
• provisional assessment under section 81: one year from the date on which the duty is adjusted after final assessment;
• refund arising from a decision or judgment of a customs officer, the Board, the Appellate Tribunal or a court: one year from that decision or judgment.

The Sindh High Court has emphasised that these are different routes. In Special Customs Reference Applications Nos. 42 to 59 of 2018 (Collector of Customs v. Faisal Associates, order of 26 March 2021), the Court held that a refund flowing from a decision is governed by the limitation counted from that decision, not from the original payment, and relied on the Supreme Court's judgment in Pfizer Laboratories (PLD 1998 SC 64) for the proposition that the one-year limit does not shield duty collected without lawful authority. The department, for its part, is entitled to insist on the statutory period wherever the claim is an ordinary mistake-based refund.

Refund claims are disposed of subject to pre-audit. Secondary sources reproducing section 33 state that a claim is to be decided within one hundred and twenty days of filing, extendable by the Collector by up to ninety days for reasons recorded in writing; we have not been able to confirm the current wording against FBR's consolidated text and the period should be checked before it is relied on in a complaint or petition.

The passing-on bar and section 19A

A refund is not allowed where the sanctioning authority is satisfied that the incidence of customs duty and other levies has been passed on to the buyer or consumer. Section 19A reinforces this: a person who has paid customs duty is presumed to have passed its full incidence on to the buyer as part of the price, unless the contrary is proved.

The burden is therefore on the claimant. In Special Customs Reference Applications Nos. 387 to 413 of 2016 (Collector of Customs v. Junaid Traders, order of 1 March 2021), the Sindh High Court set aside a Tribunal order allowing refunds because the importer relied on unsigned and unwitnessed sale agreements to show that duty had not been passed on; the Court held that section 19A had not been satisfied. Practical evidence that carries weight includes:

• sale invoices and price lists showing that the selling price did not move with the duty paid;
• audited accounts treating the excess duty as a receivable rather than as part of cost of sales;
• evidence that the goods were consumed in the claimant's own production or are still in stock;
• a cost-accountant's or auditor's certificate tied to the ledgers, not a bare statement.

Note the limit identified in Faisal Associates: the Tribunal there held, and the High Court did not disturb, that the passing-on proviso did not attach to a refund arising from a decision under the decision-based limb. That point turns on the wording and facts of each case and should not be assumed.

Appeals and reclassification-based refund claims

A refund order passed under section 33 by an officer below the rank of Additional Collector is appealable to the Collector (Appeals) under section 193, and onwards to the Customs Appellate Tribunal and the High Court; the stages and deadlines are set out in our guide to the customs appeals route.

Many refund claims are, in substance, classification disputes: the importer paid duty under one tariff heading and later argues that a lower-rated heading applied. In Additional Collector of Customs v. K. S. Sulemanji Esmailji and Sons (Pvt.) Ltd, 2025 SCMR 121 (Civil Appeals Nos. 799 to 824 of 2015, judgment of 18 January 2024), the Supreme Court restored an order rejecting such a refund. It held that the determination of the Board's Classification Committee carries a presumption of regularity, that the Tribunal and High Court could not substitute their own classification unless the Committee's findings were shown to be arbitrary or contrary to the classification rules, and that the Committee had correctly applied Rule 3(c) of the General Rules for Interpretation. Our summary of this case rests on a law-report website's account of the judgment. An importer considering a refund on classification grounds should therefore expect the Committee's view to prevail unless a clear error can be shown; the classification issues themselves are discussed in our guide to customs tariff classification disputes.

Duty drawback under sections 35 to 40

Drawback returns customs duty when goods, or the inputs in them, leave Pakistan. Sections 35 to 40 of the Customs Act contain the framework:

• Section 35 allows drawback on re-export of imported goods. Secondary commentary on the current text describes the drawback as seven-eighths of the import duty, available where the goods are identified as the goods imported and are entered for export within two years of import (extendable by the Collector, but not beyond three years).
• Section 36 deals with goods taken into use between importation and exportation.
• Section 37 deals with drawback on goods used in the manufacture of goods which are exported. Rates and conditions are fixed by the Board by notification and rules rather than in the Act itself.
• Section 38 allows goods to be declared not identifiable and drawback to be prohibited for specified destinations; section 39 lists cases in which no drawback is allowed; section 40 governs the time of payment.

Section 21(c) separately empowers the Board to authorise repayment, in whole or in part, of duty paid on imported goods used in producing or processing goods for export, subject to its conditions; no repayment is granted where the amount involved is less than one hundred rupees, and the Federal Government may by notification restrict or disallow drawback for specified goods under section 21(d).

Drawback claims are usually won or lost on documents: the bill of entry and goods declaration for import, the export goods declaration, identification of the goods or input content, and proof of realisation of export proceeds where the notification requires it. Secondary sources also state that no drawback is allowed unless the claim is made and established at the time of export, so the export declaration itself must carry the claim.

The Export Facilitation Scheme, 2021

For most manufacturer-exporters, the duty-free import of inputs under the Export Facilitation Scheme (EFS) has replaced drawback. The EFS was notified by SRO 957(I)/2021 dated 30 July 2021, effective from 14 August 2021, and inserted a new chapter (rules 871 to 910) in the Customs Rules, 2001. It was introduced to run alongside, and then replace, the earlier Manufacturing Bond, DTRE and export-oriented schemes. Key features, as amended up to June 2026:

• Eligibility. Manufacturer-cum-exporters, toll manufacturers for foreign principals, commercial exporters, indirect exporters and Common Export Houses may apply; certain products, including iron and steel scrap and (by a 2025 amendment) raw cotton, cotton yarn and grey cloth, are excluded.
• Authorisation. Applications are made online to the Regulatory Collector. Users are placed in categories (A, B1/B2, C1/C2) based on export share and history, which determine the authorisation period (up to five years for Category A) and the type of security required: indemnity bond with post-dated cheque, bank guarantee or insurance guarantee.
• Input-output ratios. The Input Output Co-efficient Organization (IOCO) determines production capacity and input-output ratios, normally within sixty days, with a review before the Director General IOCO.
• Utilisation period. Inputs had to be used and exported within nine months, extendable by a committee. SRO 301(I)/2025 of 7 March 2025 is shown in FBR's updated rules as extending the period to eighteen months; the compiled text is not entirely clear, so the current period should be confirmed from the SRO itself.
• Domestic sales. Up to twenty per cent of output may be sold locally on payment of duties and taxes, with a surcharge at KIBOR plus three per cent on the value of inputs used.
• Audit and enforcement. Users are audited by the Directorate of Post Clearance Audit. Inputs that cannot be accounted for attract duty, surcharge and penalty, and adjudged contraventions can lead to suspension and cancellation of the authorisation; an appeal against suspension lies to the Chief Collector within thirty days.

One major change concerns local inputs. When the scheme began, local supplies of inputs to EFS users were zero-rated for sales tax. The Finance Act, 2024 withdrew that relief, so locally procured inputs now bear sales tax, while imported inputs remain free of duty and taxes. That change is reported in Business Recorder and Profit and is the subject of continuing industry representations; the input tax then has to be recovered through the sales tax system, explained in our guide to sales tax refund claims.

Temporary importation and re-importation

Section 21(a) empowers the Board, by rules or special orders, to allow delivery without payment of duty of goods imported only temporarily with a view to subsequent re-exportation. Exhibition goods, testing equipment, project tools and goods for repair typically move under this power, against a declaration and security fixed by the conditions applicable. If the goods are not re-exported within the permitted period, or are diverted to local use, the duty and taxes become payable and the security can be enforced.

Section 22 deals with the reverse case. Goods produced or manufactured in Pakistan that are exported and later re-imported are ordinarily liable to duty like any other import. However, if they are re-imported within one year of export, consigned to the person on whose account they were exported, and have not been processed abroad, an officer not below the rank of Assistant Collector may admit them on conditions that take account of any rebate, refund or drawback allowed on export. Returned exports, such as rejected consignments, should therefore be documented from the outset so that this relief is available.

Why claims fail, and what the department checks

Both the claimant and the Collectorate have legitimate interests: the claimant in recovering duty it should not bear, and the department in ensuring that refunds are not paid twice, paid on time-barred claims or paid to someone who has already recovered the duty from customers. The most common reasons for rejection are:

1. the claim was filed more than one year after payment, final assessment or the relevant decision;
2. no rebuttal of the section 19A presumption, or rebuttal based on documents that cannot be tied to the accounts;
3. the claim is in substance a challenge to an assessment, valuation ruling or classification that was never appealed and has become final;
4. for drawback, failure to claim at the time of export or to identify the goods or input content;
5. for EFS users, inputs not consumed or exported within the utilisation period, or reconciliation and stock records that do not match the input-output ratios;
6. for temporary imports, failure to re-export within the permitted time.

Where the refund turns on a dispute about value rather than classification, the starting point is usually the valuation challenge itself; see our guide to customs valuation disputes.

Common questions

This article is general information about Pakistani law and procedure, not legal advice for any specific matter. If this touches on something you're currently facing, get in touch and we'll advise on your facts directly.