Returning of defective machine parts to foreign supplier

[G GOSWAMI]

We are the manufacturer of Engineering goods, have imported one machine in May 2006 and availed cenvat credit. One of its parts becomes defective. We purchased this parts from the said foreign machine supplier with reduced price with a condition that the said defective parts will be returned to them after receiving the new one. Accordingly the new parts has been imported with payment of CVD, 4% Additional Duty in August 2014 and we availed the cenvat credit .

Now we seek your valued opinion whether the said defective parts could be sent to the foreign supplier under LUT/A.R.E-1/Self sealing or any other simple process.

Regards,

G.Goswami

6.11.2014

[YAGAY andSUN]

Dear G. Goswami,

We are afraid that you had not adopted correct procedure in this transaction.

Barter condition for replacing fresh machine parts against defective machine parts must be incorporated in your Purchase Order/Agreement/Contract or MOUs. The supplier will raise invoice at full/original value of the machine parts and on the invoice it should be specifically mentioned that value of rejected parts which would be supplied by Indian customer will be reduced to the extent of value mutually agreed by the both parties and vice versa while returning the rejected machine parts. Export Invoice, GR Waiver-for FEMA Compliance (must be obtained from AD), packing list, ARE-1 would be prepared on strength of UT-1.

Regards,

YAGAY and SUN

(Management, Business, Indirect Tax Consultants)

[G GOSWAMI]

Respected Khatri Ji,

Thanks for your kind opinion.Your advice is followed. But I think the availing of cenvat credit on the already replaced defective parts of the machine is ok. Kindly opine.

[YAGAY andSUN]

Yes, it is o.k.

[G GOSWAMI]

Thanks a lot and regards.

AI Summary

Customs procedure for return of defective imports requires contractual barter clause and export documentation for compliance. The correct procedure for returning defective imported machine parts requires a barter/replacement clause in the purchase contract, supplier invoice at full value with a noted deduction for returned parts, and preparation of export documentation including export invoice, GR waiver for FEMA compliance from the AD, packing list, and ARE-1 on the basis of UT-1; availing cenvat credit on the replacement imports is acceptable.