Can we Export against the rejected material on FOC basis

[Guest]

Dear Sir,

We had exported some goods under LUT and we received the payment for the same. But after some months the customer raised question that our material are rejected so they want same quantity of material replacement on FOC basis. We don't bring material back to our factory from the customer because these material are not good and also transportation cost will be high compare to this material.

My query is can we send these replacement material to customer on Free of cost basis under LUT.

and the above transaction which we takes place for replacement is correct or not ?

Regards

Swapneswar Muduli

[Rajagopalan Ranganathan]

Sir,

You can export replacement goods FOC under LUT. But you will not receive any payment for such replacement. You should be careful how to satisfy RBI regarding this export without any realization under FEMA?

[MUKUND THAKKAR]

you can export on FOB basis as replacement as explain by sir, but as and when you can genrate export invoice please clearly mention on body of invoice free of cost. so you can explain concern authority in future..

[Suryanarayana Sathineni]

Dear Friend,

Please note there is no bar for exporting material on FOC under central Excise.

However, while doing such transaction you need to take care on the following :

1. Valuation aspect since sale is not involved in such transactions

2. Mentioning on ARE1 and invoice as Free supply and not for sale

3. Obtaining a GR waiver from RBI or the Authorized dealer Bank as per the permissible value limits as there is a prescribed limit for GR waiver i.e, in other words value limit for free of cost supply.

Best Regards

Suryanarayana

AI Summary

Free of cost export of replacement goods requires valuation, ARE1/invoice disclosure and GR waiver under realisation rules. Replacement shipments may be exported as Free of Cost where original exports were under LUT; exporters must state free supply on ARE 1 and invoices, adopt a defensible valuation for non sale transactions, and comply with foreign exchange realisation or GR waiver procedures and related reporting requirements to satisfy authorities.