GST refund on machine imported and being re-exported

[Bharat Garg]

We intend to get an imported machinery replaced from an exporter within the warranty period, due to certain defects identified in the machine. The new machine is proposed to be imported on a DPP basis and hence, all customs and taxes will be borne by the exporter only.

In relation to the old machine which has to go back, we intend to continue to claim GST paid last year. Even if there is no financial consideration involved on the current outward transaction, understand that the same will be subject to GST under Schedule I. Accordingly, we intend to issue an export invoice (with IGST) for such transaction, computing IGST based on remaining life of the asset and include the same in our GST returns.

Please let us know if you agree with the above proposed. Also, will there be a challenge in claiming GST refund if there is no consideration involved.

[Rajagopalan Ranganathan]

Sir,

As far as the old machinery concerned, which is returned to the supplier due to some defects the same is returned on payment of IGST on the depreciated value. Therefore you can claim a refund of the same since it satisfies all conditions prescribed for export.

As far as the new machinery supplied free of cost is concerned sine the customs duty, IGST, etc., are paid by the exporter the same will not be paid by you you are not eligible to take credit of IGST paid by the exporter. The reason is to take credit, you have to pay the price of the machinery including the taxes paid on it to the supplier within 180 days from the date of taking the credit. Since you are going to pay any amount to the supplier on the ground that the supplier replace the defective machinery free of cost.

[YAGAY andSUN]

Please do also check the Export Schedule of DGFT for whether specific HSN comes under the preview of which export policy i.e. Free, Restricted or prohibited or under SCOMET.

AI Summary

GST refund on returned machinery: IGST refundable on depreciated value; credit barred where exporter pays taxes on free replacement. IGST on the returned machine may be computed on its depreciated value and refunded if export refund conditions are satisfied. Where a replacement machine is supplied free and the exporter pays customs duty and IGST, the recipient cannot claim input tax credit because claiming credit requires payment of the supplier's invoice (including taxes) within 180 days, which does not occur in a free replacement. Check DGFT export schedule for commodity restrictions.