ITC impact of FOC replacement of Imported machinery

[ROHIT GOEL]

Dear experts,

One of our client imported a machinery in Nov 2023 and paid IGST and custom duty and claimed ITC of IGST. The machine developed a critical problem due to which the manufacturer has agreed to replace the machine free of cost and now client shall have to pay IGST and custom duty again at time of import of FOC Machine.

The supplier has asked client to dispose the faulty machinery and it shall be sold at salvage value of about 10% of purchase cost. My question is whether ITC reversal would be needed to be made as per section 18(6) on balance 90%?

If not, kindly cite relevant provisions/circulars etc.

AI Summary

Client Faces ITC Reversal on 90% of Faulty Machinery Under Section 18(6); Consider Keeping for Five Years to Avoid. A client imported machinery in November 2023, paid IGST and customs duty, and claimed ITC on IGST. The machinery developed a critical issue, and the manufacturer agreed to replace it free of cost. The client will need to pay IGST and customs duty again for the replacement. The faulty machine will be sold at salvage value, about 10% of its purchase cost. The query concerns whether ITC reversal is required on the remaining 90% under Section 18(6). The response suggests that Section 18(6) applies and recommends keeping the machine for up to five years to bypass this provision.