ITC impact of FOC replacement of Imported machinery, Goods and Services Tax - GST

[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.

Posts / Replies

[Shilpi Jain]

Section 18(6) will apply.

You could also consider to keep the machine in your factory for up to 5 years of life of the asset and then sell in order to by-pass this provision.