Re-import of goods for replacement

[Anurag Chopra]

Background:

• XYZ Ltd. had exported certain goods say Quantity 1000, Price INR 1,00,00,000/- to one of its customers in August 2022. The customer has now informed XYZ Ltd they need a replacement of around Qty 3200 Price INR 32,00,000/- w.r.t to the goods exported in August 2022.
• XYZ Ltd. would be replacing (not repair and re-export) the said goods to the customer and the goods re-imported would either be sold domestically post repairs or would sell as scrap.
• Also, it is to be noted that at the time of exports its was made without payment of taxes under GST and any duty in customs.
• Lastly, the replacement would now be done on free of cost basis i.e., XYZ Ltd. will not charge any consideration from the customer as a onetime arrangement for the sake of commercial relationship with the customer.

Query:

Keeping the above background in mind request your view on following:

• Can import of defective material and replacement of the same be done on FOC basis (keeping in mind regulations of customs/ GST etc.)
• What the statutory requirements XYZ Ltd. needs to fulfil under customs and/ or any other indirect tax statute for the above transactions.
• What are the regulations under customs/ FEMA etc. to be fulfilled by OEL for said FOC transaction.
• What implications (if any) XYZ Ltd. needs to keep in mind and safeguards XYZ Ltd. need to adhere to in relation to the said transaction.
• Any other suggestion/ documentation.

Thanks in advance for your views.

[YAGAY andSUN]

Given the scenario where XYZ Ltd. exported goods in August 2022 and is now replacing defective items on a free-of-cost (FOC) basis, several statutory requirements and considerations under Customs, GST, and FEMA regulations must be addressed. Below is a detailed analysis:

1. Import of Defective Goods and Replacement on FOC Basis

Customs Regulations:

• Import of Replacement Goods: As per the Foreign Trade Policy (FTP) and Customs provisions, goods found defective or unfit for use may be exported without an authorization, and replacement goods can be supplied free of charge by the foreign supplier. Such goods are allowed clearance by Customs without an import authorization, provided:
  • Timely Shipment: The replacement goods are shipped within 24 months from the date of clearance of the previously imported goods through Customs.
  • No Remittance Allowed: No remittance is allowed except for payment of insurance and freight charges, where the replacement of goods by foreign suppliers is subject to payment of insurance and/or freight by the importer, and documentary evidence to this effect is produced at the time of making the remittance. (enc-lab.com)

GST Implications:

• Export Without Payment of Tax: The initial export was made without payment of taxes under GST, which is permissible under the export provisions of the GST Act.
• Replacement on FOC Basis: Providing replacement goods free of charge may be considered as a supply under GST. However, since the replacement is being done without any consideration, it may not attract GST. It's advisable to consult with a GST professional to ensure compliance.

2. Statutory Requirements for Customs and Indirect Taxes

Customs Compliance:

• Bill of Entry: A Bill of Entry must be filed for the clearance of the replacement goods.(TaxGuru)
• Documentation: Maintain all relevant documents, including the original export invoice, communication with the foreign supplier regarding the replacement, and proof of shipment of the replacement goods.

FEMA Compliance:

• Remittance for Freight and Insurance: Any remittance made for freight and insurance charges related to the replacement goods must be in compliance with FEMA regulations. Documentary evidence supporting such remittances should be maintained.

3. Regulations Under Customs and FEMA for FOC Transactions

• Customs Regulations: As mentioned, replacement goods can be imported without an import authorization, provided the conditions regarding shipment time and remittance are met.
• FEMA Regulations: Ensure that any remittance for freight and insurance charges is in accordance with FEMA guidelines. Additionally, maintain records of all transactions related to the replacement to ensure compliance with FEMA provisions.

4. Implications and Safeguards for XYZ Ltd.

Implications:

• GST Considerations: Providing replacement goods free of charge may have GST implications. It's essential to consult with a GST professional to understand the taxability of such transactions.
• Customs Compliance: Ensure that all customs procedures are followed correctly to avoid any penalties or delays in clearance.

Safeguards:

• Documentation: Maintain comprehensive records of all communications, agreements, and transactions related to the replacement.
• Consultation with Professionals: Engage with customs brokers, GST consultants, and legal advisors to ensure full compliance with all applicable laws and regulations.

5. Additional Suggestions and Documentation

• Undertaking: Provide an undertaking to Customs stating that the replacement goods are being imported free of charge and will be used to replace the defective goods exported earlier.
• Communication with Foreign Supplier: Obtain a letter from the foreign supplier confirming that the replacement goods are being supplied free of charge and are intended to replace the defective goods.
• Customs Declaration: Declare the nature of the transaction (replacement on FOC basis) in the Bill of Entry and other relevant documents.
• GST Compliance: If applicable, ensure that the replacement transaction is reported correctly in GST returns and that any necessary adjustments are made.

***

[Shilpi Jain]

As per query 1000 units were supplied, but later 3200 units are sent. So its a higher quantity sent as replacement?

[Shilpi Jain]

The relevant notification would be 47/2017-Cus which provides for exemption on import duties in case the goods exported are re-imported within 3 years.

Any refund of GST taxes or drawback or other benefits claimed on exports would have to be paid back.

[Shilpi Jain]

While exporting the goods FOC, the same has to be mentioned appropriately in the Shipping bill and also intimated to the AD Bank so that the EDPMS is updated appropriately to note that no forex is to be recevied w.r.t. this export.

It would be required to prove that the goods that were exported are the ones that are re-imported.

[Anurag Chopra]

Hi Shipli, you can read the same as 320 instead of 3200 (typo error), I think FOC export are allowed up to a certain value. Further, our concern is can we re-import for replacement (not repair). We would be sending back entirely new lot of goods and the replaced goods would be either destroyed and/ or sold as scrap 

[YAGAY andSUN]

Thank you for the detailed case background. Given the clarification (the quantity is 320, not 3200), and that the transaction involves re-import of defective goods and export of replacement goods on a Free of Cost (FOC) basis, here’s a structured and updated legal-compliance view covering Customs, GST, and FEMA with specific focus on replacement (not repair) scenarios.

✅ Summary of the Transaction

XYZ Ltd. exported 1000 units (INR 1 crore) in Aug 2022 without payment of GST (under LUT).

Customer abroad now requires replacement of 320 defective units, which will be re-imported.

XYZ Ltd. will export replacement goods (new units) FOC, and may scrap or sell the defective ones domestically.

No consideration will be received for the replacement export.

📌 1. Re-Import of Defective Goods for Replacement

🔹 Applicable Legal Provision:

Notification No. 46/2017-Cus and 47/2017-Cus, both dated 30.06.2017.

Allows re-import of goods exported earlier without payment of duty (including GST), within 3 years, without payment of BCD/IGST, provided:

Goods are re-imported for repair, reconditioning, or replacement.

Any duty drawback or export incentive claimed earlier is repaid.

Since in this case, the original goods are being re-imported for replacement (not for repair), replacement is covered under the notification.

✅ Conditions to Avail Exemption:

The goods must be clearly identifiable as the same goods exported earlier.

No drawback/refund or benefits claimed, or if claimed, must be repaid.

A certificate from the jurisdictional officer (or self-declaration) may be required to establish that the goods being re-imported are indeed defective and are replacements.

📌 2. Export of Replacement Goods on FOC Basis

🔹 Under GST:

Export without payment of IGST under LUT is allowed.

Even if it's FOC, it is treated as "zero-rated supply" under Section 16 of the IGST Act, provided it's an export of goods (movement outside India).

Since no foreign exchange will be realized, AD Bank must be informed, and EDPMS should be updated accordingly.

Important: For GST:

FOC export invoices must carry value (for customs/GST purposes), but clearly mention "No consideration – FOC replacement".

Export must be reported in GSTR-1 and refund not claimed if no consideration is received (unless you’re claiming input refund).

📌 3. Statutory Requirements (Customs/GST/FEMA)

✅ For Re-Import:

File Bill of Entry, declare it as "Re-import of defective goods originally exported".

Attach:

Copy of original export documents.

Declaration stating the reason for re-import.

Certificate or correspondence from the foreign customer.

If drawback/benefits were claimed, pay back proportionate amount.

✅ For Export of Replacement Goods (FOC):

File shipping bill with FOC clearly mentioned.

Use LUT (without IGST) if eligible.

Issue export invoice with value but no payment.

Update AD bank and ensure EDPMS is closed with zero realization status.

✅ For FEMA:

Export on FOC basis is permitted under FEMA.

Ensure that:

AD Bank is informed.

No export proceeds will be realized – update EDPMS accordingly.

Record is maintained for audit trail and compliance.

📌 4. Sale or Destruction of Re-Imported Goods in India

Once the defective goods are re-imported:

If sold as scrap domestically:

GST is applicable on domestic sale.

You must raise a tax invoice, and report it in GSTR-1 and GSTR-3B.

If destroyed:

Maintain proper records.

No GST liability, but you must have approval/documentation from pollution control or municipal authorities (depending on jurisdiction).

🔐 5. Safeguards & Documentation

📂 Recommended Documentation:

Document	Purpose
Original Export Invoice & Shipping Bill	Proof of earlier export
Customer Complaint/Email	Establish reason for replacement
Re-import Declaration	Stating reason and referencing original export
Replacement Invoice (FOC)	Must reflect value for customs but zero consideration
Shipping Bill for FOC Export	Marked appropriately under “FOC Export - Replacement”
Letter to AD Bank	Declare FOC export, request EDPMS update
Proof of Return of Export Incentives (if any)	If drawback/refund was claimed
Internal Approval & Board Resolution (if required)	For documentation and audit
GST LUT Copy	If exporting without payment of tax

🚨 Key Risks to Watch

Risk	Mitigation
Customs query on value mismatch or FOC	Provide commercial correspondence and detailed declaration
GST scrutiny on FOC export	Clearly state that it's replacement, no refund claimed
FEMA/EDPMS non-closure	Inform AD Bank; submit necessary declarations

✅ Conclusion

Yes, XYZ Ltd. can re-import defective goods and export replacements on FOC basis under current Customs, GST, and FEMA regulations, subject to:

Proper documentation and declarations,

Refund of any previously claimed export benefits,

No violation of FEMA (by updating AD bank and EDPMS properly).

***

 

[Nlesh Parmar]

Hi Everyone,

Need expert advise here in the case of Import.

A company ABC has imported goods through Air mode eg. 1000 pcs in May 2025. Upon receiving it found that 900 pcs are not matching specification as intended. Same is communicated to Exported and exporter agrees to give replacement on Free of cost (FOC) basis

Now the scenario is re export of rejected goods does not take place and exporter has send the replacement June 2025.

So what should be best possible way to complete the transaction and to avoid any further duty payment 

Expert opinion is awaited

Thanks !!