Last Updated: August 2026
Written by: Paras Nagpal, Business Consultant, GetMyCA | Reviewed by: GetMyCA GST Refund Team
Purchasing new machinery can involve a significant GST outflow. For example, machinery costing ₹50 lakh with 18% GST can require an additional payment of ₹9 lakh at the time of purchase.
This naturally raises an important question:
Can a business get a GST refund on machinery purchased in India?
The answer is yes—but not on every machinery purchase.
GST paid on an ordinary machinery purchase does not automatically become eligible for a GST refund. However, an eligible exporter purchasing capital goods from an Indian manufacturer against a valid EPCG Authorisation may claim the tax paid through the deemed-export GST refund mechanism, subject to the prescribed conditions and documentation.
Notification No. 48/2017-Central Tax specifically treats the supply of capital goods by a registered supplier against an Export Promotion Capital Goods Authorisation as a deemed export.
Quick Answer
An eligible exporter may claim GST refund on machinery purchased from an Indian manufacturer when the supply is made against a valid EPCG Authorisation and qualifies as a notified deemed export. The refund may be filed by either the eligible buyer or supplier, subject to GST reporting, undertakings, documents and no duplicate ITC/refund benefit.
This is possible only when:
- The machinery qualifies as capital goods under the EPCG Scheme.
- The buyer holds a valid EPCG Authorisation.
- The machinery is purchased from an Indian manufacturer.
- The domestic procurement is made through an Invalidation Letter or Advance Release Order.
- GST is correctly charged and reported on the machinery invoice.
- Either the eligible buyer or supplier files the deemed-export refund application.
- All prescribed declarations and supporting documents are submitted.
The transaction should be structured before the final purchase order and GST invoice are issued.
Is GST Refund Available on Every Machinery Purchase?
No. Purchasing machinery for business use does not, by itself, create a right to receive the GST amount as a cash refund. A separate refund opportunity may arise where the machinery is supplied against a valid EPCG Authorisation and the transaction qualifies as a notified deemed export.
In a normal transaction, the eligible buyer may generally deal with the tax as input tax credit, subject to the applicable GST provisions.
Therefore, the following two situations should not be confused:
Normal machinery purchase
The buyer purchases machinery in the ordinary course of business and may claim eligible input tax credit. There is no automatic cash refund merely because machinery has been purchased.
Machinery purchase under EPCG
An eligible exporter purchases machinery from an Indian manufacturer against an EPCG Authorisation through the prescribed domestic procurement route. The tax paid on the notified deemed-export supply may be claimed as a refund by the eligible supplier or recipient.
What Is the EPCG Scheme?
The Export Promotion Capital Goods Scheme allows eligible exporters to procure capital goods subject to an export obligation. Although EPCG is commonly associated with importing machinery at zero customs duty, the Foreign Trade Policy also allows an EPCG Authorisation holder to source capital goods from an Indian manufacturer.
The scheme covers manufacturer exporters; merchant exporters tied to supporting manufacturers and eligible service providers. Under the general EPCG framework, the export obligation is ordinarily six times the duty, taxes and cess saved and must be fulfilled within six years from the date of issue of the authorisation.
Can Machinery Be Purchased From an Indian Supplier Under EPCG?
Yes. An EPCG Authorisation holder may purchase eligible capital goods from an Indian manufacturer through an Invalidation Letter or Advance Release Order. The request may be made with the EPCG application or during the validity of the authorisation, and the applicant must provide the domestic capital-goods manufacturer’s details.
Paragraph 5.07 of the Foreign Trade Policy permits an EPCG Authorisation holder to purchase capital goods from a domestic manufacturer through either:
- An Invalidation Letter, or
- An Advance Release Order, commonly called an ARO.
The domestic manufacturer may receive applicable deemed-export benefits, including the GST refund benefit available under the relevant GST provisions.
The Handbook of Procedures further provides that the request for an Invalidation Letter or ARO may be made along with the EPCG application or during the validity period of the EPCG Authorisation. The applicant is required to provide the name and address of the domestic capital-goods manufacturer.
How Does GST Refund on Machinery Under EPCG Work?
GST refund on machinery under EPCG works as a deemed-export refund claim. The domestic manufacturer supplies eligible capital goods against the EPCG Authorisation, charges applicable GST through a proper tax invoice, and the eligible supplier or recipient may subsequently claim the tax paid as a refund, subject to conditions and documents.
This is not the same as:
- Refund of accumulated ITC on exports
- Inverted duty structure refund
- Refund of IGST paid on exported goods
- GST exemption at the time of machinery purchase
- Automatic refund of GST on all capital goods
It is a separate deemed-export refund claim connected to the eligible domestic supply made against an EPCG Authorisation.
Who Can Claim the Machinery GST Refund?
The machinery GST refund may be claimed by either the EPCG Authorisation holder receiving the machinery or the domestic machinery supplier, depending on how the transaction is structured. The same GST amount cannot be claimed by both parties, and the selected claimant must satisfy the required ITC, undertaking and documentation conditions.
Refund claimed by the machinery buyer
The EPCG Authorisation holder receiving the machinery may file the refund application as the recipient of the deemed-export supply.
For portal purposes, the recipient may be required to reflect the tax paid on the deemed-export supply in the electronic credit ledger and debit the amount while filing the refund application. CBIC has clarified that this credit is made available to facilitate the deemed-export refund claim and is not included in “Net ITC” for other refund calculations.
Refund claimed by the machinery supplier
The domestic machinery manufacturer may claim the refund where the recipient:
- Does not claim the same refund
- Does not avail or retain the relevant input tax credit
- Provides an undertaking permitting the supplier to claim the refund
Notification No. 49/2017-Central Tax prescribes supporting evidence for a supplier-filed deemed-export refund, including acknowledgement of receipt of goods and undertakings from the recipient regarding non-availment of ITC and non-filing of a duplicate refund claim.
The buyer and supplier cannot both claim a refund of the same GST amount.
Step-by-Step Process to Get GST Refund on Machinery Purchase
The process works best when it is planned before the purchase order and GST invoice are issued. Broadly, the exporter first checks EPCG eligibility, obtains supplier details, applies for EPCG Authorisation and Invalidation Letter/ARO, completes the machinery purchase, verifies GST reporting and then files the deemed-export refund application.
Step 1: Check the buyer’s EPCG eligibility
The business must first determine whether it is eligible to obtain an EPCG Authorisation.
Eligibility should be evaluated based on:
- Nature of the applicant
- Export product or service
- Machinery to be purchased
- Proposed installation location
- Relationship between the machinery and export activity
- Existing and proposed export performance
- Supporting manufacturer details, where applicable
Step 2: Obtain a detailed machinery quotation
The exporter should obtain a quotation or proforma invoice from the Indian machinery manufacturer.
It should clearly mention:
- Supplier’s legal name and GSTIN
- Machinery description
- Technical specifications
- Quantity
- Basic value
- Applicable GST
- Delivery terms
- Installation location
The machinery description used in the quotation, EPCG application, authorisation, Invalidation Letter and final invoice should remain consistent.
Step 3: Calculate the EPCG benefit and export obligation
Before applying, the exporter should calculate:
- Notional customs duty saved
- Specific export obligation
- Average export obligation, where applicable
- Estimated GST amount on domestic machinery
- Cash-flow impact of the transaction
For domestic sourcing, export obligation is calculated with reference to the notional customs duty, taxes and cess saved on the FOR value mentioned in the Invalidation Letter or ARO.
Step 4: Apply for the EPCG Authorisation
The exporter must apply to the concerned DGFT Regional Authority with the prescribed application, Chartered Engineer nexus certification and other supporting documents.
The machinery must have a clear nexus with the goods being manufactured or services being provided for export. The Handbook of Procedures requires the relevant nexus certification to support the EPCG application.
Step 5: Obtain an Invalidation Letter or ARO
For domestic machinery purchase, the EPCG Authorisation holder must request an Invalidation Letter or Advance Release Order from the DGFT Regional Authority.
The request should contain details of:
- EPCG Authorisation
- Domestic machinery manufacturer
- Machinery description
- Quantity
- Value
- Installation location
The validity of the Invalidation Letter or ARO is co-terminous with the validity of the EPCG Authorisation.
Step 6: Finalise the purchase order
The purchase order should mention:
- EPCG Authorisation number and date
- Invalidation Letter or ARO details
- Machinery description
- Supplier and buyer details
- GST treatment
- Party responsible for filing the refund
- Required declarations and supporting documents
The refund claimant should ideally be decided before the invoice is generated.
Step 7: Obtain the GST tax invoice
The Indian manufacturer supplies the machinery and issues a proper GST tax invoice.
Details appearing on the invoice should correspond with the:
- EPCG Authorisation
- Invalidation Letter or ARO
- Purchase order
- Machinery quotation
- Transport documents
- Books of account
Any major mismatch in the machinery name, specifications, supplier or recipient may lead to questions during refund processing.
Step 8: Receive and install the machinery
The exporter should preserve proper evidence of receipt and installation, including:
- E-way bill
- Lorry receipt or transport document
- Goods receipt note
- Delivery challan
- Installation report
- Machinery serial numbers
- Payment proof
- Photographs of installed machinery
- Chartered Engineer certificate, wherever applicable
Step 9: Verify GST return reporting
Before filing the refund, verify that:
- The supplier has reported the machinery invoice correctly
- The tax has been paid through the applicable GST return
- Invoice details are consistent with the buyer’s records
- The selected claimant is eligible to file the refund
- The other party has not claimed the same amount
- Required undertakings have been executed
Step 10: File Form GST RFD-01
The eligible supplier or recipient must file the refund application electronically in Form GST RFD-01 under the deemed-export refund category.
Rule 89 requires the application to be supported by an invoice-wise statement and the applicable documentary evidence. Form GST RFD-01 contains Statement 5B for deemed-export refund claims.
Documents Required for GST Refund on Machinery
The documents required for GST refund on machinery depend on whether the supplier or recipient files the deemed-export refund claim. A typical file should include EPCG documents, GST invoice and return evidence, Form GST RFD-01 with Statement 5B, transaction records, installation proof and the required ITC or non-claim undertakings.
EPCG documents
- EPCG Authorisation
- Invalidation Letter or Advance Release Order
- IEC
- RCMC, where applicable
- Chartered Engineer nexus certificate
- Machinery quotation or proforma invoice
- EPCG application annexures
GST documents
- GST registration certificate
- GST tax invoice
- GSTR-1 reporting evidence
- GSTR-3B tax-payment evidence
- Form GST RFD-01
- Statement 5B
- Electronic credit ledger details, where applicable
- Declaration that the other party has not claimed the refund
- Relevant ITC undertaking
Transaction documents
- Purchase order
- E-way bill
- Transport documents
- Goods receipt note
- Payment evidence
- Machinery installation report
- Machinery serial-number details
Additional documents for supplier-filed refund
The supplier may be required to submit:
- Acknowledgement from the jurisdictional tax officer confirming receipt of the deemed-export supply by the EPCG Authorisation holder
- Undertaking from the recipient that the relevant ITC has not been availed
- Undertaking that the recipient will not claim the refund and that the supplier may claim it
These supplier-claim documents arise from Notification No. 49/2017-Central Tax.
Example of GST Refund on Machinery Purchase
This example shows how GST refund on machinery purchase may work when eligible machinery is bought from an Indian manufacturer against a valid EPCG Authorisation. The refund amount depends on the GST actually paid, correct deemed-export treatment, proper claimant selection, return reporting, documentation and verification by the GST officer.
Suppose an exporter purchases eligible machinery from an Indian manufacturer:
| Particular |
Amount |
| Machinery value |
₹50,00,000 |
| GST at 18% |
₹9,00,000 |
| Total invoice value |
₹59,00,000 |
Where the transaction is properly structured against a valid EPCG Authorisation and satisfies the deemed-export refund conditions, the eligible supplier or recipient may apply for a refund of the GST paid on the machinery invoice.
In this illustration, the potential refund amount may be up to ₹9,00,000, subject to:
- Applicable GST rate
- Eligible tax actually paid
- Correct return reporting
- Selection of the proper claimant
- Ledger treatment
- Documentary compliance
- Verification by the GST officer
- Absence of duplicate ITC or refund benefit
The example is illustrative and does not mean that every machinery purchase of ₹50 lakh will automatically generate a ₹9 lakh refund.
Additional EPCG Benefit on Domestic Machinery
Domestic procurement may also provide an export-obligation benefit.
Under the Foreign Trade Policy, the specific export obligation for indigenous sourcing of capital goods is 25% lower than the normal specific export obligation. Since the normal specific export obligation under EPCG is generally six times the duty, taxes and cess saved, the reduced obligation for domestic sourcing generally works out to 4.5 times the notional duty, taxes and cess saved.
However, there is no corresponding reduction in the average export obligation, where such average obligation applies.
This means an eligible exporter may potentially receive:
- Deemed-export GST refund on the machinery supply
- Domestic procurement of machinery from an Indian manufacturer
- A 25% reduction in the specific export obligation
- A generally lower specific export obligation compared with direct import
- Access to installation and after-sales support from the domestic supplier
Time Limit for Filing the Refund
A GST refund application is generally required to be filed within two years from the relevant date under Section 54 of the CGST Act.
For goods treated as deemed exports, the relevant date is linked to the date on which the return relating to the deemed-export supply is furnished.
Businesses should not wait until the end of the two-year period. Refund preparation should begin as soon as the machinery transaction, GST invoice and return reporting are completed.
Common Mistakes That Can Affect the Refund
Purchasing machinery before EPCG planning
Issuing an ordinary purchase order or GST invoice first, and then trying to restructure the transaction later, can create eligibility and documentation issues.
Assuming GST refund is available to every manufacturer
The EPCG-linked deemed-export refund is relevant only where the buyer holds a valid EPCG Authorisation and the machinery supply meets the notified conditions.
Incorrect machinery description
The quotation, EPCG Authorisation, Invalidation Letter, purchase order and GST invoice should carry consistent machinery details.
Selecting the refund claimant after the transaction
The supplier and recipient should decide in advance who will claim the refund.
Claiming duplicate benefit
The same tax amount cannot be claimed as a refund by both the supplier and recipient.
Incorrect ITC treatment
GST treatment differs depending on whether the recipient or supplier files the refund. Incorrect utilisation or retention of the relevant tax credit may affect the claim.
Filing under the wrong refund category
The application should be filed under the deemed-export refund category with Statement 5B, rather than as a normal accumulated ITC refund.
Ignoring EPCG compliance after refund
Receiving the GST refund does not remove the export obligation attached to the EPCG Authorisation.
The exporter must continue to track eligible exports, average export obligation, specific export obligation and eventual closure of the authorisation.
Why Pre-Purchase Planning Is Important
GST refund on machinery under EPCG requires coordination between:
- Exporter
- Domestic machinery manufacturer
- DGFT documentation
- Chartered Engineer certification
- GST invoice and returns
- Refund declarations
- Export-obligation compliance
A mistake made before or during the machinery purchase can be difficult to correct after the machinery has been delivered and the GST invoice has been issued.
Therefore, EPCG eligibility and refund treatment should be checked before:
- Paying a major advance
- Issuing the final purchase order
- Finalising the supplier
- Generating the GST invoice
- Taking or utilising the GST credit
How GetMyCA Can Help
GetMyCA assists exporters with planning, structuring and filing domestic machinery purchases under EPCG, including the eligible deemed-export GST refund claim.
Our assistance may include:
- Preliminary EPCG eligibility assessment
- Machinery and export-product nexus review
- Estimated GST refund calculation
- Duty-saving and export-obligation calculation
- EPCG Authorisation application
- Invalidation Letter or ARO application
- Coordination with the Indian machinery supplier
- Purchase-order and invoice review
- Deemed-export refund eligibility review
- Form GST RFD-01 preparation
- Statement 5B preparation
- Refund document reconciliation
- Reply to refund clarification or deficiency notice
- Export-obligation tracking
- EPCG closure and EODC assistance
Planning to Purchase Machinery?
Do not wait until the supplier has already issued the final GST invoice.
Get your EPCG eligibility, estimated GST refund, export obligation and documentation requirements checked before finalising the machinery purchase.
Contact GetMyCA
Paras Nagpal
Phone: +91 92174 87001
Email: paras@getmyca.com
GetMyCA – Grow Wisely
Frequently Asked Questions
Can we claim GST refund on machinery purchase?
GST paid on an ordinary machinery purchase is not automatically refundable. However, an eligible exporter purchasing capital goods against a valid EPCG Authorisation may claim the tax paid through the deemed-export refund mechanism, subject to prescribed conditions and documents.
Is EPCG required to get GST refund on domestic machinery?
EPCG is one specific route through which a domestic machinery supply may qualify as a deemed export. Without an eligible refund category, purchasing machinery alone does not create an automatic cash-refund entitlement.
Is GST charged on machinery purchased under EPCG?
For a domestic deemed-export transaction, the registered supplier generally issues a GST tax invoice and pays the applicable tax. The eligible supplier or recipient may subsequently file the refund claim, subject to the selected structure and documents.
Who receives the machinery GST refund?
Either the eligible EPCG Authorisation holder or the domestic machinery supplier may claim the refund, depending on the selected structure and prescribed undertakings. Both parties cannot claim the same GST amount.
Is an Invalidation Letter required for domestic EPCG purchase?
The EPCG domestic procurement route provides for sourcing through an Invalidation Letter or Advance Release Order issued by the concerned DGFT Regional Authority.
Can GST refund be claimed after the machinery invoice is issued?
The refund is filed after the eligible supply and tax reporting. However, the EPCG Authorisation, domestic procurement route and documentation should be structured before the final transaction. Trying to restructure an ordinary purchase after invoicing may create difficulties.
Is the GST refund guaranteed?
No. Refund approval depends on eligibility, correct transaction structuring, GST reporting, declarations, supporting documents and verification by the proper officer.
Does receiving the GST refund cancel the EPCG export obligation?
No. The exporter must continue to fulfil the applicable specific and average export obligations under the EPCG Authorisation.
What is the time limit for a deemed-export GST refund?
The general limitation period is two years from the relevant date. For deemed-export goods, the relevant date is linked to the filing of the return relating to the deemed-export supply.
When should GetMyCA be contacted?
GetMyCA should ideally be contacted before the purchase order, advance payment and final GST invoice are issued so that EPCG eligibility, refund treatment and documentation can be planned properly.
Official Sources Referenced
About the Author
Paras Nagpal
Business Consultant, GetMyCA
Email: paras@getmyca.com | Phone: +91 92174 87001
Disclaimer
This article is for general informational purposes and does not constitute legal, tax or export-policy advice. GST refund and EPCG eligibility depend on the applicable notifications, DGFT authorisation, transaction documents, GST returns and verification by the proper officer.
About GetMyCA
GetMyCA Consultants Private Limited is a trusted business consultant based in New Delhi, serving clients across India since 2015. GetMyCA is helping entrepreneurs with hasslefree GST refund claims since 2018. Our team of qualified Chartered Accountants has successfully recovered stuck credits for businesses across pharma, footwear, corrugated box manufacturing, and ecommerce sectors.
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