The goods compensated at no cost refer to replacement goods or compensatory goods of the same kind of original imported goods but provided free of charge by foreign carrier, consignor or insurer due to such reasons as damage, shortage or inferior quality of the original goods identified after Customs taxation and release are fulfilled. For the goods compensated at no cost, the Customs will exempt or levy tax as appropriate:

1. Where the taxes levied on the original imported goods have not been refunded, and the imported goods compensated at no cost fall under the following circumstances, they shall be released without tax:

 (1) the original imported goods have been returned outside China or been abandoned to the Customs disposal;

 (2) the goods are re-imported to make up for the shortage found in the original goods after Customs taxation and release;

 (3) the machinery, equipment or their parts and components are damaged or of inferior quality; and

 (4) the machinery, equipment or other goods are damaged or of inferior quality, and the foreign producers agree to cut off prices and provide part of goods with the same product name and specifications as compensation, whose value is not more than the amount of price reduction.

2. Where the vehicles, household appliances, office appliances and other durable consumer goods as well as their parts and components are damaged or of inferior quality, if they are not sent back overseas, the imported goods compensated at no cost shall be subject to tax according to the relevant rules; the original imported goods retained domestically shall be re-evaluated for tax levy with the certificate issued by commodity inspection authorities, and the excess of  taxes and fees levied originally shall be refunded.