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Circular No. 195/07/2023-GST

F. No. CBIC-20001/5/2023-GST

Government of India

Ministry of Finance

Department of Revenue

Central Board of Indirect Taxes and Customs

GST Policy Wing

****


New Delhi, Dated the 17th July, 2023


To,

The Principal Chief Commissioners/ Chief Commissioners/ Principal Commissioners/

Commissioners of Central Tax (All)

The Principal Directors General/ Directors General (All)


Madam/Sir,


Subject: Clarification on availability of ITC in respect of warranty replacement of parts

and repair services during warranty period.


Representations have been received from trade and industry that as a common trade practice, the original equipment manufacturers /suppliers offer warranty for the goods / services supplied by them. During the warranty period, replacement goods /services are supplied to customers free of charge and as such no separate consideration is charged and received at the time of replacement. It has been represented that suitable clarification may be issued in the matter as unnecessary litigation is being caused due to contrary interpretations by the investigation wings and field formations in respect of GST liability as well as liability to reverse ITC against such supplies of replacement of parts and repair services during the warranty period without any consideration from the customers.


2. The matter has been examined. In order to ensure uniformity in the implementation of the provisions of the law across the field formations, the Board, in exercise of its powers conferred under section 168(1) of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as the CGST Act), hereby clarifies as follows:



S.No.

Issue

Clarification

1.

There are cases where the

original equipment manufacturer offers warranty

for the goods supplied by him to the customer and provides replacement of parts and/ or repair services to the customer during the warranty period, without separately charging any consideration at the time of such replacement/ repair services. Whether GST would be payable on such replacement of parts or supply of repair services, without any consideration from the customer, as part of warranty?

The value of original supply of goods (provided along with warranty) by the manufacturer to the customer includes the likely cost of replacement of parts and / or repair services to be incurred during the warranty period, on which tax would have already been paid at the time of original supply of goods. As such, where the manufacturer provides replacement of parts and/ or repair services to the

customer during the warranty period, without separately charging any consideration at the time

of such replacement/ repair services, no further GST is chargeable on such replacement of parts and/ or repair service during warranty period. However, if any additional consideration is charged by the manufacturer from the customer,

either for replacement of any part or for any service, then GST will be payable on such supply

with respect to such additional consideration.

2.

Whether in such cases, the

manufacturer is required to

reverse the input tax credit in respect of such replacement of parts or supply of repair services as part of warranty, in respect of which no additional consideration is charged from the customer?

In such cases, the value of original supply of goods (provided along with warranty) by the manufacturer to the customer includes the likely

cost of replacement of parts and/ or repair services to be incurred during the warranty period.

Therefore, these supplies cannot be considered as

exempt supply and accordingly, the manufacturer,

who provides replacement of parts and/ or repair

services to the customer during the warranty

period, is not required to reverse the input tax

credit in respect of the said replacement parts or on the repair services provided.

3.

Whether GST would be

payable on replacement of

parts and/ or repair services

provided by a distributor

without any consideration

from the customer, as part of warranty on behalf of the

manufacturer?

There may be instances where a distributor of a

company provides replacement of parts and/ or

repair services to the customer as part of warranty

on behalf of the manufacturer and no separate

consideration is charged by such distributor in

respect of the said replacement and/ or repair

services from the customer. In such cases, as no consideration is being charged by the distributor from the customer, no GST would be payable by the distributor on the said activity of providing replacement of parts and/ or repair services to the customer. However, if any additional consideration is

charged by the distributor from the customer,

either for replacement of any part or for any

service, then GST will be payable on such supply

with respect to such additional consideration.

4.

In the above scenario where

the distributor provides replacement of parts to the

customer as part of warranty

on behalf of the manufacturer, whether any

supply is involved between

the distributor and the manufacturer and whether the distributor would be required to reverse the input tax credit in respect of such replacement of parts?

​(a) There may be cases where the distributor replaces the part(s) to the customer under warranty either by using his stock or by purchasing from a third party and charges the consideration for the part(s) so replaced from the manufacturer, by issuance of a tax invoice, for the said supply made by him to the manufacturer. In such a case, GST would be payable by the distributor on the said supply by him to the manufacturer and the

manufacturer would be entitled to avail the input

tax credit of the same, subject to other conditions

of CGST Act. In such case, no reversal of input tax

credit by the distributor is required in respect of the same. (b) There may be cases where the distributor raises

a requisition to the manufacturer for the part(s) to

be replaced by him under warranty and the

manufacturer then provides the said part(s) to the

distributor for the purpose of such replacement to

the customer as part of warranty. In such a case, where the manufacturer is providing such part(s) to the distributor for replacement to the customer during the warranty

period, without separately charging any consideration at the time of such replacement, no

GST is payable on such replacement of parts by

the manufacturer. Further, no reversal of ITC is

required to be made by the manufacturer in respect of the parts so replaced by the distributor under warranty. (c) There may be cases where the distributor

replaces the part(s) to the customer under warranty out of the supply already received by him from the manufacturer and the manufacturer issues a credit note in respect of the parts so replaced subject to provisions of sub-section (2) of section 34 of the CGST Act. Accordingly, the tax liability may be adjusted by the manufacturer, subject to the condition that the said distributor has reversed the ITC availed against the parts so replaced.

5.

Where the distributor

provides repair service, in

addition to replacement of

parts or otherwise, to the

customer without any consideration, as part of

warranty, on behalf of the

manufacturer but charges the manufacturer for such repair services either by way of issue of tax invoice or a debit note, whether GST would be payable on such activity by the distributor?

In such scenario, there is a supply of service by the

distributor and the manufacturer is the recipient of

such supply of repair services in accordance with

the provisions of sub-clause (a) of clause (93) to

section 2 of the CGST Act, 2017. Hence, GST would be payable on such provision

of service by the distributor to the manufacturer

and the manufacturer would be entitled to avail the input tax credit of the same, subject to other

conditions of CGST Act.

6

Sometimes companies

provide offers of Extended

warranty to the customers

which can be availed at the

time of original supply or just before the expiry of the

standard warranty period.

Whether GST would be

payable in both the cases?

​(a) If a customer enters in to an agreement of

extended warranty with the manufacturer at the

time of original supply, then the consideration for

such extended warranty becomes part of the value

of the composite supply, the principal supply

being the supply of goods, and GST would be

payable accordingly. (b) However, in case where a consumer enters into

an agreement of extended warranty at any time

after the original supply, then the same is a

separate contract and GST would be payable by

the service provider, whether manufacturer or the

distributor or any third party, depending on the

nature of the contract (i.e. whether the extended

warranty is only for goods or for services or for

composite supply involving goods and services)

3. It is requested that suitable trade notices may be issued to publicize the contents of this Circular.


4. Difficulty, if any, in implementation of this Circular may please be brought to the notice of the Board. Hindi version would follow.



Sanjay Mangal

Principal Commissioner (GST)



Disclaimer: We have paid due attention while copying content from Circular, however we will not be responsible for any mistake.

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