Circular No. 195/07/2023-GST [C10-6MW]

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. Issue Clarification No.

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

period, without separately As such, where the manufacturer provides charging any consideration at replacement of parts and/ or repair services to the the time of such replacement/ customer during the warranty period, without repair services. separately charging any consideration at the time Whether GST would be of such replacement/ repair services, no further payable on such replacement GST is chargeable on such replacement of parts of parts or supply of repair and/ or repair service during warranty period. services, without any However, if any additional consideration is consideration from the charged by the manufacturer from the customer, customer, as part of either for replacement of any part or for any warranty? service, then GST will be payable on such supply with respect to such additional consideration.

2. Whether in such cases, the In such cases, the value of original supply of goods manufacturer is required to (provided along with warranty) by the reverse the input tax credit in manufacturer to the customer includes the likely respect of such replacement cost of replacement of parts and/ or repair services of parts or supply of repair to be incurred during the warranty period. services as part of warranty, Therefore, these supplies cannot be considered as in respect of which no exempt supply and accordingly, the manufacturer, additional consideration is who provides replacement of parts and/ or repair charged from the customer? 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 There may be instances where a distributor of a payable on replacement of company provides replacement of parts and/ or parts and/ or repair services repair services to the customer as part of warranty provided by a distributor on behalf of the manufacturer and no separate without any consideration consideration is charged by such distributor in from the customer, as part of respect of the said replacement and/ or repair warranty on behalf of the services from the customer. manufacturer? 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 (a) There may be cases where the distributor the distributor provides replaces the part(s) to the customer under warranty

replacement of parts to the either by using his stock or by purchasing from a customer as part of warranty third party and charges the consideration for the on behalf of the part(s) so replaced from the manufacturer, by manufacturer, whether any issuance of a tax invoice, for the said supply made supply is involved between by him to the manufacturer. In such a case, GST the distributor and the would be payable by the distributor on the said manufacturer and whether the supply by him to the manufacturer and the distributor would be required manufacturer would be entitled to avail the input to reverse the input tax credit tax credit of the same, subject to other conditions in respect of such of CGST Act. In such case, no reversal of input tax replacement of parts? 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 In such scenario, there is a supply of service by the provides repair service, in distributor and the manufacturer is the recipient of addition to replacement of such supply of repair services in accordance with parts or otherwise, to the the provisions of sub-clause (a) of clause (93) to customer without any section 2 of the CGST Act, 2017.

consideration, as part of Hence, GST would be payable on such provision warranty, on behalf of the of service by the distributor to the manufacturer manufacturer but charges the and the manufacturer would be entitled to avail the manufacturer for such repair input tax credit of the same, subject to other services either by way of conditions of CGST Act. issue of tax invoice or a debit note, whether GST would be payable on such activity by the distributor?

6. Sometimes companies (a) If a customer enters in to an agreement of provide offers of Extended extended warranty with the manufacturer at the warranty to the customers time of original supply, then the consideration for which can be availed at the such extended warranty becomes part of the value time of original supply or just of the composite supply, the principal supply before the expiry of the being the supply of goods, and GST would be standard warranty period. payable accordingly. Whether GST would be

(b) However, in case where a consumer enters into payable in both the cases? 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)