The GST Council has examined the issue in respect of GST liability as well as liability to reverse ITC against the supplies of replacement of parts and repair services during the warranty period without any consideration from the customers. This issue has been clarified through Circular No. 195/07/2023-GST dated 17th July 2023.
To know more, read in detail the update on the circular below:
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Issue 1: |
Whether GST would be payable in the 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. |
Clarification
1.1 The original value of goods already includes the cost of replacement, on which tax would have already been paid at the time of original supply of goods.
1.2 No further GST is chargeable in this case.
1.3 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.
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Issue 2: |
Whether the manufacturer is required to reverse the input tax credit (ITC) 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? |
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Clarification
2.1 In the cases where the value of original supply of goods is already with the inclusion of cost of replacement of parts and/or repair services which is to be incurred during the warranty period.
2.2 These supplies cannot be considered as exempt supply and accordingly, there is no requirement to reverse ITC.
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Issue 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.
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Clarification
3.1 As no consideration is being charged by the distributor from the customer, therefore, there is no question of GST as well on the activity of providing replacement of parts and/ or repair services to the customer.
3.2 GST will be payable in the case when there is an involvement of additional consideration charged by the distributor from customer.
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Issue 4: |
In the cases, 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.
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Clarification
4.1 In case when distributor provides replacement of parts to the customer as part of warranty on behalf of the manufacturer and charges the consideration for the part(s) so replaced from the manufacturer, GST would be payable by the distributor on the said supply by him to the manufacturer.
4.2 No reversal of ITC is required to be done by the distributor, in the above case.
4.3 In the cases where manufacturer provides the parts for replacement to the distributor on the request of him, even without charging consideration from him, neither GST is payable nor reversal of ITC is to be made by the manufacturer.
4.4 In case where distributor replaces the parts out of existing supply received from manufacturer and credit note has been issued by the manufacturer, 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.
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Issue 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. |
Clarification
5.1 As per the provisions of sub-clause (a) of clause (93) to section 2 of the CGST Act, 2017, there is supply of service in this case, hence GST would be payable by the distributor to manufacturer and the manufacturer would be entitled to avail the input tax credit of the same.
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Issue 6: |
In the cases when 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? |
Clarification
