Central Board of Indirect Taxes and Customs (CBIC) has issued Circular No.195/07/2023 to provide clarification on availability of Input Tax Credit (ITC) in respect of warranty replacement of parts
and repair services during warranty period.
Key points of the Circular are as below:
1. Goods and Services Tax (GST) is not leviable on replacement of parts and/ or repair service if the manufacturer provides replacement of parts and/ or repair services to the customer during the warranty period. However, if any additional consideration is charged from the customer at the time of such replacement/ repair services GST will be payable by the customer.
2. There will be no reversal of Input Tax Credit (ITC) against the replacement of parts and/ or repair services provided to the customer during the warranty period.
3. No GST is payable by the distributor on the activity of providing replacement of parts and/ or repair services to the customer under the warranty period.
4. If 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 than distributors will be liable to pay GST and manufacturer can claim ITC on same.
5. No GST is payable on replacement of parts by the manufacturer if the distributor has raised a requisition 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.
6. If 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, the tax liability may be adjusted by the manufacturer.
7. If 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 by way of issue of tax invoice or a debit note, 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.
8. In case customer enters contract for 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.
Source: Central Board of Indirect Taxes and Customs (CBIC)
