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Dear Professional Colleagues,

Greetings of the Day !


The Central Board of Indirect Taxes and Customs (GST Policy Wing) issued Circular No. 195/07/2023-GST dated July 17, 2023 regarding Clarification on availability of ITC in respect of warranty replacement of parts and repair services during warranty period.

 

Background

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 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.

 

Clarification: Original manufacturer

  • 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.
  • No reversal of input tax is required in for such replacement/ repair during the warranty period 

 

Clarification: Distributors

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.

 

(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. No GST is payable on such replacement of parts by the manufacturer. Further, no reversal of ITC is required.

(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.

Hope you find it interesting and useful to read.

For any clarification/ feedback, feel free to write us at amrg@amrg.in.


Best regards,

AMRG Team


   


About Us

AMRG & Associates is an established Chartered Accountants firm. It came into existence in 1984 and since then has grown its branches across major Indian cities such as Delhi, Mumbai and Chandigarh. Since its inception, it has become one of the leading chartered accountants’ firms in North India. AMRG & Associates offers its clients a wide range of exceptional services through the expertise of its highly motivated group of trained professionals. The firm provides expertise in financial and business advisory, tax and regulatory, audit and assurance and risk advisory services.

AMRG & Associates has a client base of 200+ companies & individuals. The firm's approach to service delivery helps to provide value-added services to its wide clientele. Our differentiation is derived from a rapid performance based, industry-tailored and technology-enabled business advisory services delivered by talented professionals in the country.


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© -2022 AMRG & Associates All Rights Reserved. This document has been written for the general interest of our clients and professional colleagues and is subject to change. This document is not to be construed as any form of solicitation. It is not intended to be exhaustive or a substitute for legal advice. We cannot assume legal liability for any errors or omissions. Specific advice must be sought before taking any action pursuant to this document.


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