CBIC Clarifies GST Liability and ITC for Warranty/ Extended Warranty Cases

The Ministry of Finance released Circular No. 216/10/2024-GST. This circular provides further clarification on GST liability and input tax credit (ITC) availability for warranty and extended warranty scenarios. It continues the explanations from Circular No. 195/07/2023-GST dated 17th July 2023.

Key Points and Clarifications:

1. Replacement of Goods Under Warranty:
   • The previous circular (No. 195/07/2023-GST) addressed GST liability and ITC reversal for part replacements under warranty. This new circular extends those clarifications to situations where entire goods are replaced under warranty.
   • Replace references to “part(s)” in the earlier circular with “goods or its parts, as the case may be.”
2. Distributor Replacement Scenarios:
   • The circular clarifies GST liability and ITC reversal when a distributor replaces goods or parts from their stock under warranty on behalf of the manufacturer and later gets replenishment from the manufacturer.
   • No GST is payable on such replenishment of goods or parts. Manufacturers do not need to reverse ITC for the replenished items.
3. Extended Warranty Supplies:
   • Treat a different supplier’s extended warranty sold at the time of the original supply of goods as a separate supply, not part of a composite supply.
   • Treat extended warranty sold after the original supply of goods as a separate supply of services. This applies regardless of whether it involves goods or services or a composite of both.

Detailed Breakdown:

Replacement Under Warranty:

• If the manufacturer replaces the entire product under warranty, the GST treatment remains the same as for part replacements. This ensures consistency and uniform application of the law across various scenarios.

Distributor Handling:

• Distributors replacing goods from their stock and getting those goods replenished by the manufacturer will not face additional GST or ITC reversal challenges. This clarification simplifies the process and ensures that distributors can provide prompt service without additional tax burdens.

Extended Warranty Clarifications:

• The circular distinguishes scenarios where the original supply of goods includes an extended warranty and where it is sold separately. It emphasizes treating extended warranties sold separately, whether at the time of the original sale or afterward, as a distinct supply of services, thereby attracting GST as applicable to services.

Conclusion

The Board clarified that when the supplier provides the extended warranty before the original supply of goods or considers it separate from the original supply of goods.

Consider the extended warranty supply as a service distinct from the original supply of goods. The supplier of the extended warranty must fulfill the GST obligation applicable to these services.

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This article is only a knowledge-sharing initiative and is based on the Relevant Provisions as applicable and as per the information existing at the time of the preparation. In no event, RMPS & Co. or the Author or any other persons be liable for any direct and indirect result from this Article or any inadvertent omission of the provisions, update, etc if any.

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