QUESTION

What is the procedure for supply of spare free of cost under warranty period for goods exported. They manufacture Machinery and Export under warranty. Parts are covered under warranty. In case, if wanted to replace any defective parts on free of cost and to bring back the defective parts, what would be the procedure in such case.

ANSWER

Facts of the Case: Procedure for supply of spare free of cost under warranty period for goods exported and also for replacement of any defective parts on free of cost and to bring back the defective parts.

Reply: In GST components and spares can be supplied under warranty free of cost.
There is no need to reverse ITC under Section 17 of CGST Act because it is not free of cost. The consideration taken against the original supply includes consideration of free spares also.

You have to issue a GST invoice mentioning about original supply.
EWB is applicable as in normal course.
Since it is export without any additional charge (consideration) so you will not get any additional drawback or MEIS on this warranty portion but this will be included in material consumption if some import is made against Advance Authorisation.

After export, there are two possibilities, both are discussed as follow

Case 1--The damaged spare is returned to you, if yes then no need to pay import duty on it because it is returning (against export) of the spare component.
Case 2--The damaged spare is not returned back because of the high cost of freight and it is sold as scrap by the customer, if yes then you need not do anything, the customer will pay tax on it as per the law of his country.
(Reply dt. 16/06/2021)