QUESTION

Dear Sir, We are manufacturer of Plastic processing Machinery and we supply the same under HSN No. 8477200. The machines are supplied under warranty which starts from the date of invoice. i.e; the scope of installation/commissioning is vested with us and machine is under warranty for the stipulated period. In case of failure of any parts during warranty period, we are bound to replace the parts free of cost. The goods are supplied with warranty and the consideration received as part of supply includes the consideration for “the promise to repair or replace”. Since the parts are provided to a customer without consideration under warranty no GST is chargeable on such replacement (Ref. AAR No. 2018 TaxPub(GST) 0686 (AAR-Ker). Similarly, sometimes during commissioning our engineers found some parts got damaged during transit or left over the factory of supply while loading. The cost of this parts/spare is already covered in the price of Machine. My query is that can we despatch this spare /parts without charging GST as warranty supply. Thanks & Regards, Client

ANSWER

Facts of the case: Manufacturer supplies machines under warranty and the consideration received as part of supply includes the consideration for “the promise to repair or replace”.

Law Applicable: SECTION 7 OF CGST ACT

the expression 'supply' includes''

(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;

(b) import of services for a consideration whether or not in the course or furtherance of business; and

(c) the activities specified in Schedule I, made or agreed to be made without a consideration;


(1A) where certain activities or transactions constitute a supply in accordance with the provisions of sub-section (1), they shall be treated either as supply of goods or supply of services as referred to in Schedule II.

Interpretation: The definition of supply is given in Section-7 of the CGST Act, 2017 that covers only cases where consideration is received. The only exception is cases mentioned in schedule-I. so if there is any case of FOC but covered under Schedule-I then it will attract GST otherwise there will be no GST on FOC supply.

Supply of goods or services under warranty is not said to be without consideration as Lump-Sum amount is charged at the time of main supply. Thus supply of material against warranty will be subject to GST in terms of clause (I) of Schedule ' 1 of CGST Act, 2017 and this is normally taxable according to section 7 of CGST act.
However GST is not applicable as the consideration is already received and the tax applicable to it at the time of transaction is already paid.

Also In case of warranty ITC will be available on the input and input services for the goods supplied against warranty because it is not a free supply.

Since it is covered under definition of supply therefore section 31 will apply and it should be supplied under cover of invoice. The invoice value may be zero or Re 1 if your ERP system does not allow zero value supply.

Please mention on invoice that “Goods dispatched against warranty” against Invoice No. ___ dated ____ (Link it with the original invoice)

Conclusion: You can dispatch goods for warranty without charging GST by raising invoice of zero value mentioning thereon "Goods dispatched against warranty".(Reply dt. 31-12-2019)