Volvo truck dealer's warranty services reimbursed by Sweden parent company ruled domestic supply, not export eligible for zero-rating under IGST

AAR Karnataka ruled that an applicant selling Volvo branded trucks and providing warranty services to customers, with reimbursement from Volvo Sweden through credit notes, constitutes a domestic supply transaction rather than export of services. The authority held that the applicant supplies composite goods and services to customers within India, with Volvo Sweden merely paying consideration on behalf of customers. Since Volvo Sweden is not the recipient of services but only the payor, the transaction does not qualify as export of services and therefore is not zero-rated supply under IGST Act.

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Issues Involved:
1. Whether the supplies made by the Applicant to Volvo Sweden constitute a supply of services.
2. Whether the supplies by the Applicant amount to export of services to Volvo Sweden and are hence zero-rated under GST law.

Issue-wise Detailed Analysis:

1. Supply of Services:
- The Applicant, a joint venture between the Volvo Group and Eicher Motors Limited, is involved in selling Volvo branded trucks and buses in India and providing after-sale support services, including warranty services.
- The Applicant sells products with a standard warranty of 1 to 2 years, included in the sale price, and is responsible for servicing warranty claims in India on behalf of Volvo Sweden.
- The Applicant processes warranty claims, performs necessary repairs or replacements, and invoices Volvo Sweden for reimbursement.
- The Applicant argues that the transaction is a composite supply of services, with the principal supply being the warranty service, and the supply of replacement parts being ancillary.

2. Export of Services and Zero-Rating:
- The Applicant contends that the transaction qualifies as an export of services under Section 2(6) of the IGST Act, 2017, which defines export of services based on five conditions:
1. Supplier located in India.
2. Recipient located outside India.
3. Place of supply outside India.
4. Payment received in convertible foreign exchange.
5. Supplier and recipient are distinct entities.
- The Applicant asserts that all these conditions are satisfied, making the transaction zero-rated under Section 16(1) of the IGST Act.

Findings and Discussion:
- The Authority examined the transaction and found that:
- The Applicant sells products inclusive of a standard warranty, which constitutes a supply of goods.
- Warranty services are provided to customers on behalf of Volvo Sweden, with reimbursement from Volvo Sweden.
- The customer interacts only with the Applicant for warranty claims, not with Volvo Sweden.
- The Applicant performs repairs or replacements and invoices Volvo Sweden for reimbursement.
- The transaction involves a supply of goods or services to customers, with the consideration paid by Volvo Sweden.
- The Authority concluded that the transaction is a composite supply of goods and services to customers within India, not an export of services.

Ruling:
1. The Applicant is providing a composite supply of goods and services to customers, with the principal supply depending on the nature of each case.
2. The transaction is an intra-State or inter-State transaction, not an export transaction.
3. Since the transaction is not an export of services, it is not a "Zero-rated Supply" under the IGST Act.

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