2020 (8) TMI 522 - AAAR - GST

Volvo distributor's warranty services supplied to customers not manufacturer despite Sweden reimbursement under Section 97(2)

In Re: M/s. Volvo-Eicher Commercial Vehicles Ltd.,

The Karnataka AAAR upheld the AAR's decision regarding warranty services provided by a Volvo truck distributor. The appellant's 19-day filing delay was ... Classification of supply - supply of goods or supply of services - export of services or not - zero rated supply or not - appellant are in the business of selling Volvo branded trucks and thereafter providing after sales support services, including warranty services - condonation of delay of 19 days in filing the present appeal - HELD THAT:- The Appellant has stated that the delay had occurred due to the reason that the concerned authorised personnel of the Company were engaged in the Statutory Audit under the Companies Act 2013 and hence were unable to provide the documentation required for filing the appeal within the due date. Considering the averments made by the Appellant, we are of the view that the delay caused in filing the appeal has been sufficiently explained. The delay in filing the appeal is hereby condoned in exercise of the power vested in terms of the proviso to Section 100(2) of the CGST Act. Whether the activities performed by the Appellant with regard to repair and servicing of Volvo vehicles for Indian customers during the warranty period is an activity amounting to a supply of service for Volvo Sweden and consequently whether the same is a zero-rated supply? - HELD THAT:- The question is not whether the activity of repair and replacement of parts done during the warranty period amounts to a supply of service or not. The fact that there is a supply of service in the repairs and replacement of parts during the warranty period, has been admitted by the Appellant. The point that is under dispute is who is the recipient of the service provided by the Appellant during the warranty period? Whether the recipient is the customer who approaches the Appellant with a warranty claim, as held by the lower Authority, or whether the recipient of service is Volvo Sweden who reimburses the cost of parts and service provided in the warranty period? The customers who purchase the Volvo vehicle are entitled to free of charge pre-delivery inspection and free of cost replacement and repairs during the warranty period. Post warranty period, the service of repair and maintenance of the vehicles are on chargeable basis which the customer will pay. In the case of a repair and replacement of a part during the warranty period, it has been undertaken by Volvo Group, as part of its International warranty terms, that the cost of the part and the cost of the service involved in fixing the part is reimbursed to the Distributor. It is an established trade practice that during the warranty period, the manufacturer is obliged to provide the repair and maintenance of the machinery, equipments, vehicles, etc. A warranty is a commitment given by the manufacturer to provide repair, service, replacement, or refund of a product for a certain time period subject to certain conditions. It is also well settled that the cost of repairs and services during warranty period are a part of the cost of the products - In the instant case, the Volvo vehicle which is sold by the Distributor -Appellant is covered by the International Warranty given by the manufacturer Volvo Sweden. When the customer approaches the Distributor from who he has purchased the Volvo vehicle, about a complaint or defect during the warranty period, it is the obligation of the manufacturer to provide the repair of the vehicle and/or replacement of parts. Once it is agreed upon that there is a valid warranty claim by the customer, the manufacturer authorises the Distributor to carry out the repairs and/or replacement of parts and reimburses the cost of the repairs and parts to the Distributor. What is obligatory on the part of the manufacturer is done by the Distributor and for this the Distributor receives a reimbursement of costs. The recipients of the service supplied by the Appellant during the warranty period, will be the manufacturer Volvo Sweden as it is at their behest that the Appellant has undertaken the activity of repair and/or replacement of parts to the customer during the warranty period. The reimbursement received from Volvo Sweden is in the nature of consideration paid by the manufacturer to the Distributor-Appellant for carrying out the service during the warranty period, which activity was part of the obligations of Volvo Sweden - the findings of the lower Authority that the recipient of service is the customer is upheld. Whether the supply of service to Volvo Sweden is a zero-rated supply as provided under Section 16 of the said Act in as much as it amounts to export of services? - HELD THAT:- One of the important requirements for supply of any service to be treated as `export of service’ is that the place of supply of service is outside India. Thus, determination of ‘place of supply’ of service by the appellant is a must before concluding whether a supply of service is an export or not - It is evident that determination of place of supply is not a question on which an advance ruling can be sought. The Authority for Advance Ruling and the Appellate Authority for Advance Ruling have both been constituted in exercise of the powers conferred by section 96 and 100 of the Karnataka Goods and Services Tax Act, 2017, which Act extends to the whole of the state of Karnataka. The AAR and the AAAR are creatures of the statute and have to function within the legal boundary mandated by the Act. As the ‘place of supply’ is not covered by Section 97(2) of the Acts, we refrain from answering this question of the Appellant with regard to ‘export of service’ on the grounds of lack of jurisdiction. Decision of AAR upheld. Issues Involved:1. Whether the supplies made by the Appellant to M/s Volvo Sweden constitute a supply of services.2. Whether the supplies by the Appellant amount to export of services to M/s Volvo Sweden and hence zero-rated under GST law.Issue-Wise Detailed Analysis:1. Supply of Services:The Appellant, a joint venture between Volvo Group and Eicher Motors Limited, sells Volvo branded trucks and provides after-sales support, including warranty services. The Appellant sought an advance ruling on whether their activities related to warranty services for Volvo vehicles in India constitute a supply of services to M/s Volvo Sweden.The Authority for Advance Ruling (AAR) initially held that the Appellant provides a composite supply of goods and services to customers, where the principal supply varies case by case. The AAR concluded that the transaction is either intra-State or inter-State but not an export transaction, and thus, not zero-rated under GST law.The Appellant argued that the lower Authority misunderstood the definition of 'consideration' under Section 2(31) of the CGST Act. They contended that the reimbursement from M/s Volvo Sweden is not consideration for the transaction between the Appellant and the customer, but rather a separate transaction between the Appellant and M/s Volvo Sweden. The Appellant maintained that the warranty services are provided to Volvo Sweden, not the customers, and cited the case of Blue Star Ltd Vs Commissioner of Service Tax, Mumbai to support their position.Upon review, the Appellate Authority agreed with the Appellant, stating that the recipient of the service is Volvo Sweden, as the reimbursement for warranty services is paid by Volvo Sweden. The Authority concluded that the supply by the Appellant to Volvo Sweden is a composite supply of goods and services, with the principal supply being a supply of service.2. Export of Services:The Appellant also sought a ruling on whether the supply of services to Volvo Sweden qualifies as an export of services, thus making it zero-rated under GST law. The definition of 'export of services' under Section 2(6) of the IGST Act requires that the place of supply of service be outside India.The Appellate Authority noted that determining the place of supply is not within the jurisdiction of the Authority for Advance Ruling or the Appellate Authority, as per Section 97(2) of the CGST/KGST Act. Consequently, the Authority refrained from answering whether the supply of services to Volvo Sweden amounts to export of services due to lack of jurisdiction.Conclusion:The Appellate Authority set aside the Ruling No. KAR ADRG 32/2019 dated 12/09/2019 by the Advance Ruling Authority and concluded:a) The activities performed by the Appellant regarding repair and servicing of Volvo vehicles for Indian customers during the warranty period constitute a composite supply of goods and services for Volvo Sweden, with the principal supply being a supply of service. The recipient of the supply of service is Volvo Sweden.b) The Authority refrained from answering whether the supply of services to Volvo Sweden amounts to export of services due to lack of jurisdiction.The appeal filed by M/s Volvo-Eicher Commercial Vehicles Ltd was disposed of accordingly.