2023 (6) TMI 1296 - AAR - GST

GST not applicable on free warranty replacement goods supplied without additional consideration under warranty terms

The AAR held that GST is not leviable on goods supplied as free replacement during warranty period without consideration. The applicant supplied ... Supply without consideration - replacement under warranty/guarantee - taxability of free replacement - value of original supply includes warranty cost - no reversal of input tax credit on warranty replacementReplacement under warranty/guarantee - supply without consideration - taxability of free replacement - value of original supply includes warranty cost - no reversal of input tax credit on warranty replacement - GST liability on goods supplied as free replacement under guarantee/warranty without any consideration. - HELD THAT: - The Authority examined the purchase order warranty clause and the admitted fact that replacement parts are supplied free of charge during the warranty period. The Authority accepted the reasoning that the consideration for such replacements is embedded in the price of the original supply and therefore no separate consideration arises at the time of replacement. Reliance was placed on earlier advance rulings (including the AAR decision cited) and the CBIC sectoral guidance which state that parts provided without consideration under warranty do not attract separate GST and the supplier is not required to reverse input tax credit on parts/components replaced. Applying these conclusions to the facts, the Authority held that replacement made gratuitously under the contractual warranty does not constitute a taxable supply liable to GST. [Paras 13, 14, 15]GST is not leviable on goods supplied as free replacement under the guarantee/warranty period and the supplier need not reverse input tax credit on such warranty replacements.Final Conclusion: The Advance Ruling holds that gratuitous replacements made under the contractual warranty/guarantee are not separately taxable under GST because their cost is subsumed in the original supply; the ruling is binding only within the jurisdiction of the Authority for Advance Ruling, Uttar Pradesh. Issues Involved:1. Tax liability under GST for goods supplied as free replacement under guarantee period without consideration.Analysis:1. The applicant, a manufacturer and supplier of Railways locomotive parts, sought an advance ruling on the tax liability under GST for goods supplied as free replacement under a guarantee period without consideration.2. The applicant highlighted that under the guarantee and free replacement clause, no consideration is chargeable from the buyer for the replaced goods, as the consideration was included in the original supply to Indian Railways.3. The applicant argued that replacement items should be treated as part of the original contract, citing a Tribunal order and the Apex Court's affirmation in a relevant case.4. The Jurisdictional GST Officer provided comments confirming the applicant's registration, manufacturing activities, and applicable GST rates for the goods supplied to Indian Railways.5. The issue was previously addressed in an Advance Ruling in Bengaluru, Karnataka, and the AAR concluded that no GST is chargeable on replacement parts provided without consideration under warranty.6. The Authority for Advance Ruling, Uttar Pradesh, discussed the provisions of the CGST Act and the UPGST Act, emphasizing exceptions to the requirement of consideration for a supply to be treated as a supply under GST.7. The ruling authority examined the warranty clause provided by the South Central Railway and the applicable GST rates for the goods supplied to Indian Railways.8. Referring to Schedule I of the CGST Act, the authority noted that certain activities, including the permanent transfer of business assets and supply between related persons, are treated as supplies even without consideration.9. The authority concluded that no GST is leviable on goods supplied as free replacement under a guarantee period without consideration, aligning with previous rulings and CBIC guidance.Conclusion:The Authority for Advance Ruling, Uttar Pradesh, ruled that GST is not applicable if goods are supplied as free replacement under a guarantee period without any consideration. This ruling is valid within the jurisdiction of the authority, subject to the provisions of the CGST Act, 2017.