Excise duty on under Warranty replacement

[Dhananjay Kadam]

We are the manufacturer of SPM's, we provide warranty for 1 yr against supply of goods to customer, whereas warranty supply is considered / value added in transaction value of original supply of machine.

Now, if part gets failed during warranty of Machine & need to replace free of Cost. whether Excise duty is payable on the free replacement ? which cost is included in the transaction value of original supply of Machine.

Experts comments !

[Mehul Pandya]

I am assuming that the part (that is damaged can be repairable), If the damaged goods bought into the factory ,assuming that duty has been paid at the time of removal,for remade, reconditioned or for any other reason(repair) then you are entitled to claim such Cenvat Cr which have been paid by you at the time of removal, as under excise such credit can be availed on the basis of your self invoicing. 2. Assessee is liable to levy "Amount equal to Cenvat Credit taken" at the time of removal of such good.(In invoice on re-removal of such repaired good, you should mention on your invoice "Amount payable in terms of second part of Rule 16(2) of CER,2002" instead of "ED payable") 3. Due to emergence , fresh good is given to the buyer then, on such good ED is to be levied.

Read more at: http://www.caclubindia.com/forum/free-replacement-272859.asp

[PARTHASARATHY V]

Normally the machine cost may include the warranty parts cost also in built with the price from 2% to 5%. This parts of the warranty re-placement can be cleared free of cost with Nil ED provided you have to refer the OEM Invoice No and if the machine is having any serial Number.

But also pl ensure that the Free Part for warranty may not exceed @2%. In addition to this, you please keep the Costing of the machine ready with you, in case if the department ask the warranty cost inclusion details in the OEM

AI Summary

Excise duty on warranty replacements: cenvat credit reversal on re-removal and duty when fresh parts are supplied.
If defective parts are returned and duty was paid at removal, the manufacturer may claim Cenvat credit by self-invoicing for repair/reconditioning; on re-removal the assessee must disclose and levy an amount equal to the Cenvat credit taken in accordance with Rule 16(2) compliance rather than label it simply as excise duty. If a fresh new part is supplied under warranty, excise duty is leviable on that fresh good. Manufacturers may alternatively clear small-value warranty parts free with nil duty by referencing the OEM invoice and serial number and retaining costing records.