FOC warranty

[Suresh Ramu]

Dear all Pl clarify about FOC Warranty would attract VAT/CST.

[Ganeshan Kalyani]

Warranty is service and not sale. Vat is on sale consideration and thus warranty should not be taxed under Vat / Cst.

[KASTURI SETHI]

Rightly explained by Sh.Ganeshan Kalyani Ji.

[YAGAY and SUN]

Dear Suresh,

If under warranty, any inputs, components, raw material or accessories are being replaced then Input Tax Credit so availed, needs to be reversed provided if there is no consideration is involved or no Output VAT is being paid. It is a settled Legal Position under the State Specific VAT laws.

Regards,

YAGAY and SUN

(Management, Business and Indirect Tax Consultants)

[DR.MARIAPPAN GOVINDARAJAN]

If warranty is a service whether the provisions of service tax will attract?

[Ganeshan Kalyani]

Warranty is like insurance I.e. if any thing happens during the warranty period then the service will be rendered. Hence service tax provision is certainly applicable.

[Vivek anandhan]

Dear all : We are not going to collect service charges for service provided during warranty period then how Service Tax will attract.

[KASTURI SETHI]

Dear Sh.Suresh Ramu Ji,

As per dictionary meaning, warranty is a written guarantee, issued to the purchaser of an article by its manufacturer, promising to repair or replace it if necessary within a specified period of time. What I have experienced and observed that warranty is never FOC selling price includes the cost of repair or replacing any party during the warranty period. It appears FOC to the purchaser but de fecto the manufacturer recovers the cost of warranty (provided for a stipulated period) through dealer while fixing the wholesale/retail sale price of the product. So FOC warranty is an eye wash. It also depends upon the terms and conditions of the contract executed between the manufacturer and the dealer. During my service, I have detected such cases of non-payment of Service Tax and recovered the amount not paid. Hence Sh.Ganeshan Kalyani is absolutely right on this issue. There is no doubt that repair of any goods is taxable service in the form of warranty.

[DR.MARIAPPAN GOVINDARAJAN]

Very elaborative discussions. Thank you to every one.

AI Summary

Warranty as service: warranty repairs attract service tax while VAT/CST applies only to sale consideration.
FOC warranty repairs and replacements are treated as warranty services, not sales; VAT/CST applies to sale consideration and thus does not tax a warranty provided without separate consideration. If parts or inputs are replaced under warranty, any input tax credit claimed must be reversed where no output VAT is charged. Warranty services resemble insurance-like services and can attract service tax even if no separate charge is collected; contractual terms and embedded pricing affect tax treatment.