Query on Procedure of warranty replacement of Goods Under GST & Purchase Return Procedure

[NS tawar]

Dear All

My Query as follows -

1 What is the procedure to be followed for warrantyreplacement of goods. whether we should issue FOC tax Invoce or we may send goods on delivery challan.

2 On what document our recepient will send back the goods for warranty replacement.

3- whether Purchase return can be done on debit note prescribed under GST. if no pls prescribe procedure of purchase return.

[Rajagopalan Ranganathan]

Sir,

1. Under GAT Act, levy of tax is on supply. According to Section 7 (1) (a) of CGST Act, 2017 "the expression “supply” includes all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business." Since exchange of goods is also included in the definition of supply, supply of a new component or part in lieu of non-functional or damaged goods will be treated as exchange (free of cost) and the same is liable to gst.

2. You have to issue a regular taxable invoice for the said supply and have to pay the appropriate gst on such supply.

3. if the person who returns the goods as purchase return is a registered person under GST Act he has to return the goods under regular taxable invoice on payment of appropriate gst. According to Section 34 (3) of CGST Act, 2017 "where a tax invoice has been issued for supply of any goods or services or both and the taxable value or tax charged in that tax invoice is found to be less than the taxable value or tax payable in respect of such supply, the registered person, who has supplied such goods or services or both, shall issue to the recipient a debit note containing such particulars as may be prescribed under rule 53 of CGST Rules, 2017. Therefore purchase return cannot be done on debit note.

If the person who make purchase return is an individual or who is not procuring such supply in the course of or furtherance of business no procedure is available at present. Since the individual will be unregistered he cannot return the goods under the cover of taxable invoice.

 

[DR.MARIAPPAN GOVINDARAJAN]

The reply given by Shri Ranganathan is superb.

[KASTURI SETHI]

Yes, Sir. Sh.Ranganathan Sir has worked hard. He has saved time of so many visitors of this site. Such comprehensive reply is really appreciable.

[Himansu Sekhar]

1. The warranty replacement is not subject to gst as no consideration is involved. Board has clarified it. No need to reverse the credit also. I think delivery challah is sufficient or a separate set of invoice can be issued.

2. The recipient need not issue any invoice as it is not a supply , delivery challah is sufficient

[KASTURI SETHI]

Under the warranty period , goods are repaired and not exchanged. The product is exchanged only under guarantee and now-a-days no company gives guarantee, only warranty is given. The reason behind this is the co.does not want to replace the complete product.So only defective part is replaced. If the cost of warranty is already included in the transactional cost, then GST cannot be charged again. Normally cost of warranty whether in the for m of repair or replacement of part or component is not included in the transactional cost. We cannot foresee such expenses to be incurred in future.

Each and every situation is different. One cannot provide free service in the guise of repair or replacement of part. So I am of the view that Sh.Ranganathan' s reply is perfect.

[NS tawar]

Himansu Sekhar Ji

Will share the clarification given by board . Further pls explain the procedure of delivery challan in case of purchase Return

[Himansu Sekhar]

FAQ released on it/its by Board. Hope it will solve your query.

Question 20: What would be the tax liability on replacement of parts (no consideration is charged from a customer) under a warranty and whether the supplier is required to reverse the input tax credit?

Answer: As parts are provided to the customer without a consideration under warranty, no GST is chargeable on such replacement. The value of supply made earlier includes the charges to be incurred during the warranty period. Therefore, the supplier who has undertaken the warranty replacement is not required to reverse the input tax credit on the parts/components replaced.

[Himansu Sekhar]

I am working on q. 3. I am also puzzled with this question since last seven days. If the invoice is issued, it will increase the turnover. Also sec. Does not provide for a debit note. The credit note procedure given which has to be issued by supplier. I shall revert back.

[Ganeshan Kalyani]

The sale is to an unregistered customer. Delivery challan is a document mentioned to be used for the purpose other than supply.

[KASTURI SETHI]

Dear Querist,

Go deep into the FAQ quoted by Sh.Himansu Sekhar Ji, There is substance in Sh.Himansu Sekhar's reply dated 7.9.17 posting the relevant FAQ . It is worthwhile to note the wording," The value of supply made earlier includes the charges to be incurred during the
warranty period"

If GST has been already paid on the cost of warranty by way of including the same in the transaction cost (value of supply), no need to pay again.

[Ganeshan Kalyani]

I too agree with the expert expressing that if the cost of warranty was inbuilt in the cost of product for sale then it means tax has already been paid. then in future if repair happens and material is sent free for replacement GST should not be charged again on the price of the material.

[Guest]

Dear Expert

What is the document required under GST to return the warranty failed part to the supplier.

K.Subbiyah

AI Summary

Clarification on GST: Use Delivery Challan for Warranty Replacements; Regular Invoices Needed for Registered Purchase Returns. A user inquired about the procedures for warranty replacement of goods and purchase return under the GST framework. The primary concerns were whether to issue a free-of-cost tax invoice or use a delivery challan, and the correct documentation for recipients returning goods. Responses highlighted that warranty replacements, provided without consideration, are not subject to GST, as clarified by the Board. It was suggested that a delivery challan suffices for such transactions. The discussion also touched on the inapplicability of debit notes for purchase returns under GST, emphasizing the need for regular taxable invoices if the returner is registered.