GST on FOC Supply

[Kaustubh Karandikar]

XYZ(Manufacturer) supplying goods to customers on payment of GST. Subsequently, goods are supplied on FOC basis, 1) During warranty period if found defective or damaged or 2) After warranty period if found defective, damaged or short supplied. a) Whether XYZ is required to pay GST on goods supplied on FOC basis under both the situations i.e. before and after warranty period? b) How to arrive at the value for FOC supply c) Whether proportionate ITC is required to be reversed if GST is not required to be paid on FOC supply?

[KASTURI SETHI]

Dear Sir,

The following case law is relevant for your query:-

2018 (18) G.S.T.L. 834 (A.A.R. - GST) = 2018 (11) TMI 282 - AUTHORITY FOR ADVANCE RULINGS, KERALAIN RE : SARASWATHI METAL WORKS

[Kaustubh Karandikar]

Respected Shri Sethi,

Thanks for your valued guidance. Further as per FAQ No. 20 issued by CBIC on IT / ITES, it endorses your views which is reproduced below:

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.

[Ganeshan Kalyani]

The replacement of parts during warranty period is a free supply. Warranty is a written guarantee, issued to the purchaser of goods by its manufacturer, promising to repair or replace it if necessary within a specified period of time. If the goods are supplied with warranty, the consideration received as part of supply includes the consideration for “the promise to repair or replace”. Since the parts are provided to a customer without consideration under warranty no GST is chargeable on such replacement.

AI Summary

GST on warranty replacements: parts supplied under warranty are not taxable and do not require input tax credit reversal. Parts or goods provided without consideration under an express warranty are treated as free supply arising from the warranty promise and are not subject to GST; the original supply's consideration is understood to include warranty-related repairs or replacements, and therefore the supplier need not reverse input tax credit on parts/components replaced under warranty.