Free warranty replacements.

[Guest]

1.Reversal of ITC inrespect of supply of repair services or defective parts under warranty period at free of cost?

2.As per FAQ'S issued by the CBIC, there is no need to reverse ITC if the value for such services or replacement of defective parts includes in initial sale of product?

3.But under Section 31(3)d, the receipt voucher has to be issued separately if payment is received for future supply of goods or services?

4.Suppose, the consideration for supply of warranty services is included in the initial sale of the product but in future, situation is not raised for any supply of warranty services.In such a case, what we have to do?

Kindly enlighten me on above issues.

[Ganeshan Kalyani]

Goods and services are supplied free during warranty period if they are included in the agreement or arrangement. Otherwise, goods is supplied free but service charge is charged. In a scenario where both goods and services are given free (warranty charges are including in the sale price) then there is no GST on the supply part. And input tax credit is also not required to be reversed.

[Guest]

Sir, suppose the consideration is included in the initial sale of the product and on the same the GST amount is discharged.But , in future, the supplier not provided any warranty services then how to deal with same?

[Mahadev R]

I agree with the view of expert. Even if warranty not supplied, there is no impact under GST. There would be cases wherein warranty charges incurred would be more than estimated and vice versa. This cannot change the GST impact when original arrangement for sale is inclusive of free warranty supplies

[Ganeshan Kalyani]

Warranty is a compensation to any damage that happens after sales has happened. It is probable. Hence, even if there is no occurence of such occasion, the GST already paid on original sales which is inclusive of warranty charges does not have any affect. The tax paid stands paid. No reversal or any other adjustment is required.

[Guest]

Sir, can anyone discuss on point 3?

i.e; if any payment received in advance, we have to issue a receipt voucher under section 31(3)d. But in present case we are included in the tax invoice only and there is any provision for supporting the same under the act?

AI Summary

GST treatment of warranty inclusions: no ITC reversal when free warranty supplies are included and taxed in the original sale. Where warranty supplies are contractually included and taxed in the initial sale, subsequent free replacements or repair services during the warranty period are treated as part of the original supply; no additional GST arises and no reversal of input tax credit is required. If consideration for warranty is reflected and taxed in the original tax invoice, contributors view that separate advance receipt documentation under section 31(3)(d) was not applied in the forum and the absence of an actual warranty event does not require adjustment of tax already paid on the inclusive sale.