GST on Component replacement

[Kaustubh Karandikar]

XYZ (Maharashtra) received an order for repairs of an equipment from PQR(Chennai). The technician of XYZ is taking different components at the place of PQR and depending on the requirement, one of the components might be used in the equipment as replacement during repairing. The other components which are not used / replaced during repairs are taken back to the premises of XYZ. Can XYZ initially send all the components at the premises of PQR without charging GST and to the extent of component, which is replaced, will issue a Tax Invoice to PQR? Or any other correct method to be followed?

[KASTURI SETHI]

Q. Can XYZ initially send all the components at the premises of PQR without charging GST and to the extent of component, which is replaced, will issue a Tax Invoice to PQR? Or any other correct method to be followed ?

Ans. Yes. Initially, XYZ can send all the components at the premises of PQR without charging GST. For more clarification, pl. go through Board's circular no.10/10/2017-GST, dated 18-10-2017 

 

[Kaustubh Karandikar]

Yes Kasturi sir, i also thought of taking shelter of this circular. However, in this circular if you observe the example given of jewellary, the intention of the authorities seems to be to allow such transaction where there is a sale involved. In the given case, the objective is to repair the equipment and replacement of the component is incidental. Can the department object on this ground?

[KASTURI SETHI]

Dear Sir,

In my view, the scenario explained in the query, is covered by the Board's circular. Moreover, in case you are not satisfied with the circular, Rule 55 (4) of CGST Rules clearly covers the scenario. Delivery challan is meant for such purposes.

 

[Shilpi Jain]

Yes agree this is a case of no supply and can be done on a DC. Or even done as a sale on approval basis and once incorporated can be onsidered as approved sale and invoiced. The remaining can be again sent on DC

[ABHISHEK TRIPATHI]

Dear Kaustubh Sir,

Both the experts are right. Just a little elaboration:

The activity of sending/taking goods (except Sch I) do not constitute supply as the said activity does not fall within the scope of section 7 of the CGST Act as there is no consideration at that point in time. Since such activity is not a supply it cannot be taxable.

Relevant provision – S. 31(7) and R. 55

The above inference is drawn from the department circular for ‘sale on approval basis’ (export cases).

AI Summary

No supply - sending repair components is not taxable until a component is incorporated and invoiced.
Dispatching components to a customer for repair, without charging GST, is not a taxable supply while no consideration has arisen; only when a component is actually incorporated into the equipment should a tax invoice be issued for that replaced part. Delivery challans should document outward movement and return of unused components, and the transaction may be operated on a sale-on-approval basis so that invoicing is limited to accepted components.