Summary of Circular No-216/10/2024-GST

The clarification regarding GST liability and ITC availability in cases involving warranty and extended warranty, further explained in Circular No. 195/07/2023-GST dated 17.07.2023, is summarized below:

1. GST Liability and ITC on Warranty Replacement of Parts/Goods

a. Replacement of Parts under Warranty:

  • No Additional Charge: When the manufacturer provides replacement parts and repair services under warranty without any extra charge, no additional GST is payable since the initial supply included the cost of potential replacements and repairs​​.
  • With Additional Charge: If any additional consideration is charged for the replacement parts or services, GST is payable on that amount​​.
  • No ITC Reversal: The manufacturer does not need to reverse ITC for parts replaced under warranty without additional charge​​.

b. Replacement of Goods under Warranty:

  • The same principles as above apply to the replacement of goods, i.e., no additional GST if no extra charge is levied, and no ITC reversal is required if the replacement is covered in the initial warranty​​.

2. Distributors Replacing Parts/Goods

a. Distributor Replaces Parts/Goods on Behalf of Manufacturer:

  • Without Additional Charge: No GST is payable by the distributor when parts or goods are replaced under warranty without additional charge to the customer​​.
  • With Additional Charge: GST is payable if any additional charge is made by the distributor for the replacement parts or services​​.
  • Replenishment by Manufacturer: If the manufacturer replenishes the distributor for the replaced parts/goods via delivery challan without separate consideration, no GST is payable on such replenishment, and no ITC reversal is required by the manufacturer​​.

3. Extended Warranty

a. Nature of Supply:

  • At the Time of Original Supply:
    • If the extended warranty is offered by the same supplier at the time of the original supply, it is treated as a composite supply, with the principal supply being the goods, and GST is payable accordingly​​.
    • If the extended warranty is offered by a different supplier, it is treated as a separate supply of services and is taxable accordingly​​.

b. After the Original Supply:

  • When extended warranty is sold after the original supply, it is treated as a separate supply of services, and GST is applicable based on the nature of the contract (goods, services, or composite supply)​​.

Conclusion

The circular ensures uniformity in GST treatment across various scenarios involving warranty and extended warranty, emphasizing the conditions under which GST is payable and when ITC reversal is necessary.