Clarification concerning GST liability and input tax credit (ITC) availability in cases of Warranty/ Extended Warranty, in furtherance to Circular No. 195/07/2023-GST on 17.07.2023 has been issued by the Central Board of Indirect Taxes and Customs (CBIC).
Circular No. 195/07/2023-GST dated 17.07.2023 clarified specific issues concerning GST liability and availability of input tax credit (ITC) for warranty replacement of parts and repair services during the warranty period.
The Board obtained representation from the trade and industry asking for certain clarifications in the pertinent cases. If any defects are found in goods covered by a manufacturer’s warranty during the warranty period, the manufacturer may need to replace parts or the entire product, depending on the extent of the damage or defect.
The circular’s Table in Paragraph 2 addresses the replacement of parts but does not specifically mention the replacement of entire goods. It is clarified that the guidance provided in Paragraph 2 also applies to cases where the entire goods are replaced under warranty.
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The supply of an extended warranty ensures the customers that the goods will operate free of defects during the extended warranty period. If there are any defects due to faulty material or workmanship during manufacture, the manufacturer or a third party will repair or replace the goods.
It is not known at the time of sale whether the goods will require replacement of parts, repair service, or neither during the extended warranty period. Therefore, an extended warranty provides assurance rather than an actual replacement of parts or repairs.
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It has been clarified by the Board that where the supply of the extended warranty is incurred before the original supply of goods or where the supply of extended warranty is needed to be deemed as a separate supply from the original supply of goods.
The extended warranty supply will be considered as a supply of services that differs from the original supply of goods. The supplier of the stated extended warranty will be obligated to release the GST obligation that applies to these services.