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Warranties and extended warranties are common in the industry, where manufacturers provide replacements or repairs during the warranty period without charging additional consideration. This practice has often led to disputes and confusion regarding GST implications.

> It is a common trade practice in industry, the original equipment manufacturers /suppliers offer warranty for the goods / services supplied by them. During the warranty period, replacement goods /services are supplied to customers free of charge and as such no separate consideration is charged and received at the time of replacement.

> Unnecessary litigations were arising due to tax notices form GST department on the above said transaction.

> CBIC come up with the Clarification through Circular No. 195/07/2023-GST dated 17.07.2023.

5. limbs of the Circular No. 195/07/2023-GST dated 17.07.2023 further clarified through Circular No. 216/10/2024-GST dated 26.06.2024

1. Original equipment manufacturer or a distributor on behalf of manufacturer offers warranty for the goods supplied by him and provides replacement of parts and repairs services. without consideration.

After 53rd GST council meet, CBIC further clarified in Circular No. 216/10/2024-GST dated 26.06.2024 dated 26.06.2024 replacement of parts may be read as goods or its parts, as the case may be’.

Clarification- No GST liability Except, if separate consideration is charged for the same.

2. Whether manufacturer require to reverse the ITC ?

Clarification- these supplies cannot be considered as exempt supply and accordingly, no need to reverse ITC.

GST liability & reversal of ITC in case of Warranty Extended Warranty

3. Situations wherein the Distributor replaces the part of goods or goods under warranty either by using his stock or by purchasing from a third party and also provide repair services on behalf of manufacturer, charges the consideration for the part(s) so replaced from the manufacturer, by issuance of a tax invoice, for the said supply made by him to the manufacturer.

– Clarification : GST will be payable and manufacturer will entitle for ITC.

– And if goods are replaced by the distributor out of own stock and manufacturer replenish the same afterwards through delivery challan, No GST is liable to paid as well no reversal of ITC by the manufacturer.

4. What if distributor replace the goods out of the supply already received by him from the manufacturer and the manufacturer issues a credit note in respect of the parts so replaced subject to provisions of sub-section (2) of section 34 of the CGST Act.

Clarification- Distributor has to reverse the ITC as Credit note has been issued by the Manufacturer.

5. Extended warranty GST applicability.

> Sometimes companies provide offers of Extended warranty to the customers which can be availed at the time of original supply or just before the expiry of the standard warranty period. Whether GST would be payable in both the cases?

Clarification- If a customer enters in to an agreement of extended warranty with the manufacturer at the time of original supply, then the consideration for such extended warranty becomes part of the value of the composite supply, the principal supply being the supply of goods, and GST would be payable accordingly.

However, in case where a consumer enters into an agreement of extended warranty at any time after the original supply, then the same is a separate contract and GST would be payable by the service provider, whether manufacturer or the distributor or any third party, depending on the nature of the contract (i.e. whether the extended warranty is only for goods or for services or for composite supply involving goods and services)

Conclusion: Understanding GST implications on warranty and extended warranty services is crucial for manufacturers and distributors to avoid unnecessary tax liabilities and comply with regulations. With clear guidelines from CBIC, businesses can navigate warranty transactions effectively, ensuring compliance and optimal use of Input Tax Credits (ITC).


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July 2024