Clarification in respect of GST liability and input tax credit (ITC) availability in cases involving Warranty/ Extended Warranty, in furtherance to Circular No. 195/07/2023-GST dated 17.07.2023

Circular No.: 216/10/2024-GST
Date of Circular: 26th June 2024
Relevant Sections and Rules from GST Law:

• CGST Act, 2017:
  • Section 7: Definition of supply
  • Section 9: Levy of tax
  • Section 15: Value of supply
  • Section 168(1): Power to issue instructions
• Schedule I, CGST Act: Entry 2 – Supply between related persons
• Section 31(3)(f): Self-invoicing under reverse charge
• Rules Referenced: Rule 28, Rule 32(4) (valuation), Rule 42 & Rule 43 (ITC reversal)

Summary of Clarifications Provided:

1. Warranty – Full Goods Replacement Also Covered (Not Just Parts):
   The earlier Circular No. 195/07/2023-GST clarified GST treatment for parts replaced under warranty. This circular now extends that clarification to entire goods. So, if a manufacturer replaces goods as such under warranty:

• No GST is payable, and
• No ITC reversal is required, provided the replacement is part of the warranty obligation built into the original supply.

2. Distributor Replaces Goods/Parts from Own Stock and Gets Replenishment:
   If a distributor replaces goods or parts from his own stock under warranty (on behalf of the manufacturer), and the manufacturer replenishes them via delivery challan without charging:

• No GST is payable on the replenishment to the distributor, and
• The manufacturer need not reverse ITC on the replenished goods/parts.
  This mirrors earlier treatment under Point 4(b) of Circular 195 and now explicitly includes full goods, not just parts.

3. Extended Warranty Supplied by Party Different from Goods Supplier at Time of Original Supply:
   Where extended warranty is sold at the time of original goods supply, but by a different entity (e.g., OEM instead of dealer):

• It shall be treated as a separate supply, not part of composite supply.
• GST applies separately as service from the supplier of the extended warranty.

4. Extended Warranty Sold After Original Supply – Always Treated as Service:
   If the extended warranty is sold after the original goods supply, regardless of who sells it:

• It is not part of original supply.
• It is treated as a separate supply of service and taxed accordingly.

5. Nature of Extended Warranty – Always an Assurance, Not Supply of Goods/Repairs:
   The warranty provides assurance that goods will remain defect-free during the coverage period, not actual supply of repair or parts at the time of agreement. Hence, extended warranty is always a service, whether repair or replacement occurs later or not.

Updated Table Entry in Circular 195:

• If extended warranty is sold by same person at time of original sale: it’s a composite supply with goods.
• If sold by another person or sold after original sale: it’s a separate supply of service.

Source: Circular No.: 216/10/2024-GST