CBIC Clarification On GST Liability & ITC Availability On Warranty/Extended Warranty

The Central Board of Indirect Taxes and Customs (CBIC) has issued the 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. 195/07/2023-GST dated 17.07.2023 clarified certain issues regarding GST liability and availability of input tax credit (ITC) in respect of warranty replacement of parts and repair services during warranty period.

The Board has received the representations from trade and industry requesting for some clarifications in related matters.

In cases where warranty is provided by the manufacturer/suppliers to the customers in respect of any goods, and if any defect is detected in the said goods during the warranty period, the manufacturer may be required to replace either one or more parts or the goods as such, depending upon the extent of damage/ defect noticed in the said goods. However, Table in Para 2 of the circular only clarifies in respect of the situations involving replacement of part/ parts and does not specifically refer to the situation involving replacement of goods as such. It is clarified that the clarification provided in Para 2 of the circular is also applicable in case where the goods as such are replaced under warranty.

Supply of extended warranty is an assurance to the customers by the manufacturer/ third party that the goods will operate free of defects during the extended warranty coverage period, and in case of any defect attributable to faulty material or workmanship at the time of manufacture, the same will be repaired/ replaced by the said manufacturer/ third party. Further, whether the goods will later on require replacement of parts or just repair service or neither during the said extended warranty period, is also not known at the time of sale/supply of extended warranty. Thus, extended warranty is in the nature of conveying an “assurance” and not an actual replacement of part or repairs.

The Board has clarified that where supply of extended warranty is made subsequent to the original supply of goods, or where supply of extended warranty is to be treated as a separate supply from the original supply of goods. The supply of extended warranty shall be treated as a supply of services distinct from the original supply of goods, and the supplier of the said extended warranty shall be liable to discharge GST liability applicable on such supply of services.

Circular No. 216/10/2024-GST

Date: 26/06/2024

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