GST Charged on Free Replacement Under Warranty Period

There are cases where the original equipment manufacturer offers warranty for the goods supplied by him to the customer and provides replacement of parts and/ or repair services to the customer during the warranty period, without separately charging any consideration at the time of such replacement/ repair services.

Whether GST would be payable on such replacement of parts or supply of repair services, without any consideration from the customer, as part of warranty?

Circular No. 195/07/2023-GST dated 17th July, 2023 provides clarity in this matter:-

The value of original supply of goods (provided along with warranty) by the manufacturer to the customer includes the likely cost of replacement of parts and / or repair services to be incurred during the warranty period, on which tax would have already been paid at the time of original supply of goods.

As such, where the manufacturer provides replacement of parts and/ or repair services to the customer during the warranty period, without separately charging any consideration at the time of such replacement/ repair services, no further GST is chargeable on such replacement of parts and/ or repair service during warranty period.

However, if any additional consideration is charged by the manufacturer from the customer, either for replacement of any part or for any service, then GST will be payable on such supply with respect to such additional consideration.

Example :

Suppose a customer purchases a washing machine for Rs. 15,000. The manufacturer offers a standard warranty on the washing machine, which includes the replacement of parts and repair services during the warranty period. The warranty period is one year.

In this scenario, the value of the original supply of the washing machine (Rs. 15,000) includes the likely cost of replacement parts and repair services that may be incurred during the one-year warranty period. The manufacturer has already paid the applicable GST on the entire value of the washing machine at the time of the original supply.

Now, during the warranty period, let's say a component of the washing machine malfunctions and needs replacement. The manufacturer replaces the faulty part with a new one and provides the repair service to the customer. However, the manufacture does not separately charge any consideration for this replacement or repair service during the warranty period.

As per Circular No. 195/07/2023-GST dated 17th July 2023, in this situation, no further GST is chargeable on the replacement of parts and repair service provided during the warranty period. This is because the GST on these replacement parts and repair services has already been paid at the time of the original supply of the washing machine.

However, if, during the warranty period, the customer requests additional services or replacement of parts beyond what is covered under the standard warranty, and the manufacture charges any additional consideration for these services or parts, then GST will be applicable on the supply of these additional services or parts, with respect to the additional consideration charged.

In summary, GST is not payable on the replacement of parts and repair services provided during the warranty period if no separate consideration is charged for these services, as the tax has already been paid on the original supply of the goods.

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