Whether in such cases, the manufacturer is required to reverse the input tax credit in respect of such replacement of parts or supply of repair services as part of warranty, in respect of which no additional consideration is charged from the customer?

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

In such cases, 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. Therefore, these supplies cannot be considered as exempt supply and accordingly, the manufacturer, who provides replacement of parts and/ or repair services to the customer during the warranty period, is not required to reverse the input tax credit in respect of the said replacement parts or on the repair services provided.

Interpretation of circular:-

1. The Value of Original Supply:

When a manufacturer sells a product to a customer along with a warranty, the value of the original supply of goods includes not only the physical product but also the likely cost of replacement parts and/or repair services that may be incurred during the warranty period.

2. Not an Exempt Supply:

As per the circular, these supplies cannot be considered exempt supplies.

3. No Reversal of Input Tax Credit:

Consequently, the manufacturer who provides replacement parts and/or repair services to the customer during the warranty period is not required to reverse or reduce the input tax credit claimed on the purchase of these replacement parts or on the cost of providing repair services as this is not treated as exempt supply.

Example :

Original Sale of Washing Machine: INR 30,000 (inclusive of the likely warranty-related service cost).
Manufacturer provides warranty repairs or replacement parts during the warranty period without charging the customer any additional consideration.
Manufacturer incurred Rs. 5,000 on warranty-related services (like parts replacement and other services).
Input Tax Credit (ITC) claimed on Rs.5,000 cost of warranty-related services remains unaffected and does not need to be reversed.
In this example, the manufacturer is not required to reverse or reduce the input tax credit on the Rs. 5,000 cost of providing warranty-related services since it is not treated as an exempt supply.

Disclaimer:-The information available on this website/ App is solely for informational purposes. We make no representation or warranties of any kind, express or implied about the accuracy, reliability, with respect to information and material or video available on website/APP, any reliance you place on such information is therefore strictly at your own risk. We are not liable for any consequence of any action taken by you relying on the material/information provided on this website.

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.

Disclaimer:-The information available on this website/ App is solely for informational purposes. We make no representation or warranties of any kind, express or implied about the accuracy, reliability, with respect to information and material or video available on website/APP, any reliance you place on such information is therefore strictly at your own risk. We are not liable for any consequence of any action taken by you relying on the material/information provided on this website.

The GST law aims to strike a delicate balance by granting exemptions to core educational services offered by educational institutions and specified services received by them, while seeking to impose taxes on other services.

Coaching centers and other unaccredited establishments, despite labelling themselves as educational institutions, will not be considered as educational institutions under GST. Therefore, they cannot access the tax exemptions that are typically granted to recognized educational institutions.

As per Notification No. 12/2017-Central Tax (Rate) dated 28^th June 2017, Educational institution means an institution providing services by way of,-

• pre-school education and education up to higher secondary school or equivalent;

• education as a part of a curriculum for obtaining a qualification recognised by any law for the time being in force;
• education as a part of an approved vocational education course.

Hence, services offered by private coaching centers are subject to taxation under the GST Act since such training does not result in the attainment of a recognized qualification.

Example: Brain Crackers a coaching institute in Kota, provides coaching for Institute of Banking Personnel Selection (IBPS) Probationary Officers Exam. Brain Crackers, as a coaching centre specializing in preparing candidates for banking jobs, does not qualify as an educational institution according to the exemption notification.

Disclaimer:-The information available on this website/ App is solely for informational purposes. We make no representation or warranties of any kind, express or implied about the accuracy, reliability, with respect to information and material or video available on website/APP, any reliance you place on such information is therefore strictly at your own risk. We are not liable for any consequence of any action taken by you relying on the material/information provided on this website.

As per Notification No. 12/2017-Central Tax (Rate) dated 28^th June 2017, entry no.78, Services provided by an artist through performances in folk or classical art forms, including music, dance, or theatre are exempt from GST when the fee charged for such performance does not exceed ₹1,50,000.

However, if the fee received from these activities are more than ₹1,50,000, the entire consideration is subject to GST.

Exemption not applicable to:

1. Any other artistic activities conducted by an artist in different art forms, such as Western music, contemporary dance, modern theatre, performances in films, or television series, fall under the taxable category. Similarly, the activities of artists engaged in static art forms like painting and sculpture making are also subject to taxation.
2. Services provided by such artists when they serve as brand ambassadors.

A 'brand ambassador' is defined as an individual hired to promote or market a brand of goods, services, properties, actionable claims, events, or to endorse names, which may encompass trade names, logos, or house marks associated with any entity.

Disclaimer:-The information available on this website/ App is solely for informational purposes. We make no representation or warranties of any kind, express or implied about the accuracy, reliability, with respect to information and material or video available on website/APP, any reliance you place on such information is therefore strictly at your own risk. We are not liable for any consequence of any action taken by you relying on the material/information provided on this website.

Circular No. 195/07/2023-GST dated 17th July, 2023 provides clarifications regarding several aspects related to the replacement of parts or services provided by a distributor on behalf of the manufacturer during the warranty period. Let's delve into each of these clarifications and discuss them in detail.

Issue -1:

Whether GST would be payable on replacement of parts and/ or repair services provided by a distributor without any consideration from the customer, as part of warranty on behalf of the manufacturer?

Clarification :

No Consideration, No GST : There may be instances where a distributor of a company provides replacement of parts and/ or repair services to the customer as part of warranty on behalf of the manufacturer and no separate consideration is charged by such distributor in respect of the said replacement and/ or repair services from the customer.

In such cases, as no consideration is being charged by the distributor from the customer, no GST would be payable by the distributor on the said activity of providing replacement of parts and/ or repair services to the customer.

GST Liability when Distributor Charges Additional Consideration for Warranty Services : However, if any additional consideration is charged by the distributor 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 :

Original Sale of Laptop: Rs. 60,000 (inclusive of the likely warranty-related service cost).

Scenior-1

The distributor provides warranty repair services and replacement parts during the warranty period without charging the customer any additional consideration.

No GST is applicable on the repair services or replacement parts provided by the distributor because no extra fee is charged from the customer.

Scenior-2

Suppose in the same situation, the distributor provides repair services and replacement parts during the warranty period but charges the customer Rs.2000 as a service fee for the on-site service. Then, GST would be applicable on the Rs.2000 charged by the distributor because it represents a separate consideration for the service provided.

Issue-2:

In the above scenario where the distributor provides replacement of parts to the customer as part of warranty on behalf of the manufacturer, whether any supply is involved between the distributor and the manufacturer and whether the distributor would be required to reverse the input tax credit in respect of such replacement of parts?

Clarification:

(a) There may be cases where the distributor replaces the part(s) to the customer under warranty either by using his stock or by purchasing from a third party and 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. In such a case, GST would be payable by the distributor on the said supply by him to the manufacturer and the manufacturer would be entitled to avail the input tax credit of the same, subject to other conditions of CGST Act. In such case, no reversal of input tax credit by the distributor is required in respect of the same.

Example :

"ABC Electronics" is a renowned manufacturer of electronic devices, specializing in smartphones. They distribute their products to various authorized distributors across the country.
Let's say XYZ Distributors replaced a defective smartphone screen valued at ₹1,000, and the applicable GST rate is 18%.
XYZ Distributors issue a tax invoice to ABC Electronics for ₹1,180 (including ₹1,000 for the part and ₹180 as GST).

ABC Electronics can claim ₹180 as input tax credit (ITC) for the GST paid.

So, GST would be payable on recovery of cost of repair by distributor and manufacturer would be entitled to avail ITC on the same.

(b) There may be cases where the distributor raises a requisition to the manufacturer for the part(s) to be replaced by him under warranty and the manufacturer then provides the said part(s) to the distributor for the purpose of such replacement to the customer as part of warranty. In such a case, where the manufacturer is providing such part(s) to the distributor for replacement to the customer during the warranty period, without separately charging any consideration at the time of such replacement, no GST is payable on such replacement of parts by the manufacturer. Further, no reversal of ITC is required to be made by the manufacturer in respect of the parts so replaced by the distributor under warranty.

Example :

Let's consider a scenario involving a manufacturer (M) and a distributor (D) of electronic devices:

• A customer (C) purchases a smartphone from the distributor (D).
• The smartphone comes with a one-year warranty provided by the manufacturer (M).
• Within the warranty period, the customer (C) experiences a malfunction in the phone's battery.
• The customer contacts the distributor (D) and requests a replacement battery, as it falls under the warranty.
• The distributor (D) raises a requisition to the manufacturer (M) for a replacement battery.
• The manufacturer (M) provides the replacement battery to the distributor (D) without charging any additional fee for the part itself since it's covered under warranty.

In this situation:

• The manufacturer (M) provides the replacement part (battery) to the distributor (D) for free, as part of the warranty service.
• No separate GST is payable by the manufacturer (M) at the time of providing the replacement battery, as it is considered a warranty service and not a sale.
• The distributor (D) replaces the battery for the customer (C) without charging any additional consideration, and no GST is applicable to this replacement service.
• Importantly, there is no need for the manufacturer (M) to reverse any Input Tax Credit (ITC) in respect of the replacement battery provided under warranty.

(c) There may be cases where the distributor replaces the part(s) to the customer under warranty 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. Accordingly, the tax liability may be adjusted by the manufacturer, subject to the condition that the said distributor has reversed the ITC availed against the parts so replaced.

Example :

Imagine a situation involving a manufacturer (M), a distributor (D), and a customer (C) in the context of air conditioning units:

• The distributor (D) procures a batch of air conditioning units from the manufacturer (M) with the intention of selling them.
• These air conditioning units come with a one-year warranty provided by the manufacturer (M).
• Within the warranty period, a customer (C) encounters an issue with their air conditioning unit, specifically with the compressor, which is a covered component under warranty.
• The distributor (D) decides to resolve the issue by using a replacement compressor from their existing inventory, originally purchased from the manufacturer (M).
• After successfully replacing the compressor for the customer (C), the distributor (D) duly informs the manufacturer (M) about the replacement and provides all necessary documentation, including details of the credit note for the value of the compressor issued by the manufacturer (M).
• The manufacturer (M) promptly issues a credit note to the distributor (D) for the value of the replaced compressor within the time limit of section 34(2) of the CGST Act.

In this scenario:

• The distributor (D) efficiently resolves the customer's issue by using a replacement compressor from their stock, which was originally procured from the manufacturer (M).
• The manufacturer (M) follows the necessary procedures by issuing a credit note to the distributor (D) for the value of the replaced compressor.
• The manufacturer (M) may adjusts their tax liability based on the credit note issued. However, it's important that the credit note is issued within the timeframe specified in section 34(2) of the CGST Act. Furthermore, the distributor (D) must have reverse the Input Tax Credit (ITC) initially claimed for the replaced component.

Disclaimer:-The information available on this website/ App is solely for informational purposes. We make no representation or warranties of any kind, express or implied about the accuracy, reliability, with respect to information and material or video available on website/APP, any reliance you place on such information is therefore strictly at your own risk. We are not liable for any consequence of any action taken by you relying on the material/information provided on this website.

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 of these scenarios?

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

(1) If extended warranty taken at the time of supply :

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.

Example : Suppose a customer purchases a smartphone for Rs. 20,000 and decides to opt for an extended warranty on the phone at the time of purchase. the cost of the extended warranty, let's say Rs. 2,500. The GST rate for the smartphone is 18%.

Then GST Rate of Principal supply (mobile) will be applicable on the extended warranty.

So, if the GST rate for the smartphone is 18%, the extended warranty cost of Rs.2500 will also be subject to an 18% GST rate.

(2) If extended warranty taken after the original supply :

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).

Example : Suppose a customer purchases a refrigerator for Rs. 30,000. At the time of purchase, the customer does not opt for an extended warranty. However, a few months later, after the original purchase, the customer decides to purchase an extended warranty for the refrigerator. The extended warranty cost is Rs.2,000.

In this scenario, the extended warranty is treated as a separate service contract because it was purchased after the original supply of the refrigerator.

The GST applicable on the extended warranty will depend on the nature of the warranty, specifically whether it covers:

Goods Only:

If the extended warranty covers only the refrigerator itself, then the GST rate applicable to the refrigerator/parts (let's say 18%) will apply to the extended warranty cost of Rs. 2,000. So, GST on the extended warranty would be 18% of Rs. 2,000, which is Rs. 360.

Services Only: If the extended warranty covers only services related to the refrigerator (e.g., maintenance or repair services), then the GST rate applicable to those services will be applied to the extended warranty cost.

Composite Supply (Goods and Services): If the extended warranty covers a combination of both goods (refrigerator) and services (maintenance or repair), the GST rate applicable to the composite supply will be applied to the extended warranty cost.

The specific GST rate for the extended warranty will be determined based on the terms of the warranty.

Disclaimer:-The information available on this website/ App is solely for informational purposes. We make no representation or warranties of any kind, express or implied about the accuracy, reliability, with respect to information and material or video available on website/APP, any reliance you place on such information is therefore strictly at your own risk. We are not liable for any consequence of any action taken by you relying on the material/information provided on this website.

As per Notification No. 12/2017-Central Tax (Rate) dated 28^th June 2017, vide Entry no.1, Services provided by an organization registered under sections 12AA/12AB of the Income-tax Act, 1961, for the purpose of conducting charitable activities are exempt from the imposition of Goods and Services Tax (GST).

Additionally, it's worth noting that charitable activities, as defined in this context, includes activities related to the promotion of religion, spirituality, or yoga. These activities also fall under the exemption from Goods and Services Tax (GST).

Inclusions of Exemption Notification

1. The fee or any other form of consideration collected from participants for their involvement in a religious, yoga, or meditation program or camp aimed at promoting religion, spirituality, or yoga, will be eligible for exemption from taxation.
2. Residential programs or camps, where the fee covers both lodging and meals, will qualify for exemption, provided that the primary and predominant focus of these residential programs or camps is the promotion of religion, spirituality, or yoga.

Exclusions of Exemption Notification

1. Nonetheless, if charitable or religious trusts primarily engage in providing accommodation or offering food and beverages in exchange for any form of consideration, including donations, such activities will be subject to taxation. Similarly, activities like organizing fitness camps or classes such as aerobics, dance, music, and the like, will also be subject to taxation.

Example:

ABC Trust is a registered charitable organization under section 12AB of the Income-tax Act, 1961, dedicated to improving the well-being of elderly individuals in the community. As part of their charitable activities, the trust organizes a 'Meditation Camp' for senior citizens, aimed at promoting physical and mental health, relaxation, and overall well-being.

In this case, since ABC Trust falls under section 12AB of the Income-tax Act, 1961and their 'Meditation Camp' is organized solely for charitable purposes to benefit elderly individuals, the services they offer during the camp are exempt from GST.

Disclaimer:-The information available on this website/ App is solely for informational purposes. We make no representation or warranties of any kind, express or implied about the accuracy, reliability, with respect to information and material or video available on website/APP, any reliance you place on such information is therefore strictly at your own risk. We are not liable for any consequence of any action taken by you relying on the material/information provided on this website.

Deemed Export :

According to Section 2(39) of the CGST Act, 2017 deemed exports means such supplies of goods as may be notified under section 147 of the Act.

As per section 147 of the CGST Act, 2017 the Government may, on the recommendations of the Council, notify certain supplies of goods as deemed exports, where goods supplied do not leave India, and payment for such supplies is received either in Indian rupees or in convertible foreign exchange, if such goods are manufactured in India.

Explanation of above Sections :-

1. Applicable only for supply of Goods (not for services): Deemed exports specifically pertain to the supply of goods, and this provision does not apply to services.
2. Goods are not required to be taken outside India: Unlike regular exports where goods must physically leave the country, in the case of deemed exports, the goods supplied do not need to be taken outside India.
3. Goods must be manufactured in India: To qualify as deemed exports, the goods must be manufactured in India.
4. Payment may be received in Indian Rupee or in convertible foreign exchange: The payment for such deemed export supplies can be received either in Indian Rupees or in convertible foreign exchange.
5. Such supply must be notified by the Government as deemed Export: The government has the authority to notify certain supplies of goods as deemed exports. This means that not all supplies of goods will automatically qualify as deemed exports; they need to be specifically notified by the government.

Following categories of supply has been notified as Deemed Export vide Notification No. 48/2017-Central Tax dated 18th October, 2017 :

Disclaimer:-The information available on this website/ App is solely for informational purposes. We make no representation or warranties of any kind, express or implied about the accuracy, reliability, with respect to information and material or video available on website/APP, any reliance you place on such information is therefore strictly at your own risk. We are not liable for any consequence of any action taken by you relying on the material/information provided on this website.

Third Party shipment or triangular trade is a common practice in international trade whereby goods move from one country to another without touching India, only invoicing is done by the registered person in India.

We shall understand the same with below example :

‘X international Limited’ receives an order from ‘B Ltd.’ in England. X international Limited ordered that goods that from ‘C Ltd.’ in USA and directly dispatch the goods from USA to England without entering into India.

X International Limited in India: This is an Indian registered company that receives an order from 'B Ltd.' in England for certain goods.

C Ltd. in the USA: This is a supplier or manufacturer of the goods that X International Limited needs to fulfill the order.

The Triangular Trade Process:

Order Placement:

B Ltd. in England places an order with X International Limited in India for specific goods.

Purchase Order:

X International Limited places a purchase order with C Ltd. in the USA for the same goods, specifying the shipping details to England.

Goods Dispatch:

C Ltd. in the USA directly ships the goods to B Ltd. in England as per the purchase order's instructions. The goods never physically enter India; they move directly from the USA to England.

Invoicing:

X International Limited in India generates an invoice for B Ltd. in England for the cost of the goods, possibly including a markup or commission for their role as an intermediary. This invoice is for the value of the goods and any associated services provided by X International Limited.

Payment:

B Ltd. in England makes payment to X International Limited in India as per the invoice terms. X International Limited, in turn, pays C Ltd. in the USA for the cost of the goods.

The GST impact on third-country shipments

Non-Application of Customs Regulations :

The goods do not physically enter India in this process, so they are not subject to Indian customs or import regulations.

GST Treatment:

Paragraph 7 of the schedule-III of the CGST Act provides that the supply of goods from a place in the non-taxable territory to another place in the non-taxable territory without such goods entering into India (third country shipments) is treated neither as a supply of goods nor a supply of services. Thus, there is no GST liability on such supply.

No ITC Reversal:

Further, value of such third country shipments is not included in the value of exempt supply for the purpose of reversal of ITC under rules 42 and rule 43 of CGST Rules (Explanation to section 17(3) of the CGST Act.

Disclaimer:-The information available on this website/ App is solely for informational purposes. We make no representation or warranties of any kind, express or implied about the accuracy, reliability, with respect to information and material or video available on website/APP, any reliance you place on such information is therefore strictly at your own risk. We are not liable for any consequence of any action taken by you relying on the material/information provided on this website.

'High Sea Sales' is a common trade practice whereby the original importer sells the goods to a third person before the goods are entered for customs clearance.

After the High sea sales of the goods, the Customs declarations i.e. Bill of Entry etc. is filed by the person who buys the goods from the original importer during the said sale.

High Sea Sales is neither treated as supply of goods nor supply of services in terms of the paragraph 8(b) of schedule III of the CGST Act. Hence, GST is not leviable on high sea sales. IGST is leviable only when the goods are cleared from customs for home consumption.

In summary, High Sea Sales allow the flexibility for the original importer to sell goods to another party before customs clearance, and IGST is levied at the time of customs clearance by the final buyer.

Circular No. 33 /2017-Customs, dated the 1st August, 2017 clarifies that IGST on high sea sale (s) transactions of imported goods, whether one or multiple, shall be levied and collected only at the time of importation i.e. when the import declarations are filed before the Customs authorities for the customs clearance purposes for the first time.

The importer (last buyer in the chain) would be required to furnish the entire chain of documents, such as original Invoice, high-seas-sales-contract, details of service charges/commission paid etc. to establish a link between the first contracted price of the goods and the last transaction.

Disclaimer:-The information available on this website/ App is solely for informational purposes. We make no representation or warranties of any kind, express or implied about the accuracy, reliability, with respect to information and material or video available on website/APP, any reliance you place on such information is therefore strictly at your own risk. We are not liable for any consequence of any action taken by you relying on the material/information provided on this website.