Are repairs and maintenance services provided to customers within the warranty period free of cost liable to GST ?
Warranty refers to a guarantee made by a seller to a customer, promising to repair or replace a product if necessary within a specified period of time. It also provides the conditions and circumstances under which the repairs or replacement will be provided if the product does not perform as originally intended.
Warranty encompasses provision of repairs / maintenance service to the customer and thus, is a supply of service by its very nature.
If the supplier offers repair services for product defects without charging separately, it is not treated as a separate supply. The cost of repair is already included in the price of the goods, making it a composite supply of the main product bundled in natural course and supplied in conjunction with one another in the ordinary course of business.
Here are the implications of GST on warranty:
Case 1: If the distributor recovers the cost of warranty repairs from the original supplier, no GST is payable as there is no separate supply between them.
Case 2: If the distributor charges an additional amount for repair services on behalf of the manufacturer, GST must be charged on the total amount invoiced the manufacturer.
Case 3: When a third-party vendor performs warranty repairs for the supplier, and the supplier is billed for it, it is considered a supply related to the goods supplied by the original supplier.
When the original supplier charges a fee for extending the warranty period, it is considered a supply and attracts goods and service tax (GST) .
Relevant Rulings of AAR –
The Authority for Advance Rulings Karnataka observed that the supply of materials and labour during the warranty period, without any consideration (free of cost), does not fall under the definition of ‘supply’ according to Section 7 of the CGST Act, 2017. Therefore, no GST is leviable on such free-of-cost replacements and labour services.
This clarification is also supported by the Central Board of Indirect Taxes and Customs (CBIC) Sectorial FAQs for IT/ITES sectors. According to the ruling, when parts are provided to customers without consideration under warranty, no GST is chargeable on such replacements. This is because the value of the earlier supply already includes the charges for the warranty period, and the supplier is not required to reverse the input tax credit on the replaced parts/components.
From,
Krishnakant Jakhotiya
Mobile No :- 9422507911
Email :- taxtalknew@gmail.com
