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Taxability of warranty services in the hands of the Indian service provider |
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Taxability of warranty services in the hands of the Indian service provider |
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In respect of many of the durable goods, the manufacturers provide after sale warranty services i.e. for a specified period of time after sale of the product, the manufacturer assumes responsibility to provide service for any defect in the product and/or replaces any part free of cost (or as mentioned in the agreement in this regard). In some cases, the manufacturer is a person located outside India who supplies the equipment or any good through an Indian dealer/intermediary and then also appoints or selects a person (who in many cases is the Indian dealer itself) who would take care of the after sale or the warranty related services to the customers. Now the issue that arises is whether the Indian dealer/intermediary is required to pay GST on the services provided towards the after sale or the warranty, to the Indian customer of the foreign supplier. In this regard reference is made to a recent advance ruling by the Karnataka AAR in the case of M/s. Volvo-Eicher Commercial Vehicles Ltd. - 2019 (10) TMI 564 - AUTHORITY FOR ADVANCE RULING, KARNATAKA, to understand the department’s viewpoint. The facts in brief are as follows:
The advance ruling is sought to answer whether the warranty service provided by the Applicant amounts to export of services to Volvo Sweden and hence zero rated under GST law? In this regard, the Authority has observed that the Applicant has sold the product which is bundled with the service. Here, consideration is paid by Volvo, Sweden and the recipient is the customer, who is in India. Hence, there is no export of service as it is a transaction within the country and is a composite supply of goods or services to the customers by the applicant. Comments The ruling has failed to consider the following aspects:
It is important to note that both the above transactions are different and cannot be viewed as one transaction between the 3 parties involved. Thereby the authority’s observation that it is a transaction of a composite supply by the applicant to the Indian customer is not appropriate for the reason that such composite supply is not by the applicant but the price is a composite price representing the amount towards the product and the after sale services by the manufacturer.
Further, in similar cases, it has been held under the earlier laws that the services are received by the foreign recipient and thereby an export of service
However, it is to be noted that in a similar case of Arcellor Mittal Projects India Pvt. Ltd. 2019 (10) TMI 327 - CESTAT MUMBAI, the matter has been referred to the Larger Bench to answer whether it can be said that the services are consumed abroad when such services are actually used for the Indian business of the foreign entity? Though, the above can be differentiated from the scenario under GST for the reason that under service tax (during the period under consideration) the condition for export was the usage of the service in a business abroad. However, under GST the conditions for export are clear as per which, if the place of supply is abroad and the other conditions of export are fulfilled then it would be an export of service. Hence, the outcome of the above reference to the Larger Bench should not have any effect on the position under GST. For any query or feedback please write to [email protected]
By: Shilpi Jain - December 11, 2019
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