2023 (6) TMI 1296 - AAR - GST

Levy of GST - if goods are supplied as free replacement under guarantee period without any consideration - HELD THAT - The applicant is engaged in supply of Elastomeric pads without any consideration (free of cost) during the warranty period as mentioned in para 9 of vide P.O. No. 38201145101516 dated 30.04.2021 of Principal Chief Material Manager, South Central Railway to the M/s Prag Industries (India) Pvt. Ltd. It is an admitted fact that the warranty is a promise or guarantee for the goods/services supplied by the applicant. That under guarantee and free replacement no consideration shall be chargeable from the buyer against the supply of replaceable goods, and as such no GST could be charge and payable to the Govt. The replaced items shall be of NIL value. In as much as the consideration for replaced goods has already been included as and when the original supply was made for the first time to the Indian Railways. During the warranty period the goods and service have been supplied to customers as free of charge. No separate consideration is charged and received at the time of replacement. The value of supply made earlier includes the charges to be incurred during the warranty period. Therefore the replacement of the goods and service rendered during the warranty period without consideration does not attract GST separately. The issue has been decided in IN RE M/S. SOUTH INDIAN FEDERATION OF FISHERMEN SOCIETIES 2022 (3) TMI 1299 - AUTHORITY FOR ADVANCE RULING, TAMILNADU where it was held that the replacement of the goods and service rendered during the warranty period without consideration does not attract GST separately. Thus, GST is not leviable, if goods are supplied as free replacement under guarantee period without any consideration.

Summary

Issues Involved:
1. Tax liability under GST for goods supplied as free replacement under guarantee period without consideration.

Analysis:
1. The applicant, a manufacturer and supplier of Railways locomotive parts, sought an advance ruling on the tax liability under GST for goods supplied as free replacement under a guarantee period without consideration.
2. The applicant highlighted that under the guarantee and free replacement clause, no consideration is chargeable from the buyer for the replaced goods, as the consideration was included in the original supply to Indian Railways.
3. The applicant argued that replacement items should be treated as part of the original contract, citing a Tribunal order and the Apex Court's affirmation in a relevant case.
4. The Jurisdictional GST Officer provided comments confirming the applicant's registration, manufacturing activities, and applicable GST rates for the goods supplied to Indian Railways.
5. The issue was previously addressed in an Advance Ruling in Bengaluru, Karnataka, and the AAR concluded that no GST is chargeable on replacement parts provided without consideration under warranty.
6. The Authority for Advance Ruling, Uttar Pradesh, discussed the provisions of the CGST Act and the UPGST Act, emphasizing exceptions to the requirement of consideration for a supply to be treated as a supply under GST.
7. The ruling authority examined the warranty clause provided by the South Central Railway and the applicable GST rates for the goods supplied to Indian Railways.
8. Referring to Schedule I of the CGST Act, the authority noted that certain activities, including the permanent transfer of business assets and supply between related persons, are treated as supplies even without consideration.
9. The authority concluded that no GST is leviable on goods supplied as free replacement under a guarantee period without consideration, aligning with previous rulings and CBIC guidance.

Conclusion:
The Authority for Advance Ruling, Uttar Pradesh, ruled that GST is not applicable if goods are supplied as free replacement under a guarantee period without any consideration. This ruling is valid within the jurisdiction of the authority, subject to the provisions of the CGST Act, 2017.