GST Update No 119 on Warranty claim and taxability of repair/maintenance

The concept of advance rulings has been introduced in the GST regime with a view to bring clarity as regards various issues that can be matter of confusion in the minds of assessee. After the advent of GST, thousands of advance rulings have been pronounced and most of the matters have been resolved. However, the interpretation of law is a continuous process and so rulings pronounced seeks to settle various doubts. Recently, advance ruling rendered in the case of M/s SOUTH INDIAN FEDERATION OF FISHERMEN SOCIEITES [ADVANCE RULING NO. KAR ADRG 74/2021 DATED 06.12.2021] discussed the GST leviability on free supplies made during warranty period and the taxability of repair and maintenance services provided with respect to fishing vessel. The reasoning adopted is the subject matter of discussion of our present update. The applicant is a Charitable Society engaged in undertaking various welfare activities for poor fisherman and providing them with necessary fishing requisites at concessional rates. The applicant sought advance ruling on following: ? Applicability of GST rate on marine engines and spares ? Levy of GST on supply made during warranty period ? Tax rate on puff insolated ice box used by fisherman for maintaining good hygiene ? Taxability of repair charges of supply of material and labour ? Tax rate on marine engine supplied to Defence Department. The Counsel of Department submitted following contentions with regard to questions sought: ? As far as applicable GST rate on Marine Engine and spare parts is concerned, 5% rate shall be applicable as per entry SI. No. 252 of Schedule I of Notification No. 01/2017 Central Tax dated 28.06.2017. ? Further, the department contended that in Sectorial FAQs by CBIC, it was clarified that no GST shall be chargeable on replacement if supply is made without consideration during warranty period. The value of supply already includes charges to be incurred during warranty period. Further, it was also clarified that supplier is notrequired to reverse the ITC on replaced parts. ? Further, the counsel of department contended that since puff insolated ice box falls under Customs Tariff Heading 3933, it shall attract GST @18% as provided in Schedule III of Notification No. 01/2017-Central Tax dated 28.09.2017. ? The revenue submitted that as far as collection of repair charges on supply of material and labour is concerned, if there is specifically provided in the contract and value of spare parts and services is separately charged in invoice, GST @5% shall be attracted i.e. the rate applicable to such spare parts and services. ? Further, as per Schedule I of Notification No. 01/2017- Central Tax dated 28.06.2017, in case any marine engine is supplied to Defence and other agencies for relief operations, GST shall be attracted at the rate of 5%. The AAR upheld the views of Counsel of Department. It was held that since replacement services were done without charging consideration, it does not fall in the ambit of supply u/s 7 of CGST Act, 2017 and hence, no GST shall be levied. Further, AAR clarified that in case of puff ice boxes used for good hygiene, GST at the rate 18% shall be charged because the product cannot be considered as a part of fishing vessel and hence, it shall not be eligible for concessional rate of GST. Moreover, AAR held that GST at the rate 18% shall be chargeable on collection of repair charges on supply of material and labour including supply of spare parts instead of 5%. The analogy taken by the AAR is that it is a composite supply wherein principal supply is supply of repair and maintenance since there is no transfer of goods in title. The issue regarding GST rate applicable on marine engine and spare parts was also raised in the case of “In re MAN Energy Solutions India Private Limited” wherein it was held that 5% GST shall be attracted. As regards taxability of goods supplied free of cost under warranty scheme is concerned, the issue is settled by clarification that as the original supply included the cost of warranty, no GST is payable on the free supplies made during warranty. However, with respect to repair and maintenance services, there may be divergent view as regards treating the said transaction as composite supply and applying the GST rate of 18%. In our opinion, if the value of spare parts are separately identifiable, the same should be liable to GST at their respective rates with the labour charges attracting GST rate of 18%.

Comments

GST Update No 119 on Warranty claim and taxability of repair/maintenance

Post a Comment

Query