Taxability of Supplies during Warranty Period – AAAR Karnataka
by ReinHeads Team | Aug 21, 2020
AAAR Karnataka* – Taxability of Supplies during Warranty Period
| Facts |
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- Volvo-Eicher Commercial Vehicles Ltd (‘the Appellant’) is engaged in selling Volvo trucks and providing after sales support services, including warranty services for such trucks in India
- The Appellant has entered into an Agreement with Volvo Sweden for distribution and aftermarket support of Volvo products in India
- As per the Agreement, in case the Volvo vehicle is covered under the international warranty given by Volvo Sweden, the Appellant submit the said warranty claim/ technical report to Volvo Sweden and upon acceptance by Volvo Sweden, the Appellant carries out service and repair work on the vehicle including free replacement of parts. For the said activities, the Appellant invoices Volvo Sweden for cost of replaced product and the services provided including fixing of part (for replacement)
- In reference to the warranty services provided by the Appellant under the Agreement, the Appellant filed an application before the Karnataka Authority for Advance Ruling (‘the AAR’) wherein it was held that:
- The Appellant is providing composite supply of goods and services to customers where in the principal supply is that of goods or services depending on the nature of individual case; and
- Transaction entered by the Appellant pertaining to supply of warranty services does not qualify as an ‘Export of Services’ under the provisions of Integrated Goods and Services Act, 2017 (‘the IGST Act’)
- Aggrieved by ruling of the AAR, the Appellant filed an appeal before the Karnataka Appellate Authority for Advance Ruling (‘the AAAR’)
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| Issue before the AAAR |
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- Whether the supplies made by the Appellant to Volvo Sweden qualifies as supply of services?
- Whether the supplies by the Appellant amounts to export of services to Volvo Sweden and hence zero rated under the Goods and Services Tax (‘GST’) Law?
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| Discussion and Findings of the AAAR |
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- It is admitted by the Appellant that there is a supply of service in the repairs and replacement of parts during the warranty period. Accordingly, the point of dispute is that who is the recipient of the service provided by the Appellant during the warranty period
- As per Section 2(93) read with Section 2(31) of the Central Goods and Services Act, 2017 (‘the CGST Act, 2017’), the person who is required to make a payment for getting the job done is the recipient of the service
- The recipient of services supplied by the Appellant will be Volvo Sweden, who is paying the consideration to the Appellant for carrying out the warranty services
- It is at the behest of Volvo Sweden that the Appellant has undertaken the activity of repair and/or replacement of parts to the customers during the warranty period, which was part of the obligations of Volvo Sweden
- It was held that the activities performed by the Appellant (in respect of repair and servicing of Volvo vehicle in India) amounts to composite supply (principal supply being a supply of services) and the recipient of such supply is Volvo Sweden
- The AAAR refrained from answering the question on whether the said service amounts to ‘export of service’ as the question pertaining to place of supply is not covered under Section 97(2) of the CGST Act, 2017.
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*Appellate Advance Ruling No. KAR/AAAR-14 B/2019-20 dated 06 February 2020 (The Appellate Authority for Advance Ruling, Karnataka)
