23-Nov-2021 Eligibility of Input Tax Credit in Respect of the Spare Parts Replaced Free of Cost Under Warranty Period

An Indian Company supplied spare parts to customers with an agreement to replace defective parts under the warranty period. The Company raised a bill for free of cost supply to customer for replacing the warranty parts under the warranty period. The Company approached our team regarding advice in respect of reversal of input tax credit as per the provisions of Central Goods and Services Tax Act, 2017 (‘GST Act’) since the replacement of products or spare parts was carried out without any consideration.

Our dedicated team of GST Experts studied the query in detailed and advised them regarding the admissibility of input tax credit on parts or components replaced free of cost under warranty period. In the instant case, based on the facts of the case and documentation, we opined that input tax credit will be eligible. We examined various provisions of the GST law (i.e. Section 7 and Section 17 of GST Act) along with the Advance Rulings issued by the Government and the FAQ’s in relation to the said query and ensured that the Company complied with all the provisions of the GST Act. The eligibility of credit will differ from company to company based on the facts of the case.