Budget 2024 Updates

FM proposes to lessen tedium of TDS; reduces rates in many casesFM overhauls capital gains regime; to come into play from todayFM hikes exemption limit for long-term capital gain to Rs 1.25 lakh + hikes tax rate to 12.5% on specified financial assetsTourism: Temple corridors to be developed in BiharCGST - Finance Bill proposes to amend Sec 9 to take ENA out of purview of GST + inserts Sec 11A to regularise non-levy of tax on general practice in tradeCGST - Sub-sections to be inserted in Act to relax time-limit to avail ITC u/s 16(4) + New Sec 74A proposed to provide for common time limit for demand notices in fraud cases3.4% of GDP allocated as Capital expenditure to support infra sectorCGST - Proviso to be inserted in Sec 30(2) to provide for enabling conditions for revocation of registration + Amendment in Sec 39 to mandate return filing by TDS deductors even if there is no deduction in a particular monthIGST - Amendment proposed to prohibit refund of unutilised ITC on zero-rated supplyIncome tax - Finance bill revamps re-assessment regime againCustoms - Finance Bill proposes to amend Sec 28DA for acceptance of different types of proof of origin under FTAsFM hikes standard deduction to Rs 75K for new ITR regime + revises tax rates for all income slabs + Rs 7000 Cr revenue foregoneIncome tax - Search & Seizure cases - Block assessment is backBudget withdraws 2% equalisation levyFM reduces corporate tax rate for foreign companies to 35%FM proposes vivad se vishwas scheme + hikes monetary limits for filing appealsFM proposes 20% capital gains tax on short-term assets + listed financial assets held for more than one year to be classified as long-termGovt scraps TDS on Mutual Funds + decriminalises delay in depositing TDS + rationalisation of compounding of offences + revamps reassessment periodBudget proposes comprehensive review of I-T Act, 1961 + simplifies provisions for charities and TDSFM reduces customs duty on gold and silver to 6% + Nil BCD on nickel cathodeBudget proposes to reduce BCD on mobile phone and chargers to 15% + exempts 25 minerals from customs dutyFM exempts cancer medicines from Customs duty + amends BCD for various machinesFM proposes Rs 48 lakh expenditure outlay; 4.9% fiscal deficitFM announces Rs 1 lakh crore fund for developing space economyPromotion of Tourism - Vishnupad temple and Bodh Gaya temple corridors to be supportedFM announces over Rs 11 lakh crore capital expenditure in current fiscalGovt to invest in small Nuclear energy plants in partnership with private playersCentre to ask States to lower stamp duty for women purchasers of housesIBC - More Benches of NCLT to be set up to speed up recoveryFM spikes limit of Mudra loan to Rs 20 lakhsBudget offers financial aid to labour-intensive MSMEs in manufacturing sectorGovt announces 3 crore additional houses under PM SchemeGovt to secure Rs 15K loan for AP from multilateral agenciesGovt to frame new policy for all-round development of Bihar, Jharkhand and OdishaGovt to give one-month salary to all new recruits in formal sector through EPFOGovt to promote vegetable clusters closer to urban settlementsGovt to focus on productivity of agriculture with climate-resilient seedsFM allocates Rs 2 lakh outlay for PM's five schemes for job creation and farmersFM Nirmala Sitharaman presents 7th Union Budget in ParliamentBudget 2024: FM arrives at Parliament; Speech to begin at 11AMEconomic Survey 2023-24 - from GST PerspectiveUkrainian FM goes on tour to ChinaI-T- Additions framed u/s 69A are untenable where affidavits submitted by assessee's parents to explain source of cash deposits, were discarded by AO without consideration : ITATSurvey acknowledges productivity loss due to mental health disordersI-T- Short term capital gains returned by the assessee in terms of provisions of section 50 of the Act on assets held for a period of more than 36 months be treated as long term capital gains: ITATExpenditure on social services up from 6.7% to 7.8% of GDP: SurveyI-T-Additions framed u/s 68 are upheld where assessee is unable to prove genuineness of transaction involving purchase and sale of penny stock: ITATTrade deficit contracts to USD 78 bn from USD 126 bn in 2023I-T-Re-assessment is invalidated when there is no failure on part of assessee to make full and true disclosure of facts necessary for assessment: ITATCorporate profitability has peaked to 15-yr-old high between 2020-2023: SurveyI-T- When cash generated out of sales has been credited in the books of accounts, the provisions of Sec.69A could not be invoked: ITATBudget 2024: More relief for senior citizens & individual taxpayers on card; tweaking of capital gains tax likely; steady capital expenditure to stayI-T- If any amount invested is purely a strategic investment & for purpose of commercial expediency, then AO cannot hold such investments to be for non-business purpose: ITATGoogle backpedals on plan to scrap cookies from ChromeCus - For a HNWI individual, an expensive watch of 'Rolex' make would be his personal effect but same may not be the case if the person is of mere means - Pendant studded with diamonds not liable for confiscation: HCGovt amends Recruitment Rules for Debts Recovery TribunalGST - Even if no date, time or place of hearing is indicated in the notice issued, it was the duty of assessee to file his reply to SCN, which was admittedly received - Plea regarding violation of principles of natural justice cannot be countenanced: HCAbhinav Bindra conferred with Olympic OrderGST - Mismatch between value of e-way bills generated on portal and returns filed in Form GSTR-3B - Petitioner did not provide a comprehensive explanation - To remit sum of Rs.3.50 crores within six weeks - Matter remanded: HCHackers mercilessly hack Bangladesh PM’s website along with police portalsGST - Rule 30 of Rules, 2017 - Assessing officer ought to have issued summons and obtained clarification rather than estimating the outward supply value at 110% of purchase value - Order set aside and matter remanded subject to remit of 10% disputed tax demand: HCUS law-makers call for resignation of Secret Service chief in Trump assassination caseGST - Net ITC shown incorrectly - An inadvertent error was committed and such error was rectified, albeit irregularly, however, sum recovered from petitioner's bank account - Order set aside and matter remanded: HCKarnataka IT Industries piling pressure on govt to extend working hoursGST - Since notification is declared unconstitutional, Amount of IGST paid pursuant to Entry No. 10 of Notification No. 10 of 2017 is to be refunded along with statutory interest: HCStudy says earth’s water depleting fastFDI inflows slide to USD 26.5 bn in 2024 from USD 42 bn in 2023: Economic Survey
Unpacking Legal Circulars: The Scoop on Warranty and GST Implications

JULY 02, 2024

By S Rahul Jain, Partner - M2K, Chartered Accountants

IN 2023, the Supreme Court, in the Larger Bench decision of M/s Tata Motors Limited [2023-TIOL-66-SC-CT-LB], reaffirmed the decision of the Supreme Court in Mohd. Ekram Khan.

In Mohd. Ekram Khan [(2004) 6 SCC 183], the Supreme Court concluded that warranty transactions were taxable, as the manufacturer made payments for the parts by issuing credit notes to the dealers.

The Larger bench, while examining the taxability of warranty transactions gave crucial findings on the following aspects

- Nature of Transactions: The Court analyzed whether the relationship between the manufacturer and dealer was principal-to-principal or principal-agent. It was determined that transactions involving the replacement of defective parts under warranty, compensated through credit notes, constituted taxable sales.

- Credit Notes as Consideration: The issuance of credit notes by manufacturers to dealers for replacing defective parts under warranty was deemed a form of monetary consideration, thus falling under the ambit of 'sale' as defined under the Sales Tax Acts.

- Warranty Obligations: The Court noted that warranty replacements were conducted free of charge to customers, and the dealers were reimbursed by manufacturers, establishing the taxable nature of these transactions.

The Court further noted that sales tax cannot be levied where the dealer simply receives spare parts from the manufacturer to replace a defective part under a warranty.

Pursuant to the Court's decision, issued in the context of sales tax, the Central Board of Indirect Taxes & Customs (CBIC) issued detailed clarifications on Goods and Services Tax (GST) implications for warranty replacements and repair services. These clarifications aim to streamline the treatment of such transactions, ensuring uniformity and reducing litigation. This article delves into the key aspects of these circulars and their implications for businesses and distributors involved in warranty-related transactions.

Circular No. 195/07/2023-GST (Dated 17-07-2023)

Background and Purpose

The CBIC issued Circular No. 195/07/2023-GST in response to industry representations seeking clarity on the GST treatment of warranty replacements and repair services. The primary concern was whether GST would be applicable on replacement goods or repair services provided during the warranty period without separate consideration from customers. Additionally, the circular addressed the issue of input tax credit (ITC) reversal in such scenarios.

Key Clarifications

1. GST on Warranty Replacements and Repair Services

The circular clarifies that when manufacturers provide replacement parts or repair services during the warranty period without charging customers separately, no additional GST is payable. This is because the value of the original supply, which includes the warranty, already covers these potential costs. However, if any additional consideration is charged for replacement parts or services, GST will apply to the additional amount.

2. Input Tax Credit (ITC) Reversal

Manufacturers are not required to reverse ITC for replacement parts or repair services provided under warranty without additional consideration. Since the original supply's value already includes these costs, such supplies cannot be considered exempt. Therefore, ITC reversal is not warranted.

3. Distributor's Role

When distributors provide replacement parts or repair services on behalf of manufacturers without charging customers, no GST is payable by the distributor. If the distributor charges the manufacturer for these parts or services, GST applies, and the manufacturer can claim ITC. Various scenarios involving distributors and manufacturers were clarified, ensuring no GST liability or ITC reversal where no additional consideration is involved.

4. Extended Warranty Offers

Extended warranties offered at the time of the original supply are treated as part of the composite supply, with GST payable on the total value. However, extended warranties sold separately after the original supply are considered distinct supplies of services, subject to GST based on the contract's nature.

Circular No. 216/10/2024-GST (Dated 26-06-2024)

Background and Purpose

Following the issuance of Circular No. 195/07/2023-GST, further clarifications were sought by the industry regarding the treatment of warranty replacements, especially when goods as such (not just parts) are replaced. Circular No. 216/10/2024-GST addresses these concerns, providing additional clarity on the GST and ITC implications.

Key Clarifications

1. Replacement of Goods Under Warranty

The circular extends the clarifications from the previous circular to situations where entire goods, not just parts, are replaced under warranty. It affirms that the same principles apply: no additional GST is payable on such replacements, and no ITC reversal is required by the manufacturer.

2. Replenishment by Manufacturers

When distributors replace goods from their own stock and seek replenishment from manufacturers, the transactions are clarified as follows:

- If the manufacturer replenishes the distributor without charging additional consideration, no GST is payable on the replenishment.

- No ITC reversal is required by the distributor or manufacturer in such cases.

3. Extended Warranty as Separate Supply

The circular distinguishes between extended warranties offered by different suppliers (e.g., OEMs or third parties) and those provided at the time of the original sale. Extended warranties offered by different suppliers at the time of the original sale are treated as separate supplies and taxed accordingly. Subsequent sales of extended warranties are always treated as distinct supplies of services, irrespective of the original supply.

Implications for Businesses

These clarifications bring much-needed certainty for businesses involved in manufacturing and distributing goods with warranty provisions.

By clarifying the tax and ITC implications, these guidelines help reduce litigation and provide a uniform framework for businesses. Manufacturers and distributors must align their practices with these clarifications to ensure compliance and optimize their GST management strategies.

[The views expressed are strictly personal.]

(DISCLAIMER : The views expressed are strictly of the author and Taxindiaonline.com doesn't necessarily subscribe to the same. Taxindiaonline.com Pvt. Ltd. is not responsible or liable for any loss or damage caused to anyone due to any interpretation, error, omission in the articles being hosted on the site)


TIOL Tube Latest

Dr. Shailendra Kumar, Chairman, TIOL Knowledge Foundation, addressing the gathering

Shri Ram Nath Kovind, Hon'ble 14th President of India, addressing the gathering at TIOL Special Awards event.