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Vat on defective parts replaced under warranty

Vandana Aggarwal (employer) (24 Points)

08 December 2012

XYZ Sales Agency is a dealer of the Company ABC Motors.

XYZ Sales Agency captures Customers & takes payments in the name of the Company ABC Motors

& ABC Motors sells the machine directly to Customer with their Invoice & passes on the Commission

to the dealer for the same as reimbursement of his services for such sales.

Company gives the Warranty of his machine for one year or decided Kilometre through dealer.

Now Customer approaches dealer for defective parts (if any found) & dealer replaces the defective

part out of their stocks purchased form the Company with C form.

Here three parties are involved. One- is Company, Second is dealer & third is customer.

PLz clarify the Vat liability on replaced parts.

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9 Replies

mahesh (Student Others) (27 Points)
Replied 08 December 2012

I didn't see any sales. as the parts are replaced under the warrenty it doesn't come under sales.

how can the delear can buy those parts from company to replace company's warrenty??

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MJ Krishnamurthy (ACCT(Retd)) (7197 Points)
Replied 10 December 2012

Ms Vandana A,

Here ,such arrangements are possible. Sales against 'C' form can be done from Manufacturer to distributor and then to a dealer or customer ,as itt becomes necessary. The last customer uses the purhased machinery,and finds some defects in parts and asks for replacement with the dealer from whom he purchased it. The manufacturer can issue a policy to replace defctive parts in warrantay period in advance. . So, the last dealer can replace the defective parts out of the stock already bought by him agaainst'C' form and ask the manufacturer to send free replacement to fill the stock. This kinof of arangement is practised in the market and accepted.........MJK

Adarsh (CEO) (26 Points)
Replied 12 December 2012

Sir,

Customer purchase the machine directly form Company.

Now Customer takes replacement of defetcive part (out of the stocks purchased against C form )from the dealer of the Company.

Company issues a Credit Note to the dealer to the extent to the value of the part given to customer.

Now question of Status of Vat of the Part given to Customer.

PLz guide Sir,

Thanks

Vandana

C.A Manish Arya (C.A, M.B.A) (408 Points)
Replied 13 December 2012

If there is an agreement to provide free replacement for the defective parts, out of the stocks provided by the manufacturer against C form... IT means a Complete Sale of parts to the dealer...Cause otherwise The consignment of parts so sent to the dealer should have been supported with the "Tranfer Challan" which is not done as the Dealer is not operating as Branch of the Manufacturer.

Hence The VAT liablity id attracted for the Dealer for the sales made to the Customer. As the consideration charged is "NIL" so there wont' be any VAT Liablilty arises...Although for the services rendered by Dealer to the customer shall be subject to "Service Tax" for any consideration paid to him.

Open to Any references...

Regards

Manish Arya

Anupam Majumder (Sr. Executive Indirect Taxation Eastern Region) (29 Points)
Replied 28 August 2013

Hi Gents

I need one clarfication. If I need to replace any material under warrente to my customer, Can I purchase that materials from my supplier against Form C. Because In the C Form, we need to specify the purpose like Resale, Manufacutre, etc. In that case, what should I mention?

Best Regards.

Anupam Majumder

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MJ Krishnamurthy (ACCT(Retd)) (7197 Points)
Replied 28 August 2013

Replacement of defective parts as per warranty is done by the manufacturer. It is the manufacturer who undertakes to abide by the warranty. A seller may replace a defctive part brought by a customer from his stock. This replacement is done temporarily,as per an agreement between the seller and the manufacturer. The seller sends details of replaced goods to his manufacturer periodically. The manufacturer replenishes the stock of the seller as per the list of warranty replacements done by the dealer. This is the pattern of transaction generally followed........mjk

Anupam Majumder (Sr. Executive Indirect Taxation Eastern Region) (29 Points)
Replied 28 August 2013

Sir

Thank you for your reply. But my question is, whether C Form can be issued to my supplier when I procure materials for the replacement under warrantee to my customer or i have to purchase at full rate of CST from my supplier.

Best Regards.

Anupam Majumder

Anupam Majumder (Sr. Executive Indirect Taxation Eastern Region) (29 Points)
Replied 28 August 2013

Sir

I am detailing the fact. Suppose I am the manufacturer of a blow moulding machine, a machine which prduces plastic bottles. So, I need so many hydraulic, pneumatic, Electric & Electical spares for the manufacture of this machine. I sold this machine to one of my customer settled in Kolkata. After 3 months of its running, it broke down and my engineers found that one valve becomes defective and need to be replaced. As per my quotation, that machine is under warrantee period and hence I should replace that valve immediately. My Valve supplier is situated in Bangalore and hence i need to raise an order to them for a spare valve. Now, here my question is arisen, whether I raise the PO with 2% CST to my supplier or I have to purchase it at full rate of CST without C Form.

Thanks

Regards.

HR Mandloi (Accounts Manager) (25 Points)
Replied 02 January 2014

Dear All,

I m in MP and have import tools from China and sold these tools to all over india. Manufacturer has not given any warranty on these tools but we have provided 1 month warranty on the same.

Now I have to change some tools under warranty to customers within MP where VAT Tax liabilities under 5% and some of customers where CST @ 2% is liable.

Is there any liability of such tax on repacement of tools under warranty.

Please guide.

Thanks...