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📌 Tough Practical Questions – ITC on Warranty Replacement (Manufacturer–Distributor–Customer Chain) (For CA Final IDT) --- Q1 – Free Supply of Parts by Manufacturer (No GST Invoice) Scenario: XYZ Ltd. (Manufacturer) sells air-conditioners to ABC Distributors with 2-year warranty. During warranty, a compressor is replaced for a customer. Manufacturer sends compressor free of cost without GST invoice to distributor. Distributor installs the compressor free for the customer. Questions: 1️⃣ Can ABC Distributors claim ITC on the compressor? 2️⃣ Can XYZ Ltd. claim ITC on inputs used to manufacture the compressor? 3️⃣ Is any GST payable by XYZ Ltd. or ABC Distributors on free supply/replacement? Answer: 1️⃣ Distributor cannot claim ITC – No GST charged on free supply. 2️⃣ Manufacturer can claim ITC – Inputs used in manufacturing compressor are in the course of business. 3️⃣ No GST payable at the time of replacement as warranty service is part of original supply (Circular 47/21/2018-GST). --- Q2 – Free Supply of Parts by Manufacturer (With GST Invoice) Scenario: Same as Q1, but manufacturer issues GST invoice for ₹10,000 + 18% GST, but does not recover amount from distributor (FOC but tax paid). Questions: 1️⃣ Can ABC Distributors claim ITC? 2️⃣ Can XYZ Ltd. claim ITC? 3️⃣ Does free replacement to the customer attract GST? Answer: 1️⃣ Distributor can claim ITC of ₹1,800 (GST paid on invoice). 2️⃣ Manufacturer can claim ITC on inputs used to make compressor. 3️⃣ No GST on replacement to customer (part of original supply). --- Q3 – Distributor Purchases Parts Separately (GST Paid) Scenario: Distributor buys spare compressor from open market for ₹8,000 + 18% GST. Uses it for warranty repair. Manufacturer does not reimburse cost. Questions: 1️⃣ Can distributor claim ITC? 2️⃣ If manufacturer reimburses ₹9,440 (₹8,000+₹1,440 GST), will distributor have to charge GST on reimbursement? Answer: 1️⃣ Yes, distributor can claim ITC of ₹1,440, as it is in course of business. 2️⃣ If reimbursement is purely as cost sharing without markup, and there is no separate supply, GST not applicable on reimbursement (as per CBIC Circular 178/10/2022-GST). --- Q4 – Extended Warranty Sold Separately Scenario: Customer buys a TV for ₹50,000 (with 1-year warranty). Customer also purchases extended warranty for 2 years for ₹5,000 + GST. After 1.5 years, TV panel is replaced. Questions: 1️⃣ Is GST payable on extended warranty at time of sale? 2️⃣ Can manufacturer claim ITC on panel purchased for replacement? 3️⃣ Does manufacturer need to charge GST to customer for free panel replacement? Answer: 1️⃣ Yes, GST is payable upfront on ₹5,000. 2️⃣ Yes, ITC is available on panel purchased as it is used for taxable supply of extended warranty. 3️⃣ No separate GST to be charged at time of replacement, as extended warranty supply was already taxed. --- ✅ These questions combine multiple ITC concepts, warranty treatment, reimbursement, and circular references – perfect for CA Final exam.