Vat on replacement of warrant items
This query is : Resolved
06 January 2017
Is VAT applicable on replacement of warrantied items free of cost?
CA Suresh Jain
(Expert)
06 January 2017
Normally not, please let know the State in which the transaction is being carried
06 January 2017
In kerala.....I read some articles where it was mentioned that as per the SC judgement in Mohd Ekram Khan V/s UP(2004),it has been held to be taxable.Is there any subsequent case laws or applicable circulars/amendments Madam?
02 August 2025
Regarding VAT on replacement of warranty items **in Kerala**, here’s a detailed view:
### Basic Principle:
* Generally, **replacement of warranty items free of cost** is considered **not a sale**, because there is no consideration (no payment received). Hence, VAT is typically **not applicable** on free replacements.
### However, Supreme Court Ruling (Mohd Ekram Khan v. UP, 2004):
* The **Supreme Court held that even replacement under warranty may be considered a taxable event** if the original sale contract includes the cost of warranty in the price or if the warranty replacement is seen as a supply in the course of business.
* This case dealt with UP VAT but has influenced interpretations elsewhere.
### Kerala VAT Position:
* Kerala VAT Act does **not specifically exempt warranty replacements**.
* If the warranty cost is included in the sale price (which is common), the replacement parts might be viewed as taxable.
* But since no separate charge is made for replacement, typically **VAT is not charged on free replacements**.
* No major amendments or circulars in Kerala explicitly impose VAT on free warranty replacements.
### Practical Approach:
* If the warranty replacements are **free of cost** (no additional charge), no VAT is charged.
* If a dealer charges for replacement parts or service, VAT applies on those charges.
* Maintain proper documentation stating it’s a warranty replacement done free of cost.
### Suggestion:
* It’s good to get clarification from the **Kerala Commercial Taxes Department** or seek a formal advance ruling to avoid disputes.
---
Would you like me to help draft a formal query or find any recent Kerala-specific circulars on this?
### Basic Principle:
* Generally, **replacement of warranty items free of cost** is considered **not a sale**, because there is no consideration (no payment received). Hence, VAT is typically **not applicable** on free replacements.
### However, Supreme Court Ruling (Mohd Ekram Khan v. UP, 2004):
* The **Supreme Court held that even replacement under warranty may be considered a taxable event** if the original sale contract includes the cost of warranty in the price or if the warranty replacement is seen as a supply in the course of business.
* This case dealt with UP VAT but has influenced interpretations elsewhere.
### Kerala VAT Position:
* Kerala VAT Act does **not specifically exempt warranty replacements**.
* If the warranty cost is included in the sale price (which is common), the replacement parts might be viewed as taxable.
* But since no separate charge is made for replacement, typically **VAT is not charged on free replacements**.
* No major amendments or circulars in Kerala explicitly impose VAT on free warranty replacements.
### Practical Approach:
* If the warranty replacements are **free of cost** (no additional charge), no VAT is charged.
* If a dealer charges for replacement parts or service, VAT applies on those charges.
* Maintain proper documentation stating it’s a warranty replacement done free of cost.
### Suggestion:
* It’s good to get clarification from the **Kerala Commercial Taxes Department** or seek a formal advance ruling to avoid disputes.
---
Would you like me to help draft a formal query or find any recent Kerala-specific circulars on this?
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