Question

XYZ(Manufacturer) supplying goods to customers on payment of GST. Subsequently, goods are supplied on FOC basis,
1) During warranty period if found defective or damaged or
2) After warranty period if found defective, damaged or short supplied.
    a) Whether XYZ is required to pay GST on goods supplied on FOC basis under both the situations i.e. before and after warranty period?
    b) How to arrive at the value for FOC supply
    c) Whether proportionate ITC is required to be reversed if GST is not required to be paid on FOC supply?

Answer

The definition of supply is given in Section-7 of the CGST Act, 2017 that covers only cases where consideration is received. The only exception is cases mentioned in schedule-I. so if there is any case of FOC but covered under Schedule-I then it will attract GST otherwise there will be no GST on FOC supply.

When goods are supplied against warranty then it is not considered as FOC because the supplier charges a Lump-sum amount on account of warranty. In case when the supply falls under Schedule-I then it will be subjected to GST and ITC will be available.

In case of warranty ITC will be available because supply is not without consideration and a Lump-Sum amount is charged at the time of supply.

In any other case when goods are supplied as FOC then ITC will not be available. (Reply dt.02/02/2019)