1. The 3 Scenarios as per CBIC

Scenario A: Manufacturer / Same supplier gives extended warranty AT the time of original supply

This is a Composite Supply under Section 2(30) CGST Act.

Example: You buy a AC for Rs.50,000 with 1 year standard warranty + 2 years extended warranty for Rs.5,000 mentioned in same invoice/bundle.

GST rate = Rate applicable to Principal Supply i.e. Goods. So if AC is 18%, entire 55,000 is taxed at 18%.

Logic: Customer is entering into one contract. Extended warranty is naturally bundled.

Scenario B: Different supplier gives extended warranty, even if AT the time of original supply

This is Separate Supply of Services.

Example: Dealer sells Car. At same time, customer opts for extended warranty from manufacturer or from a third-party warranty company like TVS, Go Warranty, OneAssist.

Even though agreement is made at time of sale, CBIC says:

If the supplier of extended warranty is different from supplier of goods, it is not composite. It is distinct supply of service.

Taxable as Service - SAC 997132 / 9971 - @ 18% GST payable by the extended warranty supplier. The car dealer is not liable.

Scenario C: Extended warranty supplied AFTER original supply

Always Separate Supply of Service @ 18%.

Example: You bought laptop in Jan, in March you buy extended warranty online. It is clearly a standalone service contract.

Para 5.3 of Circular 216 clarifies: supply of extended warranty subsequent to original supply shall be treated as supply of services distinct from original supply.

2. Why Segregation Matters

1. Rate difference: Goods may be 5% / 12% / 18% / 28%. Service of extended warranty is always 18%. If you don't segregate, you may pay higher GST or face departmental demand.
2. ITC Reversal: For free warranty replacement, no GST and no ITC reversal is required as per Circular 195. For extended warranty, if you replace goods, it is considered fulfilment of a service contract.
3. IRDAI Angle: If extended warranty is underwritten by Insurance Company, premium segregation is mandatory between risk premium and service fee for IRDAI + GST both.

3. Key Case Laws

1. Tata Motors Ltd vs Deputy Commissioner of Commercial Taxes (SC) - 2023 (5) TMI 744 - SC
The landmark. Supreme Court held that when dealer replaces defective parts under manufacturer warranty and gets credit note from manufacturer, it amounts to a sale of goods by dealer. VAT was payable on credit note value.
Ratio extended by department to GST: Replacement under warranty is not free - consideration already received at time of original supply. This judgment forced CBIC to issue Circular 195 to say in GST era, no GST on free replacement if no separate consideration charged.

2. Mohd. Ekram Khan & Sons vs Commissioner & Marudhar Motors Reference
Followed in Tata Motors. Court held free replacement of parts in pursuance of warranty is deemed sale, price already paid. Forms basis for treating standard warranty as part of original supply.

3. Cummins India Ltd, In re - AAR Maharashtra - Order No. GST-ARA 65/2018-19/B-161
AAR held that supply of services/goods involving supply of parts during AMC/extended warranty is naturally bundled, supply of goods is incidental to supply of services - therefore composite supply where principal supply is service.
This is used to argue that when extended warranty is standalone service contract, it is service, not goods.

4. TAFE Access Ltd vs Commissioner of GST & Central Excise - Tribunal - 2023 (5) TMI 1154
Tribunal excluded cost of spares reimbursed during warranty period from taxable value for service tax. Held that cost of spares and accessories reimbursed for free services during warranty period should not be included in taxable value of service.
Important for segregation - you cannot artificially add goods value to service.

5. Commissioner of Sales Tax vs Prem Nath Motors
Old sales tax case cited in warranty jurisprudence: Future replacement of parts in pursuance of warranty has to be regarded as sale, price for which was already paid and on which sales tax has already been levied.

6. Bhayana Builders (P) Ltd [2018(10) GSTL 118 (SC)]
SC held that value of goods and services cannot be artificially segregated if contract is composite works contract. Department sometimes cites this to say you cannot split extended warranty if bundle. Assessee cites it to say you cannot tax same amount twice.

4. Practical Compliance - How to Segregate in Invoice

If you are Scenario A (same supplier, composite):

• Show in books: Base Price = X, Extended Warranty = Y, but invoice single HSN with total taxable value.
• Keep internal agreement to prove warranty value for accounting, but GST at goods rate.

If you are Scenario B/C (separate service):

• Raise two invoices or two line items with different SAC/HSN.
  • Line 1: Goods HSN - Rate of goods
  • Line 2: SAC 997132 - Extended Warranty Services - 18%
• E-way bill only for goods value.
• Service provider to issue service invoice and pay 18% under forward charge.

What still remains litigated?
Circular 195 Para 6 treating same-supplier extended warranty as composite is under challenge. Industry argues extended warranty is always a service - like insurance - even if given at time of sale, because performance obligation is in future. Some High Courts have admitted writs on this.

If you are a dealer/manufacturer structuring warranty programs, keep 3 documents ready:

1. Separate Extended Warranty Agreement with terms, coverage, start date after standard warranty
2. Price list showing segregation
3. Credit note / reimbursement mechanism between dealer-manufacturer as per Tata Motors case