Warranty Services with Volvo Bus Supply is Composite Supplies: AAAR [Read Order]

The Karnataka Appellate Authority of Advance Ruling (AAAR), while setting aside the ruling of the AAR ruled that the warranty services with Volvo bus supply are composite supplies.

The Appellant is a joint venture between the Volvo Group and Eicher Motors Limited which came into effect in July 2008. They are in the business of selling Volvo branded trucks and thereafter providing after sales support services, including warranty services for Volvo branded trucks and buses in India.

In terms of the arrangement between the Appellant and M/s Volvo Sweden, the Appellant undertakes the distribution and aftermarket support of Volvo products in India. The Appellant sells its products with a standard warranty of 1 to 2 years, the cost of which is included in the cost of sale of products.

The Appellant is responsible for the servicing of warranty claims of its customers and the onus to reimburse such expenses incurred for discharging the warranty obligation lies with M/s Volvo Sweden. In pursuance to this agreement, the Appellant, has been engaging in discharging of the warranty claims of customers, in India.

The Appellant sought for an advance ruling before the Karnataka Authority for Advance Ruling on the issues namely whether the supplies made by the Appellant to M/s Volvo Sweden is a supply of services and whether the supplies by the Appellant amounts to the export of services to M/s Volvo Sweden and hence zero-rated under GST law.

The Authority for Advance Ruling (AAR) vide order held that the applicant is providing a composite supply of goods and services to the customers wherein the principal supply is that of goods or services depending on the nature of the individual cases. The transaction is an intra-State or inter-State transaction (but not export transaction) depending on the place of supply. Since this transaction is not an export of services, the transaction is not a “Zero-rated Supply” under the IGST Act.

The Appellant submitted that the transaction relates to supply of services of warranty from the Appellant to M/s Volvo Sweden with the customers located in India who are the beneficiaries; that the recipient of the supply in the present transaction is Volvo Sweden and not the customer. The Appellant either provides warranty services and/or also provides to replace defective parts if it is found to be provided for under the warranty obligation. However, in no case is there a mere transfer of goods without any service being provided under the warranty obligation. Hence, they submitted that the transaction is primarily a supply of service. Further, they submitted that there is no invoice that is raised on the customer by either the Appellant or M/s Volvo Sweden, hence there is no supply with regards to the customer as far as the fulfillment of warranty obligations are concerned.

The Appellate Authority consisting of members D.P. Nagendra Kumar and M.S. Srikar set aside the order of the AAR and held that the activities performed by the Appellant with regard to repair and servicing of Volvo vehicles for Indian customers during the warranty period are an activity amounting to a composite supply of goods and service for Volvo Sweden with the principle supply being a supply of service. The recipient of the supply of service is Volvo Sweden.