TMI Blog2020 (8) TMI 522X X X X Extracts X X X X X X X X Extracts X X X X ..... Volvo vehicles for Indian customers during the warranty period is an activity amounting to a supply of service for Volvo Sweden and consequently whether the same is a zero-rated supply? - HELD THAT:- The question is not whether the activity of repair and replacement of parts done during the warranty period amounts to a supply of service or not. The fact that there is a supply of service in the repairs and replacement of parts during the warranty period, has been admitted by the Appellant. The point that is under dispute is who is the recipient of the service provided by the Appellant during the warranty period? Whether the recipient is the customer who approaches the Appellant with a warranty claim, as held by the lower Authority, or whether the recipient of service is Volvo Sweden who reimburses the cost of parts and service provided in the warranty period? The customers who purchase the Volvo vehicle are entitled to free of charge pre-delivery inspection and free of cost replacement and repairs during the warranty period. Post warranty period, the service of repair and maintenance of the vehicles are on chargeable basis which the customer will pay. In the case of a repair and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be treated as `export of service is that the place of supply of service is outside India. Thus, determination of place of supply of service by the appellant is a must before concluding whether a supply of service is an export or not - It is evident that determination of place of supply is not a question on which an advance ruling can be sought. The Authority for Advance Ruling and the Appellate Authority for Advance Ruling have both been constituted in exercise of the powers conferred by section 96 and 100 of the Karnataka Goods and Services Tax Act, 2017, which Act extends to the whole of the state of Karnataka. The AAR and the AAAR are creatures of the statute and have to function within the legal boundary mandated by the Act. As the place of supply is not covered by Section 97(2) of the Acts, we refrain from answering this question of the Appellant with regard to export of service on the grounds of lack of jurisdiction. Decision of AAR upheld. - KAR/AAAR/Appeal-14-B/2019-20 - - - Dated:- 6-2-2020 - SHRI. D.P. NAGENDRA KUMAR, AND SHRI. M.S. SRIKAR, MEMBER Represented by: Shri. Ravi Raghavan Ms. Sandhya Sarvode, Advocates Principal Commissioner of Centra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mers. The processing of the warranty claims is done under the administration and purview of M/s Volvo Sweden. iii. The Appellant submits a Technical Failure Analysis Report to M/s Volvo Sweden to determine the bonafides of such warranty claim of the customer. iv. Upon acceptance of the warranty claim, the Appellant carries out services and repair work on the vehicles of the customers. v. However, in cases which require the replacement of parts, the Appellant also provides for free replacement of the defective parts and provides services of fitting out of such replaced parts on the vehicles. vi. The Appellant invoices Volvo Sweden for claiming the amount spent on discharging such warranty obligations. vii. The reimbursement sought includes the cost of replaced product and the services provided including fixing of the parts, for the purposes of replacing the goods. viii. After processing of the claims of the Appellant by M/s Volvo Sweden, they reimburse such expenses in convertible foreign exchange to the Appellant and its dealers. 6. In the above background, the Appellant sought for an advance ruling before the Karnataka Authority for Advance Rul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the reimbursements are made by M/s Volvo Sweden at the desire of the customer. In the instant case, the reimbursements are made by M/s Volvo Sweden pursuant to the arrangement between M/s Volvo Sweden and the Appellant; that the customer in India has no contractual right to enforce the performance of the warranty obligations by the Appellant or to seek the consideration to be paid to the Appellant from M/s Volvo Sweden. Therefore, they submit that the finding of the Advance Ruling Authority that the consideration is being paid by M/s Volvo Sweden to the Appellant for the transaction between the Appellant and the customer is factually and legally incorrect. 8.2. They further submitted that the Appellant recovers the cost of providing such services from M/s Volvo Sweden and that contract is in complete distinction to the original sale agreement between the Appellant and the customer in India. In case of any breach, the customer has no privity of contract with M/s Volvo Sweden and cannot claim for M/s Volvo Sweden to reimburse the costs incurred to the Appellant. There is no contractual obligation between the customer and M/s Volvo Sweden for the obligation to arise. They su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the finding of the Authority is contradictory in as much as the order has in itself recorded that this transaction is merely providing of warranty service by the Appellant but has without any further reasoning gone on to record that the transaction is a composite supply of goods or services to the customers. They reiterated that the warranty service is provided by the Appellant to Volvo Sweden and not to the customer in India; that the Appellant does not provide for mere supply of goods but provides services primarily; that the transaction between the Appellant and M/s Volvo Sweden is either a supply of service, or is a composite supply of services with the supply of replaced goods being incidental to the primary supply of warranty services. 8.6. The Appellant submitted that the transaction between M/s Volvo Sweden and them is a zero-rated supply in as much as the place of supply of the service is outside India and all other conditions for a transaction to be an export of service stand satisfied; that the transaction of provision of warranty services are a supply of services and location of the recipient of such service is outside India; that as per Section 13 of the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... represented by their Advocates Shri. Ravi Raghavan and Ms. Sandhya Sarvode who reiterated the submissions made in their grounds of appeal. On a specific request by the Members, the Appellant was asked to produce a copy of the agreement entered into between the Appellant and M/s Volvo Sweden and they agreed to produce it at a later date. 9.1 The Appellant vide letter dated 23.01.2020 furnished a copy of the agreement dated 30.09.2014 between Volvo India Pvt Ltd and Volvo Eicher Commercial Vehicles Ltd. They also submitted that the appellant sells trucks to customers in India along with International Warranty which is issued by Volvo Sweden; the International Warranty obligation is honoured by Volvo Sweden in India through its designated workshop. The customer in India claiming warranty services approached the appellant in case of a grievance regarding parts of the vehicle in terms of the international warranty obligation. The Company processes this claim, against the documents adduced by the customers; that the processing of the warranty claim is done under the administration and purview of M/s Volvo Sweden. The Company submits a Technical Failure Analysis Report to M/s Volvo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce for Volvo Sweden and consequently whether the same is a zero-rated supply? On a detailed examination of the case, we find that the question is not whether the activity of repair and replacement of parts done during the warranty period amounts to a supply of service or not. The fact that there is a supply of service in the repairs and replacement of parts during the warranty period, has been admitted by the Appellant. The point that is under dispute is who is the recipient of the service provided by the Appellant during the warranty period? Whether the recipient is the customer who approaches the Appellant with a warranty claim, as held by the lower Authority, or whether the recipient of service is Volvo Sweden who reimburses the cost of parts and service provided in the warranty period? 13. For this let us understand the business model of the Appellant. From the records submitted, it is understood that the Appellant (M/s VE Commercial Vehicles Ltd) was set up as a joint venture company between AB Volvo, Sweden and Eicher Motors Ltd for the marketing, sales and distribution of commercial vehicles. The Appellant company has five business verticals of which one is the sale and d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. VIPL will deliver the products to the Distributor Ex-works VIPL s premises unless otherwise expressly agreed. 21. Warranties 21.1. VIPL supplies Products to the Distributor for distribution with the benefit of VIPL and/or Volvo Group of Companies international warranty in force and applicable to India at the time of delivery to the Distributor. VIPL reserves the right to alter the warranty conditions from time to time, provided that such alternations shall not apply retrospectively to any warranties then in force. 21.2. In respect of sales of products, the distributor shall provide copies of the relevant warranties to the Authorised Dealers, the Authorised Repairers and to its customers as the case may be, and draw the customer s attention thereto. 21.3. Except as otherwise agreed in writing with VIPL, the Distributor has no authority to vary or alter the terms of VIPL and/or Volvo Group of Company warranty. If the Distributor undertakes any liability beyond that set out in the terms of VIPL and/or Volvo Group of Company warranty, the Distributor shall assume such liability for its own account. 24. Warranty work and Service Work: 24.1. Regardles ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Distributor (the Appellant in this case) with the benefit of International warranty which is applicable to India. Further, clause 24.1 states that VIPL will reimburse the Distributor in respect of the work done with regard to handling warranty claims and free servicing and conduct of vehicle recall campaigns. Clause 24.4 provides that payment for the warranty work done by the Distributor will be made by VIPL in accordance with VIPL s published/agreed warranty procedures. The appellant has submitted the manner in which the warranty claims are processed which is as follows: i. The Customer, claiming warranty services approaches the Appellant in case of grievance regarding parts of the vehicle. ii. The Appellant processes this claim, against the documents adduced by the customers. The processing of the warranty claims is done under the administration and purview of M/s Volvo Sweden. iii. The Appellant submits a Technical Failure Analysis Report to M/s Volvo Sweden to determine the bonafides of such warranty claim of the customer. iv. Upon acceptance of the warranty claim, the Appellant carries out services and repair work on the vehicles of the customers. v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of parts. For this purpose, the Distributor sends the details of the warranty claim made by the customer to Volvo Sweden in the Technical Failure Analysis Report so that Volvo Sweden can determine whether the claim is as per the International warranty terms. Once it is agreed upon that there is a valid warranty claim by the customer, the manufacturer authorises the Distributor to carry out the repairs and/or replacement of parts and reimburses the cost of the repairs and parts to the Distributor. What is obligatory on the part of the manufacturer is done by the Distributor and for this the Distributor receives a reimbursement of costs. 19. In terms of Section 2(93) of the CGST Act, 2017, recipient of supply of goods or services or both means (a) where a consideration is payable for the supply of goods or services or both, the person who is liable to pay that consideration; (b) where no consideration is payable for the supply of goods, the person to whom the goods are delivered or made available, or to whom possession or use of the goods is given or made available; and (c) where no consideration is payable for the supply of a service, the person to whom the se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lower Authority that the recipient of service is the customer. We however agree that the supply by the Appellant to Volvo Sweden is a composite supply of goods and services with the principle supply being a supply of service. 21. Another question raised by the Appellant is whether the supply of service to Volvo Sweden is a zero-rated supply as provided under Section 16 of the said Act in as much as it amounts to export of services. The definition of export of services as per Section 2(6) of IGST Act, 2017 is as follows :- export of services means the supply of any service when, (i) the supplier of service is located in India; (ii) the recipient of service is located outside India; (iii) the place of supply of service is outside India; (iv) the payment for such service has been received by the supplier of service in convertible foreign exchange; and (v) the supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with Explanation 1 in section 8; 22. Thus, one of the important requirements for supply of any service to be treated as `export of service is that the place of supply of serv ..... X X X X Extracts X X X X X X X X Extracts X X X X
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