CAF-2 · Chapter 18 · Question 7 of 15
A registered manufacturer sold taxable goods with a 1-year warranty. Five months later, a customer returned a defective part, and the manufacturer provided a free replacement under the warranty. The open market value of the replaced part is Rs. 50,000. What is the output tax liability on this replacement?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) B) Nil
Explanation
The free replacement of defective parts during the warranty period is considered as equivalent to the value of the original supply and not a separate supply, hence such replacement is not chargeable to tax.
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