Free replacement of parts does not attract tax because the cost of replacement is included in the original sale of the item, CBIC said.

"The value of original supply of goods (provided along with warranty) by the manufacturer to the customer includes the likely cost of replacement of parts and (or) repair services to be incurred during the warranty period, on which tax would have already been paid at the time of original supply of goods," said the CBIC order, explaining that in such cases no further tax is to be paid.

However, if any additional amount is charged by the manufacturer from the customer for parts replacement or for service, then GST is be payable on such sale on the additional payment, the order said.

CBIC also clarified on the issue of how credits for the taxes paid by the head office of a company for the services procured for branch offices across states could be used. Branch offices in different states are treated as distinct entities under GST laws. CBIC clarified that the head office has the option to distribute among branch offices the credit for taxes paid on common services procured by it. However, it is not mandatory for the head office to distribute such input tax credit. This clarification is expected to help businesses with offices across different states.

Experts have welcomed the clarifications. 

"In line with the GST council decision, CBIC has given sweeping clarifications benefitting multi-location businesses and easing their monthly compliances. This clarification is not sector-agnostic and would benefit almost every multi-location business by restricting the litigation faced by businesses since 2017. CBIC has now given a free hand to all businesses for valuing employee services while charging for internally generated services from head office to branch offices," explained Rajat Mohan, senior partner, AMRG & associates, an accounting firm.