7 June 2000 GST/HST Interpretation 31018 - Warranty Exchange Program

XXXXX

This is in response to your e-mail message dated March 28, 2000, requesting an interpretation as to whether remanufactured XXXXX imported in a warranty exchange program are considered to be a non-taxable importation pursuant to section 5 of Schedule VII to the Excise Tax Act ("the Act"). The XXXXX are the subject of a seizure which has been appealed by the importer.

Based on the information you sent to Border Issues, XXXXX provides an exchange program for remanufactured steering gear with latest production updates. Apparently, XXXXX manufactured by XXXXX XXXXX[.] Therefore, XXXXX will support XXXXX through an exchange XXXXX program. On trucks that have exceeded their warranty coverage by miles or time, XXXXX will provide an exchange remanufactured XXXXX with latest production updates. The exchange XXXXX will be provided at no charge to the XXXXX and will be shipped prepaid from XXXXX. The exchange program will cover vehicles up to 36 months in service or 300,000 miles, whichever occurs first.

Section 5 of Schedule VII to the Act states that goods that are imported by a particular person where the goods are supplied to the particular person by a non-resident person for no consideration, other than shipping and handling charges, as replacement parts under a warranty in respect of tangible personal property, are entitled to non-taxable importation.

In order to qualify for non-taxable importation, the replacement goods must be supplied as replacement parts under a warranty. Furthermore, the goods must be supplied for no consideration, other than shipping and handling charges. Although the defective XXXXX are exchanged for remanufactured XXXXX XXXXX and are provided at no charge to the XXXXX and are shipped prepaid from XXXXX, satisfying the condition that the goods be supplied for no consideration, the goods are not supplied under a warranty. In this case, as stated in the letter provided by the importer, XXXXX XXXXX is, therefore, providing remanufactured XXXXX to provide a level of support of XXXXX XXXXX [c]ustomers to assist the end user in reducing downtime and cost of ownership.

XXXXX, has made a submission to your Directorate, on behalf of XXXXX, rebutting the CCRA's argument that the XXXXX exchange program is not considered to be replacement parts supplied under warranty. XXXXX argued that an exchange program did not preclude the existence of a warranty program and that the words "exchange" and "warranty" are not mutually exclusive. Although XXXXX was of the opinion that the notion of "warranty" may actually infer some kind of exchange of goods as "replacement" parts, the Act is very clear in stating that the goods must be replacement parts under warranty. In order to be considered a non taxable importation, the goods must be supplied under warranty. As evidenced by the administration of this section, only those goods, for which a warranty existed, were treated as a non-taxable importation. XXXXX has not provided any evidence of a warranty and, for this reason, the goods cannot qualify for non-taxable importation under section 5 of Schedule VII to the Act.

Based on the information provided, the replacement XXXXX do not qualify for non-taxable importation pursuant to section 5 of Schedule VII to the Act.

If you have any questions, please do not hesitate to contact me at (613) 952-6743.

Cheryl R. Leyton
Border Issues Unit
General Operations and Border Issues Division
GST/HST Rulings and Interpretations Directorate