Billings on goods under warranty

MTN A7 phone *******ed its software after 5 months of purchase and was refusing to go out of safe mode. I returned phone on 15/01/2016 for reinstallation, now they are claiming it was water damaged and I should pay R2600. They are saying warranty is void because of water damage which I don't agree it's water damaged, they want to charge me for a phone on warranty. They say if I don't want to pay R2600, I should pay R380 service fee. If a phone is on warranty it should not be paid for if returned, but they want me to pay. The phone is not even 6 month old, so I want them to fix my phone for free as per contract and give it back because I need to work with it. I am loosing a lot of Business because of MTN.