In re Saddles International (GST AAR Andhra Pradesh)
In a pivotal ruling by the Authority for Advance Ruling (AAR) in Andhra Pradesh, the classification and GST rate of original car seat covers designed for permanent integration with vehicle seats have been decisively addressed. This determination stemmed from an application by Saddles International Automotive & Aviation Interiors Private Limited, which sought clarity on the GST implications for their OEM-designed car seat covers.
The Context and Inquiry
Saddles International, a manufacturer supplying original car seat covers to OEMs (Original Equipment Manufacturers) and seat manufacturers, raised a query regarding the GST classification of their products. These covers, made from fabric or Polyurethane (PU), are specifically designed to fit over the raw foam of vehicle seats, becoming an inseparable part of the car upon installation. The question posed was whether such products should be classified under HSN 9401, attracting a GST rate of 18%, or under a different heading.
The AAR’s Analysis and Conclusion
Upon thorough examination, the AAR concluded that the original car seat covers in question, being indispensable to the vehicle’s functionality and sale, should not be classified under HSN 9401. Instead, they are more aptly classified under HSN 8708, which encompasses parts and accessories of motor vehicles. Consequently, these products are subject to a GST rate of 28%.
This ruling underscores the intricate considerations involved in classifying goods within the GST framework, particularly for items integral to the manufacturing of vehicles. The decision highlights the significance of the product’s functional integration with the vehicle, dictating its classification and the applicable GST rate.
Implications for the Industry
The AAR’s ruling carries profound implications for manufacturers and suppliers within the automotive sector. It delineates a clear distinction between general accessories and components that are fundamental to a vehicle’s operation and marketability. For businesses like Saddles International, this classification under HSN 8708 at a 28% GST rate necessitates careful consideration in pricing strategies and supply chain management to accommodate the higher tax burden.
Furthermore, this decision provides valuable guidance for other entities in similar manufacturing domains, ensuring a better understanding of the tax implications of their products. By clarifying the classification of integral car seat covers, the AAR has contributed to a more predictable and transparent tax environment for the automotive accessories industry.
Conclusion
The AAR’s determination serves as a crucial reference point for automotive component manufacturers, emphasizing the importance of the functional role of a product in determining its GST classification. This ruling not only impacts Saddles International but also sets a precedent for how similar products are viewed in the context of GST, fostering a clearer understanding of tax liabilities for businesses involved in the production and supply of vehicle components.
FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING, ANDHRA PRADESH
1. At the outset we would like to make it clear that the provisions of CGST Act, 2017 and SGST Act, 2017 are In parimateria and have the same provisions in like matter and differ from each other only on a few specific provisions. Therefore, unless a mention is particularly made to such dissimilar provisions, a reference to the CGST Act would also mean reference to the corresponding similar provisions in the APGST Act.
2. The present application has been filed u/s 97 of the Central Goods & Services Tax Act, 2017 and AP Goods & Services Tax Act, 2017 (hereinafter referred to CGST Act and APGST Act respectively) by M/s. Saddles International Automotive & Aviation Interiors Private Limited(hereinafter referred to as applicant), registered under the AP Goods & Services Tax Act, 2017.
3. Brief Facts of the case:
3.1 M/s Saddles International Automotive & Aviation Interiors Private Limited (hereinafter referred to as applicant”) is engaged in manufacturing and supplies original car seat covers made from fabric that are designed to fit permanently over the raw foam seat installed in the vehicle, to original equipment manufacturers (‘OEMs) as well as to seat manufactures who further sell it to OEMs and is sold with the vehicle. Applicant is having GST Registration number37ABBCS7194N1ZK.
3.2 The Applicant has been engaged by various OEMs for supply of primary original seat covers manufactured from fabric or Polyutherane (PU) which are designed to permanently fit over the raw foam seat installed in the car and becomes an integral part of car seats. The Applicant also supplies these primary seat covers to the seat manufacturers, on contract basis, who further supply it to OEMs for permanent affixation over the raw foam seat.
3.3 The manufacturing process of such seat covers involves cutting and stitching of the fabric as per the specifications and measurements of the automobile seats provided by the OEMs/seat manufacturers depending on the make and model of each vehicle. In certain cases. mould or template are provided to the Applicant to ensure permanent and perfect affixation of the cover on the raw foam seat.
3.4 The seat covers are affixed by the OEMs on the metal welded frame and polyurethane pads / foam with the help of rubber catches and metal c-rings (which is a type of fastener). This cover serves as a primary layer of textile fabric. Of the car seat which is permanently affixed over the raw seat after the foam cushion pad that is fastened or attached to the frame of seat assembly. Without mounting such permanent covers over the raw foam seat, the seat is incomplete, and in turn vehicle is incomplete and thus cannot be sold to the customers in the same manner. The price of seat covers forms part of the cost of the car / vehicle sold by the automobile manufacturer as a part of original equipment.
3.5 The above seat covers manufactured by Applicant adheres to the safety standards and are designed keeping in mind the airbag compatibility. Therefore, the original primary seat covers which are permanently fitted / installed to the seat in the vehicle at the time of sale, is an essential and integral part of the seat.
3.6 The applicant wishes to know whether the goods, namely “original car seat covers” which are permanently attached to the raw foam seat of vehicles are classifiable under HSN 9401 as “Seats (other than those of heading 9402) used for aircraft and liable to GST 0 18 % vide SI.No. 435A under Schedule III, of notification no.1/2017- Central tax (rate) dated 28.06.2017 as amended by notification no.41/2017- Central tax (rate) dated 14.11.2011.
4. Questions raised before the authority:
The applicant seeks advance ruling on the following:
1. Whether original car seat, covers which arc manufactured and designed to permanently fit over the raw foam seat of the vehicle by the OEMs as well as the scat manufactures who further sell to OEMs and arc sold with me vehicle as an essential and integral of part of seat is classifiable under HSN 9401 as ” Scats (other than those of heading 9402) whether or not convertible into beds, and parts thereof other than seats of kind used for aircraft” and is liable to GST @ 18 % vide SI. No. 435Aunder Schedule III of Notification No.1/2017- Central tax (rate) dt.28.06.2017 as amended by Notification no.41/2017 Central Tax (rate) dt.14.11.2017
On Verification of basic information of the applicant, it is observed that the applicant is under Central jurisdiction i.e,Hindupur-2 Range, Anantapur Division. Accordingly, the application has been forwarded to the jurisdictional officer and a copy marked to the Central Tax authorities to offer their remarks as per Sec. 98(1) of CGST /APGST Act 2017.
In response, remarks are received from the Central jurisdictional officer concerned stating that no proceedings lying pending with the issue, for which the advance ruling sought by the applicant.
5. Applicant’s Interpretation of Law:
5.1 The applicant submits that pertinent to mention here that earlier, a ruling was sought by applicant from the Hon’ble Authority for Advance Ruling, Andhra Pradesh, reported as In Re: Saddles International Automotive & Aviation interiors Pvt. Ltd., 2021 (54) G.S.T.L. 464 (A.A.R- GST- AP) where they sold the manufactured sear covers to car scat makers who affix the scat covers into the seat covers to car seat makers who affix the seat covers into the scats and thereafter the seat was affixed to the motor vehicle. The applicant approached the Hon’ble Authority seeking classification of such car seat covers which performed the functions to help the driver and co-passenger to get into the most comfortable seating Inside the car as per their convenience, which does not absorb heat; for protection of scats; and further covers do not absorb heat and hence, keep the car cool and user comfortable.
5.2 The applicant while concluding the classification under HSN 8708, the Hon’ble Authority relied upon the decision of Hon’ble Tribunal in Guru Overseas Private Limited vs Commissioner of Central Excise [2001 (132) E.L.T. 60 (Tri.- Del,)], which had relied on the decision passed in the appellant- assessee’s own case reported in Guru Overseas Pvt Ltd. Vs. Collector of Central Excise, New Delhi, [200 (120) E.L.T. 209 (Tribunal)] where it was admittedly claimed by appellant assesse that the leather and textile car seats covers manufactured by them were not integral part of car seats but were sold separately as additional covers for seats of cars which are commonly known and traded in the market as accessories of cars used for comfort, convenience and sleek look of the seats and therefore would not fall under Chapter Heading 94.01. In this matrix, the Hon’ble Court held that such additional covers are not integral part of car seats but are in the nature of accessories and would be classifiable under Chapter sub- heading 87.08 instead of 94.01
5.3 In view of the above, it transpires that the aforesaid ruling was passed by the Hon’ble Authority of Advance Ruling in the context where seat covers were meant and used as additional / secondary covers over the original seat cover of car for enhanced comfort, convenience. Upgraded look of car interior, and was not an integral part of the seat.
5.4 However, in the instant case, the Applicant is manufacturing and supplying the cover seats of car which are designed for permanent fit over the raw foam seat installed by the OEMs in the vehicle and thus becomes an inseparable part of the seat, without which the vehicle is incomplete and cannot be sold. These seat covers supplied by Applicant to the OEMs are neither additional covers to the original seat covers nor sold as aftermarket product but is an integral part of the car seats installed in the vehicle sold to the customer.
5.5 In the aforesaid facts of the case, the Applicant submits that the issue on which the present advance ruling is sought is whether the supply of original seat covers manufactured by Applicant for the OEMs which are designed to permanently fit over the raw foam seat installed in the vehicle falls under FISN 9401 as Seats ((other than those of hearing 9402) whether or not convertible into beds.. and parts thereof [other than seats of a kind used for aircraft]’ and is liable to GST 18% vide I. No. 435A under Schedule III of Notification No. 1/2017 as amended. That the question relating to classification of any goods and/ or services is eligible to be posed for advance ruling before the Advance Ruling Authority in terms of Section 97(2)(a) of the CGST Act. Further. the question raised in the present Applicant is in respect of different product and In the facts which are different from the earlier Ruling. Hence, the present advance ruling application is maintainable before the Hon’ble Authority of Advance Ruling, Andhra Pradesh.
APPLICANTS UNDERSTANDING:
5.6 Applicant’s interpretation that the original seat cover manufactured by it, is the first primary layer (cover) of textile fabric of the car seat which is permanently fixed by the OEMs over the seal foam cushion, which is attached to the frame of the scat of car and thereafter the entire seal assembly is mounted installed in the vehicle. Thus, the original primary seat cover Is an Integral and essential part of the scat without which the seat is incomplete and in turn, vehicle is incomplete and cannot be sold to the customers. Hence, the goods fall under HSN 9101 as “Seats (other than those of hearing 9402) whether or not convertible into beds.. and parts thereof father than seats of a kind used for aircraft!’ and is liable to GST © 18% vide SI. No. 435A under Schedule K of Notification No. 1/2017 as amended. The submissions in support of the aforesaid interpretation hay been enunciated in the ensuing paragraphs:
5.7 The primary original cover which is designed to permanently fir over the raw foam seat is an integral and essential part of the car seat, installed in the vehicle. Therefore, the same is classifiable under HSN 9401 and liable to GST © 18 % under SI.No. 435A of Notification No. 1/2017 as amended. Section 9 of CGST Act, is the charging section for levy of GST and provides that GST shall be levied on all inter-state supply of goods or services, at the rates notified by the Government on the recommendations of the GST Council.
5.8 In terms of the power conferred under the aforesaid provision, the Central Government vide Notification no. 1/2017-Central Tax (Rate) dated 28.06.2017, has notified the rate of tax on supply of goods. Similar notifications have been issued under APGST Act and IGST Act, prescribing the applicable rate for APGST and IGST, respectively_ The Notification No. 1/2017 as amended contains six schedules attracting different rates of tax as mentioned in the table below_ Each schedule contains entries having the description of goods along with their Chapter Number / Chapter Heading / Sub-heading / Tariff Item.
