Classification of Disc-Pads / Brake-Pads under GST

I. Introduction and Classification Controversy

The braking system is a critical safety component in any automobile. There are many kinds of braking systems; the disc-braking system is one such system. Disc-pads / brake-pads (hereinafter “disc-pads”) are parts of the disc-braking system. While disc-pads have evolved to include many components, at their heart they are an amalgamation of two main parts, viz., the backing plate and friction material.

The classification of disc-pads under GST Laws runs is contentious because it appears that disc-pads are covered by two distinct ITC HS Codes. The rival ITC HS Codes have been reproduced below:

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II. Manufacturing Process

To understand which classification is appropriate, the manufacturing process needs to be understood. It has been described below:

→ The friction material is first produced in powder form by mixing various ingredients in predetermined ratios. Depending on the application, between 20-30 different components are chosen from a range of over 100 different materials. (abrasives like oxides of aluminium or silicon that serve to generate friction, lubricants like graphite and sulphur that limit where by generating the protective layer between pads and discs, metals like iron and copper that help heat dissipation, etc.).

→ The backing plate is a metal sheet designed according to compatibility of the braking system of the vehicle upon which it is to be fitted. The metal plate is “shot blasted” to attain the desired surface/strength.

→ The friction material in powder form is poured into a mould/die and along with the backing plate it is fed into the moulding machine where the powder takes shape of a mould and gets fixed upon the metal plate. This product there after undergoes certain curing and finishing process to attain the desired marketable condition.

→ A disc-pad is thus manufactured by “mounting” “friction material” to the “backing plate”. The following is a pictorial representation a disc-pad once it has been manufactured.

III. Analysis

Chapter 68 is titled “Articles of stone, plaster, cement, asbestos, mica or similar materials”. Sub-heading 6813 is titled “Friction material and articles thereof (for example, sheets, rolls, strips, segments, discs, washers, pads), not mounted, for brakes, for clutches or the like, with a basis of asbestos, of other mineral substances or of cellulose, whether or not combined with textile or other materials”. “Brake lining and Pads” form part of this sub-heading.

The phrase “not mounted” used in the sub-heading prefaces the HS Code 68132010 described as “Brake lining and Pads”. This is pertinent to the  instant controversy as it suggests that only those brake linings and pads that are not mounted can be classified as such. Thus, while friction material in standalone, lining, or pad form can be categorised under this HS Code, the same in mounted form cannot.

Chapter 87 is titled “Vehicles other than railway or tramway rolling-stock, and parts and accessories thereof”. Sub-heading 8708 is titled “Parts and accessories of the motor vehicles of headings 8701 to 8705”. “Brakes and servo-brakes; parts thereof” form part of this sub-heading.

Disc-pads are parts of the disc-braking system. They are formed by fusing the friction material with a backing plate. This results in the creation of a single component. They fit the descript of “parts and accessories of motor vehicles”. As long as these disc-pads are not used towards categories of vehicles excluded by the chapter’s heading, viz., railway or tramway rolling-stock, and are applied for use on vehicles described in sub-headings 8701-8705, the disc-pads can be categorised under HS Code 87083000.

The law prescribes different tax rates depending on the end use of disc-pads. While it ordinarily prescribes 28% consolidated levy for disc-pads used for all other vehicles, it prescribes 18% consolidated levy for disc-pads used for tractors.

IV. AAR Rulings

This controversy has been the subject matter of the following AAR Applications –

• Roulunds Braking India Private Limited Order No. 03/2017 dated 27-12-2017 (AAR-HR).
• Indo German Brakes Private Limited Order No. 02/2017-18 dated 14-03-2018 (AAR-UK).
• Compo Advice India Private Limited Order No. GST-ARA-10/2018-19/B-66 dated 11-07-2018 (AAR-MH).
• Brakes India Private Limited Order No. TN/07/AAR/2018 dated 30-08-2018 (AAR-TN).

In all the above applications, the AAR made findings that disc-pads ought to be categorised under HS Code 87083000 and are liable to be taxed at 28% unless such brake pads are used towards tractors.

While AAR Decisions are only binding on the particular applicant and the revenue with respect to that applicant, there is sufficient reason to believe that the reasoning adopted by AAR in the above-mentioned cases would hold considerable persuasive value in any court of law.