E-rickshaw Tyres classifiable as New pneumatic tyres of rubber; Taxable at 28% GST: AAR

In re Ceat Limited (AAR Maharashtra)

Applicant is engaged in the manufacturing of tyres of kind used in three-wheeled Electric-rickshaws which are used to transport goods and passengers over short distances. The applicant, M/s Ceat Ltd. has filed the application under section 97 of the Maharashtra Goods and Services Tax Act, 2017 and requested to decide the question What is the classification and rate of Central Goods and. Service Tax leviable on the product “E-rickshaw tyres.

The legal position, Analysis and Discussion

1. We find that the charging section 9(1) of MGST and CGST ACT, 2017 provides for levy and collection of state tax and central tax on goods and services on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 and at such rates, not exceeding twenty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person. Accordingly the State and central government have issued the notification for levy of tax. The provisions for implementing the CGST ACT and MGST ACT, 2017 are similar.

The relevant entries in the respective Schedules of Notification No. 1/2017-Central Tax (Rate) dated 28.6.2017, for the purpose of the impugned product in question, read as under:

Schedule I – 2.5% 

2.1 Three Wheeled Electric Motor Vehicle (known as E-Rickshaw in market) is a Motor Vehicle in Motor Vehicle Act also. It has to be registered with State Transport Authorities as a Motor Vehicle. Tyres and Tubes used in these Vehicles are Automobile Tyres and Tubes of size 300-12, 300-14, 90-90/12 and 3.75-12, which are duly prescribed as Automobile Tyres in Bureau of Indian Standards for Two and Three Wheeled Motor Vehicles IS 15627:2005.By no means the Tyres and Tubes cleared by them are Tyres and Tubes of Three Wheeled Powered Cycle

2.2 The SSI exemption notification no. 8/2003-Central Excise dated 1st March, 2003 defines the powered cycle rickshaw as under:

“Powered cycle or powered cycle rickshaw means a mechanically propelled cycle or as the case may be mechanically propelled cycle rickshaw, which may also be pedalled if any necessity arises for so doing”

2.3 It clearly shows that the Tyres cleared by these manufacturers attract a peak rate of 14% percent instead of 2.5% percent, as these Tyres and Tubes are meant for Electric Motor Vehicles (known as E-Rickshaw).The sizes of these tyres and tubes mentioned are also used widely in scooters and It is necessary to verify what duty these companies were paying in pre-GST.

2.4 In Chapter head 4011 and 4013, Pneumatic Tyres or Inner Tubes, of Rubber, of a kind used on/in Bicycles, Cycle Rickshaws and Three Wheeled Powered Cycle Rickshaws attract a GST Rate of 2.5%, In Chapter head 4011, New Pneumatic Tyres of Rubber {Other than of a kind used on/in Bicycles, Cycle-Rickshaws and Three Wheeled Powered Cycle Rickshaws; and Rear Tractor Tyre} attract a GST Rate of 14%.

2.5 To ascertain the GST Rates on tyres used on/ in E-rickshaw, we have to find out what is the meaning of Powered Cycle Rickshaw and whether it is synonymous with E Rickshaw? The term ‘powered cycle rickshaw’ in the explanation to the notification number 102/76 dated 16-3-1976 is as follows:

“Explanation.- The expression term ‘Powered Cycle’ or ‘Powered Cycle Rickshaw’ means a mechanically propelled cycle or as the case may be mechanically propelled cycle rickshaw, which may also be paddled , if any necessity arises for so doing”. Here it is very clear that e-Rickshaws cannot be paddled is such necessity arises.

2.6 Further, the meaning of Powered Cycle Rickshaw was clearly explained in the case of Delhi Kinetic Engineering Ltd. Vs Collector Of Central Excise and was upheld by Supreme Court bench on 21.03.1996 and reported in 1997 (94) ELT AI57(SC). Therefore, It is settled that Powered Cycle Rickshaw referred to in the Explanation would not cover an Auto Rickshaw and would only cover an ordinary Cycle Rickshaw to which a motor or petrol engine has been

3. We have carefully considered the notification issued for rate of tax, in order to determine the rate of MGST/CGST. The scheme of tax revealed that the GST is levied on supplies of goods, the description of which is specified in the corresponding entry in column (3) of the said Schedules.

The description is provided as Pneumatic tyres or inner tubes, of rubber, of a kind used on / in bicycles, cycle -rickshaws and three wheeled powered cycle rickshaws.”

a) On analysis of the schedule entry- 190, it is seen that the tyres of cycle or cycle rickshaw whether powered or not are covered only. It is clear that the rickshaw must be pedal driven. The term “Cycle rickshaw” connotes a pedal driven, human powered, single track vehicle, having three wheels attached to a frame. The vehicle is usually a tricycle, pedal-driven by a driver, though some are equipped with an electric motor to assist the driver. In common parlance, the people understand a “cycle rickshaw” is a pedal driven, human powered, single track vehicle, having three wheels attached to a frame. This view is fortified with the ruling of Hon. Apex Court.

The meaning of Powered Cycle Rickshaw was clearly explained in the case of Delhi Kinetic Engineering Ltd. Vs Collector Of Central Excise and upheld by Supreme Court bench on 21.03.1996 and reported in 1997 (94) ELT A157(SC).

b) It is well settled principle that in interpreting the entries of tax statute, preference should be given to the common parlance meaning and the one defined in local dictionary. In common as well as in commercial parlance, principle of classification provides that goods should be classified accordin^g to their popular meaning or as they are understood in their commercial sense and not as _{per the}  scientific or technical meaning. How the product is identified by the class or section of people dealing with or using the product is also a test when the statute itself does not contain any definition and commercial parlance would assume importance when the goods are marketable.

c) In the present case, the product introduced by the appellant is with electric battery whereas the simple meaning of “cycle” is a pedal driven, human powered, single track vehicle, having two wheels attached to a frame, one behind the other. He also urged that the word “cycle” has to be understood in the light of the word “cycle rickshaw”. The word “bicycle and cycle rickshaw, provided in entry-190 of schedule-I takes the colour from each other. For the purpose of charging sales tax we have to consider the plain meaning of “cycle” in common parlance.

d) With this understanding, let us turn to the maxim “noscitur a sociis”, which means the meaning of a doubtful word may be ascertained by reference to the meaning of words associated with it. A man may be known by the company he keeps and a word is known by the accompanying Words derive colour from the surrounding words. The coupling of words together shows that they are to be understood in the same sense. Where the meaning of a particular word is doubtful, it may be ascertained by looking at adjoining words. In the construction of statutes, the rule noscitur a sociis is frequently applied, the meaning of a word, and, consequently, the mens legis is ascertained with reference to the context, and by considering whether the word in question and the surrounding words are, in fact, ejusdem generis, and referable to the same subject-matter. The meaning of law can be collected by comparing one part with another and by viewing all the parts together as one in whole and not one part only by itself. If one goes by this settled principle of interpretation of statutes then one would find that the word is to be found in the company of the words “cycle rickshaws”, “bicycle”. The cycle rickshaws are commonly understood as rickshaws propelled by cycling. The cycle rickshaw cannot be termed as auto-rickshaw or e-rickshaw.

e) The Cycle rickshaw is cycle rickshaw as understood in common parlance. The word cycle-rickshaw will take colour from the word bicycle and the things are belonging to same genus. Considered from this angle, one has to reach to the conclusion that the e-rickshaw is not within the sweep of the word “bicycles” or “cycle Rickshaw” and also does not appear to be in consonance with the legislative intent.

f)  The applicant has relied upon the various case laws. We have carefully gone through the case laws. The case laws cited by applicant are more or less related to advancement of technology. The courts have observed that there is no change in the class of goods. The textile remains as textile. The change in method of manufacturing does not change the product. In present case we have seen that that the Three wheeled power cycle rickshaw and E-rickshaw are two different and very distinct commercial commodity understood in market. We respectfully opine that the ratio of the judgment cited by the applicant is not squarely applicable to this case.

g) It is settled principle that the “entry” in a tax statute is to be considered or interpreted in respect of a product or an item and its name in the commercial parlance is to be considered and if there is no clear identity or there is no clarity on the said aspect, the court may consider the composition of the product used or other dictionary meaning, etc. When the pro-duct is well known and understood amongst the buyers in commercial parlance, the other test namely, its composition or its actual use by different persons who may be using it for various purposes or its dictionary meaning would have little role to play. At this stage, we may refer to the decision of this court in the case of Raman Boards Ltd. [2015] 80 VST502(Karn), more particularly the observations made at para 37 of the said decision, which reads as under (pages 526 & 527 in 80 VST) :

“37. The ‘entry’ to be interpreted here is in a taxing statute ; full effect should be given to all the words used therein. If a particular article would fall within a description, by the force of words used, it is impermissible to ignore that description and denote the article under another entry, by a process of reasoning. The meanings given to articles in a fiscal statute must be as people in trade and commerce, con-versant with the subject, generally treat and is understand by them in the usual course. If an expression is capable of a wider meaning as well as narrower meaning, the question whether the wider or the narrower meaning should be given depends on the context and the background of the case. But once an article is classified and put under a distinct entry, the basis of the classification is not open to question. Technical and scientific tests offer guidance only within limits. Once the articles are in circulation and come to be described, then, there is no difficulty for statutory classification under a particular entry.

in view of detailed discussions as above it is clear that when legislature has classified the product and put them under a different entries Entry 160 of schedule-I and Entry-46 of schedule‑ IV and being capable to be understood in common parlance as a different commercial commodity, the basis of the classification is not open to question. Moreover, the schedule entry 46 is very specific in nature and is considered for all pneumatic tyres, of rubber. The schedule entry is provided with the exclusion clause. The exclusion clause enlists very specific items only. As we have already seen that the impugned product is pneumatic tyre and also does not fit into exclusion clause namely [other than of a kind used on/in bicycles, cycle-rickshaws and three wheeled powered cycle rickshaws; and Rear Tractor tyres; and of a kind used on aircraft] of particular entry. Once the articles are in circulation and come to be described, then, there is no difficulty for statutory classification under a particular entry. Hence we are of opinion that there is no force in contention of applicant.

In view of the extensive deliberations as held hereinabove, we pass an order as under:-

ORDER
(Under section 98 of the Maharashtra Goods and Services Tax Act, 2017)

0.1 What is the classification and rate of Central Goods and Service Tax leviable on product “E-rickshaw tyres”?

A.1 The product is classified and covered by Tariff Heading 4011 and the rate of tax shall be at the rate of 14 percent under MGST ACT, 2017 and 14 percent under CGST ACT, 2017.