Mercedes-Benz India Pvt. Ltd. Vs Union of India & Others (Bombay High Court)
Bombay High Court, in a significant ruling on May 21, 2025, has sided with Mercedes-Benz India Pvt. Ltd. in a dispute over the calculation of Compensation Cess on its passenger vehicles. The High Court declared that for the period prior to July 26, 2023, “ground clearance” for the purpose of levying Compensation Cess on certain motor vehicles should be measured in a “laden condition” (fully loaded), not an “un-laden condition” (empty). This decision effectively quashes an Order-in-Original dated January 21, 2025, and a Rectification Order dated March 13, 2025, issued by the tax authorities.
The case centered on the interpretation of Sr. No. 52B of Notification No. 1/2017-CC (Rate) dated June 28, 2017, as amended, which prescribes a Compensation Cess of 22% for certain Sports Utility Vehicles (SUVs). To attract this higher cess, vehicles had to meet four conditions: an engine capacity exceeding 1500cc, popular recognition as SUVs, length exceeding 4000mm, and a ground clearance of 170mm and above. The core of the dispute revolved around the fourth condition – how “ground clearance” was to be measured.
Mercedes-Benz India Pvt. Ltd., the manufacturer and trader of Mercedes-Benz passenger cars, argued that prior to July 26, 2023, the law was silent on whether ground clearance should be measured in a laden or un-laden condition. Based on their interpretation, supported by industry practice, regulatory requirements under the Motor Vehicles Act, and a historical practice accepted by tax authorities since the Central Excise regime, they measured ground clearance in a laden condition. As their vehicles had a ground clearance of less than 170mm in a laden condition, they were paying a lower Compensation Cess of 20% under Sr. No. 52A of the Cess Notification.
