Motor Vehicle Parts Classified Under HSN 8708, Attracting 28% GST: AAAR Andhra Pradesh

Summary: In the case of M/s Saddles International Automotive & Aviation Interiors (P.) Ltd., the AAAR of Andhra Pradesh ruled that car seat covers should be classified under HSN 8708, which attracts a GST rate of 28%. The Appellant sought a ruling on whether original car seat covers, designed to fit permanently over raw foam seats, should fall under Chapter Heading 9401, liable for an 18% GST. However, the AAR found that these seat covers are accessories specifically designed for motor vehicles and provide protection, comfort, and aesthetic appeal. The AAAR emphasized that seat covers are extras that do not constitute seats themselves but serve as essential accessories, thus not covered under 9401. The ruling noted that the classification under HSN 8708 aligns with previous guidelines and classifications made before the GST regime. Furthermore, the GST Council has recommended increasing the GST rate for car seats classified under 9401 from 18% to 28%, aiming for uniformity with motorcycle seat taxation. This change will take effect on October 10, 2024, standardizing GST rates for motor vehicle parts, thereby resolving previous ambiguities in classification and ensuring compliance across the industry.

Introduction: The AAAR, Andhra Pradesh in the case of M/s Saddles International Automotive & Aviation Interiors (P.) Ltd., In Re [Order/AAAR/AP/03 (GST)/2024 dated April 26, 2024] held that motor vehicle parts or accessories to be classified under heading 8708 as they are suitable for use solely or principally with motor vehicles of Headings 8701-8705. On the test of sole use/principal use also, the seat covers merit classification under 8708 as they are only usable and used for motor vehicles and not for general use. Further, the seats covers are extras and are used for styling or comforting purpose. Hence, is classifiable under Heading 8708 and attracts the GST of 28%.

Facts:

M/s Saddles International Automotive & Aviation Interiors (P.) Ltd. (“the Appellant”) was engaged in manufacturing and supplying car seat covers, car accessories, engineer design services, and graphic design services.

The Appellant was seeking an advance ruling before the Authority for Advance Ruling to know whether the “original car seat covers” which are permanently attached to the raw foam seat of vehicles are classifiable under Chapter Heading 9401 as “Seats (other than those of heading 9402), whether or not convertible into beds, and parts thereof” and liable to GST at the rate of 18% vide Sl. No. 435A under Schedule III of Notification No.1/2017- Central Tax (Rate) dated July 28, 2017 (“Rate Notification”) as amended by Notification No. 41/2017 – Central Tax (Rate) dated November 14, 2017 (“Amendment Notification”).

AAR, Andhra Pradesh vide Order dated December 15, 2023 (“the Impugned Order”) ruled that the original car seat covers, which were manufactured and designed to permanently fit over raw foam seats of vehicles by the OEMs as well as seat manufacturers who further sell to OEMs and are sold with the vehicle as an essential and integral part of the seat which are classifiable under HSN 8708 attracting the GST @28% [14% CGST+ 14% SGST].

Hence, aggrieved by the AAR ruling, the Appellant filed the present appeal in the Appellate Authority for Advance Ruling.

Issue:

Whether the parts and accessories of motor vehicles are classifiable under the HSN 8708, attract the GST of 28%?

Held:

The AAAR, Andhra Pradesh in Order /AAAR/AP/03 (GST)/2024 held as under:

• Observed that, the seat covers should fit on the existing seat of the motor vehicles. These seat covers are meant for the protection of the seats and the functional value of seat covers is the comfort and convenience to the driver and passengers. Further seat covers are “extras” that act directly on the seats of motor vehicles adding the style of the interior of motor vehicles and protecting the seats from wear and tear. Thus, the seat cover is nothing but an accessory. The features of the seat cover are distinct and distinguishable from the seat.
• Noted that, the Heading 940120 covers ‘seats for motor vehicles’ whereas the Appellant is not manufacturing ‘seats’ as such but only the seat cover which is fitted over the seat already factory manufactured. Thus, the product manufactured by the Appellant is not covered under Heading 940120. Further, heading 9401 refers to ‘seats and parts thereof’ which will be more general in nature, as compared to the heading 8708, which relates specifically to accessories (seat cover) of vehicles of various headings.
• Opined that, the seat covers were covered under ‘accessories‘ in the pre-GST regime as well. In this regard, Circular No.541/37/2000-Central Excise dated August 16, 2000 issued by the CBEC, on the issue relating to classification of Car Seat covers was released which referred the case of Guru Overseas Pvt. Ltd. Vs. CCE, Delhi [Final Order No. 39/2000 dated January 4, 2000] wherein the issue was whether of “Leather” or “Textile” are accessories and classifiable under Chapter sub-heading 8708.00. The CEGAT relied on the case of M/s. Kirloskar Pneumatic [1991 (55) ELT-207].
• Noted that, the entry under HSN 8708 at Serial No. 170 under Schedule IV of Notification No. 1/2017-Central Tax (Rate) dated June 28, 2017 continues to be applicable for car seat covers attracting tax at the rate of 28% – IGST, or 14% – CGST + 14% SGST. In the instant case also, the relevant entries at chapter heading 8711 and 8714, as it existed during the pre-GST regime, continue to remain the same without any changes in the GST period as well.
• Observed that, Heading 8708, provides for ‘parts and accessories’ of motor vehicles of headings 8701 to 8705. “Accessory” is not defined in the HSN. Thus, the common meaning of the term, as the courts did in the past.
• Relied on, M/s. Intel Design Systems (India) P Limited Vs Commissioner of Customs and Central Excise (CA No.4564 of 2002 dated February 11, 2008), Hon’ble Supreme Court held that parts falling under Chapter heading 87 should be classified under this heading, only if the following conditions are satisfied:-

a. they should be used solely or principally for motor vehicles and

b. they should not be excluded as per the Section notes mentioned.

c. Note 3 under Section XVII of the Customs Tariff Act specifically excludes parts and accessories mentioned in Chapters 86 to 88, if they are not suitable for use solely or principally with the articles of those Chapters.

• Held that, for motor vehicle parts or accessories to be classified under heading 8708, they must satisfied. Hence, the Advance Ruling is appropriate in this regard and needs no interference.

Our Comments:

The GST Council in its 54th meeting held on September 09, 2024, recommends that the GST rate on car seats classifiable under 9401 to be increased from 18% to 28%. This uniform rate of 28% will be applicable prospectively for car seats of motor cars in order to bring parity with seats of motorcycles which already attract a GST rate of 28%.

The CBIC vide Notification No. 05/2024-Central Tax (Rate) dated October 08, 2024 notifies the GST rate on car seats classifiable under 9401 to be increased from 18% to 28%. This uniform rate of 28% will be applicable prospectively for car seats of motor cars in order to bring parity with seats of motorcycles which already attract a GST rate of 28%.

in Schedule IV – 14%, after S. No. 210 and the entries relating thereto, the following S. No. and entries shall be inserted, namely: –

This notification shall come into force on the 10th day of October, 2024.

CBIC has increased the GST rates on Seats of a kind used for motor vehicles classifiable under 9401 from 18% to 28% w.e.f. October 10, 2024.

This uniform rate of 28% will be applicable prospectively for car seats of motor cars in order to bring parity with seats of motorcycles which already attract a GST rate of 28%. Hence, prescribing 28% GST rate for car seats, similar to the rate for motorcycle seats, will bring uniformity in the GST rates of seat, components and accessories for both cars and motorcycles.

Further, The GST Council in its 54th meeting held on September 09, 2024, recommended clarifying that car seats are classifiable under 9401 and would attract a GST rate of 18%. The CBIC vide Notification No. 05/2024-Central Tax (Rate) dated October 08, 2024 notified that the car seats are classifiable under 9401 and would attract a GST rate of 18%.

(ii) for S. No. 435A and the entries relating thereto, the following S. No. and entries shall be substituted, namely: –

This notification shall come into force on the 10th day of October, 2024.

The CBIC now has classified car seats whether or not convertible into beds and parts thereof other than seats of a kind used in aircraft or seats of a kind used for motor vehicles under 9401 and attract a GST rate of 18% w.e.f October 10, 2024. The GST Council had recommended to clarify by way of circular that car seats are classifiable under 9401 and attract GST Rate of 18%.

Earlier, there was various ambiguity on this subject matter. In the Authority for Advance Rulings, Tamil Nadu in the case of N.R. Engineering Industries [Advance Ruling No. 124/AAR/2023] classified car seats under Heading 9401, subject to 18% GST rate. On contrary, the Hon’ble Supreme Court in the case of Commissioner of Central Excise & State Tax, Ahmedabad v. Shiroki Auto Components India (P.) Ltd. [Civil Appeal No. 1623 of 2021 dated July 30, 2021] car seat and covers are categorised as ‘motor vehicle accessories’ falling under HSN 8708 and liable to 28% GST rate.

Thus, CBIC’s clarification on the classification of seat cars ensures uniformity in the applicable GST rate, thereby standardizing the payment of GST at 18% on the said product.

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(Author can be reached at [email protected])

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