DGGI seeks higher GST from auto parts makers
Goods and services tax authorities have raised higher tax demands to several automotive component manufacturers, citing a Supreme Court judgement regarding a company owned by the West Bengal government.
The Directorate General of Goods and Services Tax Intelligence (DGGI) sent notices to at least 17 such companies in the last 45 days alone with total tax demands of over ₹1,200 crore, said people close to the development. Officials said the amount could go up further as more notices will be sent.
"Going by the Supreme Court order in the case of M/s Westinghouse Saxby Farmer, parts used exclusively for the auto industry have to pay higher tax and there cannot be two principles of taxation for the two industries," a senior tax official told ET.
The matter involves manufacturers of engines, horns, locks, lights, sensing devices, valves, switch panels, LCD screens used in dashboard displays, oil seals and other electronic components, among other vehicle parts.
While these manufacturers have been paying GST on the parts at lower rates, usually 18%, tax authorities have claimed that a rate of 28% is applicable since that is the GST rate applicable on 'parts and accessories of motor vehicles' as per the GST Law.
The component manufacturers have received demand notices for the differential amount along with interest, sources said.
Several companies are now planning to challenge these notices in courts, some of these people said.
The dispute in classification arises from a 2021 judgement by the Supreme Court in the case of Westinghouse Saxby Farmer, a manufacturer of relay systems used in railways signalling. The company classified the relays it manufactured as a part of railway equipment, which attracts a lower tax rate. It argued that the parts should be classified as such as they were manufactured exclusively for use in the railways.
Meanwhile, authorities sought reclassification of the product, which would result in higher taxation.
The apex court decided in Westinghouse Saxby's favour, classifying the relays as part of the railway signalling system. While this was beneficial for the railways and aviation industries, experts had warned at that time that the fallout of the ruling will have adverse impact on the automotive industry as they will have to deal with classification disputes with the GST authorities and may face higher tax than the existing one, as Supreme Court order supersedes Central Board for Indirect Taxes and Customs (CBIC) classification.