Car matting not qualify as parts and accessories of vehicles, says Supreme Court

Mats made specifically for car and for home use will not be differentiated for levying tax purpose, the Supreme Court has said. This means mats used in cars will attract lower tax.

A division bench of Justice Deepak Gupta and Justice Aniruddha Bose upheld a tribunal view by dismissed appeal filed by Tax Department. Though the matter is related with the Central Excise Tax regime, but this ruling can be applicable in present GST regime also. At present carpet and mat attract GST at the rate of 5 and 12 per cent while there are three rates (12, 18 and 28 per cent) for different parts and components used in car.

This ruling will also help customers buying floor mat for car from after sales service centre. There, the customer will be required to pay lower duty. There might not be much change for input providers as they get credit for tax paid on inputs.

The matter reached apex court after a tribunal ruled against Tax Department which said the goods are manufactured in such a way that these can be used as accessories of cars. The tribunal found that though in common parlance the products involved may not be considered as carpets, in view of the wordings of the chapter, section notes, chapter notes and explanatory notes, “the goods were classifiable under chapter heading 570390.90 (the serial number in tariff chart which is used to find tax rate).” This means carpet/mattress used in car will not be called as accessories and taxed differently than other accessories or components.

“We do not find any error in such reasoning,” the division bench said while adding that relevant chapter (Chapter 87 for Auto Parts/ Accessories) of erstwhile Central Excise Tariff of India did not contain car mats as an independent tariff entry. It also found that various items mentioned are mechanical components. Explanatory Notes dealing with interpretation of the rules specifically exclude ‘tufted textile carpets, identifiable for use in motor cars’ for tax rates applicable on auto parts.

Tax Department argued that Explanatory Notes have persuasive value only. But the bench said that the level or quality of such persuasive value is very strong. “In our opinion, there is no necessity to import the ‘common parlance’ test or any other similar device of construction for identifying the position of these goods against the relevant tariff entries,” the bench said while dismissing the appeal by the Tax Department.

According to Pratik Jain, Partner & National Leader (Indirect Tax) at PwC, it is an important decision as the principle would equally apply under the current GST regime. While rate of GST with respect to supply to OEMs is essentially a cash flow issue, in case of sales in retail market, this leads to lower tax incidence and hence cost for the end customers. “Its relevant to note that Supreme Court has also relied on HSN explanatory notes and dismissed the 'common parlance' test given the wordings of the tariff entries,” he said.

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