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Auto sector fears higher GST rate on certain parts after Supreme Court ruling.

Date: 16-08-2021
Subject: Auto sector fears higher GST rate on certain parts after Supreme Court ruling
Several automobile and auto component companies have approached the government after the indirect tax department initiated enquiries to tax certain components at a higher rate under the goods and services tax framework (GST).

Their concern is that the indirect tax department could now slap 28% GST on these components instead of 18%,following a Supreme Court ruling.

The ruling, in an entirely different matter, said that GST rates can differ based on “sole and principal” use test.

The GST framework is a nuanced tax system that categorises and defines each product, item and then decides the tax rates.

Under chapters 86, 87, 88 and 89 of the framework, several auto components are defined, and these are taxed at 28%.

Apart from these, there are components that are not defined, as they have multiple uses, apart from being used in cars and bikes, and these are taxed at 18%.

Following the SC  ruling, even the ones that are taxed at 18%, will be taxed at 28% under the GST framework, say tax experts.

Many domestic suppliers as well as importers would now be required to cough up higher taxes. In most cases, companies are still paying the old taxes, but the tax department’s inquiries would mean a dispute and litigation going ahead, warn legal experts.

“Supreme Court ruling has negatively impacted the automobile sector, resulting in benefits for railways and airlines,” said Rohit Jain , partner at law firm 


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