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2021 (10) TMI 1116 - AAR - GSTClassification of goods - four toys in which physical force is the primary action and have electronic circuits/parts for providing light, music, horn etc arc electronic toys - whether these toys will be taxable at 18% GST as per Sl.No. 440 of Schedule-III of the rate Notification or Other than electronic toys attracting 12% GST as per Sl.No. 228 of Schedule --II of the rate Notification - HELD THAT - The applicant arc trading the toys , viz., Children s Scooter, Smart Tri-cycle, Activity Ride-on and Kick Scooter, which they have been considering as Toys - Other than Electronic and has applied the rate as specified under Sl.No. 228 of Schedule-II of the Rate Notification. These toys are advertised to help the Kids to develop the motor skills. It is evident that the Tricycles, Scooters, pedal cars, like the products in hand are to be classified under CTH 9503 only and the 8 digit classification in the Tariff is based on the material it is made of and classification is not provided based on whether it is operated manually or otherwise. The description of goods in entry Sl.No. 228 says Toys like tricycles, Scooters, pedal cars, etc and at Sl.No. 440 above, states as Electronic Toys like tricycles, scooters, pedal cars, etc . Thus, we see that both the entries speaks of Tricycles, Scooters, Pedal Cars, while one gives the rate for Toys , the other gives the rate for Electronic Toys . Electronic Toys are not defined in the said Notification and also in the Customs Tariff made applicable to GST - In the case at hand, Electronic Toys are not defined in the Notification and the applicable Tariff. In such a situation, there is no merit in importing the observation/decision based on a definition specific to a Notification. In the case at hand, it is seen that the Children Scooter, Activity Ride-on, Smart Tri- cycle and Kick Scooter, have an electronic circuit for flashing lights, playing music/sound and horn, which is either powered by the Battery housed in the toy or powered by the Induction force applied while playing with the toy. Thus all the four products consists of an electronic circuit as a part of the said Toy - it is not that the Scooters, Tri-cycle and Ride-on necessarily should have flashing lights, music/sound supplied by an exclusive electronic circuit. In the kick scooters meant for children upto the age of 14, the electronic circuit available in the product is powered by the Induction force, i.e., when physical force is applied and the kick scooter is moved, the physical force induces electrical energy which powers the electronic circuit and the LED starts flashing, thus encouraging the children while help improving the gross motor skills. The products are designed to develop gross motor skills in as much as they are designed to use the physical force and can be enjoyed by either pedaling, or by pushing with the leg and also fine motor skills like blinking, discrete tasks of switching on/off the music /light etc provided through the inbuilt electronic circuit, powered with the electrical energy (battery)/ induction force. Both the functions of the toys are targeted to develop a certain skill while amusing the child playing with it. Therefore, the products in hand are Electronic Toys and the applicable GST Rate is as per Sl.No. 440 of Schedule-III of the Rate Notification. The products Children Scooter, Activity Ride-on, Smart Tri-cycle and Kick Scooter, in which physical force is the primary action and contains an in built electronic circuit, are Electronic Toys and the applicable GST Rate is CGST @ 18% as per S1.No. 440 of Schedule III to Notification No. II(2)/CTR/532(d-4)/2017 vide G.O. (Ms) No. 62 dated 29.06.2017.
Issues Involved:
Classification of toys with electronic components under GST: Whether they should be classified as "Electronic Toys" attracting 18% GST or "Other than Electronic Toys" attracting 12% GST. Detailed Analysis: 1. Applicant's Submission: The applicant, a regular importer and trader of toys, sought an advance ruling on whether toys primarily operated by physical force but equipped with electronic parts for light, music, and horn should be classified as "Electronic Toys" or "Other than Electronic Toys." They argued that these toys are manually operated and remain functional without the electronic components, which are ancillary and meant for enhancing entertainment. 2. Product Descriptions: - Children’s Scooter SC-007: Manually operated with lights and music powered by batteries. - Activity Ride-on: Manually pushed, with electronic lights and music. - Smart Tri-Cycle: Pedaled manually, with lights, horn, and music powered by batteries. - Kick Scooter: Manually driven, with lights powered by movement-induced electricity. 3. Applicant's Interpretation of Law: The applicant referenced Chapter Heading 95.03, which classifies toys and their applicable GST rates: 12% for non-electronic toys and 18% for electronic toys. They argued that the toys in question should be classified under the 12% rate as their primary function is manual, and the electronic components are secondary. 4. Jurisdictional Officer's Remarks: The officer classified the toys as "Electronic toys" because the light and music are battery-operated, despite the primary action being manual. 5. Physical Verification: The officer verified the toys and confirmed that they are manually operated, with batteries used only for lights and sounds, not for mobility. 6. Hearing and Further Submissions: The applicant reiterated their position that the primary function of the toys is manual, and the electronic components are merely ancillary. They referenced the Maharashtra Tribunal's decision in Nandi Marketing vs. State of Maharashtra, which held that toys requiring physical strength are not electronic toys. 7. Examination and Findings: The authority examined the facts, supporting documents, and verification reports. They noted that the toys are designed for amusement and help develop motor skills. The products fall under HSN 9503 and are intended for specific age groups. The manufacturing process involves assembling electronic parts with other components. 8. Classification Under GST: The authority considered the Customs Tariff Act and GST rate notifications. They noted that the term "Electronic Toys" is not defined in the notification or tariff. They referenced legal definitions and standards, including GB 19865-2005, which prescribes safety standards for electric toys, including those using electricity for secondary functions. 9. Decision: The authority concluded that the presence of electronic circuits for functionalities like flashing lights, music, and horn makes the toys "Electronic Toys." They emphasized that both manual and electronic functions are integral to the toys' design and purpose. Ruling: The toys in question—Children’s Scooter SC-007, Activity Ride-on, Smart Tri-Cycle, and Kick Scooter—are classified as "Electronic Toys." The applicable GST rate is 18% (CGST @ 9% and SGST @ 9%) as per Sl.No. 440 of Schedule-III of the relevant notifications.
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