2022 (2) TMI 1106 - AAAR - GST

Classification of goods - electronic toys or not - When physical force is the primary action of a Toy and if the light and the music are ancillary to it then whether it is to be classified under Electronic Toys or other than Electronic Toys? - HELD THAT - Had the Parliament thought that the electronic toys are altogether different from that of toys, it would not add the same list of tricycles, scooters, pedal cars etc. (including parts and accessories thereof) and the difference between them is that any component of electronic added to the toys like tricycles, scooters, pedal cars etc. would disentitle them to fall under serial number 228 of schedule II to the Notification No.1/2017 Central Tax Rate dated 28-6-2017. In the case of appellants, it is apparently clear that all the four products contain electronic components irrespective of its usage, the said goods would fail to fall under serial number 228 of schedule II to the Notification No.1/2017 Central Tax Rate dated 28-6-2017 and therefore they have to be classified under serial number 440 of schedule III to the Notification No.1/2017 Central Tax Rate dated 28-6-2017. As far as these toys consists of electronic components irrespective of the usage, they would attract 18% GST as per Sl.No. 440 of Schedule-III of the Rate Notification - Appeal dismissed.

Issues Involved:
1. Classification of toys under GST as "Electronic Toys" or "other than Electronic Toys."
2. Application of common parlance test in the absence of a statutory definition.
3. Relevance of international standards in determining toy classification.

Detailed Analysis:

1. Classification of Toys under GST:
The primary issue revolves around whether toys that are manually operated but contain electronic components for secondary functions (like lights and music) should be classified as "Electronic Toys" under GST. The appellant argued that these toys should not be classified as "Electronic Toys" since the electronic components are ancillary and do not contribute to the primary function of the toys, which is manually operated.

2. Application of Common Parlance Test:
The appellant contended that the absence of a statutory definition for "Electronic Toys" necessitates the use of the common parlance test. They cited various judgments, including those from the Supreme Court, emphasizing that terms in taxing statutes should be understood in their commercial or trade context, as perceived by consumers and dealers. The appellant argued that in common parlance, the toys in question are not considered "Electronic Toys" since their primary function is manual operation, and the electronic components are merely additional features.

3. Relevance of International Standards:
The Tamil Nadu Advance Ruling Authority referenced international standards, specifically GB standard 19865-2005, which includes toys using electricity for secondary functions within the scope of electronic toys. The appellant argued against this, stating that the primary function of the toys should be the determining factor, not the presence of secondary electronic components.

Judgment and Analysis:

Classification of Toys:
The Appellate Authority upheld the ruling of the Tamil Nadu Authority for Advance Ruling, classifying the toys as "Electronic Toys" under GST. It was emphasized that despite the primary manual operation, the presence of electronic circuits for secondary functions like lights and music necessitates their classification as "Electronic Toys."

Application of Common Parlance Test:
The Authority acknowledged the appellant's argument regarding the common parlance test but concluded that the presence of electronic components, irrespective of their function, classifies the toys under "Electronic Toys." The Authority referenced the Madras High Court's decision in Southern Refractories & Minerals Vs. State of Tamil Nadu, which supports using standards like those from the Indian Standard Institution to determine the popular or commercial meaning of terms.

Relevance of International Standards:
The Authority found the reference to GB standard 19865-2005 appropriate, stating that toys with any function dependent on electricity fall within the scope of electronic toys. This standard was deemed relevant in interpreting the term "Electronic Toys" under GST.

Conclusion:
The appeal was dismissed, and it was ruled that toys containing electronic components, regardless of their primary function, attract 18% GST as per Sl.No. 440 of Schedule-III of the Rate Notification. The Authority concluded that the presence of electronic circuits in the toys in question necessitates their classification as "Electronic Toys," aligning with international standards and the broader interpretation of the term under GST regulations.

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