2024 (3) TMI 675 - AAAR - GST

Classification of goods - Bike and Scooter seat cover - to be classified under CTH 87089900 or not - rate of tax of 28% is correct or not - HELD THAT - In the said manufacturing process the U Foam which is purchased from other dealers are cut to the shape of Two-Wheeler Seats and along with Rexine sheets are stitched and the said Seat Covers are fitted into the Two Wheelers like Bike and Scooter. Then they supply the same to the two-wheeler dealers and also to local market. As per the Appellant, these seat covers are meant for the protection of the seats and there is no comfort or convenience to the rider or the pillion rider. The main contention of the Appellant is that seat covers manufactured by them for two wheelers are parts of seat and thereby, the goods are to be classified under 94019900. They contend that the finding of AAR that it is an accessory to Two-wheeler falling under 87141090 is factually incorrect and as per the Rules of interpretation, seat cover is part of the seat, which has a specific entry 94019900. From the definition of part, it is clear that part per se means a portion of an equipment or a machinery which is essential to the functioning of that particular equipment or machinery. In other words, part is an integral element of machinery or equipment without which the specific product cannot function. The part in question should be so inextricably linked to the product that the product cannot be brought into use without the part in question. As against this, an accessory is an addition to the main product, which merely adds to its beauty or convenience or effectiveness. The seat covers are generally not manufactured or cleared by the O.E. manufacturer of motorcycle seats when the supply is made by them to the motorcycle manufacturer. Instead it is the dealers of motorcycles that sell the seat covers separately, on optional basis, to the purchasers of motorcycles - Hence seat covers are not integral element of seats and thus not by any means, part of the seat. Seat covers are only accessories to the seat. The two-wheeler seat covers are specifically covered under CTH 8714 10 90 and are taxable @ 14% CGST 14% SGST - the lower authority (AAR) had ruled that two-wheeler seat covers merit classification under 8714 99 90, whereas the product is rightly classifiable under 8714 10 90, at applicable rates. Therefore, the ruling of the lower authority (AAR) is modified to the extent of CTH, whereas the rate of tax remains the same.

Summary

Issues Involved:
1. Condonation of Delay
2. Classification and Applicable Rate of Tax on Two-Wheeler Seat Covers

Summary:

Condonation of Delay:

The appeal was filed by M/s Lions Seat Cushions Private Limited after a delay of 21 days beyond the normal time limit of 30 days. The delay was condoned as the appellant presented sufficient cause, including medical reasons, preventing timely filing. The delay was condoned in terms of the proviso to Section 100(2) of the CGST Act, 2017, allowing the appeal to be considered on merits.

Classification and Applicable Rate of Tax on Two-Wheeler Seat Covers:

The appellant sought an advance ruling on whether the GST rate of 28% collected and paid for bike and scooter seat covers under CTH 87089900 was correct. The Authority for Advance Ruling (AAR) classified the seat covers under CTH 87149990, taxable at 14% CGST + 14% SGST.

The appellant argued that the seat covers should be classified under CTH 94019900, claiming they are parts of seats and not accessories. They contended that the seat covers are meant for protection, not comfort, and should be taxed at 18%. The appellant referenced various tariff items under Chapter 9401 to support their claim.

The Appellate Authority analyzed the definitions of 'parts' and 'accessories,' concluding that seat covers are not integral parts of the seats but are accessories. The Authority noted that seat covers are generally not supplied by the original equipment manufacturers (OEMs) and are sold separately, often by dealers or in the local market. The Authority held that seat covers enhance the functional value of seats and are not essential parts.

The Authority further referenced pre-GST regime classifications and CBEC Circular No. 541/37/2000-Central Excise, which classified car seat covers as accessories under Chapter 8708. The Authority found that the same rationale applies to two-wheeler seat covers.

Based on these findings, the Authority ruled that two-wheeler seat covers are classified under CTH 87141090 and are taxable at 14% CGST + 14% SGST (28% IGST). The ruling of the lower authority (AAR) was modified to classify the seat covers under CTH 87141090, maintaining the same tax rate.

Order:

The Advance Ruling No. 105/AAR/2023 dated 05.09.2023 was modified to classify 'motorcycle and scooter seat covers' under CTH 87141090, with the applicable tax rate being 14% CGST + 14% SGST or 28% IGST.