2025 (2) TMI 721 - AAR - GST

Classification and applicable GST rates - A hand-held multitool to replace battery in two-wheeler vehicles - A hand-held multitool for replacing automotive batteries - A hand-held multitool for replacing high-capacity batteries - Whether the classification of the multi-tool under the respective HSN Code with applicable tax rates is ascertainable? Classification and applicable GST rates - A hand-held multitool to replace battery in two-wheeler vehicles - A hand-held multitool for replacing automotive batteries - A hand-held multitool for replacing high-capacity batteries - HELD THAT - The multi-tools in which major component is spanner of different sizes integrated with some other tools viz. screwdriver hex key etc. Further 2 tools also have battery indicator (battery voltage level indicator) which provides real-time information about the condition and performance of batteries. As evident from the images of the tools submitted by the applicant there are four light indicators on the tools indicting battery percentages viz. 25% 50% 75% 100%. It is found that hand-operated spanners are classified under chapter heading 8204. Further screw drivers are classified under chapter heading 8205 and battery indicator (battery voltage level indicator) being an electrical equipment is classified under chapter heading 85. We find that the above tools are hand-operated multi-tools intended to be used for replacing two-wheeler automotive and high capacity batteries having spanners as the major component integrated with battery indicator screwdrivers hex key to provide additional benefits viz. convenience time and effort savings to their users. The integration of battery indicator in these tools provides an additional feature only and does not alter the key functionality of the tools. Accordingly the above tools are classifiable under chapter heading 8204 and attract GST @ 18%. Whether GST under ascertain the nature of the products Classification Multi-tool under of Hand Held respective HSN Code with applicable tax rates on the products comes? - HELD THAT - The question is not clear and beyond the scope of sub-section (2) of the section 97 of the CGST Act 2017 hence not answered. Conclusion - The tools in question are classified under chapter heading 8204 and attract GST @ 18%.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Authority for Advance Ruling (AAR) were:

• Whether the hand-held multi-tool products manufactured by the applicant fall under Chapter 8204 of the Harmonized System of Nomenclature (HSN) covering hand-operated spanners and wrenches, thereby attracting an 18% GST rate, despite inclusion of an energy storage indicator component which may fall under Chapter 8517 (electrical equipment).
• Whether the final products should be classified as machinery tools under the industry machinery tools chapter with an applicable GST rate of 18%.
• Whether the GST applicable on the multi-tool products can be ascertained under the classification of hand-held multi-tools with the respective HSN code and applicable tax rates.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Classification of the hand-held multi-tool products under HSN and applicable GST rate

Relevant legal framework and precedents: The classification of goods under GST is guided by the HSN codes, which categorize products based on their industrial and technical characteristics. Chapter 82 covers tools and implements of base metal, including hand-operated spanners and wrenches under heading 8204. Chapter 85 covers electrical machinery and equipment, including battery indicators under heading 8517. The GST rates applicable to these chapters vary, with hand tools generally attracting 18% GST.

Court's interpretation and reasoning: The AAR examined the technical composition and primary function of the products. The products are hand-held multi-tools primarily composed of various sized spanners integrated with other tools such as screwdrivers and hex keys. Two of the products also include a battery voltage level indicator, an electrical component showing battery status.

The AAR noted that the battery indicator is a minor component providing an ancillary function that does not alter the principal use of the product as a hand tool. The primary function remains the manual operation of spanners and related tools for battery replacement tasks.

Key evidence and findings: The applicant submitted detailed descriptions of the products, including claims and drawings illustrating the multi-tools' components and functions. The jurisdictional officer's comments supported classification under Chapter 8204, emphasizing that the battery indicator's presence does not change the essential character of the product.

Application of law to facts: Since the primary function of the multi-tools is manual operation via spanners and screwdrivers, they fall under Chapter 8204. The electrical battery indicator is a supplementary feature and insufficient to reclassify the product under Chapter 8517.

Treatment of competing arguments: The applicant argued for a concessional 5% GST rate to promote export competitiveness and employment generation. The AAR clarified that such policy considerations do not influence HSN classification, which is strictly technical and industrial in nature.

Conclusions: The hand-held multi-tools are classified under Chapter 8204 attracting 18% GST, notwithstanding the inclusion of a battery indicator component.

Issue 2: Classification as machinery tools under industry machinery tools chapter

Relevant legal framework and precedents: Machinery tools classification generally applies to industrial machinery and equipment used in manufacturing or heavy industry, often attracting specific GST rates.

Court's interpretation and reasoning: The AAR found that the multi-tools are hand-operated manual tools rather than industrial machinery or machine tools. The products are portable and intended for battery replacement, not industrial manufacturing processes.

Key evidence and findings: Product descriptions and the nature of components (spanners, screwdrivers, battery indicator) indicated hand-held use rather than machinery classification.

Application of law to facts: The products do not fall under machinery tools classification and thus do not attract any GST rate applicable to industry machinery tools.

Treatment of competing arguments: The applicant's suggestion that the products be treated as machinery tools was rejected based on the technical characteristics and intended use.

Conclusions: The products are not machinery tools and are instead hand tools under Chapter 8204, attracting 18% GST.

Issue 3: Ascertainment of GST classification and rates for multi-tools

Relevant legal framework and precedents: Section 97(2)(a) of the CGST Act allows advance ruling on classification and applicable tax rates. However, the question must be clear and within the scope of the Act.

Court's interpretation and reasoning: The third question posed by the applicant was found to be vague and unclear, lacking specificity and clarity required for advance ruling.

Key evidence and findings: The question did not clearly specify the classification or tax rate issue and was beyond the scope of the advance ruling provisions.

Application of law to facts: The AAR declined to answer the third question on grounds of ambiguity and procedural limitations.

Treatment of competing arguments: No further submissions were made to clarify the question.

Conclusions: The third question was not answered.

3. SIGNIFICANT HOLDINGS

The AAR held as follows:

"The tools in question are classified under chapter heading 8204 and attract GST @ 18%."

"The integration of battery indicator in these tools provides an additional feature only and does not alter the key functionality of the tools."

"The HSN code - section or chapter to which a particular product belongs is determined by its industrial and technical sophistication."

"The third question raised before us... is not clear and beyond the scope of sub-section (2) of the section 97 of the CGST Act, 2017, hence not answered."

Core principles established include:

• The primary function and industrial character of a product govern its HSN classification and GST rate, not ancillary features or policy considerations.
• Minor electrical components integrated into hand tools do not necessarily change the classification to electrical machinery.
• Advance ruling will not be given on vague or unclear questions beyond the statutory scope.

Final determinations on each issue:

• Issue 1 & 2: The hand-held multi-tools are classified under Chapter 8204 attracting 18% GST.
• Issue 3: The question was not answered due to lack of clarity.