GST ON CAN SEAT COVERS: ADVANCE RULING

[Dr. Sanjiv Agarwal]

An issue came up before the Authority for Advance Ruling, Andhra Pradesh (AAR) recently on classification and rate of GST on seat covers for use in cars.

The querist or applicant in this case, i.e., IN RE: M/S. SADDLES INTERNATIONAL AUTOMOTIVE & AVIATION INTERIORS PRIVATE LIMITED [2021 (8) TMI 538 - AUTHORITY FOR ADVANCE RULING, ANDHRA PRADESH]  raised the issue of classification of car seat covers and its HSN code for tax rates. The AAR in its Order dated 21.06.2021 ruled that such seat covers were subject to levy of GST@28 percent.

In the instant case, the applicant was mainly engaged in the business of production and manufacture of car seat covers, and other allied accessories necessary for seats. They sell the manufactured seat covers to Car seat makers who affix the seat covers into the seats and thereafter the seat is affixed to the motor vehicle. The applicant approached the Authority for Advance Ruling on the classification issue of the specific product i.e., 'car seat' covers' which is manufactured by the applicant. Further, they have been classifying  'seat covers' under the HSN 8708 at Serial No.170 under Schedule IV of Notification No.01/2017-Central Tax (Rate) dated 28.06.2017 with the applicable rate of CGST+SGST (14%+14%) amounting to 28%.

It sought clarification regarding the competing entry at Serial No.211 of Notification 1/2017-Central Tax (Rate) dated 28.06.2017 under HSN 9401-Seats (other than those of heading 9402), whether or not convertible into beds, and parts thereof chargeable to GST at 28% upto 13.11.2017. However, the tax rate of said entry underwent a change vide Notification No.41/2017-Central Tax (Rate) dated 14.11.2017 reducing the tax rate to 18%.

The applicant claimed that as the tax has been paid so far under HSN 8708, the benefit of reduction in rate of CGST/SGST will be applicable to the applicant if the correct classification is adopted.

The advance ruling was sought on the following questions:

1.         Whether the product namely 'Car Seat Covers' merits classification under HSN 9401? If not, what is the correct classification applicable to 'Car Seat Covers'?

2.         Is S.No.435A of Schedule IV of the Notification No 1/2017-Central Tax (Rate) dated 28.06.2017 applicable to 'Car Seat Covers'? If not, what is the applicable entry under the said Notification?

It was submitted that 'car seat covers' attracted a net rate of 28% (CGST+SGST) under both the competing entries (8708 and 9401) under Notification No.1/2017 – Central Tax (Rate) dt: 28.06.2017 before amendment.

Notification No.1/2017-Central Tax (Rate) dated 28.06.2017 was amended vide Notification No. 41/2017- Central Tax (Rate) dated 14.11.2017 which reduced the rate of CGST with respect to Serial No.211 from 28% to 18%. Serial No.211 was omitted and a new Serial No.435A was inserted. The relevant portion of Notification No.41 reads as below:

“(C) in Schedule III -18%, -

(cxviii) after S.No.435 and the entries relating thereto, the following serial number and the entries shall be inserted namely:-

435A

9401 (other than 9401 10 00)

Seats (other than those of heading 9402), whether or not convertible into beds, and parts thereof (other than seats of a kind used for aircraft);

It was claimed by applicant that 'seat covers' are rightly classifiable under S.No. 435A (HSN 9401) as the 'seat covers' is an essential and integral 'part of 'seats' without which 'seat' can be rendered dysfunctional; that it is imperative to first understand the roles and the functions which are performed by 'seat: covers'. The key functions are summarized as below:

• Seat covers help the driver and co-passenger to get into the most comfortable seating inside the car as per their convenience, which does not absorb heat
• Car seat covers are required for the protection of seats.
• Covers do not absorb heat and hence, keep the car cool and user comfortable.

Further, 'seat covers' should be judged on the basis of the functions they perform. 'Seat covers' enable the seats to give a comfortable position to the drivers and the passengers. Further, they are equipped with cushion and give stability to the 'seats'. Hence, the applicant submits that 'seats' per se would be incomplete without the 'seat covers' in question in as much as it forms an integral part of the 'seats' and hence, merit classification under HSN 9401. It is stated that 'seats' are not to be judged only on the basis of their affixing to a motor vehicle. It has to be seen as a whole and a 'seat' would be complete only when the products in question are affixed to a 'seat'.

The applicant submitted that on an analysis of the explanatory notes it becomes clear that chapter 94 is a specific entry with respect to 'seats' and its 'parts'. Classifying an essential 'part' of the 'seat' under chapter 87 would render chapter 94 otiose and redundant. As explained herein above. Explanatory notes to chapter 94 covers various aspects of 'seat' and 'seat covers' in question and by virtue of their function form an essential 'part' of the 'seats'. On the other hand, explanatory Notes of Chapter 87 covers 'parts' of motor vehicles and there is no specific entry per se which covers any part of the 'seats' under chapter 87. Hence, as a corollary, the same ought to be appropriately classified under chapter 94 since a specific entry prevails over a general entry.

It also relied on common parlance test which is generally the most applied test, judicially, to determine the appropriate classification of any product. The applicability of the common parlance test has been upheld and resorted to in various cases by the Supreme Court. It also relied upon usage test for classification, i.e., the products in question have to be classified as per their specific use in the market.

The applicant reiterated that 'car seat covers' rightly merit classification under Chapter 9401 at serial No. 435A to Notification No.1/2017-Central Tax (Rate) dated 28.06.2017 as amended by Notification No. 41/2017- Central Tax (Rate) dated 14.11.2017. Therefore, the said product ought to the taxable at 9% CGST and 9% SGST.

The AAR observed after a clear examination of both the terms i.e., 'parts' and 'accessories', 'seat covers' cannot be a part of seats by any means, in the instance case. They are meant for the protection of the seats and the functional value of 'seat covers' is the comfort and convenience it extends to the driver and the passengers. Thus, the 'seat covers' are not essential parts of the seats but accessories that enhance their functional value.

Even in general trade parlance or in terms of their specific usage, the 'seat covers' are considered as accessories and customized as per the preferences of the clients. Trade circles consider the automotive accessories as a category of articles relating to non-essential automotive parts which embellish the look and feel of an automobile or add functionality. 'Seat covers' provide new look to the interior of the car, and also make it more comfortable for passengers.

It also noted that a clarificatory circular issued by CBEC vide circular no.541/37/2000-CX dt:16.08.2000, clearly mentioned that car seat covers were classified under heading 87.08 as accessories of car seats.

The AAR thus ruled that:

• Cars are subject to levy of GST @28%.
• Supply of seat covers for cars to car seat makers who in turn affix / fix the seat covers into and fitted to the motor vehicles are also liable to GST.
• The ‘seat covers’ are not essential parts of the seats but accessories that enhance their functional value. Automotive accessories are considered as a category of articles relating to non-essential automotive parts which embellish the look and feel of an automobile or add functionality.
• Car seat covers fall under the entry at S.No.170 under HSN Code 8708 under Schedule IV of Notification No.01/2017-Central Tax (Rate) dated 28.06.2017 attracting tax rate of CGST+SGST (14 %+ 14%) @ 28%.

Discussions to this article

[Dr. Sanjiv Agarwal]

There is a typo error in the Title of the Article.

Please read CAN as CAR.

Sorry for this error.