The Directorate General of Goods and Services Tax Intelligence (DGGI) issued notices to 17 auto parts makers. The notices demand higher GST payments from the manufacturers. Tax authorities argue that a 28% GST rate should apply to these parts. They fall under the category of “parts and accessories of motor vehicles” according to the GST Law. However, the manufacturers have been paying GST at a lower rate of 18% for these parts.
The dispute started with a 2021 Supreme Court ruling. It involved Westinghouse Saxby Farmer, a relay systems manufacturer for railway signaling. The Supreme Court decided that the GST Law’s specific entry should have precedence over the general entry. Regarding auto parts, the specific entry calls for a 28% tax rate for “parts and accessories of motor vehicles.” However, manufacturers argue that the general entry for “parts and accessories” should apply, resulting in an 18% tax rate.
The DGGI is demanding that the manufacturers pay the differential amount of GST, along with interest. In response, the manufacturers are planning to challenge these notices in court.
The dispute regarding the GST rate for auto parts is complex, and its resolution remains uncertain. Nonetheless, it is evident that the DGGI is adopting a tough stance on the issue, and failure to comply with the demands could result in substantial financial penalties for the manufacturers.
Here are some key points regarding the issue:
- The DGGI demands auto parts makers to pay GST at a 28% rate instead of the current 18% rate.
- Manufacturers argue that auto parts should fall under the “parts and accessories” category, which is taxed at 18%.
- The DGGI threatens manufacturers with penalties for non-compliance.
- The dispute is expected to be resolved through legal proceedings.
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