MUMBAI: Can separate tax rates be levied on same product imported by two different companies, based on the end use? The customs department seems to think so, going by its latest tax demand from carmakers.
The customs department has started issuing notices to several automakers, asking them to cough up 28% goods and services tax on imported plastic goods such as ashtrays and floormats instead of 18% GST, people familiar with the development said.
The logic ? While plastic goods attract only 18% GST, here they are used as auto components that attract 28% GST. Top automakers such as Maruti Suzuki , Mahindra & Mahindra and Tata Motors have already been questioned by the customs department in last couple of weeks, sources said. Several other companies could get these notices in the coming weeks, they said.
Industry trackers said this is a classification issue under GST regulations. “The industry has been adopting the classification (of plastic goods and other imports used in cars) for over a decade, which has been accepted by the customs authorities in the past,” said Rohit Jain, partner at Mumbai-based law firm ELP.
“The classification is required to be done on a case by case basis as per the scheme of the Customs Tariff Act.”
He said the tax demand will impact the sector that’s going through one of its worst crises.
The auto industry recorded its worst sales slump in nearly 19 years in July. And the new tax demand is uncalled for, some experts said.
As per the customs regulations, the department has to levy taxes based on the place and form of the imported goods and it doesn’t have the mandate to check the end use, they said. “There have been several goods which could have multiple use and in the current scenario many companies too are going for standardisation, and so these could have multiple end use,” a person in the know said on condition of anonymity.
Others said several products like plastic ashtrays could face different taxes depending on who is importing it. So, a hospitality company could be paying lesser tax than a carmaker for the same product.
Taking a cue from the customs department, the indirect tax department could also challenge GST paid by some component manufacturers for domestic sales in the replacement market, experts said.
“Companies should well analyse the chapter and section notes of various products before finalising the classification of the product and related duty/tax rates on such products to avoid unwarranted litigation,” said Abhishek Jain , tax partner at EY India.