Rate of tax for automobile engine parts

The question here is whether it is to classified as “PARTS AND ACCESSORIES OF THE MOTOR VEHICLES OF HEADINGS 8701 TO 8705” as taxed at 28% or classified independently as goods under appropriate heading and taxed at 18% (which is most common rate for such products).

The basic principle provided in rule 1 is that classification shall be determined according to the terms of the headings and any relative Section or Chapter Notes. Further, Rule 3(a) of these rules provides that heading which provides the most specific description shall be preferred to headings providing a general description.

Now, the heading 8708 provides for “PARTS AND ACCESSORIES OF THE MOTOR VEHICLES OF HEADINGS 8701 TO 8705”. On the plain & isolated reading of heading 8708 alone, one might conclude that all parts of motor vehicles merit classification under heading 8708. However, as stated above, to arrive at appropriate classification, it is of paramount importance to decipher the various section notes, chapter notes along with interpretative rules.

The parts of motor vehicles are to be classified under heading 8708 only if they are not excluded as per section note 2(b) to section XVII, the “Parts of general use” and if the parts are specifically used in the motor vehicle.

“Parts of general use” are defined in Note 2 to Section XV, of base metal (Section XV) and similar goods of plastics (Chapter 39) and they are to be excluded from section XVII (Chapter 87).

In the case of GS Auto International Ltd Vs Collector of C.Ex., Chandigarh (2003 (152) ELT (3) SC), the Hon’ble Supreme Court of India has referred both the above notes. However, to the despair of automobile industry, The Apex court concluded that for classification under CTH 8708, the test to be applied is whether the goods are suitable for use solely or primarily with articles of CTH 8701 to 8705. If the answer is in the affirmative, the goods will be classifiable under CTH 8708, but if the answer is in the negative, they would have to be classified under respective CTHs.

However, in case of Intel Design Systems (India) Pvt. Ltd. vs Commr. of Cus. & C. Ex. 2008-TIOL-18-SC-CX the Hon’ble Supreme Court of India held that parts falling under CTH 87 would only be covered under CTH 87 provided they fulfil both the conditions

1. they must be identifiable as being suitable for use solely or principally for vehicles falling under Chapter 87 and
2. they must not be excluded by the provisions of Section Note XVII

therefore, it was held that as goods such as contractors, switches, control box etc., fall under the category of excluded goods under the chapter notes. Thus, even though they are used specifically, solely or principally with the armoured vehicles of chapter heading 8710, they are classifiable under chapter heading 853690 only.

Now to answer your question

1. If these goods are always used with automobiles and do not have any other use then the GST rate is flat 28% without any question. Do not read further.
2. Check whether these goods are excluded by the provisions of Section Note XVII, if yes then the rate will be 18% otherwise it will be considered as part of Motor Vehicles and will be taxed at 28%.