GST Update on tax rate on retrofitted vehicles used by disabled persons 63/2020-21

In this update we shall discuss ruling pronounced by Karnataka AAR in the case of M/s Sai Motors (AAR No. KAR ADRG 32/2020 dated 20.05.2020) on classification of retrofitted vehicles to be used by differently abled persons and admissibility of input tax credit on retrofit equipment and vehicle.
The applicant deals in the business of trading two wheelers. Apart from purchasing two wheelers (falling under HSN 87112019 @ 28%), he also deals in retro fitted vehicles (falling under HSN 87131090 @ 5%). The applicant seeks advance ruling on the following question
“Whether he can bill the scooter at 5% GST under HSN 8713 along with retrofitment and it shall not restrict any input tax credit on purchase of vehicle under HSN 8711 at 28% GST”
Before moving forward into the contention of the applicant and the ruling pronounced by the Authority we shall understand the term “Retrofit”. In general parlance it is defined as “adding a component or accessory to something that did not have it when manufactured”. So retrofitted vehicles are generally those which are equipped with new parts and safety devices to the vehicle after the vehicle is being manufactured. In this advance ruling, reference has been made to those used by differently abled persons.
The applicant contended that the goods sold by him i.e. retrofitted two wheelers are to be classified under serial number 243 under HSN 8713 of Notification No. 01/2017-Central Tax (rate) dated 28.06.2017 - Carriage for disabled persons, whether or not motorized or otherwise mechanically propelled and is liable to tax at 5%. He submitted that the Cars for physically handicapped persons under HSN 8703 are given special treatment subject to conditions and the two wheelers require more facility for specially abled compared to Motor Car.
But the Authority for Advance Ruling has concluded that retrofitted vehicles are to be taxed at the rate of 28% as it is deserves classification under 8711 2019 as the motor vehicles remain motor vehicles even after addition of retrofit equipment. The AAR has referred to the definition of the term ‘Retrofit’ as mentioned above and stated that the applicant is adding certain components to the two wheeler by retrofitting the same i.e. an attachment is added to the said two wheeler (motor cycles) to enable it to be driven by the disabled person. This does not change the basic feature of the two wheeler. In the instant case the two-wheeler was neither specially designed or constructed nor altered to change its basic structure, after retrofitment.
Further the authority stated that the Explanatory Notes to Harmonized Commodity Description and Coding System specifies that heading 8713 excludes Normal vehicles simply adapted for use by disabled persons or a bicycle fitted with a special attachment and pedalled with one foot and Trolley-stretchers. In the instant case the two-wheeler is simply retrofitted with additional components / accessories to enable it for use by disabled persons. Therefore, the impugned retrofitted two-wheeler gets excluded from the heading 8713. Therefore, the said retro fitted two-wheeler merits classification under heading 8711 20 19 only.
As regards admissibility of input tax credit on the vehicle and retrofit equipment, it was held that since the supply of vehicles is in furtherance of business, input tax credit can be claimed by the applicant.
In our opinion, there is clear intention of the Government to provide benefit to the differently abled persons with less rate of tax on their carriages. However, the interpretation taken by the AAR defeats the intention of the government. It is due to the fact that pro-revenue decisions are being pronounced by AAR, the taxpayers are reluctant to file advance ruling before AAR. It is worth noting that the recent Bombay High court judgement (2019-TIOL-1236-HC-MUM-GST) held that the writ jurisdiction of the High Court cannot be used as an appellate remedy against orders of the Appellate Authority for Advance Ruling. The applicants are now left with no other remedy except to follow the ruling pronounced by the AAR’s and AAAR’s.
This is solely for educational purpose.
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GST Update on tax rate on retrofitted vehicles used by disabled persons 63/2020-21

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