CBIC Issues Clarification on GST Rates and Classification of Goods Following the 54th GST Council Meeting
The Central Board of Indirect Taxes and Customs (CBIC) recently provided significant clarifications on Goods and Services Tax (GST) rates and the classification of goods. These updates were issued through Circular No. 235/29/2024-GST, dated October 11, 2024, and follow the recommendations made during the 54th GST Council meeting held on September 9, 2024, in New Delhi. This article delves into the key points discussed in the circular, offering a clearer understanding of the updates for businesses and taxpayers.
Understanding the Importance of the 54th GST Council Meeting
The GST Council is responsible for formulating rules and regulations regarding indirect taxes. The 54th meeting of this Council was vital because it highlighted several areas of ambiguity in GST rates and product classification that were affecting businesses across the country. The CBIC, acting under Section 168(1) of the Central Goods and Services Tax Act, 2017, aims to ensure a uniform approach across India with this new circular.
Key Clarifications in the CBIC Circular
The circular focuses on three major product categories where clarifications were most needed:
- Extruded or Expanded Savoury Food Products
- Roof Mounted Package Unit (RMPU) Air Conditioning Machines for Railways
- Car and Motorcycle Seats
1. GST on Extruded/Expanded Savoury Food Products
H2: The Confusion Regarding Classification
In recent years, businesses have raised concerns about the classification of extruded or expanded savoury food products. Specifically, questions arose regarding whether savoury snack pellets should be classified under HS 2106 as “Namkeens,” attracting a GST rate of 12%, or under another category altogether.
H3: CBIC’s Clarification
Based on the recommendations from the 54th GST Council meeting, CBIC clarified that extruded or expanded savoury products (excluding un-fried or un-cooked snack pellets) will be classified under HS 1905 90 30. These products will now attract a 12% GST, similar to namkeens, bhujia, and other ready-to-eat snacks.
H3: Unfried and Uncooked Snack Pellets
However, the circular maintains that un-fried or un-cooked snack pellets will continue to attract a 5% GST. This distinction is crucial for manufacturers of these products.
H4: Historical Perspective
Interestingly, the CBIC noted that the new 12% GST rate on extruded or expanded products would only be applied prospectively. For previous periods, businesses must pay an 18% GST, indicating a significant shift in tax liability for certain companies.
2. GST on Roof Mounted Package Unit (RMPU) Air Conditioning Machines for Railways
H2: The Dilemma of Classification
Manufacturers of Roof Mounted Package Unit (RMPU) air conditioning machines, which are used specifically for railways, sought clarification on their correct GST classification. The confusion stemmed from whether these machines should be categorized under HS 8415 (attracting a 28% GST) or under HS 8607 (attracting an 18% GST).
H3: CBIC’s Verdict
The CBIC confirmed that these air conditioning machines fall under HS 8415, which attracts a 28% GST. This decision aligns with the customs tariff classification guidelines, which clearly state that air conditioning machines are excluded from being classified as parts of railways under HS 8607.
3. GST on Car and Motorcycle Seats
H2: The Seat Classification Debate
Another area of ambiguity revolved around the classification of seats for cars and motorcycles. Businesses were uncertain about whether these seats should be categorized under HS 9401 or HS 8714, which directly impacts the applicable GST rate.
H3: Clarifications for Motorcycle Seats
For motorcycle seats, the CBIC clarified that these items are covered under HS 8714 (parts and accessories of two-wheelers) and will attract a 28% GST.
H3: Clarifications for Car Seats
For car seats, the CBIC confirmed that they fall under HS 9401, covering all types of seats, including those used in motor vehicles. Initially, car seats attracted a GST rate of 18%, but based on the GST Council’s recommendation, this rate has now been increased to 28%. However, this new rate will only apply from October 10, 2024, onward.
Implications for Businesses and Taxpayers
These clarifications are critical for businesses in the food manufacturing, railway, and automotive industries. By providing clear guidelines on product classification, the CBIC has eliminated much of the confusion that previously existed. This will streamline tax compliance and ensure that businesses are well-prepared to meet their GST obligations.
H2: What Should Taxpayers Do Now?
Taxpayers must take the following steps in response to these updates:
- Review the CBIC circular to ensure they fully understand the changes.
- Adjust their tax calculations based on the clarified GST rates.
- Consult tax experts if needed to avoid any compliance issues.
H3: Prospective vs. Retrospective GST Rates
One of the critical points to note from the circular is the distinction between prospective and retrospective application of GST rates. For some goods, such as extruded savoury products, the new lower GST rate is only applicable moving forward. Past transactions will still be liable for the previously higher rate, which could result in tax arrears for businesses.
Conclusion: A Welcome Move for Tax Clarity
The 54th GST Council meeting and the subsequent circular issued by the CBIC provide much-needed clarity on GST rates and product classification. This move will undoubtedly reduce the burden of tax uncertainty for businesses across India. By addressing key sectors such as food products, railway equipment, and automotive parts, the government has demonstrated its commitment to simplifying tax regulations.
In conclusion, these clarifications mark a step forward in ensuring smoother tax compliance and aiding industries in navigating the complexities of GST law.
FAQs
Q1: What is the GST rate on extruded or expanded savoury food products?
A: The GST rate for extruded or expanded savoury food products has been set at 12%, while un-fried or un-cooked snack pellets continue to attract a 5% GST.
Q2: How are Roof Mounted Package Unit (RMPU) air conditioning machines classified for GST purposes?
A: These machines fall under HS 8415, attracting a 28% GST.
Q3: What is the GST rate for car seats?
A: Car seats are classified under HS 9401 and will now attract a 28% GST, effective from October 10, 2024.
Q4: Are motorcycle seats taxed at the same rate as car seats?
A: No, motorcycle seats are classified under HS 8714 and attract a 28% GST.
Q5: How can businesses ensure compliance with the new GST rates?
A: Businesses should review the CBIC circular and adjust their tax filings accordingly. Seeking advice from tax professionals is recommended for accurate compliance.