The authorities argue that CNG fuel tanks are integral to vehicles, similar to petrol or diesel tanks, and cannot be interchanged with other cylinders and therefore liable to 28% GST.The Goods and Services Tax (GST) authorities have sent show cause-cum-demand notices to over a dozen companies providing CNG cylinders to motor vehicles, alleging misclassification of such fuel tanks.
The notices, sent between September and November, allege that companies wrongly classified CNG fuel tanks as general cylinders for compressed gas and paid 18% GST, despite these cylinders being exclusively used in motor vehicles.
The authorities have sought unpaid tax from July 2017 to April 2024, with interest and penalty. Industry says this could have huge tax implications.
The authorities argue that CNG fuel tanks are integral to vehicles, similar to petrol or diesel tanks, and cannot be interchanged with other cylinders and therefore liable to 28% GST.
"The CNG kits are basically an auto part and different from an empty CNG fuel tank," a senior official told ET.
The official said these were different from CNG conversion kits as these kits in toto help motor vehicles designed to run on fuels like petrol and diesel run on CNG, providing an alternate fuel charging system to the one existing in the engine.
Industry, however, maintains the tax rate paid was based on consultations and purchase orders from top auto clients, which specified 18% GST.
The show cause-cum-demand notices reference contraventions under various sections of the Central GST Act, 2017, and seek penalties, interest and adjustments for misdeclared payments. The companies have been given 30 days to respond and present their defence, failing which an ex parte adjudication may occur.
Legal experts say CNG fuel tanks are not inherently motor vehicle parts under HSN code 8708 (28% GST) unless explicitly defined as such.
"As GST laws provide no clear distinction between standalone gas cylinders and those used in vehicles, in cases of ambiguity, judicial precedents favour the taxpayer's interpretation," said Abhishek Rastogi, founder of Rastogi Chambers.
The dispute essentially is whether CNG cylinders should be classified under Chapter 87 as parts of motor vehicles or under a specific description as part of Chapter 73," said Pratik Jain, partner-indirect tax, PwC.
He said the GST Council should ideally issue a clarification in the matter to avoid prolonged litigations.
"A definitive clarification from the Central Board of Indirect Taxes and Customs (CBIC) regarding the applicable tax rate would offer much-needed certainty to the industry," said Saurabh Agarwal, tax partner, EY.
