From long time there is a dispute going on between department and the Automobile Industry regarding applicable Compensation Cess (20% vs 22%) on Sports Utility Vehicles. The dispute was having cascading effect on the industry as demand has been raised against Automobiles manufacturers and simultaneously against Dealers also.
Now Circular 247/04/2025-GST has tried to clarify the dispute. However, in our opinion, dispute has been settled to an extent but has not been settled completely by the circular.
In this article, we will discuss the issue and possible gap in the circular
What is Entry 52A and 52B related to Compensation Cess
Entry 52A (Compensation Cess of 20%) (inserted vide N.No. 5/2017 Comp. Cess (Rate) dated 11th September, 2017)
Motor vehicles of engine capacity exceeding 1500 cc other than motor vehicles specified against entry at S. No 52B
Entry 52B (Compensation Cess of 22%) (inserted vide N.No. 5/2017 Comp. Cess (Rate) dated 11th September, 2017)
Motor vehicles of engine capacity exceeding 1500 cc, popularly known as Sports Utility Vehicles (SUVs) including utility vehicles.
Explanation. – For the purposes of this entry, SUV includes a motor vehicle of length exceeding 4000 mm and having ground clearance of 170 mm. and above.
Entry 52B was amended vide N.No. 3/2023 Comp. Cess (Rate) dated 26.07.2023
Motor vehicles known as Utility Vehicles, by whatever name called including Sports Utility Vehicles (SUV), Multi Utility Vehicles (MUV), Multi-purpose vehicles (MPV) or Cross-Over Utility Vehicles(XUV), with engine capacity exceeding 1500 cc ;Length exceeding 4000 mm and Ground Clearance of 170 mm and above.
Explanation:For the purpose of this entry, the Ground Clearance means ground clearance in unladen condition.”
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What is the Dispute
Dispute is especially pertaining to Ground Clearance more particularly whether Ground Clearance should been seen in Laden Condition (with Passengers) or in Unladen Condition (without Passengers)
Like in case of Tata Harrier, Ground Clearance with Laden Condition is 160 mm and unladen condition is 205mm.
Position till 26.07.2023
Now question is if we look the Ground Clearance from Laden Condition, it will fall under Entry 52A (20% rate) and if we look the Ground Clearance from Unladen Condition, it will fall under Entry 52B (22% rate).
In this case, Maharashtra Advance Ruling decided that it should be seen in Unladen Condition and 22% Compensation Cess should be applicable. However, the same was reversed by the Maharashtra Appellate Advance Ruling Authority.
Position after 26.07.2023
After amendment in Entry 52B, Now it is clear that Ground Clearance should be seen in Unladen Condition.
However, Department interpreted that amendment especially the Explanation which is just clarification which says it should be seen in Unladen Condition is applicable from 11th September only and started making the cases against the Industry for the period prior to 26.07.2023 also.
What Circular has Clarified
Now vide Circular 247/04/2025-GST, it has been clarified that amendment in Entry 52B will be effective from 26.07.2023 only.
Gap in the Circular
Circular has just clarified that Amendment in the Entry 52B will be effective from 26.07.2023 but it is silent whether before 26.07.2023 it would be laden or unladen. Therefore, in our opinion, the dispute still pertains which will ultimately be decided through Judicial Pronouncements. (though department can not take help of amended explanation in Entry 52B).
We hope, we are being able to clarify the issue properly & Comprehensively.
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Disclaimer: We have taken due care to the best of our knowledge while explaining the provisions surrounding the issue purely for informational/academic purpose. It should not be considered as professional advice or consultancy to be relied upon. While due care has been taken by Fab Gyan in preparing this article, certain mistakes and omissions may creep in. The Fab Gyan or its Author does not accept any liability for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon.