Auto industry says tweaked definition of SUV will provide clarity on taxation structure

New Delhi: The tweak in the definition of an SUV for attracting a cess over and above the GST rate will provide clarity on the taxation structure for utility vehicles, ensuring that the rate entry is more precise leaving little room for interpretation on the ambit of ground clearance, auto industry experts said on Tuesday.

The Goods and Services Tax (GST) Council decided that the definition of an SUV will include only the length (4 metres and above), engine capacity (1,500 cc and more), and ground clearance (unladen ground clearance of 170 mm and more).

Automobiles are taxed at 28 per cent GST, with additional cess ranging from 1 per cent to 22 per cent depending on the type of vehicle. SUVs attract the highest GST at the rate of 28 per cent along with a compensation cess at 22 per cent.

Maruti Suzuki India Senior Executive Officer (Marketing and Sales) Shashank Srivastava said, "From the various media reports, it appears that the peak cess of 22 per cent over the 28 per cent GST slab is now applicable for all vehicles fulfilling the three conditions of - more than 4 m length, more than 1,500 cc engine and unladen ground clearance more than 170 mm."

Prima facie, he added, ”This removes the confusion regarding the definition of vehicles attracting the 22 per cent cess, especially the ground clearance to be taken in unladen vehicle condition."

When asked about the possible impact on prices of the company's vehicles, he said, "Maruti Suzuki has no vehicle with an engine size of above 1.5 litre except the Invicto. But Invicto has only a hybrid version so the top cess should not be applicable to it. However, we have to see the detailed notification before we confirm the above."

ICRA Ltd VP and Sector Head - Corporate Ratings Rohan Kanwar Gupta said the decision by the GST council to provide clarity on the taxation structure for utility vehicles was widely expected.

"The council has now clarified that a uniform 22 per cent compensation cess will be levied on all SUVs (irrespective of the auto OEM's nomenclature) if the vehicle is popularly known as an SUV and has a length greater than 4 metres, an engine over 1,500cc capacity, and at least 170mm ground clearance," he said.

The Original Equipment Manufacturers (OEMs) are expected to largely pass on the cess increase to the consumers factoring in the ongoing healthy demand trend in the industry, Gupta said.

Lakshmikumaran & Sridharan Executive Partner R Raghavan said considering the myriad interpretations adopted by industry and department alike on the rate of compensation cess applicable to SUVs, the GST council at its 50th meeting has put matters to rest (at least for the time being) by recommending an amendment to the rate entry.

"The proposed amendment ensures that the rate entry is more precise in its intention and leaves little room for interpretation on the ambit of ground clearance which will have to be computed in unladen state once the amendment is brought into force. Retrospective applicability of the amendment has to be tested in due course," he added.

Union finance minister Nirmala Sitharaman said presently the definition of an SUV for levy of cess includes four parameters -- should be popularly known as SUV, be of length of 4 metres or above and engine capacity of 1,500 cc and above, and unladen ground clearance of minimum 170 mm.

Now, the SUV definition will include only the length (4 metres and above), engine capacity (1,500 cc and more), and ground clearance (unladen clearance of 170 mm and more), she said.