GST Council defines SUV to enforce uniform tax across states

Sports Utility Vehicles (SUVs) will now have a single definition and attract the higher cess rate of 22 per cent, as mandated by the Goods and Services Tax (GST) Council.

The Council on Saturday (December 17) clarified that the higher rate of compensation cess of 22 per cent will be applicable to motor vehicles fulfilling four conditions – 1) it is popularly known as SUV; 2) has engine capacity exceeding 1,500 cc; 3) length exceeding 4,000 mm; and 4) has ground clearance of 170 mm and above.

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As of now, cars with the above specifications attract 28 per cent GST and an additional 22 per cent cess, taking the total tax rate to 50 per cent. The same, however, differed from state to state, leaving carmakers in a quandary.

The latest decision by the GST Council to apply the 22 per cent cess and 28 per cent GST, however, will be applicable to cars meeting the above criteria irrespective of states they are sold in.

“If cars do not meet any of these criteria, lower cess rate will be applicable,” Vivek Johri, Chairman of Central Board of Indirect Taxes and Customs said.

The meeting chaired by Union Finance Minister Nirmala Sitharaman was attended by state finance ministers.

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The Council also came clear on parameters that would define an MUV (or multi utility vehicle) after some states wanted it clarified and sought to know if sedans would be included under SUV category.

The minister said the council decided that if any other motor vehicle categories need to be added to the 22 per cent cess, the panel of central and state tax officers (or the Fitment Committee) will look into it.

Vague definition, say industry experts

Industry experts, however, have termed the GST council’s definition of SUVs a “vague one” which could lead to future confusions. They say the criteria that that the motor vehicle should be ‘popularly known as an SUV’ is an ambiguous requirement as the definition of SUV would be subjective.

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Others alleged that the clarification implies that hybrid electric vehicles and plug-in hybrid electric vehicles, which use both batteries and petrol to run, would be impacted and come under the ambit of the new cess rate.