AAR Classifies Smart Watches as ‘Wrist Watches’ Under 18% GST Bracket

The applicant, M/s Maxgrade Private Limited, is a manufacturer and trader of “Smart Watches.” These devices, while displaying time, also perform various functions such as heart rate monitoring, step counting, and notification alerts when synced with a smartphone.

The applicant sought an advance ruling to determine the correct HSN classification and applicable GST rate. They contended that because the device is essentially an electronic machine with data processing and communication capabilities, it should be classified as a telecommunication apparatus or an automatic data processing machines, which might attract a different tax treatment.

Main Issue: Whether a “Smart Watch” should be classified based on its timekeeping function under HSN 9102 (Wrist watches) or based on its electronic/communication functions under Chapter 85.

AAR’s Ruling: The Authority for Advance Ruling (AAR) ruled that the product is classifiable under HSN 9102 as a “Wrist Watch.” The Authority observed that the primary and essential character of the device, as perceived by the common man and the consumer, is that of a watch worn on the wrist to keep track of time.

The additional features like fitness tracking or smartphone notifications are supplementary or “smart” enhancements to the basic function of a watch. Referring to the General Rules for Interpretation (GRI) of the Harmonized System, specifically the “essential character” principle, the RAAR concluded that HSN 9102 is the most specific description. Thus, Smart Watches attract a GST rate of 18% (9% CGST and 9% SGST) as per Notification No. 1/2017-Central Tax (Rate).

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