GST Department issue Tax Notices to Providers of CNG Cylinders for Wrongly Applying 18% GST

The Goods and Services Tax (GST) authorities have issued a show cause notice to a dozen companies that provide CNG cylinders for vehicle tracking, alleging misrepresentation of these fuel tanks.

Between September and November, notices were delivered alleging that the companies wrongly classified CNG fuel tanks as general compressed gas cylinders and filed 18% GST even after these cylinders were used in motor vehicles.

The authorities have requested the outstanding tax from July 2017 to April 2024, plus interest and penalties.

According to the industry, this could have a greater tax implication. The authorities argued that CNG fuel tanks are essential to vehicles, similar to petrol or diesel tanks, and cannot be interchanged with other cylinders, therefore subject to 28% GST. CNG kits are vehicle parts that are not the same as an empty CNG fuel tank.

The officials cited this was not the same as CNG conversion kits, which support motor vehicles designed to run on fuels such as petrol and diesel run on CNG by providing an alternative fuel charging system to the one already in the engine.

The sector maintains the tax rate paid based on consultations and purchase orders from top car clients, which pitched the 18% GST.

The Show Cause Notice (SCN) demand notices pertain to violations under several parts 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 provide their defence; otherwise, an ex parte adjudication may follow. Legal experts stated that CNG fuel tanks are not intrinsically motor vehicle parts under HSN code 8708 (28% GST) unless specifically indicated.

GST statutes make no particular distinction between standalone petrol cylinders and those used in vehicles; in cases of ambiguity, judicial precedents favour the taxpayer’s interpretation.

The issue in question was whether CNG cylinders should be classified as motor vehicle parts under Chapter 87 or as a comprehensive description under Chapter 73. To avoid long-running litigation, the GST Council should provide clarification in this matter.

The Central Board of Indirect Taxes and Customs (CBIC) stated that the applicable tax rate must be transparent to the industry.