MUV prices may go up as GST Council plans tweaks

The move will bring vehicles such as Toyota’s Innova, an MUV into the highest slab of 22% compensation cess and that it is likely that several manufacturers will pass on the impact to the consumer

The government may treat so-called multi-utility vehicles (MUV) or crossover utility vehicles (both uniquely Indian categories) at par with sports utility vehicles (SUVs) irrespective of automakers’ nomenclature and uniformly levy 22% compensation cess if they have length greater than 4 metres, an engine over 1,500cc capacity, and at least 170mm ground clearance, two people familiar with matter said.

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Empowered federal body the Goods and Services Tax (GST) Council, which is expected to meet on July 11, is likely to take up this matter and clarify the government’s position irrespective of manufacturers’ own innovative definitions of such vehicles, they added requesting anonymity. The Council may also take views on reducing tax rates on some food, snacks (including Kachri, fritters made from chickpea, and pappad) and life-saving medicines (such as Dinutuximab, a costly and imported anti-cancer agent).

Experts who did not wish to be named, said the move will bring vehicles, such as Toyota’s Innova and the Maruti Ertiga, both MUVs, into the highest slab of 22% compensation cess and that it is likely that several manufacturers will pass on the impact to the consumer. A top CEO of automobile manufacturing firm said he would comment only after the official announcement of the proposal.

They added that one part of the specific inclusion of the word SUV in the definitions may be at fault. After its 48th meeting in December, 2022, the GST Council issued a clarification and said that a motor vehicle will attract “higher rate of compensation cess of 22%” if they fulfil “all four conditions” — it must be popularly be known as SUV, has engine capacity exceeding 1500cc, length exceeding 4,000mm and a ground clearance of 170mm or above.

This, experts said, meant that while SUVs attract GST at the rate of 28% and compensation cess at 22%, MUVs with engine capacity less than 1500cc attract a GST of 28% and cess of 15%; and those with engine capacity exceeding 1500cc, but not meeting other parameters of SUV attract GST of 28% and cess of 20%.

The people mentioned above said that this should be treated more as a clarification rather than any change in tax rate. “Many car manufacturers called their SUVs as MUVs and claim a lower cess rate, which needed clarification. A final decision will, however, be taken by the GST Council,” one of them said.

The GST Council, chaired by the Union finance minister, is the apex decision-making body on the indirect tax matters; the states are represented in the body through their respective finance ministers. The council’s decisions are often unanimous.

MS Mani, partner at Deloitte India, said that a clarification on this matter would help in avoiding confusion and litigations. “While there are fewer classification disputes in GST compared to the excise regime, it is essential to align the description of products with those used by industry in order to avoid litigation and provide certainty to impacted businesses,” he said.

Experts expect the council to issue more clarifications on this matter. “The GST Council is yet to clarify whether ground clearance should be measured in laden or unladen condition for determining whether a vehicle is an SUV for the purpose of determine GST compensation cess rates. This ambiguity is causing uncertainty in the automobile industry and making it difficult for manufacturers to price their vehicles. We do expect that some clarification be issued on this issue as a part of the next council meeting to bring in certainty of taxes,” said Saurabh Agarwal, Tax Partner at consultancy firm EY.