• Notification Date: 27-12-2024
• Notification No: N/A

GST notices to CNG kit suppliers over misclassification of fuel tanks

More than a dozen companies supplying CNG cylinders to motor vehicles have received show cause-cum-demand notices from the Goods and Services Tax (GST) authorities, who accused them of misclassifying CNG fuel tanks. Between September and November 2023, notices have been issued to these companies stating that they had treated the CNG tanks as general cylinders for compressed gas and thereby charged a GST of 18%. The authorities, however, argue that since these tanks are specifically used in motor vehicles, they must attract a GST of 28%.

The GST authorities are demanding the payment of the unpaid tax from July 2017 to April 2024, along with interest and penalties. This may have significant tax implications for the CNG kit providers, as the difference in GST rates could result in a substantial financial burden. According to a senior official, CNG fuel tanks form an integral part of the vehicle, much like the petrol or diesel tanks and can't be replaced with ordinary cylinders. "The CNG kits are essentially auto parts and are distinct from an empty gas cylinder," he said, underlining the need for proper classification.

The notices have created much concern in the industry as many fear that this could result in massive liabilities which include interest and penalties for companies that may have wrongly classified the CNG tanks. The industry now faces a critical challenge as businesses will need to review their past transactions and potentially pay back notable amounts in taxes.

With the increased scanning power of the GST authority, CNG kit distributors would be left battling it out with the financial sway, growing ambiguity around tax classification.