The Goods and Services Tax Appellate Tribunal (GSTAT), Bengaluru Bench, has held that ground clearance for determining the applicability of 22% compensation cess on motor vehicles supplied before July 26, 2023 must be measured in laden condition. It ruled that the subsequent amendment prescribing measurement in unladen condition could not be applied retrospectively.

The bench of Prabhakaran P.M. (Judicial Member) and Ravi Jesuraj S. (Technical Member) set aside a differential compensation cess demand of Rs. 9,76,21,566, along with interest and a penalty of ₹97,62,157.

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The Bench also rejected the department’s reliance on overseas manufacturer websites and commercial automobile portals to establish the ground clearance of vehicles sold in India.

The appellant, an authorised Hyundai dealer in Bengaluru, purchased and sold Hyundai Creta 1.6L, Tucson 2.0L and Alcazar 2.0L vehicles. Hyundai Motor India Limited charged compensation cess at 20% under Entry 52A of Notification No. 01/2017–Compensation Cess (Rate), and the dealer applied the same rate on its retail sales.

The Department alleged that these vehicles attracted 22% cess under Entry 52B and demanded the two-percentage-point differential for supplies between September 11, 2017 and July 31, 2023.

Before the July 2023 amendment, Entry 52B covered motor vehicles with engine capacity exceeding 1,500 cc, popularly known as sports utility vehicles, including utility vehicles. Its explanation referred to vehicles exceeding 4,000 mm in length and having ground clearance of 170 mm or above.

The dispute centred on whether this ground clearance had to be measured when the vehicle was loaded or unloaded.

The adjudicating authority confirmed the demand in December 2023. The Commissioner (Appeals) upheld it in April 2024, treating the July 2023 explanation prescribing unladen ground clearance as clarificatory.

The Tribunal referred to CBIC Circular No. 189/01/2023-GST dated January 13, 2023, which clarified that the 22% rate applied only where all four specifications were satisfied: the vehicle was popularly known as an SUV, its engine capacity exceeded 1,500 cc, its length exceeded 4,000 mm, and its ground clearance was at least 170 mm.

The first three conditions were admitted in the case. The controversy concerned only the fourth.

The Bench held that failure to satisfy any one of these conditions kept the vehicles outside Entry 52B and, in the circumstances of this case, within Entry 52A attracting 20% cess.

The Tribunal noted that neither the compensation cess legislation nor the rate notification defined “ground clearance” before the July 2023 amendment.

It therefore examined the standards governing the testing and approval of motor vehicles in India. The Bench explained that vehicles undergo prototype testing under Rule 126 of the Central Motor Vehicles Rules, with dimensions measured under AIS-007, which adopts Indian Standard IS 9435.

Clause 5.8 of IS 9435:2004 requires minimum ground clearance to be measured on a fully laden vehicle at its maximum authorised gross vehicle weight.

The Revenue had not identified any Indian standard prescribing unladen measurement for the relevant period.

Rejecting the distinction drawn by the lower authorities between “minimum ground clearance” and “ground clearance”, the Tribunal explained that “minimum” identifies the lowest point from which the distance is measured. The load condition is addressed separately in the standard.

The Bench also rejected the argument that the vehicle’s unloaded condition at the time of showroom delivery determined its classification. The relevant measurement, it held, followed the prescribed standard rather than the manner of delivery.

The Tribunal held that Notification No. 03/2023–Compensation Cess (Rate) did more than insert a clarification.

It substituted the entry, expanded its coverage from vehicles popularly known as SUVs to utility vehicles by whatever name called, and expressly prescribed unladen ground clearance.

Changing the measurement could bring vehicles previously outside the higher-rate entry within its scope. The amendment therefore enlarged the cess burden and constituted a substantive change.

Relying on the principles discussed in Commissioner of Income Tax v. Vatika Township (P) Ltd. and Union of India v. Martin Lottery Agencies Ltd., the Tribunal held that an amendment increasing a tax burden is ordinarily prospective. Calling a provision an “Explanation” does not, by itself, make it retrospective.

The Bench further observed that Entry 52B was a charging entry imposing a higher rate, rather than an exemption. Any unresolved ambiguity about the applicable measurement would therefore favour the taxpayer.

The Tribunal relied on Circular No. 247/04/2025-GST dated February 14, 2025, which clarified the prospective application of the amendment.

It observed that the circular bound the Revenue. The Department also accepted that its case for the earlier period could no longer rest solely on retrospective application of Notification No. 03/2023.

The Bench referred to the Bombay High Court’s decision in Mercedes-Benz India Pvt. Ltd. v. Union of India and the Kerala High Court’s decision in Popular Motor World Pvt. Ltd. v. Union of India, which addressed the same amendment.

It adopted the Bombay High Court’s reasoning as persuasive authority, without deciding whether that judgment bound the Tribunal outside the High Court’s territorial jurisdiction.

The order expressly acknowledged a date distinction: while the notification’s commencement clause specified July 27, 2023, the CBIC circular and the cited High Court decisions treated July 26, 2023 as the relevant date. Following those authorities, the Tribunal adopted July 26, 2023 as the dividing date.

The Automotive Research Association of India certificates recorded the following laden ground clearance for the vehicles in dispute:

All three measurements were below the 170 mm threshold.

The Tribunal held that the certificates covered the models in dispute. The Revenue had produced no evidence showing that any Indian variant sold by the appellant had a different laden ground clearance.

Consequently, the vehicles did not meet the fourth condition necessary for the higher cess rate during the period preceding the amendment.

The Department relied on Hyundai South Africa’s website and commercial automobile portals to support its ground-clearance figures. For the Alcazar, it relied on information concerning the “Grand Creta” sold abroad.

The Tribunal found no evidence establishing that the overseas vehicles had the same specifications as the Indian variants. The commercial portals also did not disclose the source of their figures, the loading condition or the measurement method.

The Bench emphasised that the burden of proving classification under the higher-rate entry rested on the Revenue. The lower authorities had erred by faulting the dealer for failing to establish an unladen measurement below 170 mm.

It also noted that the Department could have summoned Hyundai Motor India, obtained ARAI test reports or verified the technical specifications through its statutory powers under Section 70. These avenues had not been used.

Although Section 145 could make computer printouts admissible, the Tribunal distinguished admissibility from evidentiary weight. Unverified information concerning vehicles built for another market could not prevail over statutory certificates for the vehicles actually sold.

The Bench stated, “A tax demand cannot be built on material that the assessee cannot question and the adjudicator cannot verify.”

Despite allowing the appeal, the Tribunal rejected the dealer’s argument that it could not be required to pay a higher rate than the manufacturer had charged.

It held that the dealer’s retail sale constituted a separate supply. Under Section 59 of the CGST Act, the dealer remained responsible for self-assessing the tax payable on that supply.

The manufacturer’s classification could indicate good faith, but it did not provide an independent legal defence to an otherwise valid demand.

The dealer succeeded because the applicable legal measurement and the evidence supported 20% cess for the earlier period.

The demand extended up to July 31, 2023, including several days after the dividing date adopted by the Tribunal.

However, the department had neither separately quantified a short payment for those days nor established that the appellant continued charging 20% cess after the amendment. Its own submissions proceeded on the basis that the dealer paid 22% cess after July 26, 2023.

The Tribunal also noted that the notice recorded payment at 22% on the Tucson after the amendment, while the relevant Creta and Alcazar variants had been discontinued.

Accordingly, no short payment was established for the post-amendment portion of the demand.

The Tribunal also identified discrepancies in the demand computation and the description of the disputed period. It observed that the lower authorities had confirmed the demand without reconciling those differences, although its substantive findings made them immaterial to the outcome.

Setting aside the entire differential cess demand of ₹9,76,21,566, the Bench held that interest under Section 50 could not survive when no tax remained unpaid.

The penalty of ₹97,62,157 under Section 73(9) also fell because no tax was determined to be due.

The Tribunal allowed the appeal, set aside both the adjudication order and the first appellate order, and made no order as to costs.

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