GST Classification of CKD E‑Rickshaw Kits: Key Principles from West Bengal AAAR

The West Bengal Appellate Authority for Advance Ruling (WBAAAR), in the matter of In re Navya Electric Vehicle Private Limited (GST AAAR West Bangal), examined an important classification issue under GST: when does a collection of e‑rickshaw components supplied in Completely Knocked Down (CKD) or Semi Knocked Down (SKD) condition qualify as a finished electrically operated vehicle attracting 5% GST, and when does it remain a supply of individual parts taxable at higher rates?

This appellate ruling partially overturns the earlier decision of the West Bengal Authority for Advance Ruling (WBAAR) and lays down a stricter test for treating CKD/SKD kits as complete e‑rickshaws.

Background of the Dispute

M/s Navya Electric Vehicle Private Limited, registered in West Bengal, is engaged in the business of supplying components of electric three‑wheeler passenger and goods vehicles (e‑rickshaws). The assessee supplies these components in CKD form to registered dealers/assemblers, who then assemble and sell road‑worthy e‑rickshaws.

The assessee approached the WBAAR under Section 97 of the CGST Act seeking an advance ruling on the following question:

Whether the supply of a complete set of components of an electric three‑wheeler vehicle (e‑rickshaw) in CKD form, which is necessary and sufficient for assembling a finished vehicle, should be classified as:
(a) the finished vehicle itself, or
(b) a set of various individual parts?

Assessee’s Stand Before WBAAR

The assessee submitted that:

  • The CKD supplies consist of all key components:
    • chassis
    • motor
    • battery
    • controller
    • body panels
    • differential and other necessary items
  • All these are shipped together in one consolidated consignment to dealers/assemblers.
  • The dealers/assemblers merely assemble the components to create a complete, road‑worthy e‑rickshaw.
  • Since the kit is “necessary and sufficient” to build a finished e‑rickshaw, the entire supply should be treated as a supply of the vehicle itself, not as individual parts.

Revenue’s Position Before WBAAR

The jurisdictional officer did not offer a detailed contrary view at the initial WBAAR stage. The substantial challenge came later through the appeal to WBAAAR.

WBAAR’s Original Ruling: Essential Character Test via 5 Key Components

While deciding the advance ruling application, the WBAAR analysed:

  • Section 2(28) of the Motor Vehicles Act, 1988
  • Introduction of Section 2A to bring “e‑cart and e‑rickshaw” within the Motor Vehicles Act with effect from 07.01.2015
  • Rule 2(a) of the General Rules for Interpretation of the Customs Tariff Act, 1975
  • An Office Order of the Commissioner of Customs, ICD, Tughlakabad, New Delhi (C.No. VIII/ICD/TKD/6AG/104/2013/pt dated 12.03.2014)
  • Judicial decisions including:
    • Rama Krishna Sales Pvt. Ltd. Versus Union of India, 2019 (366) E.L.T. 273 (Del.)
    • Tribunal decisions in M/s Y.C. Electric Vehicle vs. Principal Commissioner, Customs (Import), New Delhi (ICD, TKD) and Commissioner of Customs (Port) vs. M/s Jade Korea Pine Life
    • Supreme Court decisions on Rule 2(a) in contexts such as washing machines, belt conveyor systems and engines

Office Order: Identification of Essential Components

The Tughlakabad Customs Office Order, based on a committee report, identified five major components/assemblies as providing the essential character of an e‑rickshaw in CKD/SKD condition, classifiable under Heading 8703:

  1. Transmissions
  2. Motor
  3. Axles
  4. Chassis
  5. Controller

The same Office Order stated:

  • If, along with the motor, any two of the other essential components are missing, the goods are to be treated as parts of an e‑rickshaw (Heading 8708).
  • If the motor is present along with any three of the remaining four components, it should be treated as a complete e‑rickshaw in CKD/SKD condition.

The Hon’ble Delhi High Court in Rama Krishna Sales Pvt. Ltd. Versus Union of India recognised and accepted this Office Order while interpreting Rule 2(a) of the Interpretative Rules.

WBAAR’s Key Findings

The WBAAR distilled the legal position as follows:

  • A CKD vehicle is a collection of parts to be assembled into a finished vehicle, usually for transport convenience.
  • Rule 2(a) allows an incomplete or unassembled article to be classified as the finished article if it has the essential character of that finished article.
  • In the context of e‑rickshaws, the essential character is defined by the five components identified in the Tughlakabad Office Order.
  • Therefore, an e‑rickshaw in CKD condition can be treated as a finished vehicle when:
    • The kit includes the motor plus any three of the other four major components (transmissions, axles, chassis, controller), and
    • The kit includes proportionate quantities sufficient to build that number of e‑rickshaws.

WBAAR’s Ruling

On this basis, WBAAR held: