Toy manufacturers are set to face higher tax liabilities after a ruling that said toys that contain any form of light or sound should be treated as electronic toys and be subject to the Goods and Services Tax. should be taxed under 18%.GST)

While electronic toys such as expensive robots and children’s tablets were earlier subject to 18% GST, other toys such as tricycles and cycles were taxed at 12%.

Tamil Nadu Authority for Advance Ruling (R) said children’s scooter, smart tricycle And kick scooter – in which physical force is the primary action but they also have electronic circuits or parts to provide lights, music, etc. – to be taxed as electronic toys.

“In common parlance, electronic toys are generally understood as toys, whether electrically or battery operated, so the applicant sought classification at a lower rate. The authorities here have disregarded the criterion of common parlance And other small aspects like safety standards of the product, the way toys are advertised,” said Harpreet Singh, partner, indirect tax, KPMG in India.

Industry watchers said tax authorities can now start issuing notices based on the AAR’s decision. This may also be applicable to manufacturers and retailers who have already sold the toys and paid 12% GST on that amount.

“Even though physical force is one’s primary action” toys And if light and music are its auxiliaries, then light and music are powered by batteries and assembled with toys. Hence, it has to be classified as electronic toys,” the ruling said.

The Tamil Nadu AAR said that even in the case of toys like tricycles, the safety standards prescribed by the manufacturers were similar to those of electronic toys.

It was also observed that these toys are advertised as electronic toys with additional horns and other gadgets attached.

Singh said, “This is another case law that emphasizes the importance of considering all aspects like end use, marketability, common language, documentation, components being used etc. to determine the correct GST classification.”

Experts said product classification has been an issue under GST as it is a finicky tax structure.

The tax rates under the GST framework may also depend on the product composition or the end use of the product. Often this has resulted in differing views by tax authorities and companies.