GSTAT Lucknow: Hyundai Creta, Alcazar and Tucson Attract 22% Compensation Cess; Demand and Section 74 Penalty Restored

Decided 21 October 2026. In a ruling that departs from the Bombay High Court's view in Mercedes-Benz India, the GSTAT Lucknow Bench has allowed the department's appeal against a Hyundai dealer and held that the Creta 1.6, Alcazar 2.0 and Tucson 2.0 were liable to compensation cess at 22% as SUVs, not 20%. The Tribunal held that ground clearance must be read in the unladen condition even for the period before 26 July 2023, and upheld the invocation of section 74.

Case at a glance

Facts of the case

The dealer supplied Hyundai Creta, Alcazar and Tucson vehicles with engines above 1500 cc and paid compensation cess at 20%. A DGGI investigation alleged that the vehicles met all three conditions of Entry 52B (engine above 1500 cc, length above 4000 mm and ground clearance of 170 mm or more) and attracted 22%.

The dealer relied on ARAI certification showing the Creta's ground clearance at 169 mm in laden condition. The department relied on unladen figures from the manufacturer's press material (about 190 mm, 200 mm and 172 mm). The first appellate authority accepted the laden measurement and dropped the demand; the department appealed.

Issue before the Tribunal

Before Notification No. 03/2023 (effective 26.07.2023) defined "ground clearance" as the unladen measurement, was ground clearance under Entry 52B to be measured in laden or unladen condition, and was section 74 rightly invoked?

What the Tribunal held

• Entry 52B taxes vehicles "popularly known as" SUVs, so the manufacturer's own literature and marketing as an SUV are relevant evidence of the product's identity.
• An ARAI certificate is relevant technical evidence of physical measurements but is not conclusive for tax classification; it must be weighed against other evidence.
• Circular No. 247/04/2025-GST says the 2023 amendment applies from 26.07.2023, but it does not say that a laden standard applied earlier. A vehicle leaves the factory and is sold in unladen condition, so the unladen measurement applies on a plain reading.
• The Tribunal expressly disagreed with the Bombay High Court in Mercedes-Benz India (persuasive only in Uttar Pradesh) and the Maharashtra AAAR ruling in Tata Motors (binding only on that applicant under section 103(1)). Relying on Dilip Kumar & Co. (2018), it held that any ambiguity in a claim for a lower rate is construed against the assessee.
• A dealer cannot shift responsibility to the manufacturer's invoice rate; it must determine its own tax liability on outward supplies.
• Suppression with intent to evade was held established, and the demand of ₹25,66,695 with penalty under section 74 was restored.

Practical takeaways for taxpayers

1. Automobile dealers who paid 20% cess on 1500 cc+ utility vehicles for periods before 26.07.2023 face real exposure in Uttar Pradesh after this ruling, despite the Bombay High Court view.
2. Conflicting decisions now exist; the matter is likely to go to the High Court. Preserve ARAI documents, brochures and dealer invoices.
3. Charging the rate shown on the manufacturer's invoice is not a defence by itself for a dealer.
4. Where a classification issue was openly debated in the industry, contest the section 74 finding of suppression separately from the merits.

Frequently asked questions

Is ground clearance for compensation cess measured laden or unladen?

From 26.07.2023 the notification itself says unladen. For the earlier period, GSTAT Lucknow held that the unladen measurement also applies, disagreeing with the Bombay High Court.

Is this ruling binding outside Uttar Pradesh?

It is a Tribunal order of the Lucknow State Bench. Other benches and High Courts may take a different view, as the Bombay High Court already has.

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This summary is based on the order of the GST Appellate Tribunal, State Bench Lucknow in Appeal No. APL/20/LCK/2026. It is general information, not legal advice; the outcome of any case depends on its own facts and the full text of the order.