We are working on an 8 month CD product. Is it possible for the APY to be more than the interest rate if the customer chooses to not compound interest? We can understand the APY being higher if it were compounded, but if not compounded, we thought the APY and interest rate would be the same.

You can stop trying to justify (in your head) the difference between the interest rate and the APY for the CD.

The exponent "365/days in term " in the standard APY formula assumes that the funds remain in the account at the stated rate of interest for a full year, regardless of the shorter term, and that interest earned during the 8-month is rolled into the deposit amount at the 8-month maturity, so compounding that one time is assumed.

It's really just the "flip side" of the fact that, if a CD pays simple (non-compounding) interest only at maturity, with no payouts of interest before maturity, and the term is longer than one year, the APY will be lower than the interest rate.