Indian Railways transformers subject to 18% GST not 5% - AAR ruling

The Authority for Advance Ruling (AAR) determined that transformers supplied to Indian Railways by the applicant are classified under HSN 8504 and are subject to GST at 18%, not the reduced rate of 5% under HSN 8607. This decision was based on the specific classification available for transformers under HSN 8504, as outlined in relevant GST notifications and the Customs Tariff Act.

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Issues Involved:
1. Classification of Transformers supplied to Indian Railways.
2. Applicable GST rate for Transformers supplied to Indian Railways.

Detailed Analysis:

1. Classification of Transformers supplied to Indian Railways:

The applicant, a manufacturer of Transformers, Magnetic Components, and Panels, sought an advance ruling on whether the transformers supplied to Indian Railways should be classified under HSN 8607 ("Parts of railway or tramway locomotives or rolling stock") and subjected to GST at 5%, or under HSN 8504 ("Electrical Transformers, Static Convertors, and Inductors") and subjected to GST at 18%.

The applicant argued that the transformers are specifically designed for and integral to the electrical systems of railway coaches, making them a critical part of the railway's electrical circuit. They cited various manuals and reports from Indian Railways that highlight the importance of transformers in the functioning of railway coaches.

The jurisdictional officer contended that the transformers fall under HSN 8504, which is specific to electrical transformers, and thus should be taxed at 18%. They argued that HSN 8607 is a general classification for parts of railway or tramway locomotives and does not specifically include electrical transformers.

The Authority for Advance Ruling (AAR) examined the Customs Tariff Act and the relevant GST notifications. They noted that HSN 8504 explicitly covers electrical transformers, while HSN 8607 pertains to parts of railway rolling stock such as bogies, axles, and wheels, but does not explicitly mention electrical transformers.

2. Applicable GST rate for Transformers supplied to Indian Railways:

The AAR referred to Circular No. 30/4/2018-GST, which clarifies that only goods classified under Chapter 86 attract a 5% GST rate when supplied to railways. Goods falling under other chapters, even if supplied to railways, attract the general applicable GST rates.

The AAR concluded that the transformers, although used in railway coaches, do not fall under HSN 8607 due to the specific classification available for transformers under HSN 8504. Therefore, the transformers should be classified under HSN 8504 and subjected to GST at 18%.

Conclusion:

The AAR ruled that the transformers supplied to Indian Railways by the applicant are classified under HSN 8504 and are subject to GST at 18%, as per Sr. No. 375 of Schedule III of Notification 1/2017 Central Tax (Rate) dated 28.06.2017. The transformers do not qualify for the reduced GST rate of 5% under HSN 8607.

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