2021 (1) TMI 542 - AAR - GST

GST Judgment: Chilled Water Plant Supply Classified as Composite Supply

The judgment determined that the 'Supply, Testing and Commissioning of 160 TR Chilled Water Plant' to Naval Dockyard (Vishakhapatnam) is a composite ... Classification of goods - GST rate - water chillar plants supplied by the applicant for use in the warships, vessel and submarines to be deployed by the Indian Navy - benefit of Notification No. 01/2017-IT (Rate), S. No. 252 - Composite supply or not - HELD THAT:- In the proposed activity, the major part is supply of goods viz. Compressor, Fan Condenser, Evaporator, Centrifugal Pump with motor, Electrical Panel, Chilled Water piping/Hoses and mobile trolley etc. These goods are to be delivered to the applicant to provide services of installation, testing & commissioning of the “Trailer Mounted 160TR Chilled Water Plant” at the Naval Dockyard (Vishakhapatnam). Without these goods, the services cannot be supplied by the applicant and, therefore, we find that the goods and services are supplied as a combination and in conjunction and in the course of their business where the principal supply is supply of goods. Thus, we find that there is a composite supply with supply of goods being the principal supply i.e. ‘Chilled Water Plant’/ ‘Chiller’ in the subject case. The principal supply in this case is a supply of goods and, therefore, the GST will have to be paid on the goods at the appropriate rate after classification under the appropriate heading. The principal goods in the subject case is a ‘Chilled Water Plant’, which are most important for the applicant to render supply as per the Tender/ Purchase Order - the final deliverable is nothing but ready to operate ‘Chilled Water Plant’/ ‘Chiller’, which supply chilled water through flexible insulated hoses to Ships under refit i.e. ships under repair whose main engine, AC plant are non-operational or cannot be used. The chilled water is further circulated on-board ship to provide control temperature for electronics and human comfort. Thus, the said Chilled Water Plant shall be mobile and movable since it will be installed on a Trailer lying at Naval Dockyard to enable movement of same from one ship to another depending on the requirement - the supply involved in present case is a composite supply with principal supply of goods i.e. supply of the Chilled Water Plant (Chiller). The chiller is mainly consisting of compressor (used to increase the pressure & temperature of the refrigerant vapour), evaporators (where cool liquid refrigerant absorbs heat from the chilled water circuit), expansive valve (used to maintain the pressure difference between the high pressure & low pressure sides of the chiller system) and condensers (where the refrigerant vapour is converted to liquid as it rejects heat) - This continuous, uses of refrigeration cycle by chiller for compression, evaporation and condensation of refrigerant is used to chill water. It does not perform any function other than chilling/refrigerating water. Thus, Chiller is a refrigeration unit. On application of General Rules for the Interpretation (GIR) of the First Schedule to Customs Tariff GIR-1 read with Chapter Note 2 (b) and Note 4 to Section XVI, the ‘Chilled Water Plant” (‘Chiller’) falls under Chapter heading 8418. Also, as per GIR-6 read with HSN Explanatory Note to tariff heading 8415 & 8418, the ‘Chilled Water Plant” (‘Chiller’) is correctly classifiable under tariff heading 8418 10 10 - GST rate on Composite Supply will be equal to the GST rate applicable on the principal supply of such goods and services, included in the composite supply. In such cases, the GST rate applicable to the principal supply levies to the complete supply of goods or services. The “Supply, Testing and Commissioning of 160 TR Chilled Water Plant” to Naval Dockyard (Vishakhapatnam), is a composite supply with supply of goods being the principal supply i.e. ‘Chilled Water Plant’/ ‘Chiller’ falling under Chapter sub-heading No. 8418 10 10 and the GST rate applicable to the principal supply levies to the complete supply of goods and services. Accordingly, the applicant is liable to pay GST @28% till 26.07.2018 and @18% from 27.07.2018 on said complete supply of goods and services. Applicability of the Notification No.01/2017-IT (Rate), S. No. 252 - HELD THAT:- Said Chilled Water Plant is used for supplying chilled water through flexible insulated hoses to Ships under refit i.e. ships under repair whose main engine, AC plant are non-operational or cannot be used. The chilled water is further circulated on-board ship to provide control temperature for electronics and human comfort. The said plant is, thus, primarily used in the Naval Dockyard meant to maintain and control the temperature and humidity in the Naval Ships stationed in the Dockyard. Since, said Chilled Water Plant is not installed in the Warships, Vessels and Submarines meant for Indian Navy but same is installed at Naval Dockyard, we hold that the same cannot be categorised as “Any Parts” of Vessels under HSN 8906 and consequently, same is not subjected to GST @ 5% under HSN 8906 as per Sr. No. 252 (Any Chapter) of the Notification No. 01/2017-IT (Rate), as we already hold that the said supply to Naval Dockyard (Vishakhapatnam), is a composite supply with principal supply of goods i.e. the ‘Chilled Water Plant’/ ‘Chiller’ falling under Chapter sub-heading No. 8418 10. Since the supplies effected by the applicant are meant for Indian Navy and Government of India is the end user of the said supplies for smooth operations of the priority sector being National Defence, GST rate applicable for essential sector-5% is in consonance with the intention of law; that the Chilled Water Plant/ Chiller supplied by the applicant for use in the warships, vessel and submarines to be deployed by the Indian Navy, attracts 5% IGST in terms of Sl. No. 252 of Schedule I of Notification No.1/2017-Central Tax (Rate)/ Integrated Tax (Rate)/ SGST. The said plant is, thus, primarily used in the Naval Dockyard meant for repairing to maintain and control the temperature and humidity in the Naval Ships stationed in the Dockyard. Since, said Chilled Water Plant is not at all installed in any vessels, Submarines including Warship and Life Boats meant for Indian Navy, it cannot be categorised as “Any Parts” of goods of headings 8901, 8902, 8904, 8905, 8906 & 8907. Consequently, said supply of the Chilled Water Plant will be out of ambit of the Entry at Sl. No. 252 of the Notification No. 01/2017-IT (Rate) dated 28.06.2017. Further, there is no exemption Notification issued under GST, which provides GST exemption in respect of Supply of 160TR Chilled Water Plant in question to the Naval Dockyard, Visakhapatnam, an Indian Naval Ship Repair Organisation of Indian Navy. Issues Involved:1. GST rate applicable on the 'Supply, Testing and Commissioning of 160 TR Chilled Water Plant' to Naval Dockyard (Vishakhapatnam).2. HSN/SAC code applicable for the 'Supply, Testing and Commissioning of 160 TR Chilled Water Plant' to Naval Dockyard (Vishakhapatnam).3. Applicability of Notification No. 01/2017-IT (Rate), S. No. 252 (Any Chapter) for categorizing the Chilled Water Plant as 'Any Parts' and subject to GST @ 5% under HSN 8906.Issue-Wise Detailed Analysis:1. GST Rate Applicable:The applicant sought clarification on the GST rate for the 'Supply, Testing and Commissioning of 160 TR Chilled Water Plant' to Naval Dockyard, Vishakhapatnam. The judgment determined that this supply is a composite supply with the principal supply being the Chilled Water Plant (Chiller). It was concluded that the Chilled Water Plant falls under Chapter sub-heading No. 8418 10 10, which pertains to 'Refrigerators, freezers and other refrigerating or freezing equipment, electric or other; heat pumps other than air conditioning machines of heading 8415.' The applicable GST rate was 28% until 26.07.2018 and 18% from 27.07.2018.2. HSN/SAC Code Applicable:The judgment confirmed that the 'Supply, Testing and Commissioning of 160 TR Chilled Water Plant' to Naval Dockyard (Vishakhapatnam) is a composite supply with the principal supply being the Chilled Water Plant (Chiller). The applicable HSN code for this supply is 8418 10 10. This classification is based on the function of the Chiller, which is to chill water using a refrigeration cycle.3. Applicability of Notification No. 01/2017-IT (Rate), S. No. 252 (Any Chapter):The applicant argued that the Chilled Water Plant should be categorized under HSN 8906 as 'Any Parts' of vessels, which would subject it to a GST rate of 5%. However, the judgment clarified that the Chilled Water Plant is positioned on a jetty (Naval Dockyard) and not on a ship. It is used to supply chilled water to ships under repair, and thus, it cannot be categorized as 'Any Parts' of vessels under HSN 8906. Consequently, it is not subject to the 5% GST rate under this notification.Conclusion:The judgment concluded that the 'Supply, Testing and Commissioning of 160 TR Chilled Water Plant' to Naval Dockyard (Vishakhapatnam) is a composite supply with the principal supply of goods classified under HSN 8418 10 10. The applicable GST rate is 28% until 26.07.2018 and 18% from 27.07.2018. The Chilled Water Plant cannot be categorized as 'Any Parts' under HSN 8906, and thus, it is not subject to the 5% GST rate under Notification No. 01/2017-IT (Rate), S. No. 252 (Any Chapter).