2021 (9) TMI 909 - AAR - GST

GST Ruling: Batteries for Indian Navy submarines taxed at 5% under Entry 252.

In Re: M/s. Exide Industries Limited

The Authority for Advance Ruling determined that the supply of batteries for use in warships, specifically submarines of the Indian Navy, falls under ... Classification of supply - supply of batteries by the required Applicant for the use in warships such as submarines of the Indian Navy - goods falls under Entry 252 of Schedule I to N/N. 01/2017-integrated Tax (Rate) dated 28.06.2017 and hence is taxable @ 5% GST or otherwise? - goods covered within the meaning of Parts of Goods of CTH 8901, 8902, 8904, 8905, 8906 and 8907 or not? - HELD THAT:- The batteries are essential parts of a submarine. A submarine cannot be imagined to be in existence without batteries because all internal controls and systems in the submarines, work on the power supplied by these batteries and without batteries, the submarine will not be able to function at all. Further, the batteries manufactured for such supplies are specifically designed and manufactured for use only in warships more particularly in submarines. The batteries will be considered as parts of vessels falling under heading 8901, 8902, 8904 to 8907, only if they are used in manufacturing goods falling under Tariff Headings 8901, 8902, 8904 to 8907 - the applicant's contention is agreed upon that the batteries supplied by them for exclusive use in goods falling under heading 8901, 8902, 8904 to 8907 will be taxable @ 5% IGST. However it is to reiterate that the benefit of reduced CGST and SGST for such batteries is only available if the said batteries are used as parts of goods falling under heading 8901, 8902, 8904 to 8907 of the GST Tariff. The benefit of reduced GST rates would not be available in respect of subject batteries supplied for use in goods other than goods of heading 8901, 8902, 8904 to 8907 of the GST Tariff. The batteries are essential requirements in manufacture of submarines and are classified under heading 85 of the GST Tariff and are parts of submarines. Since the subject goods are meant for use in manufacture of submarines and are supplied for purpose of use or application in manufacture of goods that are classifiable under Tariff headings 8901, 8902, 8904, 8905, 8906, 8907, the said goods can be considered as parts of a submarine. Entry at Sr. No. 252 covers goods which merit classification under “Any Chapter” of the GST Tariff wherein the description in Sr. No. 252, is “Parts of goods of headings 8901, 8902, 8904, 8905, 8906, 8907”. Accordingly, in the present matter, the Subject Goods will be covered under Sr. No.252. The supply of batteries by the Applicant exclusively and directly to the Indian Navy for use in the manufacture of submarines will be classified under Sr. No. 252 of Notification No. 1/2017- C.T. (Rate), dated 28-6-2017. Issues Involved:1. Applicability of Entry 252 of Schedule I to Notification No. 01/2017-Integrated Tax (Rate) dated 28.06.2017 to the supply of batteries for use in warships, specifically submarines, by the Indian Navy.2. Classification of batteries as 'parts' of submarines under GST laws.3. Determination of the GST rate applicable to the supply of such batteries.Issue-wise Detailed Analysis:1. Applicability of Entry 252 of Schedule I:The applicant, M/s. Exide Industries Limited, sought an advance ruling on whether the supply of batteries for use in warships, specifically submarines, by the Indian Navy falls under Entry 252 of Schedule I to Notification No. 01/2017-Integrated Tax (Rate) dated 28.06.2017, which would make it taxable at 5% GST.2. Classification of Batteries as 'Parts' of Submarines:- The applicant argued that the batteries supplied to the Indian Navy are specifically designed for use in submarines and are essential for their operation. They contended that these batteries should be classified as 'parts' of submarines under Chapter 89 of the GST Tariff.- The applicant provided an 'End User Certificate' from the Indian Navy certifying that the batteries are intended for use in warship applications, reinforcing their claim that the batteries are integral parts of submarines.- Various judicial precedents were cited to support the contention that the batteries, being essential for the functioning of submarines, should be classified as parts of submarines and thus fall under Entry 252.3. Determination of GST Rate:- The Advance Ruling Authority examined the definition and common parlance understanding of the term 'parts' to determine whether the batteries could be considered parts of submarines.- The Authority noted that batteries are essential components of submarines, without which submarines cannot function. Therefore, they qualify as parts of submarines.- The Authority referred to the description of goods under headings 8901, 8902, 8904, 8905, 8906, and 8907, which include various types of vessels, including warships and submarines.- It was concluded that the batteries supplied by the applicant, specifically designed and manufactured for use in submarines, fall under Entry 252 of Schedule I to Notification No. 01/2017-Integrated Tax (Rate) dated 28.06.2017, making them taxable at 5% GST.Conclusion:The Authority for Advance Ruling concluded that the supply of batteries by the applicant for use in warships, specifically submarines of the Indian Navy, falls under Entry 252 of Schedule I to Notification No. 01/2017-Integrated Tax (Rate) dated 28.06.2017 and is therefore taxable at 5% GST. The batteries are classified as parts of submarines, as they are essential for the operation of the submarines and are specifically designed for such use.Order:The ruling confirmed that the supply of batteries for use in warships, specifically submarines of the Indian Navy, falls under Entry 252 of Schedule I to Notification No. 01/2017-Integrated Tax (Rate) dated 28.06.2017 and is taxable at 5% GST.