2021 (12) TMI 466 - AAAR - GST

Bellow Ducts Classified Under Customs Tariff Act: Appellate Authority Decision

The Appellate Authority ruled that the 'Bellow Ducts' should be classified under Chapter Heading 8607 of the Customs Tariff Act, 1975, as parts of railway ... Classification of goods - Chapter 86 - parts of railway rolling-stock - Chapter 84 - mechanical appliances for projecting, dispersing or spraying - Suitability for use test - HSN classificationClassification of goods - Chapter 86 - parts of railway rolling-stock - Suitability for use test - HSN classification - Bellow Ducts manufactured as per Railway specifications and supplied exclusively to Indian Railways are classifiable under Chapter Heading 8607. - HELD THAT: - The Appellate Authority examined whether the impugned Bellow Ducts fall under Chapter Heading 8607 as parts of railway rolling-stock or under Chapter Heading 8424 as mechanical appliances for projecting, dispersing or spraying. Chapter 86 and its Note 3 require that references to 'parts' apply only to parts suitable for use solely or principally with the articles of those Chapters and that a part answerable to two headings is to be classified according to its principal use. The Authority accepted the appellant's uncontested factual position that the Bellow Ducts are custom-built to RDSO specifications and are used exclusively in coach air-conditioning units of Indian Railways. Applying the 'suitability for use test' as explained by the Supreme Court in Westinghouse Saxby Farmer Ltd and consistent tribunal precedents cited, items specifically designed and fit solely or principally for railway coaches must be classified under Chapter 86. The Advance Ruling's classification under Chapter 84 was therefore not appropriate given the principal use of the product for coach work, and the Bellow Ducts merit classification under heading 8607 as parts of railway rolling-stock. [Paras 10, 12, 13, 15, 16]The Bellow Ducts manufactured to Railway design and supplied exclusively to Indian Railways are classifiable under Chapter Heading 8607.Final Conclusion: Appeal allowed; the Advance Ruling is set aside to the extent it classified the Bellow Ducts under HSN 8424, and the product is held classifiable under Chapter Heading 8607 as parts of railway rolling-stock. Issues Involved:1. Classification of 'Bellow Duct' under the appropriate Harmonized System of Nomenclature (HSN) code.2. Applicable GST rate for the supply of 'Bellow Duct' to the Ministry of Railways.Issue-wise Detailed Analysis:1. Classification of 'Bellow Duct' under the appropriate HSN code:The appellant, M/s. Concord Control Systems Private Limited, contended that 'Bellow Ducts' should be classified under Chapter Heading 8607 of the Customs Tariff Act, 1975, as parts of railway or tramway locomotives or rolling stock. They argued that these ducts are designed and manufactured per the specifications of the RDSO, Ministry of Railways, and are used exclusively in the AC coaches of Indian Railways.The Authority for Advance Ruling (AAR) had previously classified the 'Bellow Ducts' under HSN 8424, which pertains to mechanical appliances for dispersing, spraying, or projecting liquids or powders, attracting a GST rate of 18%. The appellant contested this classification, asserting that their product is not used for dispersing or spraying liquids or powders but as a flexible conduit for air in railway AC units.Upon review, the Appellate Authority observed that Chapter 86 covers 'Railway or Tramway Locomotive, Rolling-Stock and Parts thereof; Railway or Tramway Track Fixtures and Fittings and Parts thereof; Mechanical (Including Electro-Mechanical) Traffic Signalling Equipment of all kinds.' The authority noted that the 'Bellow Ducts' are specifically designed for and used solely in railway coaches, aligning with the provisions of Chapter Note 3 of Chapter 86, which emphasizes the 'suitability for use solely or principally' with railway articles.The Appellate Authority also referenced several case laws supporting the classification of custom-built parts designed exclusively for railways under Chapter Heading 8607. These included judgments from the Hon'ble Supreme Court and various tribunals, which consistently classified such parts under Chapter 86 when they are specifically designed for and used solely in railway applications.2. Applicable GST rate for the supply of 'Bellow Duct' to the Ministry of Railways:Given the classification of 'Bellow Ducts' under Chapter Heading 8607, the applicable GST rate would align with the rate prescribed for parts of railway or tramway locomotives or rolling stock. The Appellate Authority concluded that the 'Bellow Ducts,' being integral parts of railway coaches and designed per the specifications of the Indian Railways, should be classified under Chapter Heading 8607, thus attracting the GST rate applicable to parts under this heading.Ruling:The Appellate Authority ruled that the classification of 'Bellow Ducts,' manufactured as per the specific design and layout provided by the Railways and supplied exclusively to the Indian Railways, falls under Chapter Heading 8607 of the Customs Tariff Act, 1975. This classification aligns with the legal precedents and the specific use of the product in railway applications, ensuring the correct application of the GST rate.