Indian Navy parts from Cummins India subject to concessional GST rate for ships and vessels

The parts of diesel marine engines or gensets supplied to the Indian Navy by M/s. Cummins India Limited are chargeable to 5% IGST or 2.5% CGST + 2.5% SGST if used in ships and vessels classified under specific headings of the GST Tariff. The Authority found that the parts qualified for the concessional rate based on supporting documents, ruling in favor of the applicant's interpretation. The issue of whether the supply of parts and repair services constitutes a "composite supply" was not conclusively addressed in this ruling.

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Issues Involved:
1. Classification and applicable GST rate for parts of diesel marine engines or gensets supplied to the Indian Navy.
2. Determination of whether the supply of parts and repair services constitutes a "composite supply."

Issue-wise Detailed Analysis:

1. Classification and Applicable GST Rate:

Facts and Contentions by Applicant:
- The applicant, M/s. Cummins India Limited, manufactures and supplies parts of marine diesel engines and gensets to the Indian Navy.
- The parts supplied include items such as sea water pumps, gaskets, seals, thermostats, etc., intended for use in marine engines or gensets of ships or vessels classified under Chapter 89 of the Customs Tariff Act, 1975.
- The applicant contends that these parts should be taxed at a concessional rate of 5% IGST or 2.5% CGST + 2.5% SGST as per Sr. No. 252 of Notification No. 1/2017-Central Tax (Rate), dated 28-6-2017, which applies to "parts of goods of headings 8901, 8902, 8904, 8905, 8906, 8907."

Applicant's Interpretation of Law:
- The applicant argues that parts used in ships or vessels falling under headings 8901 to 8907 should be taxed at the concessional rate, regardless of their classification under other chapters of the GST Tariff.
- The applicant supports this with various legal precedents, including judgments from the Hon’ble Supreme Court and Tribunals, which emphasize that parts used in specific machinery should be taxed based on the machinery's classification.

Contentions by Jurisdictional Officer:
- The officer argues that parts should be classified based on their specific description under the Harmonized System, not by their end use.
- The officer contends that parts like fuel shutoff valves, thermostats, and gaskets are not exclusive to ships or vessels and can be used in other machinery, thus should be classified under their respective headings (e.g., Chapter 84 for machinery parts) and taxed at higher rates (e.g., 18% IGST).

Observations and Findings:
- The Authority examined the documents provided by the applicant, including tender documents, purchase orders, and certificates from the Indian Navy, which confirm that the parts are for exclusive use in ships or vessels of the Indian Navy.
- The Authority referred to a previous ruling in the case of M/s MAN Energy Solutions India Private Limited, where it was held that marine engines and their parts used in manufacturing ships or vessels falling under Chapter 89 are eligible for the concessional rate of 5% GST.
- The Authority concluded that the parts supplied by the applicant to the Indian Navy, supported by the relevant documents, qualify for the concessional rate of 5% GST under Sr. No. 252 of Notification No. 1/2017-C.T. (Rate).

Order:
- The parts of diesel marine engines or gensets supplied by the applicant to the Indian Navy are chargeable to 5% IGST or 2.5% CGST + 2.5% SGST, provided they are used in ships and vessels falling under chapter headings 8902, 8904, 8905, 8906, and 8907 of the GST Tariff.

2. Determination of Composite Supply:

Contentions by Jurisdictional Officer:
- The officer contends that the supply of parts and repair services by the applicant to ONGC does not constitute a "composite supply" as defined under Section 2(30) of the CGST Act, 2017.
- The officer argues that the supply of parts and services can be provided independently, and thus, should be classified as "mixed supply" under Section 2(74) of the CGST Act, 2017.

Observations and Findings:
- The Authority did not address this issue in detail as the applicant only sought a ruling on the GST rate applicable to parts supplied to the Indian Navy.

Conclusion:
- The ruling primarily focused on the classification and applicable GST rate for parts supplied to the Indian Navy, affirming the concessional rate of 5% GST, provided the parts are used in ships or vessels classified under specified headings of Chapter 89. The issue of composite supply was not conclusively addressed in this ruling.

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