CGST Rate Determination for Defense Cables: 2.5% for Supply, 5% for Warship Parts

The Authority determined that the applicable rate of CGST on the supply of cables for submarines to the Ministry of Defense was 2.5% each for CGST & SGST. Additionally, the supplied cables were classified as parts of warships, entitling them to the concessional tax rate of 5% under CGST & SGST.

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Issues:
1. Clarification on the applicable rate of CGST on the supply of cables for use in submarines.
2. Classification of supplied goods as parts of warships for concessional tax rate eligibility.

Analysis:

Issue 1: Applicable Rate of CGST
The applicant sought clarification on the applicable CGST rate for supplying pressure tight cables, non-pressure tight cables, and special cables for use in submarines to the Ministry of Defense. The applicant contended that the cables supplied were eligible for a concessional tax rate under Notification No. 01/2017. The Authority analyzed the nature of the goods supplied, which were electrical cables used for electronic communication. Although initially taxable at 28%, the cables could qualify for a reduced rate of 18%. However, Entry 252 of Notification 01/2017 allowed parts of specified goods to be taxed at a concessional rate of 5% under CGST & SGST. The Authority examined purchase orders from the Defense Machinery Design Establishment and end-user certificates from the defense department, concluding that the applicant's supplies for warship building qualified for the concessional rate of 5% under CGST & SGST.

Issue 2: Classification of Goods as Parts of Warships
The second issue revolved around whether the supplied cables could be considered as parts of warships for classification under Sl.No.252 read with Sl.No.250 of Schedule I in Notification No. 01/2017. The applicant presented purchase orders and specifications indicating the use of cables in marine applications, including Navy shipboard applications. The Authority scrutinized the specifications and certificates provided by the Naval authorities, which confirmed the exclusive use of the goods onboard Indian Naval Ships. Relying on legal precedents, including the definition of 'component' or 'part,' the Authority determined that the applicant's supplies to the Defense Machinery Design Establishment for warship building purposes qualified for the concessional tax rate of 5% under CGST & SGST.

Conclusion:
The Authority ruled that the applicable rate of CGST on the supply of cables for submarines to the Ministry of Defense was 2.5% each for CGST & SGST. Furthermore, the supplied goods were considered as parts of warships, making them eligible for classification under Sl.No.252 read with Sl.No.250 of Schedule I in Notification No. 01/2017.

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