RO Plant systems for Navy warships attract 18% GST as crew equipment, not essential ship parts under HSN 8421

The AAR Maharashtra ruled on GST classification for RO Plant/system supply to Indian Navy/Coast Guard. For normal course supply, the RO system falls under HSN 8421 attracting 18% GST. For RO systems installed on warships, the authority held these are additional equipment, not essential ship parts, as ships can sail without them. The equipment serves crew necessity rather than ship functionality. Therefore, concessional GST rates under Sr. No. 252 for ship parts don't apply, maintaining 18% GST rate for both scenarios.

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Issues Involved:
1. Applicable rate of GST on supply of Reverse Osmosis Plant/system (RO Plant/system) to Indian Navy/Indian Coast Guard in normal course.
2. Applicable rate of GST on supply of RO Plant/system to Indian Navy/Coast Guard for installation on a warship.

Issue-wise Detailed Analysis:

1. Applicable Rate of GST on Supply of RO Plant/System to Indian Navy/Indian Coast Guard in Normal Course:

The applicant, M/s Rochem Separation Systems India Private Limited, sought clarification on the applicable GST rate for supplying RO Plant/system to the Indian Navy/Indian Coast Guard. The applicant classified the RO Plant/system under Chapter Heading 8421 of the GST Tariff, which typically attracts a GST rate of 18%. The relevant Schedule III of Notification No. 01/2017 - Central Tax (Rate) dated 28.06.2017, which lists goods under Chapter Heading 8421, confirms that these goods attract a GST rate of 18%. The Authority for Advance Ruling (AAR) agreed with the applicant's classification and confirmed that the applicable rate of GST for the supply of RO Plant/system to the Indian Navy/Indian Coast Guard in normal course is 18%.

2. Applicable Rate of GST on Supply of RO Plant/System to Indian Navy/Coast Guard for Installation on a Warship:

The second issue addressed whether the supply of RO Plant/system to be installed on a warship qualifies for a reduced GST rate of 5%, as suggested by the Indian Naval Department. The applicant argued that the RO Plant/system should not be considered as a part of the warship, which would otherwise qualify for the concessional rate under Sr. No. 252 of Notification No. 01/2017 dated 28.06.2017. This notification provides a reduced GST rate for parts of goods classified under headings 8901, 8902, 8904, 8905, 8906, and 8907.

The AAR examined the definition and common understanding of "parts" and concluded that the RO Plant/system does not constitute an essential part of a warship. Essential parts of a ship include items like the anchor, hull, keel, mast, and rudder, which are integral to the ship's operation and functionality. The RO Plant/system, used for purifying water, is considered an additional equipment rather than a fundamental component necessary for the ship's operation. Therefore, it does not qualify as a part of the warship under Sr. No. 252 of the notification.

The AAR also referenced several judicial precedents to support its conclusion that the RO Plant/system, being an additional equipment for the welfare of the crew rather than the ship's functionality, does not meet the criteria for the reduced GST rate. Consequently, the applicable rate of GST for the supply of RO Plant/system to be installed on a warship remains 18%.

Order:

In conclusion, the AAR ruled that the applicable rate of GST on the supply of Reverse Osmosis Plant/system to the Indian Navy/Indian Coast Guard, whether in normal course or for installation on a warship, is 18%. The applicant's request to withdraw the application was denied as the final hearing had already been conducted, and a detailed order was deemed necessary.

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