Marine vessel parts get 5% GST when supplied as vessel components, 18% as standalone items

AAR Kerala ruled on GST classification and rates for marine vessel parts. Marine propellers, rudder sets, stern tube sets, SS propeller shafts, and MS shafts attract 18% GST under their respective tariff headings. However, when supplied as parts of vessels under headings 8901-8907, these items qualify for 5% GST rate per entry 252 of Schedule I. Cutlass rubber bushes are classified under CTH 4016 99 60 at 18% GST, but attract 5% when used as vessel parts. Warranty replacements without additional consideration don't constitute taxable supply. Input tax credit on raw materials remains available despite lower output tax rates.

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Issues:
1. Tax rate of marine propellers, stem tube set, rudder set, SS propeller shaft, MS shaft for couplings, and cutlass rubber bushes.
2. Classification of parts of fishing/floating vessels under HSN 8902.
3. Whether replacement of parts during warranty period constitutes a supply under GST.
4. Eligibility to avail 18% input tax credit on purchase of raw materials.
5. HSN code classification of cutlass rubber bush.

Analysis:

Issue 1:
The applicant contended that marine propellers, stem tube sets, rudder sets, SS propeller shafts, MS shafts for couplings, and cutlass rubber bushes used in fishing/floating vessels should be taxed at 5% under Entry 252 of Schedule I of Notification No. 01/2017-CT (Rate). The Authority found that if these goods are supplied for use as parts of vessels under specific Customs Tariff Headings, they indeed attract GST at 5%.

Issue 2:
Regarding the classification of parts of fishing/floating vessels under HSN 8902, the Authority ruled that goods supplied as parts of such vessels are taxable at 5% under Entry 252 of Schedule I of Notification No. 01/2017 Central Tax (Rate).

Issue 3:
The question of whether replacement of parts during the warranty period constitutes a supply under GST was addressed. The ruling clarified that replacement of parts without consideration during the warranty period is not subject to GST, as it is considered incidental to the original supply.

Issue 4:
In terms of availing 18% input tax credit on the purchase of raw materials when the manufactured products are taxed at 5%, the Authority stated that the applicant is eligible for the credit of tax paid on inputs, subject to the prescribed conditions and limitations under the CGST Act, 2017.

Issue 5:
Lastly, the classification of the cutlass rubber bush under the Customs Tariff was discussed. The ruling specified that the cutlass rubber bush falls under Heading 4016 99 60 of the Customs Tariff Act, 1975, and is liable to GST at 18% as per the relevant entry in the notification.

In conclusion, the Authority provided detailed rulings on each issue raised by the applicant, addressing tax rates, classification, warranty replacements, input tax credit eligibility, and HSN code classification of specific products, ensuring clarity on the GST implications for the manufacturing and supply activities in question.

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