AAR rules warship spare parts qualify as vessel components under Entry 252, attracting 5% GST rate

The AAR, Andhra Pradesh ruled on GST classification of goods/spares used in warships/submarines under Entry 252 of Schedule-I of Notification 01/2017. The authority held that essential components like engines, gearboxes, propellers, diesel generators, and pumps qualify as "parts" of vessels under CTH 8901-8907, attracting 5% GST (2.5% SGST + 2.5% CGST). However, consumables, tools, and non-essential materials not integral to ship functioning were excluded from this classification. Most items in Annexure 2A qualified as essential parts, while specific items in various annexures were held chargeable at respective rates under different schedules.

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Issues Involved:
1. Classification of various inputs as "parts of goods of headings 8901, 8902, 8904, 8905, 8906, 8907" under Entry No. 252 of Schedule-I of Notification No. 01/2017-Central Tax (Rate) dated 28.06.2017.
2. Applicability of GST rate @ 5% on such inputs.

Detailed Analysis:

1. Classification of Inputs as "Parts of Goods of Headings 8901, 8902, 8904, 8905, 8906, 8907":

Applicant's Argument:
- The applicant, a Government of India Undertaking involved in shipbuilding, contends that various inputs such as equipment, materials, consumables, and tools are essential for manufacturing ships and should be classified as "parts" under Entry No. 252.
- They argue that these inputs are critical for making the ship seaworthy and are thus covered under the said entry, attracting GST @ 5%.
- The applicant references several legal precedents and definitions to support their claim that these items qualify as "parts" necessary for the ship's functionality.

Authority's Findings:
- The term "parts" is not defined in the GST law. Therefore, the general understanding and judicial interpretations are considered.
- Items like engines, gearboxes, propellers, diesel generators, etc., are deemed essential parts of a ship without which the ship cannot function.
- Additional equipment required by statutory compliance (e.g., life jackets, lifeboats) are not considered parts but rather additional equipment.
- Items for comfort (e.g., furniture, air-conditioners) are not essential parts.
- Consumables and tools, although necessary for shipbuilding, do not qualify as "parts" as per the general understanding and legal definitions.

Specific Inputs Analysis:
- Annexure 2A: Most items are essential parts except for items listed under Sl. Nos. 25, 28, 60, 72, 73, 90, 97, 111, 117, 118, 119, 123, and 124.
- Annexure 2A (i) & 2A (ii): Items listed are not considered essential parts.
- Annexure 2B & 2B (i): Materials and general items listed are consumables and not parts.
- Annexure 2C: Consumables listed are not considered parts.
- Annexure 2D & 2D (i): Tools listed are not considered parts.

2. Applicability of GST Rate @ 5%:

Applicant's Argument:
- The applicant argues that all inputs used in shipbuilding should attract a reduced GST rate of 5% as they qualify as parts of ships.

Authority's Findings:
- Only those goods that qualify as parts of goods under headings 8901, 8902, 8904, 8905, 8906, and 8907 will be chargeable @ 5% GST as per Sl. No. 252 of Schedule-I of Notification No. 01/2017-Central Tax (Rate) dated 28.06.2017.
- Items in Annexure 2A, except for specific exclusions, are considered essential parts and attract GST @ 5%.
- Items in Annexures 2A (i), 2A (ii), 2B, 2B (i), 2C, 2D, and 2D (i) do not qualify as parts and are chargeable at respective rates under respective schedules.

Ruling:
Question:
Whether the expression "parts of goods of headings 8901, 8902, 8904, 8905, 8906, 8907" in Entry No. 252 of Schedule-I of Notification No. 01/2017-Central Tax (Rate) dated 28.06.2017 will include all the inputs including equipment, material, consumables, tools etc., purchased domestically or imported for use in the manufacture of shipsRs.

Answer:
Goods that meet the specific requirements of being parts for the classified headings 8901, 8902, 8904, 8905, 8906, and 8907 will be chargeable @ 5% GST as per Sl. No. 252 of Schedule-I of Notification No. 01/2017-Central Tax (Rate) dated 28.06.2017. Specifically:
- Items in Annexure 2A, except for those listed under Sl. Nos. 25, 28, 60, 72, 73, 90, 97, 111, 117, 118, 119, 123, and 124, are considered essential parts and attract GST @ 5%.
- Items in Annexures 2A (i), 2A (ii), 2B, 2B (i), 2C, 2D, and 2D (i) are chargeable at respective rates under respective schedules and do not come under Sl. No. 252 of Schedule-I of Notification No. 01/2017-Central Tax (Rate) dated 28.06.2017.

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