Naval vessel upgradation services don't qualify as maintenance repair overhaul under Entry 25(ib) Notification 11/2017 amended by 02/2021

AAR Andhra Pradesh ruled that the applicant's services to a naval vessel do not qualify as maintenance, repair or overhaul services under Entry 25(ib) of Notification 11/2017 Central Tax (Rate) as amended by Notification 02/2021. The services were characterized as upgradation/renovation works constituting a works contract involving supply and installation of goods rather than conventional MRO services. The applicant cannot avail concessional tax rates or full input tax credit as the work primarily involves upgradation and installation activities without a specific maintenance agreement with the Naval Dockyard.

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Issues Involved:
1. Applicability of Entry 25 (ib) of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 as amended by Notification No. 02/2021-Central Tax (Rate) dated 02.06.2021 to the tender.
2. Eligibility to avail full Input Tax Credit in respect of purchases made towards completion of works mentioned in the tender.

Issue-wise Detailed Analysis:

1. Applicability of Entry 25 (ib) of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 as amended by Notification No. 02/2021-Central Tax (Rate) dated 02.06.2021 to the tender:

The applicant, M/s Visakha Trades, engaged in the business of renting immovable property, was awarded a contract by The Admiral Superintendent, Naval Dockyard, Visakhapatnam for Habitability upgradation works on board INS Ranveer. The applicant sought clarity on whether the concessional GST rate of 5% (CGST 2.5% + SGST 2.5%) under Entry 25 (ib) of Notification No. 11/2017-Central Tax (Rate) as amended by Notification No. 02/2021-Central Tax (Rate) is applicable to their contract.

The key issue was whether the services provided by the applicant qualify as "Maintenance, repair or overhaul services" (MRO services) in respect of ships and vessels as per the amended notification. The notification introduced a concessional GST rate for MRO services, but the terms 'maintenance', 'repair', and 'overhaul' are not defined under GST law. Dictionary meanings of these terms indicate that maintenance refers to routine, preventive care; repairs involve fixing broken parts; and overhauling involves a comprehensive examination and restoration.

Upon examination, it was observed that the applicant's contract did not involve a specific maintenance agreement with the Naval Dockyard. The services primarily involved supply and installation of various items such as fittings, furniture, and fixtures, aligning more with a works contract involving supply of goods along with installation services rather than pure MRO services. The absence of a comprehensive maintenance agreement and the nature of the contract being more aligned with upgradation or renovation works led to the conclusion that the services provided do not primarily constitute maintenance, repair, or overhaul in the conventional sense.

Thus, it was ruled that Entry 25 (ib) of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 as amended by Notification No. 02/2021-Central Tax (Rate) dated 02.06.2021 is not applicable to the tender in question. The applicant is liable to pay tax at the applicable rates under GST law.

2. Eligibility to avail full Input Tax Credit in respect of purchases made towards completion of works mentioned in the tender:

Since the ruling determined that the services provided by the applicant do not fall under the scope of Entry 25 (ib) of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 as amended by Notification No. 02/2021-Central Tax (Rate) dated 02.06.2021, the question of availing full Input Tax Credit does not arise.

RULING:

Based on the above discussions and findings, the authority ruled as follows:

Question 1: Is Entry 25 (ib) of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 as amended by Notification No. 02/2021-Central Tax (Rate) dated 02.06.2021 applicable to the tenderRs.
Answer: No, Entry 25 (ib) of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 as amended by Notification No. 02/2021-Central Tax (Rate) dated 02.06.2021 is not applicable to the tender in question. The applicant is liable to pay tax at the applicable rates under GST law.

Question 2: Can the applicant avail full Input Tax Credit in respect of purchases made towards completion of works mentioned in the tenderRs.
Answer: Does not arise.

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