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of <h1>Marine engines for fishing vessels qualify for 5% GST under Heading 8902 instead of 28% under Heading 8407</h1> Kerala AAR ruled that marine engines classified under Customs Tariff Heading 8407 normally attract 28% GST, but when supplied as parts of fishing vessels ... Taxability on the materials and spare parts intended to be used for the purpose of fishing activities - applicability of GST rate of 5% on marine engines of Heading 8407 and 8408 and its spare parts, being supplied for use as parts of fishing vessel of heading 8902 as per the entry at Serial No.252 of Schedule I of N/N. 1/2017 CT (R) dated 28-06-2017 - HELD THAT:- It is an admitted fact that the marine engines imported by the applicant are classified under Customs Tariff Heading 8407 21 00 - Outboard motors - Marine Propulsion engines - Spark-ignition reciprocating or rotary internal combustion piston engines and attracts GST at the rate of 28% as per entry at SI No. 114 of Schedule IV of Notification No. 01/2017 Central Tax (Rate) dated 28.06.2017. Fishing vessels, factory ships and other vessels for processing or preserving fishery products fall under Customs Tariff Heading 8902 and liable to GST at the rate of 5% as per entry at SI No. 247 of Schedule I of Notification No. 01/2017 Central Tax (Rate) dated 28.06.2017. However, as per entry in Sl. No. 252 of Schedule I of Notification No. 01/2017 Central Tax (Rate) dated 28.06.2017, parts of goods of headings 8901, 8902, 8904, 8905, 8906, 8907 falling under any chapter of the Customs Tariff attracts GST at the rate of 5 %. Therefore, if the marine engines and its spare parts are supplied for use as part of a fishing vessel falling under Customs Tariff Heading 8902, then the marine engine and its spare parts as part of the fishing vessel will only attract GST at the rate of 5% as per the entry at Sl.No.252 of Schedule I of Notification No. 01/2017 Central Tax (Rate) dated 28.06.2017. If the marine engines and its spare parts are supplied for use as part of a fishing vessel falling under Customs Tariff Heading 8902, then it will attract GST at the rate of 5% as per entry at SI No. 252 of Schedule I of N/N. 01/2017 Central Tax (Rate) dated 28.06.2017. However, if it is supplied for use other than as parts of goods of headings 8901, 8902, 8904, 8905, 8906 and 8907; GST at the rate applicable under the respective Customs Tariff Headings in which they are classified will apply. Applicability of GST on supply of materials and service for maintenance or repair works of fishing vessels of Heading 8902, wherein supply of spare parts and service charges is involved - HELD THAT:- The activity of rendering, repair or maintenance services of fishing vessels / boats etc involve supply of both goods / spare parts and services in conjunction and as naturally bundled in the ordinary course of business and is hence a composite supply. Unless the contract specifies that the goods and services supplied are to be separately charged, the nature of supply remains a composite supply - As per N/N. 02/2021-Central Tax (Rate) dated 02.06.2021, the tax rate for the said services has been notified at the rate of 5%, effective from 02.06.2021. This is in accordance with the insertion of entry '(ib) Maintenance, repair, or overhaul services for ships and other vessels, including their engines and other components or parts' under Sl. No. 25 of N/N. 11/2017-Central Tax (Rate) dated 28.06.2017, as amended from time to time. Prior to this amendment, the aforementioned services were classified under Sl. No. 25(ii) of N/N. 11/2017-Central Tax (Rate) and were subject to a tax rate of 18%. Whenever there is a change in the rate of tax for the supply of goods or services, Section 14 of the CGST Act determines the time of supply, which is crucial for applying the appropriate tax rate. Accordingly, if the time of supply of said services falls prior to 2nd June, 2021, it would be taxable at the rate of 18%. However, if the time of supply falls on or after 2nd June 2021, the services will be taxable at the rate of 5%. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Authority for Advance Ruling (AAR) are:Whether marine engines classified under Customs Tariff Heading 8407, when supplied for use in fishing vessels, factory ships, and other vessels for processing or preserving fishery products classified under Heading 8902, can be treated as parts of goods of Heading 8902 and thereby attract a concessional GST rate of 5% as per Serial No. 252 of Schedule I of Notification No. 01/2017 Central Tax (Rate) dated 28.06.2017.Whether spare parts such as Gear Box (heading 8483), Carburetor (heading 8487), and similar components, when used as part of fishing vessels under Heading 8902, attract GST at the concessional rate of 5% under the same notification entry.Whether marine engines under headings 8407 and 8408 supplied for use in vessels classified under headings 8901, 8904, 8905, 8906, and 8907 can be treated as parts of those vessels and thereby attract the concessional GST rate of 5% under Serial No. 252 of Schedule I of Notification No. 01/2017 Central Tax (Rate).The applicability of GST on supply of materials and service charges related to maintenance or repair works of fishing vessels under Heading 8902, particularly whether the composite supply of goods (spare parts) and services (repair/maintenance) should attract GST at 5% without considering individual tax rates of goods and services.2. ISSUE-WISE DETAILED ANALYSISIssue 1, 2 and 3: Applicability of concessional GST rate of 5% on marine engines and spare parts supplied for use in fishing vessels and other related vesselsRelevant legal framework and precedents: The provisions under the Central Goods and Services Tax Act, 2017 (CGST Act) and the Kerala State Goods and Services Tax Act, 2017 (KSGST Act) are applicable. Notification No. 01/2017 Central Tax (Rate) dated 28.06.2017, specifically Serial Nos. 247 and 252 of Schedule I, prescribe GST rates for fishing vessels and parts thereof. CBIC Circular No. 52/26/2018-GST dated 09.08.2018 provides clarifications on the applicability of GST rates on marine engines.Court's interpretation and reasoning: The AAR examined the classification of marine engines under Customs Tariff Heading 8407 21 00 (outboard motors) which normally attract GST at 28% as per entry at Serial No. 114 of Schedule IV of Notification No. 01/2017. Fishing vessels and related vessels fall under Heading 8902 and attract GST at 5% as per Serial No. 247 of Schedule I. Serial No. 252 of Schedule I extends the 5% GST rate to parts of goods under headings 8901, 8902, 8904, 8905, 8906, and 8907.The AAR reasoned that when marine engines and spare parts are supplied specifically for use as part of fishing vessels under Heading 8902, these should be treated as parts of goods under Heading 8902 and thus attract the concessional GST rate of 5%. This interpretation is supported by the CBIC Circular which explicitly clarifies that marine engines for fishing vessels fall under tariff item 8408 10 93 and attract GST at 5% under Serial No. 252.Key evidence and findings: The applicant's submissions, relevant tariff classifications, and the CBIC Circular were key to the ruling. The absence of any conflicting proceedings or disputes further supported the clarity of the issue.Application of law to facts: The marine engines and spare parts supplied by the applicant, when intended for use as parts of fishing vessels under Heading 8902, are liable to GST at 5%. If supplied for other uses, the applicable GST rate is determined by the respective Customs Tariff Heading.Treatment of competing arguments: The applicant's divergent view on the tax rate for spare parts was considered but rejected in light of the clear statutory notification and CBIC Circular. The jurisdictional officer confirmed no pending proceedings, indicating no dispute on classification or rate.Conclusions: Marine engines and spare parts supplied for use as part of fishing vessels under Heading 8902 attract GST at 5%. For other uses, the standard GST rates under respective headings apply.Issue 4: Applicability of GST on supply of materials and service charges for repair and maintenance of fishing vesselsRelevant legal framework and precedents: Section 97(1) of the CGST Act (advance ruling provision), Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017 (classification of services), Notification No. 02/2021-Central Tax (Rate) dated 02.06.2021 (amended tax rates), and Section 14 of the CGST Act (time of supply when tax rates change).Court's interpretation and reasoning: Repair or maintenance services of fishing vessels constitute composite supplies involving both goods (spare parts) and services. The dominant element determines the principal supply. Since the goods supplied are ancillary to the repair/maintenance service, the principal supply is the service component.The service is classifiable under Heading 9987 - Maintenance and repair of transport machinery and equipment. The tax rate on such services was 18% prior to 02.06.2021 and reduced to 5% thereafter as per the amendment in Notification No. 02/2021.Section 14 of the CGST Act governs the time of supply when the tax rate changes, ensuring the correct rate is applied based on invoice and payment dates relative to the date of rate change.Key evidence and findings: The amendment notification and Section 14 provisions were pivotal. The composite nature of the supply and the dominant element test were applied to classify the supply appropriately.Application of law to facts: Repair and maintenance services of fishing vessels supplied along with spare parts attract GST at 18% if the time of supply is before 02.06.2021 and 5% if on or after that date, as determined under Section 14.Treatment of competing arguments: The applicant's contention for a uniform 5% rate on both goods and services was considered but the ruling emphasized the composite supply principle and the dominant element test, rejecting a blanket 5% rate without regard to the time of supply and classification.Conclusions: GST on repair and maintenance of fishing vessels is governed by the composite supply principle. The applicable tax rate depends on the time of supply relative to the rate change on 02.06.2021, being 18% before and 5% thereafter.3. SIGNIFICANT HOLDINGS'The marine engines and their spare parts, when supplied for use as part of a fishing vessel classified under Customs Tariff Heading 8902, will be subject to GST at the rate of 5% (2.5% CGST + 2.5% SGST) as per Sl. No. 252 of Schedule I of Notification No. 01/2017 Central Tax (Rate) dated 28.06.2017. However, if these items are supplied for use in any application other than as parts of goods classified under headings 8901, 8902, 8904, 8905, 8906, and 8907, the applicable GST rate will be determined based on the relevant Customs Tariff Heading under which they are classified.''The activity of rendering repair or maintenance services of fishing vessels involves supply of both goods and services in conjunction and as naturally bundled in the ordinary course of business and is hence a composite supply. The principal supply depends on the dominant element of the composite supply. If the supply of goods/spare parts is ancillary to the repair or maintenance, the predominant element is the service, classifiable under Heading 9987.''If the time of supply of said services falls prior to 2nd June, 2021, it would be taxable at the rate of 18% (9% CGST + 9% SGST). However, if the time of supply falls on or after 2nd June 2021, the services will be taxable at the rate of 5% (2.5% CGST + 2.5% SGST) as per Notification No. 02/2021-Central Tax (Rate) dated 02.06.2021.'Core principles established include the application of concessional GST rates on marine engines and spare parts when supplied as parts of fishing vessels, the correct classification of composite supplies involving repair services and spare parts, and the application of the time of supply rules to determine applicable tax rates when rates change.Final determinations affirm that concessional GST rates apply strictly when goods are supplied as parts of specified vessels, and that repair and maintenance services attract GST based on the dominant element and the timing of supply relative to tax rate amendments.
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