2025 (7) TMI 1178 - AAR - GST

Marine equipment and services for fishing vessels attract 5% GST under specific conditions per AAR Kerala ruling

AAR Kerala ruled on GST applicability for marine equipment and services. Marine engines (HSN 8408), spares (HSN 8409), and gearboxes (HSN 8483) attract 5% ... Applicability of the concessional GST rate of 5% on marine engines (HSN 8408), their spares (HSN 8409), and marine gearboxes (HSN 8483), when supplied as parts of fishing vessels - applicability of Serial No. 252 of Schedule I of N/N. 01/2017-Central Tax (Rate) dated 28.06.2017 - Classification of marine engine oil - whether it falls under the entry at Serial No. 164 of Schedule I of Notification No. 01/2017-Central Tax (Rate) dated 28.06.2017, as amended by Notification No. 14/2019-Central Tax (Rate) dated 30.09.2019? Applicability of the concessional GST rate of 5% on marine engines (HSN 8408), their spares (HSN 8409), and marine gearboxes (HSN 8483), when supplied as parts of fishing vessels - applicability of Serial No. 252 of Schedule I of N/N. 01/2017-Central Tax (Rate) dated 28.06.2017 -HELD THAT:- In terms of Note 2 to Section XVII of the First Schedule to the Customs Tariff Act, 1975, parts and accessories which are goods included in any of the headings of Chapters 84, 85 or 90 are in all cases to be classified in their respective headings, even if they are identifiable as being for goods of Section XVII (which includes Chapters 86 to 89, covering ships and vessels). Accordingly, marine diesel engines falling under HSN 8408 and their spare parts under HSN 8409 continue to be classified under Chapter 84 and do not shift to Chapter 89 merely by virtue of their end-use in vessels. However, for the purpose of determining the applicable rate of tax, Serial No. 252 of Schedule I of Notification No. 01/2017-Central Tax (Rate) dated 28.06.2017 provides for a concessional rate of GST at 5% for parts of goods of headings 8901, 8902, 8904, 8905, 8906 and 8907, irrespective of their classification under any chapter. In this context, CBIC Circular No. 52/26/2018-GST dated 09.08.2018 rightly affirms the concessional rate of GST at 5% for marine engines and their parts when supplied for use in fishing vessels, without altering their classification. Therefore, while the classification remains under Chapter 84, the concessional rate is applicable by virtue of the goods being supplied as parts of vessels falling under the specified headings. Therefore, if marine engines, their spare parts and marine gearboxes are supplied for use as part of a fishing vessel falling under Customs Tariff Heading 8902, they shall attract GST at the rate of 5% [2.5% CGST + 2.5% SGST], as per entry at Serial No. 252 of Schedule I of Notification No. 01/2017-Central Tax (Rate), dated 28.06.2017. However, if such goods are supplied for use other than as parts of goods falling under headings 8901, 8902, 8904, 8905, 8906, and 8907, then the GST rate applicable will be that which corresponds to the respective Customs Tariff Headings under which the goods are classified. SMMAINES should ensure clear documentation of the intended vessel usage to solidify its entitlement to the concession for both engines and spares. Applicability of 5% GST on maintenance and repair services of marine engines, marine gear, and other parts of fishing boats - HELD THAT:- The activity of rendering repair or maintenance services for fishing vessels/boats typically involves the supply of both goods/spare parts and services in conjunction, in a manner that is naturally bundled in the ordinary course of business. Therefore, such transactions qualify as a composite supply under GST. Unless the contract explicitly separates charges for goods and services, the entire transaction is treated as a composite supply. The principal supply in such cases is determined by the dominant element of the transaction. Accordingly, the predominant supply is that of services, i.e., repair or maintenance of fishing vessels. Hence, the activity is classifiable under Heading 9987, more specifically under 998714 - Maintenance and repair of transport machinery and equipment, as per the Scheme of Classification of Services notified as an annexure to Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017. Pursuant to Notification No. 02/2021-Central Tax (Rate) dated 02.06.2021, the tax rate applicable to such services is 5%. Classification of marine engine oil - whether it falls under the entry at Serial No. 164 of Schedule I of Notification No. 01/2017-Central Tax (Rate) dated 28.06.2017, as amended by Notification No. 14/2019-Central Tax (Rate) dated 30.09.2019? - HELD THAT:- The supply of marine fuel is recognized as essential for the operation of commercial marine transport and fishing activities. Therefore, the concessional GST rate of 5% is allowed as per the amendment made to the basic rate in Notification No. 01/2017-Central Tax (Rate), dated 28.06.2017, by Notification No. 14/2019-Central Tax (Rate), dated 30.09.2019. This benefit specifically applies to fuels such as furnace oil, high-speed diesel, or bunker fuel (classified under HSN Code 27101951), which are directly used in the propulsion of marine vessels. However, marine engine oil, generally classified under HSN Code 27101972, is lubricating oil used in internal combustion engines to reduce wear and friction, control temperature, and clean engine parts. It is not used for propulsion but serves as a maintenance consumable. Since the notification restricts the concessional rate only to fuel' and does not extend it to lubricants or other consumables, marine engine oil is not covered under this provision. Consequently, marine engine oil continues to attract GST at the standard rate of 18% under HSN Code 27101972. Therefore, it is concluded that the scope of Notification No. 14/2019 is strictly limited to fuels intended for direct propulsion and does not include auxiliary products like lubricants, even if they are used in the same vessel. ISSUES: Whether marine engines (HSN 84081093) and their spare parts (HSN 84099990) supplied for use as parts of fishing vessels (Customs Tariff Headings 8902, 8904, 8905, 8906, 8907) attract GST at concessional rate of 5% under Serial No. 252 of Schedule I of Notification No. 01/2017-Central Tax (Rate) dated 28.06.2017.Whether marine gearboxes (HSN 84834000) supplied as parts of fishing vessels under the above headings attract GST at 5% under the same notification.Applicability of 5% GST on maintenance and repair services of marine engines, gearboxes, and other parts of fishing boats as per Notification No. 02/2021-Central Tax (Rate) dated 02.06.2021.Whether the concessional GST rate of 5% applicable to marine fuel under Serial No. 164 of Schedule I of Notification No. 01/2017-Central Tax (Rate), as amended by Notification No. 14/2019-Central Tax (Rate), extends to marine engine oil. RULINGS / HOLDINGS: Marine engines and their spare parts supplied for use as parts of fishing vessels falling under Customs Tariff Headings 8902, 8904, 8905, 8906, and 8907 shall attract GST at the rate of 5% (2.5% CGST + 2.5% SGST) as per Serial No. 252 of Schedule I of Notification No. 01/2017-Central Tax (Rate) dated 28.06.2017. If supplied for other uses, GST applies as per their own classification.Marine gearboxes supplied as parts of goods under the specified headings attract GST at 5% under Serial No. 252 of Schedule I of the said Notification; otherwise, GST is charged according to their respective Customs Tariff classification.Maintenance and repair services of marine engines, gear, and other parts of fishing boats attract GST at 5% from 02.06.2021, pursuant to Notification No. 02/2021-Central Tax (Rate) dated 02.06.2021, treating such services as composite supplies with the principal supply being repair or maintenance services classified under Heading 9987.The concessional GST rate of 5% applicable to marine fuel under Serial No. 164 of Schedule I of Notification No. 01/2017-Central Tax (Rate), as amended, does not extend to marine engine oil, which is classified under HSN Code 27101972 and attracts GST at the standard rate of 18%. RATIONALE: The legal framework is based primarily on Notification No. 01/2017-Central Tax (Rate) dated 28.06.2017 and its Serial No. 252 of Schedule I, which provides a concessional GST rate of 5% for parts of goods under headings 8901, 8902, 8904, 8905, 8906, and 8907, irrespective of their classification under other chapters, confirmed by CBIC Circular No. 52/26/2018-GST dated 09.08.2018.Classification of marine diesel engines and spares remains under Chapter 84 as per Note 2 to Section XVII of the First Schedule to the Customs Tariff Act, 1975, but concessional GST applies due to their use as parts of fishing vessels.Notification No. 02/2021-Central Tax (Rate) dated 02.06.2021 amended the GST rate on maintenance and repair services of fishing vessels and their components to 5%, harmonizing the tax treatment of services and goods supplied together as composite supplies, simplifying compliance and eliminating previous rate disparities.The distinction between marine fuel and marine engine oil is based on their function: marine fuel is used for propulsion and thus eligible for concessional rate under amended Notification No. 14/2019, whereas marine engine oil is a lubricating oil, a consumable not used for propulsion, and therefore attracts the standard GST rate.